The Estée Lauder Companies Inc. (EL) Earnings Call Transcript & Summary

Perfect. So hello, good morning, everybody, and thank you for joining us. Let's get started. Delighted to welcome Fabrizio Freda, who now needs very little introduction as the CEO of Estee Lauder. We also have alongside Fabrizio, Stephane de la Faverie, who has an incredibly long job title, but Executive Group President for the Estee Lauder brand and a number of the big fragrance brands in the Estee portfolio as well. So Fabrizio, Stephane, thank you for joining us.

Thank you. Happy to be here. Good morning.

I think let's start in Asia. It's been -- a lot of the controversy over the course of the past 6 months. Domestic market now back to growth in China. But Asia travel retail, I think, remains volatile from the data that we can see in large part due to inventories. So could I start by asking you, how are you managing the Chinese opportunity and the Asian opportunity amid that complexity? And how are you thinking about the Chinese consumer more broadly? Has anything structurally changed about the longer-term attractiveness of the Chinese beauty market.

So no, I don't think anything has changed on the long-term attractiveness of the China market. I strongly believe that Chinese market is and will remain one of the most attractive single market. And the Chinese consumers independently from how the channels are working is -- will be the most attractive consumer for prestige beauty market in the future as well. So first of all, why this is the case? Is, obviously, in this post-covid environment, the China is recovering but is recovering slower than originally expected as we discussed in the last quarter. And obviously, the biggest impact for us has been in the travel retail inventory issue that we discussed in depth during the last quarterly call. But the recovery has started, and the recovery will continue gradually, we believe in the long term. The key fundamentals are intact, the middle class growth, the per capita consumption, the ability of online distribution reaching every consumers in China, the ones in a productive way. The development of Hainan as a center of duty-free that will continue in the future. I can expand on this. And most importantly, the interest in high-quality products and the expansion of other categories, as you probably know, China has been for many, many years focused on skin care, is a huge skin care market, but now fragrances are expanding. For example, fragrances are today 10% of the business in China versus 35% in a market like the United States. And then hair care is also expanding in prestige in a big way and makeup has still a lot of growth in front to go. So there is all the elements of new expansion, distribution, category penetration, consumer development, usage per person, middle-class growth are all completely intact. So the real question is how we are tackling this opportunity? How -- what Estée Lauder is doing? First of all, what are the business opportunities. We don't have all our brands in China yet. For example, we just have announced that we launched Le Labo, which is our fastest-growing fragrance brand in China. And the first days of the new stores are outstanding. And I'm sure Stephane later, since his responsibility will say a few words about that. We have launched new Healthcare Aveda in China just a few months ago. So we have the portfolio that still can be developed, plus our top brands, particularly Lauder and La Mer, which are definitely very strong in skin care in the core category are doing still very well. They are in the top brands in terms of brand love, in terms of brand respect, in terms of desirability in all our measures, these 2 brands are still in the top brands in China overall and growing, as we announced last quarter, they are growing in Mainland China in domestic business very, very well. So the portfolio of brands is the first thing we are continuing to expand and improve to manage this. Second, distribution. We are in 145 cities with our most distributed brand, which is Estée Lauder. We have a lot of brick-and-mortar distribution still to go. We sell in this moment, 650 cities, the difference between [ 140 ] and 650 is online sales or consumers that buy from travel retails when they travel. So it's a completely huge opportunity in brick-and-mortar expansion in the future. And this will happen. However, in China, brick-and-mortar distribution is much more productive than in any other place because in the rest of the world, particularly in the West, the brick-and-mortar distribution came before the online expansion. So the online growth was faster than the average market and so took away a lot of the productivity of brick-and-mortar. In China, it's just the other way around. Online came first and brick-and-mortar get open only where it is very productive. Because of this, the overall productivity of the market will remain one of the most interesting of the world, and we are doing exactly that. Imagine that we are studying our online sales where there is a certain level of productivity in a certain city on certain brands, we start opening doors in that city. So online drives brick-and-mortar. The other thing that we obviously can continue to do, we have a great online penetration, but online continues to be very strong. Most recently, we have started accelerating on the win in China, which is doing extremely well in China, like in many other parts of the world. And -- but in this case, it's not only social media of TikTok is doing e-commerce. So it's social commerce which in China is ahead of any other part of the world and social commerce expansion is the new trend. It's the new channel that is happening. And for sure, in China is happening very strongly but we believe over time will happen also in the rest of the world. And so those are the main thing. The other thing that we are doing -- we have done is how do we structure our business. First of all, we have, in the last months strongly improved the coordination between our domestic operation and our China travel retail operation and coordinating the launch of brands, the activity, the activity of promotionality that goes in the market, coordinating the consumer and try to connect the information on the consumer wherever this is allowed technically and obviously by the law. And so making sure we have coordinated because the -- what happened during COVID is that the multichannel situation in China, the channels started competing with each other more. And so we are taking to the next level, the level of coordination between channels. The second thing that we have done is we have opened in Shanghai. More recently, I was in China end March, early April last time. And we have opened our Shanghai labs. It's the new R&D center, is one of the most modern we have in the world. And this lab has the key task to accelerate innovation, specifically for Asia and for the Chinese consumers and to do this innovation with tests which are done -- clinical tests which are done in China for China, and also to make sure that we have the right claims, the right ability to develop new products, which are specifically local with local ingredients, and all the rest of the activities. So we call the center, China for China and China for the world, meaning that we are also innovating in China, particularly in the area of skin care for the world because in reality, the consumer is even more demanding in China. Because this is a consumer which is -- the ideal consumer to have as a partner also for global innovation. And so the R&D center is our latest investment in China in this area. And then we have done very important investment in the supply chain. Maybe we'll talk this later, but our -- the length of our supply chain is one of the reason why we had this inventory issue in travel retail, and we are addressing it. We have built a factory in Japan that will serve Asia as a total, they will open towards the end of this calendar year. We have increased the number of distribution centers in China, particularly, we have opened a new distribution [ in Guangzhou ] to diversify from the fact that we had our most efficient, biggest distribution center was in Shanghai that, as you know, was closed, unfortunately, during the close up, the shutdown of Shanghai last -- a year ago. And then, we are opening a new distribution center also in Hainan to serve all the Hainan development in the correct way. And so this new distribution, particularly the factory will regionalize our supply chain much better. Now if you look at our last years, we have -- in the last years, we have developed Asia enormously. The business has doubled, more than doubled in the last several years. And this business was served from the West. Our supply chain structure was built when our business was 90% in the West. And now our business is more 1/3, 1/3, 1/3. And because of this, we have to regionalize our supply chain also in Asia. So we have done this investment. We have not been doing this recently. We started several years ago, but now we are ready. And so the future of development will also give us the opportunity to serve the China development that I was describing with the right supply chain structure for it. So in summary, China is going to be a great market. Estée Lauder has still a lot of opportunities within China and the organization of the company and the capabilities of the company are now better fit the acceleration of Asia in the future.

Perfect, very comprehensive. I want to segue on -- you spoke about the better coordination of the business within China, travel retail, talking to Mainland. And maybe a question for Stephane specifically. So one of the responsibilities, I think, in your new expanded role that you moved to last year, is described as integrated planning and end-to-end business operations. Hope I got that right? From the outside, business planning and forecasting has been pretty difficult to say the least over the past 12 months. So my question is, what have you and the business learned from these difficulties and as you think about these relatively new responsibilities for you individually, how are you planning to improve that business planning process going forward? And what are some of the learnings you might take from previous roles in your career?

Thank you for the question, and good morning. I think like Fabrizio said, we are in the process. We've already done some investment like now, obviously, over several years to improve our forecasting and our business planning overall. When you think about it and you look at over the last quarter, Fabrizio mentioned it at the earnings calls, we grew 10% outside of travel retail globally. And I think a lot of that has been part of like the -- some of the improvement that we've done in business planning. When you think about it, we did some investment over 2 years ago with a business planning tool called o9, many -- some of you may know it, it's actually known as one of the best business planning tool that is in the market today, which has allowed us to really significantly improve our visibility on planning overall. When you look at our Western market today where we have the most advanced development of this tool, we've improved this year by 25% our forecast accuracy. And I think when you look at the growth and the momentum that we have in our Western market, where especially in Europe, we are gaining significant market share in many markets, many of it is part of the improvement that we've put in the business planning. Today, we are learning AI and learning machine learning forecasting algorithm that helps us to really predict the business in a much better way going forward. And the good news is that actually the model is getting smarter and smarter as we feed more information as there is more re-stabilization of the market, especially in some areas of the world. The work that we need to do is obviously to improve our forecasting and our scenario planning in channels like Travel Retail, which as Fabrizio described, has been highly affected by the volatility. But all of that is going to normalize over time. So when you think about the investment on business planning, the tool that we've done, plus the investment in the distribution centers around the world, like in China, like in Island that is coming, plus the regionalization and optimization of our supply network with Sakura. All the sudden, you're starting to see that all the tools are now in place from an IT standpoint and from a capability standpoint to be much closer to the consumer and to better predict the business. Now that being said, all of that are capabilities and IT, what we have done also internally is to improve also our organization. And we've put in place an integrated business planning organization, where we brought new talent internally, but also skill our existing talent to be able to use machine learning and AI to really predict the business. So today, I think we're in a much better place to plan the business going forward and to anticipate where the business is going to go and which allow us to deploy supply, to steer the inventory in the right place where the business is needed. And that's basically what the future is for us. So all these tools are in place. The learnings are in place. Some regions like the Western market are deploying it faster than others. Obviously, the volatility that is -- that has happened in Travel Retail, has slowed down a little bit our ability to plan that. But obviously, this is where now with better scenario planning, we are going to be able to apply what we've done in the rest of the world, also to China like Travel Retail. So we're very confident that actually all of that will give us much better visibility and stability on our business going forward.

Perfect. Let's talk about that Travel Retail volatility a little bit. A lot of the problem, as you spoke about on your third quarter results has been retail inventories, which have been very volatile. Can you discuss the specific strategy to manage that volatility of retail inventories and manage that Asia Travel Retail business going forward.

So the question is going forward. So in -- the best thing we can do going forward -- now the inventories, as we discussed in the last quarter are high because the inventories are high and the recovery of the market has been lower than anticipated. And to be clear, again, I explained it in the quarterly call a lot, but maybe let's make a moment or pause on what happened. What happened is that our retailers and us bet on a much faster recovery from COVID in Travel Retail channel. And so the inventory we're ready for that. Then the issue of the COVID policies continued, the -- and when the COVID policies finished, there was big waves of COVID that arrived and then there was the recovery, but the recovery didn't start with a hockey stick like in America and in Europe, but went much more gradually. And again, we can discuss the reason for that, but that's the reality. So the inventories has been very high, which means the repurchase of the retailers has been lower. Also, keep in mind that the retailers had a certain amount -- certain goals of how much stock they wanted to carry when they were forecasting a fast recovery and how many months they want to carry now is much lower because they now expect a longer-term recovery and not a hockey stick recovery. So it's really 3 things impacting at the same time. First, the fact that COVID was there for longer, so no traffic, then the recovery start, but start much lower than forecasted and third, the retailer's expectation on the amount of stock they are willing to carry going down, all of these at the same time. So a big hit and that's why there is the high inventory. And as we said in the quarterly call, we expect this inventory to take more time to be absorbed. We said about for the rest of this calendar year will gradually go down. And then as of the end of this calendar year, we should go back to having retail and net and sell-out, sell-in being aligned and then growing together at the same speed. So that's what we explained in the quarterly call, and that's what we are working on. So your question is in that situation, what can we do to address this opportunity in the best [ way. ] Obviously, I wanted to explain again the reason because it's obvious that the stronger will be the retail and the sellout in the next months, the faster this inventory will get absorbed. So our first priority is to accelerate the sell-out to improve the retail. So we have gone back investing and during COVID many investments were taken down. As an example, less people in stores with no traffic, less consultants in stores, less supporting advertising in, obviously, in Europe but also in the downtown stores. So less investment. We are in the process of rebuilding all our personnel in store. We are in the process of going back to advertising in the key travel retail channels, particularly Hainan and the various airports, et cetera. We're in the process of reactivating promotionality, but not pricing promotion, I mean, activities, like, for example, big activity with celebrities that we do in Hainan very frequently and big activities where certain brands are activated with unique concept, unique ideas. Then we are also reactivating the innovation that was slowed down in absence of traffic. I think you don't launch mega products in the middle of no traffic at all because of COVID in a Travel Retail channel. So we are reactivating all the launches and new innovations that obviously generate movements for the brands. So we are, in this moment, focused on sell-out reactivation. And that's not only true in Hainan and in China Travel Retail, it's true in Travel Retail across the world. And as we said in the quarterly call, Europe, U.S., Latin America and also Asia ex China are doing very well. Travel Retail in the world is coming back roaring, frankly, particularly in Europe and particularly Europe in the fragrance category is actually the best moment in many, many years that the Travel Retail had. So however, the biggest amount of travel retail volume is in Asia and is in China Travel Retail. So the key priority is to reactivate sell-out growth in this channel. To be clear, because of the inventory already in the quarter that we just announced, Travel Retail was just single digit negative in retail. It was not as negative as the net because of the inventory. So the acceleration is expected. We said in the quarter that we're already in quarter 4. So in April, June, we're expecting to go back to retail growth of double-digit in Travel Retail and that's still the expectation. So Travel Retail sales sell-out is accelerating, is expected to continue to accelerate. The net will follow when the inventory will go down. So that's the situation in Travel Retail. The last thing to -- is Travel Retail remain a very big opportunity. I would like to really -- I hope it's clear that this is a temporary inventory issue dictated by the volatility that you in your question were summarizing. But Travel Retail remain a channel where a lot of trial happens. More than 50% of our consumers tried the product for the first time in Travel Retail. So they are really a beautiful -- is basically non-expensive sampling and actually very profitable sampling and creation of new consumers. Is a channel where the sense of luxury, so the full experience of the brands is super well expressed. I'm sure you have seen some great airports or if you have been in Hainan, you have seen Hainan, our brands are expressed in a fantastic way, and they are expressing all their services on top of the quality of the product, their innovation and their aesthetics images. So it's a great channel for consumer development in the long term and is a profitable channel. So Travel Retail has a great future. Also, you know that Travel Retail is driven by traffic, but it's also driven a lot by conversion. And so the traffic is coming back everywhere in the world, in some cases, already ahead of '19 in some regions, in some areas. The conversion is coming back in Europe, for example, in America, in China has been slower to come back the conversion, and that's one of the issues. But the conversion in the long term is actually the biggest opportunity. If you think that in 2019, only 15% on average of people traveling would buy anything and now that there is in Korea and in China, in Hainan, the pretail opportunity, meaning that you can buy online before going to the airport. This double conversion in normal situations. So the opportunity of the future is that traffic will go back and will continue to grow and conversion will be better than the pre-COVID period for the future of travel retail. So is a temporary inventory issue and still a great channel for the long term in our opinion.

Okay. One final area, I think, that we should touch on in Travel Retail and Asia Travel Retail, but in particular, is more related to Korea TR versus Hainan, I think. And the question is about Daigou resellers -- Chinese resellers for those of you not familiar. And my question is, do you see the Daigou trade as a problem for your business?

No, if you mean if problem for the image of our brands or for our long-term brand equities. Frankly, Daigou is -- always exist, also before COVID, before 2019. The Daigou business went from being also a personal seller, so somebody that in a Tier 5 city in China will take an aeroplane, go in the building, ask to the people in the building what you want and then go there, buy it, come back and sell it with a little margin in the building. There were 100 thousands of people working in this way in the country, is almost personal selling. So I would -- this part was really no damage. The part of a more organized Daigou business that then discounts online and things like that, that's obviously has been more painful from the point of view of promotionality and accelerating the promotionality in the market. However, as you know, this was generated during COVID because governments have done legislations that would allow this to protect these big retailers that otherwise would have gone bankrupt during a period where there was no traffic. So this legislature were temporary. And so this kind of more aggressive, massive Daigou business has been probably temporary. By the way, we never sell to Daigou. We sell to our retailer. Our retailer may have decided, particularly when supported by legislation to sell to Daigou's. So this phenomenon is going down. First of all, because it's less interesting. When traffic is back, regular traffic. Regular traffic is much more profitable for everyone, particularly for the retailers that do this business. So Daigou business, the most aggressive Daigou business will go down as traffic will come back. And we will anyway pay much more attention to the quantities that when done in these places can create the promotionalities, that is the negative part. However, we don't believe there has been any impact on our brands. If you think the growth in Asia in the last years, and as I said, Daigou started several years ago, has been 70%. Our brands particularly La Mer and Lauder are in the top of the desirability of the Chinese consumers still now. We check this every month, by the way. And so they are among the most desirable brands. We call it brand love. It's the study that we do every month. Our brand love is strong and is going up in most of the brands. The promotionality is getting already better in the market. Now we will see what happened with the 18th of June, which is coming, which is normally not only this year, it's normally a more intense promotional period. We'll see what is the level of intensity that will be developed in this period, but promotionality is going down. It's going down because everyone has the interest to serve the real travelers and to serve the consumers in the current way and to rebuild the margin that during COVID was compressed by this intention to survive some retailers during the period where there were no real travelers. And so this is coming back. I believe our brands are very, very strong. And our commercial operation is now being reinforced by the new coordination between Travel Retail and domestic China that will better coordinate the promotionalities around all the channels. And I believe that the amount of exposure to Daigou is going to be much reduced by the new reality of the legislations and the new realities of the retailers' decisions on how they want to operate.

Very clear. I think let's move on from Asia, and I'd like to spend a little bit of time talking about your U.S. business. So just a bit of background. I think in fiscal '22, the U.S. is still around 20% of your business. It's still pretty important, but down significantly from, I think, 10 years ago, that was around 50% and it's been something of a challenging business, I think, over the long term. I think it used to be the case that the big problem was driven by department stores where your business over indexes but clearly, they're much smaller today, those department stores than they were 10 years ago. So my question is, as you think about the more recent past and going forward, what have the challenges been in fiscal '22 and fiscal '23 for that U.S. business? Why are you losing share in the U.S.? And what is the strategy to compete more effectively in the U.S. market?

Yes. First of all, I want to say when you say the last 10 years has been reduced the percentage of U.S. business, the U.S. business last year has been growing. It still, as you said, losing market share but growing. It's the fact that the rest of the global business has been growing much faster. So the reduction of the percentage is not the result of lack of growth or decline, is the result of growing much less than the rest of the business, particularly much less than Asia. There's been a dramatic growth in the last 10 years. And so that's the profile. So now the profile of our business is more in line with the market in reality. So U.S., Europe, Asia are more or less 1/3, 1/3, 1/3. So is the percentage of business reflect the markets and the market potential in the future. So first of all, the composition of our global business, including the United States is now better positioned to attack all the growth opportunity in the future. Now as far as the United States concerned, we have been historically having a very big market share in department stores and being the company that was the most exposed to department stores. As you said in your question, this obviously has been an issue the moment where the department store channel started declining and the other channel growing and obviously, you can see mathematically the channels that we are growing, we have channels in which our brands have lower market share and the channel that was declining is where our brands have the biggest market share. So there's been an issue for some time. And so the choice was obviously -- the first choice was to -- we had to rebalance our distribution coverage in the market. A lot of progress has been done. As we said in the last quarter, United States is back to growth and our market share loss has been very much decreased because of the rebalancing of our distribution coverage. Now I'm not happy with very much decrease. I want to go back to grow market share. But for the moment, has been very much decreased. And why this has happened. First of all, our distribution today is more balanced. We still have a very big market share in department stores and department store continue overall to be on a declining trend in percentage of total business. But now we have very good penetration of specialty-multi, particularly in Ulta. We have great growth in the -- also the Ulta Target or the Sephora-Kohl's ventures. We have a very strong online business between brand.com and retail.com, but our brand.com business is becoming more and more full service, meaning all the service that you could have in the past in a department store, now you can have it on brand.com online. And we have freestanding stores that during COVID has been an issue because, obviously, no traffic. In this moment, they are bouncing back. So the brand.com plus the freestanding store is a direct-to-consumer business, which is becoming a very significant percentage of our U.S. business and is growing and is a strong opportunity for the future. So we will need to continue to rebalance the distribution, and we will make actions to continue to rebalance this distribution. There are opportunities in the long term. I spoke about social selling and many other opportunities that will emerge in the long term. We will continue to do that. But most importantly, we'll continue to build our market share with our winning retailers. And this will improve the balance in the market, the coverage of the consumer in the market. The second big opportunity that we have is the social media. Basically, the exposure to speaking particularly to the young consumers via TikTok and via Instagram and via many other social media activations that we are doing. We are doing great improvements in this area. MAC is very, very strong in TikTok. The Ordinary is very strong in TikTok. Le Labo has done some great work there. Actually, the -- our ability of the organization to work in this new social media environment that is probably -- if you are familiar with it, require a different capability of creative asset development because the amount of creative asset development is very different than going and having a beautiful photograph on Vogue, is a completely different methodology. So we had to change the organization in that direction. I would say that today, we are really ready and in certain brands more ready than another to attack these opportunities. So more to come in this area. We are increasing our investments. Now that we have the right coverage of distribution, the right ability to win in social media, now we can push more on advertising. Before we were hesitant to push too much on advertising without being sure on the return on this investment. Now we are in the position to further accelerate. Then, we have our work on brands. We already -- some of our brands are doing very well. MAC is back. When I say that, MAC team tell me now MAC is forward. I say, okay, that is -- because it's back in a different way than where it was before. And very proudly, they are saying that, and I agree, so MAC is doing very well. The Ordinary is on fire. Le Labo is on fire. Too Faced is back, and it is really, really growing, which is Stephane just started managing 6 months ago. So well done. And there is this new trend, which is, as you know, the derma skin care is -- in this moment, in the U.S., a very strong trend. That there are certain brands like Clinique in our case, which is born as a derma brand. It's a great derma brand with all the clinical studies, all the facts of formulation, clinically proven, dermatologically tested, done with dermatologists. All what is today a trend for the consumers is part of the Clinique brand. So will be enough to -- we're already doing it, gradually move the marketing and the engagement with the consumers into that space where Clinique will continue to accelerate. And then there are some of our brands, which are getting the how to create viral interest. For example, Clinique with their Black Honey lipstick has been an extraordinary viral success. By the way, Black Honey is now the best-selling SKU in Clinique in only 6 months. This was not a new launch. This was there since many, many years. Was just a new way to be presented to the consumer, was extremely successful. So we have in our -- even in our heritage brands like Clinique or Lauder, we have historical products that are outstanding high-performing product, but never had the opportunity to be marketed in a trendy way. And now there is this new opportunity, which are happening. So the last point on the portfolio is that we need to be able to better compete with indie brands. Some indie brands are in our portfolio, The Ordinary, Dr. Jart, Too Faced, other heritage brands, Clinique, Lauder, MAC are learning how to compete within the brands in a better way. In other words, competing within the brands being -- been able to respond to trends faster versus having just the equity voice of the brand. So this is happening, and we are doing a better job there. So I believe that we will continue to grow gradually better in the United States. And as soon as we finish this balancing of the key drivers, which I just described, will go back growing market share as well for the long term.

Okay. Perfect. You've touched upon fragrances a couple of times, Le Labo, as you said, on fire, and you spoke about some of the growth opportunity in China fragrances as well and as you sort of stated, maybe this should be for Stephane, if that's okay. So as I mentioned at the start, your new role as Executive Group President includes responsibility for a lot of the big fragrance brands in the portfolio, Jo Malone London, Le Labo, Kilian, Frédéric Malle, the list goes on, I think. We have, as Fabrizio mentioned, seen explosive growth of some of those prestige fragrance brands and artisanal fragrances over the past couple of years. What's driving it? And how sustainable can it be?

No, it's a very good question. And obviously, we're very excited to see the explosive growth as you are describing of what we call the niche artisanal luxury part of the fragrance business. And if you look at our results, we are now on the [ 9 strike ] quarterly consecutive double-digit and more organic sales growth in this category which is outstanding. And I think there's 5 things that are really driving what is happening. I think, first of all, consumers are looking for much more experience than they were like in the past. And I think what the luxury fragrance is offering is this idea of like self-expression that is driven by the younger consumers today. When you go to any of our luxury fragrance brand, they offer wardrobe of fragrances which allows you to just not only have your personal fragrance, but also different fragrance for different occasions. We even have something that we push with the Jo Malone London brand, which is what we call scent pairing where consumers, especially driven with the young consumers are starting to just layer on fragrances which is a tremendous opportunity for us, not only to have one fragrances in the portfolio, but several fragrances, which enhance the self-expression of the consumer. And that's very much driven by the younger consumer. The second thing is that with tremendous opportunity for distribution, that gives us confidence that in the future, there is -- we have more opportunity. During COVID, by necessity, we had to pivot to online for our brands, which have very low penetration. Today, much larger penetration of our business online, which is giving us more opportunity and more awareness on our brand overall. So to give you an example, Jo Malone in London is in a market, is in less than 20% of the overall prestige fragrance distribution. And that being said, we are #1 in women fragrance and #3 overall. So that gives us also very much a lot of opportunity, but very high productivity per door, as Fabrizio shared it at the beginning, which makes it also a very profitable model. The third thing, which is certainly one of the most exciting thing is the usage occasion. In the U.S., in average, consumers own 7 fragrances and they use 4 on a regular basis. In China only they own 4 and depending on the tier cities, they are using between 2 or 3 on a daily basis. So for us, it remains a tremendous opportunity not only to increase the usage occasion and making sure that we are -- our fragrances from Le Labo to Jo Malone and Tom Ford and so on are part of the one that are using daily, but also to increase the occasion and in the case of China, basically increasing also the number of fragrances that we are on, which leads me to the fourth point which is the opportunity of China as a market for fragrances in general. Like Fabrizio said, only 10% of the total business of beauty in prestige in China is driven by fragrances. It is today the fastest-growing category. Like in the Western market, 35% of the business is driven by luxury fragrances. So that gives us a tremendous opportunity for additional growth. And there is one other indicating factor in China that is interesting, is Chinese consumer [ want ] from not consuming fragrances to go straight to luxury fragrances. It is a luxury market. So this keep the prestige and our portfolio of brands that we've built over a multiple years, like Jo Malone, Tom Ford in the market, Frédéric Malle and Kilian that we launched pre-COVID. And now Le Labo that we've announced yesterday, a tremendous opportunity for us. So Le Labo, for instance, is actually a brand that we've secretly in a way sitting in the market for 3 to 5 years because we have this amenity programs where the brand was present in the top luxury hotels like in China. So we come in the market with already a higher awareness than usual when you usually enter a market with the new brands. And we knew that pre-COVID, we are through the Chinese consumer -- traveling consumers, we had a lot of interest around the world. Within the first 3 days of launch, we are only at 3 days of launch today, the results are exceeding our expectation but not only in the store that we've opened in Shanghai, but also in our WeChat mini-programs on the RED, the buzz is trending very, very high. So it shows the very strong appetite in China for luxury fragrances. And the last thing of like -- the fifth that is, I think, giving us confidence is we still have a relatively low awareness on our fragrance luxury brands because by design in the past, they were in a limited distribution. Today, TikTok, like Fabrizio mentioned, it allows us to really scale and talk to a much wider group of consumers, protecting our profitable distribution model, speaking to a large group of consumers. Just to give you an example, over 2 weeks ago, we did this campaign with Sofia Richie who is now the new IT Girl on TikTok and in social media in partnership with Jo Malone. We've multiplied by 15 the number of impressions that we had prior to the moment we were participating [ with her. ] And on Instagram shop, our sales are up 700%. And that allows us to really reach a consumer at scale, still protect our very tight control distribution and very much profitable. So when you put this overall 5 element, it gives us a lot of confidence once that we have the right portfolio; two, that the future is really bright in this category and will continue to grow.

Okay. Perfect. We've got about 5 minutes, and I want to try and squeeze in 2 questions. So I'll be quick. Fabrizio, a couple of times you've spoken about how investment spending, advertising spending was dialed back a little bit over the past couple of years because of some of the lockdowns, I think, in fiscal '22 was at 21.9% sales, the lowest level it's been in the 20 years of data that we have. And what's the right longer-term level of spending on advertising and marketing? And how should we expect to see that come back the trajectory over the next few years?

Yes. The -- first of all, I explained why this was lower. And to be clear, it was lower because we have chosen not to invest when there was no traffic in Travel Retail or there was no lipstick purchase because there were masks and so advertising lipstick would not have made sense in some of the big markets. So we have avoided to throw money when there was no return. And that's why we were more prudent during those periods. Now we're already back. If you look at the last period, we're already at [ 22, I believe, 0.9, 0.8 ] something like that. So we are already coming back to more historical levels of our advertising spend. The -- your question is what is the right level. It's more or less the historical level is for us the right level. However, it's not the amount of spending, but how we are spending that makes a big difference. So today, we have media spend, so money we are paying for media. This is becoming much more efficient. We are getting more out of what we spend because we are selecting the right consumers, so better target selection, better platform selection, better ability to choose the right social media moment, the right activation. So all our markets one by one, as you know, media is like retail, media is local. And so all our markets are very good in making every dollar spent more efficient and having better return. Our return on investment of advertising has been increasing now for some time. Second, we are learning, and I explained before, the TikTok phenomenon in the U.S., we are learning how to manage earned media. Meaning the media that comes out of the social media speaking about your brands without you paying extra money. So spontaneous consumers conversations about your brands. Now our -- we measure this. We measure basically the level of chat, the level of positive and negative chats which are on the brands out there. Our EMV, so amount of positive chatting about our brands is growing dramatically. To be clear, that part, you don't see in this number. And so this number may not tell you all the truth of how much more ability to advertise we have. And so this is becoming a bigger percentage of our total advertising in some markets more than others. For example, in the U.S. is particularly important. EMV in China is extraordinary important. And in Europe is becoming more important. So -- but that's another [indiscernible]. The third building block is very, very clear and may be under evaluated. Our brand.com has 0.5 billion visitors more recently because we have the services like chat to get advice, et cetera, they stay up to 9 minutes navigating even when they don't buy. So when you have all these people coming, even if they don't buy in the moment, that's advertising. They see our best images, our best storytelling, our best clinical studies, our best chatting with our consultants. This is free media because, by the way, it's fully paid out from the one to buy because the total online is profitable, but this is extra media. Now to buy 0.5 billion consumers that see you for 9 minutes is a lot of money that you don't see in this 21.9%. So to be clear, think of our future advertising not only as a percentage of advertising. Think of us as, yes, a percentage of advertising, which is media spend, think of media earned by a chat and think about the online explosive amount of time the consumer give you, which is media for free. And we are articulating this in all our brands, and that's why I believe we're actually better advertiser than in the past and not cheaper at all.

Perfect. I want to squeeze in a final question. It's been 15 months of incredible volatility. If you could give one message to shareholders who stuck with the stock of the company through this period, what would it be?

Thank you, first of all, to the long-term investors for believing in us and stay with us for the long term. I think that you are doing the right thing. The company is an extraordinary company. A great portfolio of brands, a perfect penetration out of the world because we are 1/3, 1/3 balance reflecting the market and the consumers, an amazing team of leaders around the world that are very high-quality leaders, which are driving our business. Our business is growing and is doing very well as we explained in the quarter. We have one issue, which was with high stock in travel retail. By the way, a big issue but one really focused issue. The rest of our business is super solid, and you continue to do well. We have explained the fragrance opportunity, the opportunity in China, opportunity in Travel Retail in the long term, et cetera. We have one temporary short-term issue, intense. We are completely focused on solving these issues in the right way, in a sustainable way for the long term. It will take some time and we explained, but will be solved and we are also completely focused on rebuilding profitability that will come once this inventory will be absorbed, will be more visible our ability to rebuild the profitability in the correct way. So the future is -- the future potential of Estée Lauder companies is intact. And we have navigated this very difficult 3 years of COVID [indiscernible] in a strong way, building capability for the long term, and we are going to fix these single issues, the best we can and the fastest we can, although it will depend on retail growth, but we are going -- we are working very actively on that. So thank you for staying with us. And I think you are right to trust this company for the long term.

Perfect. Well, Fabrizio and Stephane, thank you.