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

We have, obviously, CEO of Estee Lauder, Fabrizio Freda, with us today. Fabrizio, thank you so much for coming up. It's great to have you back at the conference. It's been a few years.

[ Wonderful ] I've been [indiscernible] . [Audio Gap]

So you're coming off a year, fiscal year that didn't go exactly as planned. So first, I'd just like to get your take as you look back on kind of what could have been done differently? And maybe from here, what is the plan to drive stronger sales growth recover more margins and [indiscernible] so basically everything.

Definitely [indiscernible]. Okay. So what happened in 2023, you know, fiscal year '23. You know by now in the real world but [indiscernible] is that we -- the volatility of the COVID in the East, in China and Korea, and the COVID [indiscernible] has been extraordinary. And we, with our retailers in China and Korea, particularly in travel and retail, we have been betting on a fast recovery of China. If the COVID was under control. This fast recovery didn't happen, and actually, the recovery was -- continue to be super volatile. The up and downs have been extreme and there are many reasons that maybe, if you want, I can summarize where this recovery have been much lower. Now having prepared for this recovery meant, so on a long supply chain, meant to build inventories for being able to serve the business, in case the recovery was strong. Building inventory meant preparing this inventory and use our factory capabilities very, very well. When the recovery didn't happen, we have two issues that impacted us totally. The first is the inventories in the travel retail retailers that we are still moving down as we go, as you know, from what we spoke in the last quarter. And second, an inventory in our warehouses and importantly, the fact that now, for example, we need to produce much less than normal in our manufacturing because we have inventory to ship at this stage. This had a big impact on gross margin. And so the combination of lower net sales -- I remind you that our retained sales in the difficult fiscal year 2023 globally, we are plus 6% -- plus 5%, 6%. So they were strong, but the net sales was the big issue. So in that situation, we are left with a pretty lower gross margin dilution. Also, we built some extraordinary important capabilities for the long term, which I'm going to summarize in a moment, during the fiscal year 2023, but with the rebuilt esthetic stronger overall net sales in the company. So today, they are too high versus the sales in the short term. So our percentage of business in overheads has temporarily also increased. So you have lower net sales and you have a gross margin, and the overheads impact in the short term, and that's the summary of the big impact into fiscal year 2023. Now I want also to underline, this issue had been overwhelmingly important, and so obviously took a lot of our attention, your attention, the market attention. But I want to summarize that in fiscal year 2023, we have done many, many important things for the long term. My thesis is that our fundamentals for the long term are intact. In 2023, our strong brands, for example, [indiscernible] La Mer, if you exclude travel retail, have been growing super strong, double digits. Our Skin Care business that has been under pressure, if you exclude travel retail in Asia and in Korea and China, it has been growing plus [ 19% ]. And anyway, our total business in the last quarter as I communicated several times, is growing plus 17%, excluding the travel retail in China and Korea. So a very solid performance everywhere else, with the exception of North America that we are going to talk in a second. But we have been growing market share in China Mainland, very well. If you compare our market share versus last, they have been up in the last quarter two full points, we almost completely recovered the market share that we lost in a very difficult moment of the closure of Shanghai. By the way, this moment was the beginning of the problematic of volatility for us more than the average of the market, because we were concentrated in Shanghai. And we have recovered with the market share. But so -- if I compare the market share now versus last year, versus two years ago, it's still growing market share and very strongly. So we are growing also versus two years ago and versus 2019, so we are winning market share in China. Not many companies are winning market share in China and also, when I know that maybe we'll speak later about the local competitors, there are one or two local competitors which, by the way, not in Luxury, which are doing pretty well. But there is not many, not -- different is -- the question is, will they be there in the future? In my opinion, yes, we can talk of this later. But this fiscal, we've done tremendously well in China. Second, we have been growing market share in Europe. Sometimes I get the question, when you grow market share also in situation where there are strong local competitors? And we are growing market share in France, so the local competitors in France. And so we can. We are growing market share in Italy, we're growing market share in Spain and Germany, so it's been a very good momentum in EMEA. Regular market share in our emerging markets. Our India business has been [ raised ] 50%, 5-0 percent. And so our total emerging market last quarter ex-China has been growing to 38%. APAC, meaning Asia in total, including China, has been growing 36%. By the way, if you do the comparison versus two years build before 2021, it has also been growing strong double digits. So all this is very -- I can speak about U.K., Latin America, all grew very well. What I'm trying to say is that our fundamentals are really in the right direction. Our innovation has been very strong in the year. We had with [ almost ] 25% of total, even in the difficult 2023 despite the pressure in travel retail issue. If you look at our innovation, it's now well spread across our categories. You'll see here, we are aware we need to do more in one area, which we have invested a lot in 2023, which is all these active scientific derma [ preferred ] mass-oriented skin care boom that consumers are driving around the world. Now this obviously rapid growth for mass, or in masstige, or in pharma but frankly can be attacked also from the luxury point of view. We are prepared in fiscal year 2023 to do a lot of this. We have increased by 85%. The amount of [indiscernible] is dermatologists who work on our brands, with our brands, that we trusted engaging, or in the case of some brands, like re-engage in a very big way. So we are ready. Sometimes get the question, which is the part to of your portfolio that trend better, going the direction? First of all, during this period, we have increased the clinical [indiscernible] capabilities and almost -- we are running many more clinical presence now also in China, on Asian skins, because of the new [indiscernible] center in Shanghai. We, as I said, increased the amount of scientific support. We've increased the ability to deliver claims, thanks to the clinical studies, et cetera. Importantly, the repeat [ patch ] of the loyalty to our formulation, so the pure appreciation of the consumer and the product they try is still among the other -- the biggest in the world. It has been increasing over the last years. So we have all the fundamentals to win in high-performance skin care. We need to adjust in the communication to the consumers to make sure that we better connect with the [indiscernible] of the consumers in what we communicate to them. We are in the process of doing it. The brands, Clinique is the obvious derma brand since ever. You will see in the second semester. Already you see signs, if you saw looking in, you see signs of going in that direction. For example, in this moment, we have our leading opthalmologist, which is supporting the mascara, the undereye products from Clinique on Instagram, you can follow on TikTok, and the success is extraordinary. So the consumer is responding to that path, back to the communication. As I said, on the last product performance innovation, clinical studies, we are ready. We are ready. We are getting better every day. The communication is the piece we need to step change, so not too [indiscernible] has to be done. In the second semester of this fiscal year, you will see, for example, an important relaunch of Clinique in that area. [indiscernible] more [ strict ] in the opportunity with the consumers globally. Then The Ordinary, who is absolutely there, it's more scientific-oriented, ingredient-oriented, in an affordable -- it's quality at affordable price concept is doing extraordinary well. I don't know if you follow, The Ordinary is the leading brand in volume in a number of pieces sold already in Skin Care in the United States. It's very, very successful in every place where we launch it. Particularly, The Ordinary is adding to our portfolio, the right brand to win in emerging markets. Interesting. Our brand win in China has been Lauder, has been La Mer, has been in the luxury products. They continue to be. Our brand to win in emerging market historically has been M·A·C, because emerging market, we are entering with the entry price of the [ cap ]. The Ordinary is now the, together with Clinique, the real [ right ] band to enter in the market. Result in this, The Ordinary, has been very, very strong. The Ordinary in India has been launched with becoming #1 in a few weeks of the retailers in which they were sold, so very strong success in our portfolio. The other brand is Dr.Jart+. This brand is a young brand, Korean derma brand, that has been badly affected by the travel retail taxes because it was a brand that, in Asia, that lost its power in retail, but it's doing super well in the U.K., North America, U.S. It's exclusive to Sephora in the U.S. It's a very strong growing brand. So this brand is smaller in the longer term, but we'll have a big input in this derma place. And then we are relaunching our Origins brands in this active natural space, which is going to be created. So we are -- we have invested, during fiscal year '23, in what will be an acceleration of Skin Care beyond selling in the usual travel retail [ Asia ]. Obviously, the biggest benefit of Skin Care that we need to get is getting our mix right again between China, travel retail and the rest of the portfolio because this will, as you know, China travel retail is a lot about skin care in proportion, so this will bring skin care back. Then we have done two -- one important acquisition going forward. I want to remind you, it's very strategic for this operating into the high end of couture business where we have a space to do much better. And almost [indiscernible] competing with the Chanel with the Dior, with the Armani, with the Yves Saint Laurent of this world for this -- our brand. Best position is doing great. By the way, it's been -- last quarter has been growing outstandingly, continue to grow very well in Fragrances and in Makeup in Asia where this is a very important area for Makeup acceleration. We have also -- our The Ordinary was mentioning before, has reached 0.5 billion more sales. We have 0.5 billion, the definition of now is a midsized brand, and so from there, has the scale to accelerate in a very big way. By the way, it's much bigger than 0.5 billion. We don't communicate numbers by brand, but it's now become -- will be our next 1 billion brand. I communicate also, there were four 1 billion brands, will become six. This is because TOM FORD and Jo Malone will join this category. And I also say that in a few years, The Ordinary will join these categories. So we are going to have seven $1 billion-plus brands that is a big improvement on our fundamentals. Historically, we had two, and now, we are prepared that we have a very big, scalable portfolio. The other important thing has been the profit recovery plan that we have put together at this point. I want you to be, obviously, totally convinced to hear me saying we are determined to bring our profitability back in the best possible way. We have created a plan, which is called the profit recovery plan, where the entire organization has been focused. When I track -- and now, our business globally had been already 2 times in China in the last 4 months or more than 10 days each, there is a full discussion on the various profit drivers. As I said, there are 2 things that we need to recover fast. One is the gross margin, and the other one is the overall percentage of total in general. And the third important one is the mix of our sales, the impact also of the taxation. So those are the three areas of focus. On the mix, it's a matter, as I just anticipated, to push the Asia, [indiscernible] Asia back to the [indiscernible] and to get skin care going. The rest of the portfolio is going in the right direction. Makeup is recovering everywhere in the world where COVID has been. Basically, the volatility of COVID has gone down. Fragrances become a very good and profitable business for us. I changed the strategy of Fragrances several years ago go more in the high-end, luxury fragrances much more profitable. And for example, we closed our EDF business, designer business, just last year for the same reason. We wanted to make Fragrances more of an investment-grade category for us for the long term. I think we did it in the last two years. Fragrance profitability is getting better and better, and now, we have the opportunity to go for it full scale. So that will improve also along. Once Skin Care will be fixed, Fragrance will be a net extra versus our history. Even if Makeup to be slightly less than what was historically in total, we will have the same potential at the same power because of the Fragrance step change that we never had in the past. Then we -- the mix is also about pricing, it's about life discounting. A lot of the business in [ TR ], particularly the good business, was associated with more discounted average. This will be normalized and then the creation of value out of pricing intend to the mix, and then the tax positive impact over the better mix. Then gross margin, there are two issues. One is obsolete and excess. Obsolete and excess, we dramatically improved our forecasting. By the way AI, artificial intelligence, is supporting our forecasting capability in a very positive way already and more to be discovered, and so we have improved forecasting. We made some decision to stop producing and not pushing the production and inventories, but wait that demand and retail net will align better, and then restart production. So lower excess is a big, big improvement of profitability. Then better capacity utilization as soon as we will go back for using normally, and maybe with some rightsizing between categories that we still need to finalize. This will be another important improvement in profitability. And then all the cost structure, we are readjusting to the reality of this transition and this -- for better growth. So there is a profit plan, and you will hear more quarter-by-quarter how this will be put in place, and we are determined to recover our profitability in the best possible way. As Tracey said during the last quarter call, we believe that the long-term profitability power or EPS power of the company is intact. It's just that we need to go this transition and rebuild it. And to get there, and we need the patience to do this because as I'm explaining, there is no magic bullet or silver bullet. It's a process to go into. And as we communicated, these first 6 months of this fiscal year are still affected by the negatives and now fully affected by the positives. In the second semester of this fiscal year, we should have more of the engines going in the right direction, as our guidance describes pretty clearly. So that's the situation. Next, my thesis is that the fundamentals are intact. Sorry, I forgot to say that our brands are really doing well and growing market share. Also a brand by brand, as you mentioned, but all the most important brands has had the right innovation in every aspect. So our fundamentals are intact. Our strategy, the majority of our strategy is still the right one. I mean if you ask me, do you continue to see online rather retail to be the great channels? More profitable to continue to drive this industry? I think so. Absolutely, it has not changed. And there are new things that are happening that we can talk maybe later. There are, but we are on top of them. And we are, as usual, adjusting our strategy even. So fundamental or impact, long term is very promising. We need to get this turnaround of this acceleration, this recovery executed with excellence, and the team is really there with it. We're completely focused on it, and I have an extraordinary team that, even in a very difficult year, is coming up with the right passion, with the right solution, with the right dedication. So I have great trust in the long term.

Let me talk for a moment about travel retail specifically. So as we kind of get through the disruptions and the volatility in the channel right now, how do you think this part of the business emerges? Kind of, what are the long-term opportunities there? And within that, I'd love you to touch on how you think about the future of Daigou in the channel. It's not just a question of [indiscernible] but also Korea, historically, predominantly it's Daigou market or channel level? I'd love some perspective on how you think about the evolution of travel retail, once we're through this kind of normalization.

I think, as I briefly anticipated, I believe travel retail will remain one of the most important channels. To be clear, travel retail was among the top markets of luxury beauty already in 2019, 2018. So it's not only the result of the distortion of regulation and activities in defense of COVID that happened in 2020, '21 and '22. The 3 years of COVID has created this Daigou discussion, but the travel retail has been one of the best markets of beauty for a long time, even when Daigou were a much smaller business, was more about individuals buying two products more in the airports. So the -- I believe this will continue to be extraordinary. First of all, it's the right place for consumers to try new products. A lot of trial happen in travel retail. So you can also see, compare [ it ] not only as a profitable channel, but the trial channel vary [indiscernible] costs. And so, travel retail will continue to be there. We'll continue to be an equity builder in airports in Hainan, in the beautiful place before the world where there is a correctly-positioned service store, there are beautiful counters and all the rest. So we'll continue to be an equity building channel in the long term. Then it's driven by traffic and by duty-free elements, and this will continue to happen. There continue to be duty-free opportunity, there continue to be traffic. The traffic is coming back. As you know, the traffic today is still below 2019 because the entire Asia traffic is still missing impact. And as normally, [indiscernible] consumers don't want to travel. This means there are no planes, no pilots, no -- so there is an infrastructure which is getting gradually rebuilt -- will be rebuilt, and traffic will go back to '19 and beyond levels over the long term, and this will feed the regular traffic in travel retail. And so my view of the future is all of this positive will continue, that the regular travel rebuilds. In absence of COVID, we'll substitute the Daigou buisiness. There was -- extreme during COVID. And the balance between the 2 will be a long-term, efficient, effective and growing of travel retail business. The fact there will be much less Daigou and much more regular traveler would be very positive also for the impact of travel retail on the other channels, individuals market on [ the world ]. So I see a positive [ pattern ]. Hainan will remain one of the most important travel retail, if not, the most important travel retail location in the world. If you go there -- I've been there recently. [indiscernible] It's just an extraordinary place. There are so many fabulous -- remember that [ Hainan ] serves the Chinese. They don't have a passport, which are 85% of the population. So even when international travel will restart, [ Hainan ] will have extraordinary traffic. We have a lot of people. It's a beautiful vacation place, there are great beaches, there are great [ theater exposition]. But shopping is part of the entertainment, so it's almost part of the vacation. So Hainan is there to stay, and also, Hainan will be more and more regular travel and less and less Daigou's, but will be a good business. And then in 2025, the entire island will become duty-free, and will offer retailers and companies like us opportunities also to have, for example, freestanding stores. They go directly to the consumers in a duty-free way, so there will be more opportunities that will be opened. And finally, the Chinese government have made an important bet on Hainan, and I believe they will continue to support it and [ lead ] it over the years in a constructive way. So travel retail in total is going to be exact. Now the proof of that now, as we speak, or just in the U.K. Last week, U.K. is also the [indiscernible] of our EMEA travel retail business is flying. Travel retail in Europe and the Middle East is -- in Turkey is doing really, really well in this moment. So whenever regular traffic is back, we are investing in people in store -- by the way, taking time because it's difficult to find a gain on the people for these new, increased traffic. But all these gradual improvements is, frankly, ahead of our expectations. Now the issue is that travel retail in the rest of the world is smaller than travel retail in Asia, so we are waiting for travel retail in Asia to go in the same trends. That we have to prove in EMEA, you have to prove in Latin America, you have to prove in America at this moment, is travel retail is coming back where traffic is coming back.

Okay. Great. And maybe discuss the health of your brand equities, in particular, market share gains within China, but -- Mainland China. But 1 question we regularly get is whether or not the consumer in China in particular has been trained to buy water brands on discounts? And that's going to be the case even more so over the next couple of months as [ we rip ] through the inventory and channel, and kind of get back to baseline. So I know it's a tough thing to gauge, but how do you think about that? I know in the past 2 conference calls, lower [ promotionality ] has actually been mentioned as the goal. I was curious if that was specific to Asia? Or was also a global comment?

This was a global comment, but I'll come to that, but that's also important for Asia. And so it's true that there being more proportionality during COVID, frankly, not only in China. We look at COVID like a moment where governments [ effaced ] industry with retailers, people who were risking to go bankrupt. Different governments have reacted in different ways. Governments in the U.S. have given to people money to pass through the very difficult moment to COVID. Europe, there were a mix of support money and preserving the jobs and et cetera, things like that. In Asia, they got the support of unique regulations that will allow them to stay in business during this very difficult moment. So the discounts are also the results of policies to protect this business, giving them the authorization to sell more to Daigou, in the case of Korea, or give them the authorization to sell more online in general, in the market, to make them survive despite the airport is closed. So there's been a lot of disruption dictated by, frankly, not by the companies but dictated by the governments and retailers, ways to pass through the COVID period. When this will go away, and it's already going away, as you want -- the part of the issue we are living through now is that this transition back to normal is painful because it's a transition metronome where the new normal, meaning regular travel with the economy, is not yet back, and the transitional regulation is trying to change the past. And we are sitting in the middle of this with high inventories. So that's the real simplified picture of what's happening. But this is a transition. The transition back to normal will include less promotionality, and it's already happening. And by the way, it's happening for only Hainan intentionally. The [ new ] Daigou regulation is now more imposed and pushed in Hainan everyone, it's about -- it's decreasing the Hainan results in the short term. And in turn, is taking maybe a few more months of inventory needed to get inventory down, depending on how long this will last. But that transition is also because of the pricing of sales are more normal, and so there is more graduality as some consumers, particularly Daigou kind of consumer, need to get the trust on to that, but they will. So there is a transition, but at the end of this transition, I think things will be better. There will be less promotionality [indiscernible] oriented business. Now was the consumer now accustomed to buy Estee Lauder? Only in promotion, every brand in promotion. Now every brand has been promoted in this way. You can argue 50% discount or 55%, 45% or 50%, but not everything was promoted for the reason I just explained. So yes, the consumer has been able to access it, and later with more discounting. But when you look at where, there was some travel retailing, huge discounts that were in China, 11-11, 18-6, all these mix of sales online which have been historically more discounted than others. And those are also outstanding opportunities to recruit more consumers. They are very appealing in the [indiscernible] for cities. So I believe the sum up and down of promotionality to attract new consumer in such a growth to market with 300 million people will enter the [indiscernible] class and then say, yes, we'll remain, but will be dictated by choices of promotional activity in order to recruit new consumer instead of retailer competition, which is more disruptive. And that's in this transition from optionality as non-managed competition between retailers to promotionality as intentional recruitment strategies. That transition will be very positive for the long term of China. And frankly, this happen in every other market, or they work at different level, different level of intensity. So I went beyond your question. There is also the question that are the Lauder brands, the Estee Lauder Companies brands, impact in equity? And I think the answer is yes, and the way I can prove and support this thesis as, please look at the market share we're building in China and the volumes that we are building in China. Compare the sales we do in China Mainland, not TR, just Mainland. So sold in department stores, online, Tmall, et cetera, et cetera. 2019 at what we have done in -- now, despite the competition with TR, the competition with Korea, et cetera, et cetera. Our net sales have almost doubled. Our market share has increased dramatically. You can compare the market share versus Shanghai closure, we are growing. Versus two years ago, we are growing. 2019, we've built an enormous amount of amount of [indiscernible] market share. So there is really no sign in terms of consumer choices that we have strong equity position in China. Second, even in this moment, which is a paradox, the China economy has a moment of softness. Personally, I have a lot of trust in China and the future or the China economy, but the government will need time to put this back. And I believe personally, I believe they will do it. We will see some good results from that. But in this moment, it's soft. And so during the softness, the consumer is still buying more luxury. So the brands which are doing the best are for the La Mer, the Le Labo, and I believe even in our competition for what is in the market is the luxury. So it's kind of paradox. The consumers is going for luxury, which is very interesting. So is the consumer buying quality, equity, aspiration, but they're only looking for pricing? I think that the answer, the consumer continues to look for equity, pricing and activation the second proof I can bring is the proof of innovation. Our innovation is as strong in China. Every time we launch a new product, which is really now well-tailored on Chinese consumer, is very appreciated. Now the innovation we just announced on Estee Lauder, [indiscernible], which is the concept of longevity, the age reversal, new technique and ingredients is an extraordinary new technology. And this would be amazing in China, because that's exactly what the consumer wants and want to see. So our innovation is strong, and the level of positive reaction to innovation in China is probably still the strongest of the world, which shows that the equity are appreciated. And finally, we do a lot of consumer research. By the way, you do the same. Sometimes I read reports, excellent reports of analysts that shows a certain consumer research. In this consumer research, when you ask what are the most desirable brands in China today? La Mer and Lauder come forward, Jo Malone, always in the top positions of this. So I think our fundamental equity is intact, and in the future, the normalization of the discounting patterns will be a positive that, we'll get this issue out of our way out in the future couple of years.

I'm going to try to sneak in one quickly on North America before we run out of time. You spoke a bit already about The Ordinary, you talked a bit about plans for Clinique. M·A·C has turned the corner, very much so. But I guess just a persistent question that I think would balance the whole conversation is, when do we start to see market share gains in North America more broadly? So beyond the three brands I just mentioned, we've already discussed them, what are some of the key building blocks or visibility you may have into that would give you confidence in North America? And when to start to show aggregate better performance?

Again, thank you for the questions. It's very important. First of all, you know that and we -- what you know that we are very focused on North America. It's our home market, and we want to go back in a position where we've been in market share. However, to be clear, North America results minus 2% instead of the plus 5% that was planned, this is not the reason for our EPS in fiscal year 2023. So I want to clarify, we need to do that and we will do that, but this is not what will rebuild our profitability. It's because at the end, North America business, the region, is a profitable business. And it's a profitable business and it's not growing, but it was growing double digits in the previous three years, by the way. Still losing market share by growing double digit. Last year, it was minus 2%. If you may jot the calculation, it was plus 5%. Will this be changed completely, the results of the company? No. I want to say -- be clear on that because of the reason we want to do that, but we want to do it in the right way, in a way which is sustainable for the long term and not confuse urgency with just doing, at any cost, things that we'll regret in the long term. So in North America, we are trying to do the right things for the long term and we need to make some important changes. So the first 1 is we need to go back to growth. So in fiscal year 2024, our already-expressed ambition is to go from 1 year, by the way, of decline, a little bit decline, minus [ 15% ], to a growth year, and then prepare for 2025 and beyond to go back winning market share. We are not promising committing to go in a few months to go back winning market share. That's why I'm saying we have sense of urgency, but we are going to do it in the correct way. This is [indiscernible]. So you can expect that our efforts are focused on growing again in North America in fiscal year 2024, and then put in the fundamentals to start rebuilding market share. What we are doing and what we have to do? First of all, our distribution platform has to continue to be adjusted. We will continue to support the excellent department store service model, which is so important for our -- for many of our consumers, particularly our historic consumer, but we need to do even more in specialty. And we are continuing increasing our distribution, for example, in Ulta. So with Estee Lauder, we are doing our [indiscernible] in Sephora, so we will continue to penetrate and expand the specialty multi segment. Third, we need to now rebuild online, leverage the investment we have done online in branded content, which has been important. We need to leverage this more, and we need to do more online. We have announced that we will go into a TikTok shop with The Ordinary which has been already launched, and with Estee Lauder Brand soon. Now this, to be clear, is new for Estee Lauder. We've been very conservative in making distribution decisions historically, again, with intent of protecting the equity of our brands. But in this case, we are going to learn in these channels, how the consumer reacts with the brand, which has the most obvious fit, The Ordinary, and with the brand that doesn't because the brand that will need to use this channel to conquer more the young consumers. And so we have taken the challenge, and we are going for it. So we need to, in general, it's just a sign of the fact that we intend to be playing faster and better with the growing channels in the future rather than being too defensive for brand protection on this one. So distribution -- level of the distribution adjusted. Then EMV. We have built a lot of -- the percentage of our advertising in digital is going to increase gradually in all key platforms, including [ the talk ] on all brands. And so you're going to be seeing more of Estee Lauder programs tapping into the trend of influencers, celebrities, TikTok and activity like this in general. So our media efficiency is going to increase, and also importantly, the impact. Now to be clear, to do that, we have invested in 2023 to prepare for that. For example, to do that strategy, you need many more creative assets, and so you need to build the capability to go from -- that we will have 3x the asset that we are producing per brand. So it's an investment in capabilities, in preparation and in changing the model, but we are ready now. We have started already this quarter seeing some important results. The other part is obviously, probably the most important, is innovation. Now in North America, the challenge beyond the one I've described is that the so-called indie brands, so the new brands. In this moment, a very low barrier to entry, and so there is a lot of competition on new brands. To be clear, many of these new brands are successful for the moment, and then they go down. Some remains, become important competitors. We have one in our portfolio, which is The Ordinary, which has done exactly that. So we need, definitely in North America, to compete with these brands better by a more disruptive innovation and better innovation. Also on our big plans. So for example, in fiscal year 2023, we start making our innovation around the -- working directly with North America, so develop products tailored to the North American business situation. The paradox, we've done this for China. And that we've done this for China, and that we realized that maybe it was the time to do it for North America. To be clear, North America has always been the first priority, so it's not this is a new thought. What is the new thought, to do innovation tailored to the indie brand competition in North America. That's a new thought, and that's a new thought that will be added to our way to do things in the future. So innovation is very important thing. The last thing I want to say is that the success of the market in the last years in North America has been a lot about Fragrances. And we have our fragrance portfolio in luxury, which is doing well, but in North America, has been pushed a bit less than in the other markets so far. So we are going to accelerate our investments in pushing our luxury portfolio, and we are going to reactivate more [indiscernible] and Clinique fragrances in a very efficient way. So you will see that, and this will be in balance because remember, we are still #1 in Makeup and #1 in Skin Care. Where we are now #5 is Fragrances, and then we see Aveda, which is mainly a salon business, that has potential for the long term for haircare. So there is a lot to be leveraged in the fragrance portfolio. But The Ordinary, and then as I said, I started from the rebuilding the acceleration of Makeup and Skin Care, as I illustrated. So I'm confident that we will go back in our home market. And then in the near future, we will validate all these improvements that I just described and go for market share growth again in our home business in the long term. In terms of profitability, the profitability, I want you to know, is solid in North America. So at the moment we solve the growth element, we are going to have a very important edge, well reactivated and very solid for the long term of the company.

Thank you so much. We have to end there. I could stay all day, but...

Thank you very much.