The Estée Lauder Companies Inc. (NYSE:EL) Q2 2024 Earnings Call Transcript

The Estée Lauder Companies Inc. (NYSE:EL) Q2 2024 Earnings Call Transcript February 5, 2024

The Estée Lauder Companies Inc. beats earnings expectations. Reported EPS is $0.869, expectations were $0.55. The Estée Lauder Companies Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day everyone and welcome to the Estée Lauder Company’s fiscal 2024 second quarter conference call. Today’s call is being recorded and webcast. For opening remarks and introductions, I would like to turn the call over to the Senior Vice President of Investor Relations, Ms. Rainey Mancini.

Rainey Mancini: Hello. On today’s call are Fabrizio Freda, President and Chief Executive Officer, and Tracey Travis, Executive Vice President and Chief Financial Officer. Since many of our remarks today contain forward-looking statements, let me refer you to our press release and our reports filed with the SEC, where you’ll find factors that could cause actual results to differ materially from those forward-looking statements. To facilitate the discussion of our underlying business, the commentary on our financial results and expectations is before restructuring and other charges and adjustments disclosed in our press release. Unless otherwise stated, all organic net sales growth also excludes the non-comparable impacts of acquisitions, divestitures, brand closures, and the impact of foreign currency translation.

You can find reconciliations between GAAP and non-GAAP measures in our press release and on the Investors section of our website. As a reminder, references to online sales include sales we make directly to our consumers through our brand.com sites and through third party platforms. It also includes estimated sales of our products through our retailers’ websites. During the Q&A session, we ask that you please limit yourself to one question so we can respond to all of you within the time scheduled for this call. Now I’ll turn the call over to Fabrizio.

Fabrizio Freda: Thank you Rainey and hello to everyone. We appreciate you joining us today. For the second quarter, we delivered our outlook for organic sales decline of 8% and exceeded expectations for adjusted diluted EPS. Organic sales in our global travel retail business decreased 28% with retail sales trends better than organic performance, reflecting both the execution of our priority to reduce trade inventory in alignment with retailers and efforts by various local authorities to contain structured market activity. We made meaningful progress with trade inventory levels in Asia travel retail and continue to expect to be a normalized trade inventory levels by the end of the third quarter of this fiscal year. The entire rest of our global business decreased 3% organically.

This decline was primarily driven by the slow-down of overall prestige beauty in mainland China, although our retail sales trends were much better than our organic performance. Our global retail sales growth excluding travel retail in mainland China rose mid-single digits. The markets of EMEA delivered mid-single digit retail sales growth, and Asia-Pacific excluding mainland China rose double digits, as did Latin America, showcasing strong fundamentals for brand desirability and the success of our consumer engagement initiatives. Encouragingly, we made progress across several strategic priorities in the first half. Beyond reducing inventories of Asia travel retail, we improved working capital, realized higher levels of strategic pricing, and managed expenses with discipline.

For the full year, we are revising our outlook as we have tightened the growth range for organic sales primarily to account for risk of macroeconomic volatility in some areas around the world and updated adjusted diluted EPS for an anticipated higher tax rate. In this revised outlook, we have maintained our prior outlook for full year operating profitability. Looking ahead, we are at an inflection point. First, we are positioned to return organic sales growth for the total company in the third quarter, and we expect organic sales growth to sequentially accelerate in the fourth quarter. Second, we are positioned for stronger profitability in the second half of this fiscal year compared to the first half. Third, we are preparing to meaningfully accelerate the rebuild of our profitability in fiscal years 2025 and 2026.

Indeed, since we spoke with you in late November, our teams have been actively engaged to operationalize the profit recovery plan. In doing so, we have identified further opportunities to enhance profitability while also generating more resources to be invested in consumer-focused areas to drive long term growth. As a result, we are expanding the profit recovery plan to include a restructuring program. While this is a difficult decision, we believe this now larger plan will better position the company to restore stronger and more sustainable profitability while also supporting sales growth acceleration and increasing agility and speed to market. For the consumer, we anticipate faster product and commercial innovation supported by strategic brand-building distribution and go-to-market advancement, where digital leadership is at the core.

Moreover, we intend to increase our speed and agility as an organization, enabling quicker and more localized decision making to better create and respond to consumer trends. The profit recovery plan is now expected to deliver incremental operating profit of $1.1 billion to $1.4 billion, up from $800 million to $1 billion previously. In terms of timing, this incremental profit is anticipated to be realized in fiscal year 2025 and ’26, with more than half in fiscal year 2025. We are confident that our multiple engines of growth strategy will be enhanced by the profit recovery plan, enabling our company to more fully capture promising long term growth opportunities and remain a leader in global prestige beauty, and to reinforce our commitment to execute this larger plan with excellence, we have engaged global consulting firm, Alvarez & Marsal.

They will provide strategic advisory services, partnering with us on our restructuring program as part of the profit recovery plan to drive the realization of a sustainable rebuild of profitability. For the second half of the fiscal year, we have strategic initiatives and exciting innovation to drive in North America, re-accelerate growth in mainland China, and drive momentum in markets that are thriving across developed and emerging markets in EMEA, Latin America and Asia-Pacific. Let me begin with the Clinique brand. The brand will be doubling down on its authentic dermatologist brand heritage of over 55 years, deepening its relationship with the scientific community, strengthening its derma messaging and engaging new consumers. First, Clinique will be dialing up its derma education and consumer communications, including on social media, brand.com and in-store with new dermatologist partnerships and ingredient communication.

Clinique has also announced the establishment of the new Mt. Sinai Clinique Healthy Skin Dermatology Center. The Center’s research is expected to produce breakthrough advancement in the study of allergic skin and premature aging. Next month, Clinique will return to the American Academy of Dermatology annual meeting to showcase its derm level science formulations, as well as its unique eye safety promise. All of this is coupled with Clinique’s continued innovation of allergy tested and 100% [indiscernible] products evidenced by Clinique’s new post-procedure relevant claim on powerful products, including Smart Clinical Repair lifting face and neck crème. Turning to the Estée Lauder brand, for over 50 years it has been a pioneer in longevity age reversal research, a frontier of skin biology for its Re-Nutriv luxury franchise.

Last August, I spoke with you about how Re-Nutriv should be standing upon its successful Ultimate Diamond Transformative Brilliant Serum with compelling innovation. The franchise breakthrough, Soft Clean with cutting edge patented SIRTIVITY-LP technology for visible age reversal is now launching globally. In [indiscernible], there is a companion serum crème foundation amplifying the franchise skin longevity science across categories. We are encouraged by the global appeal of this innovation from China to Japan to the U.S. While early, the franchise is welcoming new consumers at compelling rates, and we look forward to all that is to come for Re-Nutriv as launch events continue around the world. Moreover, the brand is collaborating with the Stanford Center of Longevity as the inaugural sponsor of a new program of esthetics and culture.

Beyond Re-Nutriv’s striking innovation, we have more standout launches across brands in the third quarter, led by MAC and Tom Ford. The new MACximal Silky Matte lipstick modernizes the MAC icon with a new silky matte finish, lip conditioning benefits, and elevated packaging. For Tom Ford, Oud Minerale is primed to carry forward the brand’s winning streak of innovation from Café Rose in the first half. In the second half, we expect these initiatives and new product launches to build upon the strong momentum of several brands. Indeed, The Ordinary, La Mer and Le Labo, among others achieved terrific performance in the second quarter. The Ordinary delivered an excellent first half as the brand again realized double-digit organic sales growth in the quarter.

Its new soothing and barrier support serum, which launched during the first quarter, is the brand’s most successful launch ever and is already among the top 10 ranked products in the U.S. prestige serum category. The Ordinary continue to excel in specialty multi globally and is also realizing very promising uptake on the new Tiktok shop in the United States through engaging live streaming and creator content. La Mer further contributed to our strong underlying fundamentals in skin care. The brand’s luxurious high quality product from the iconic crème, De La Mer to the new lifting firming serum, along with its exceptional services proved highly sought after by discerning consumers around the world. In mainland China, La Mer grew double digits at retail to realize strong share gains in prestige skin care.

Our luxury and our seasonal fragrances also performed quite well. Le Labo led the broad-based trends as Jo Malone London, Tom Ford, Kilian Paris, and Editions de Parfum Frederic Malle each rose organically, fueling double-digit organic sales growth in Asia Pacific and gains in the Americas. For the second half, we expect to return to organic sales growth in mainland China driven by a rich innovation pipeline for a greater contribution to sales from new products in the second half than the first half, and we are investing in exciting go-to-market initiatives across brick and mortar and online. Impressively, we entered the third quarter in mainland China with momentum in brick and mortar, having expanded our prestige beauty share offline in the second quarter, driven by strong double-digit retail sales growth in each of department stores, specialty multi, and freestanding stores.

For online, while the channel was especially pressured by softness in overall prestige beauty and the 11/11 global shopping festival, our brands performed strongly [indiscernible] rising triple digits organically to partially offset lower sales for the event. The Estée Lauder brand ranked number one in prestige beauty [indiscernible], and it also ranked number one for store live streaming. For the fiscal year, we remain focused on North America returning to organic sales growth and are encouraged by the low single digit growth delivered in the first half. While makeup was pressured in the second quarter by the cadence of major new product launches, we are very excited by the innovation coming to market across the second half, beginning with MAC’s MACximal Silky Matte lipstick we launched last week.

Moreover, skin care grew for the second consecutive quarter in North America, driven by The Ordinary and Estée Lauder. Our luxury [indiscernible] fragrances rose double digits in the quarter as our strategic initiative from expanded consumer reach with Kilian Paris to strong engagement on Tiktok by [indiscernible] are proving successful. In closing, we are at an inflection point, poised to return to organic sales growth in the second half and deliver sequentially stronger profitability than the first half, as well as expansion from the year ago. We are well positioned to deliver stronger profitability in fiscal year 2025 and ’26, given the initial progress we have made from our profit recovery plan as well as its new restructuring program, and we are well positioned to invest in consumer-facing areas to capture exciting growth opportunities in global prestige beauty.

I wish to extend my gratitude to our leaders and their amazing teams for the hard work and dedication which has taken us to this inflection point on a renewed sales and profit growth trajectory. I will now turn the call over to Tracey.

Tracey Travis: Thank you Fabrizio, and hello everyone. I’ll start by reviewing our second quarter financial results, followed by a third quarter and full year outlook. I’ll also provide details on our expanded profit recovery plan. As Fabrizio mentioned, our second quarter organic net sales decline of 8% met our expectations. Additionally, through tighter expense management and despite experiencing a higher tax rate due to the shift in our geographical mix of business, our earnings per share of $0.88 exceeded our initial outlook for the quarter. From a geographic standpoint, organic net sales in our Europe, Middle East and Africa region declined 14%, mainly attributable to the persistent challenges in our Asia travel retail business.

The impact from business disruptions in Israel and other parts of the Middle East accounted for a 2% reduction in the region’s overall net sales growth. The markets in the region had mixed results, leading to overall flat growth across all markets. Organic net sales in our Asia-Pacific region fell 7%, reflecting continued challenges in mainland China. While our results on Douyin nearly doubled, our total online sales declined due to softer than expected performance on TMall during the 11.11 event. The overall online performance more than offset the increase in brick and mortar sales, which was led by double-digit growth in our freestanding stores. In the rest of the region, we saw strong organic net sales growth led by double-digit growth in Hong Kong SAR and Korea, as well as high single-digit growth in Japan.

Our luxury fragrance brands Le Labo, Jo Malone London, and Tom Ford drove double-digit fragrance growth in the region, which was fueled by both effective commercial activations as well as compelling holiday product offerings. Organic net sales in the Americas declined 1%, driven by a prior year benefit from changes made to MAC’s take-back loyalty program in North America last year. Excluding this benefit, net sales were relatively flat in North America, reflecting growth in specialty multi and our freestanding stores and offset by softer performance experienced in department stores and online. In Latin America, organic net sales rose double digits, reflecting continued growth in nearly every market and strong performance during holiday and key shopping moments.

From a category standpoint, organic net sales fell 10% in skincare and 8% in makeup. In skincare, the ongoing challenges in Asia travel retail and mainland China drove the majority of the decrease. Organic net sales from The Ordinary and La Mer grew across every geographic region. The Ordinary saw double-digit growth in specialty multi, including ongoing expansion, and continued its focus on education-first content to drive successful social media activations. Net sales from La Mer increased both online and in brick and mortar, benefiting from captivating social media and holiday product activations. In makeup, the persistent challenges in Asia travel retail were compounded by the prior year benefit from MAC that I previously mentioned. Organic net sales fell 6% in hair care and were flat in fragrance.

Net sales from La Labo grew double digits, fueled by both targeted expanded consumer reach and same store sales. The brand’s ethos and high touch services persistently attract both new and loyal consumers, as evidenced by the double-digit net sales growth in our freestanding stores as well as strong performance during holiday and key shopping moments. For Jo Malone London, results from the brand’s holiday collection were strong and net sales increased in nearly all channels of distribution. This growth was offset by a decline from Estée Lauder due to the timing of holiday shipments compared to last year. Our gross margin decreased 60 basis points compared to last year. The positive impacts from brand mix and net strategic pricing actions were more than offset by higher costs due to promotional items and foreign currency.

Operating expenses increased 260 basis points as a percent of sales, driven largely by the reduction in sales. Selling, advertising and promotional activities and innovation collectively accounted for 160 basis points of the increase compared to last year as we supported retail growth while also continuing to destock certain accounts in Asia travel retail. Operating income declined 25% to $577 million, and our operating margin contracted to 13.5% from 16.6% in the prior year. Our effective tax rate for the quarter was 37.7% compared to 24.9% last year. The increase in rate was primarily due to a true-up in the quarter to reflect the now higher estimated tax rate on our foreign operations for fiscal 2024 as a result of the change in our geographical mix of earnings.

This also reflects an unfavorable impact related to previously issued share-based compensation. Diluted EPS of $0.88 decreased 43% compared to last year, including a dilutive impact of $0.19 from the change in the effective tax rate. The impact from business disruptions in Israel and other parts of the Middle East was $0.02 dilutive to EPS in the quarter. The acquisition of the Tom Ford brand was neutral to EPS as interest expense related to our debt financing was offset by the combined benefits derived as the licensor of the brand from royalty revenue this year and savings from no longer having to pay licensee royalties. During the quarter, we generated $937 million in net cash flow from operating activities compared to $751 million last year.

The increase from last year reflects lower working capital partially offset by the decline in net earnings. The favorability from working capital was largely due to the actions we have taken to reduce inventory, primarily finished goods and semi-finished goods, that resulted in a significant improvement in our days to sell. We invested $527 million in capital expenditures and we returned $474 million in cash to stockholders through dividends. Turning now to our outlook for the remainder of fiscal 2024, which excludes the impact from the remaining payment for the outstanding Decium equity anticipated to occur in May 2024 and includes Clinique’s heightened focus in active derma, while we delivered on our Q2 expectations, we are lowering the high end of our fiscal ’24 organic net sales outlook range to reflect continued risks from evolving macroeconomic volatility and geopolitical tensions in certain areas around the world.

Despite this change to our sales outlook, we are maintaining our full year operating profitability expectation. Furthermore, we are updating our EPS outlook primarily to reflect the increase in our estimated full year effective tax rate, largely due to the anticipated geographical mix of our earnings. This is expected to more than offset the EPS benefit from foreign currency translation. Using December 29 spot rates of 1.107 for the euro, 1.273 for the pound, 7.109 for the Chinese yuan and 12.90 for the Korean yuan, currency translation is anticipated to negatively impact reported sales for the third quarter and diluted EPS for both the third quarter and the full year. We expect organic net sales for our third quarter to increase 3% to 5% as both our businesses in Asia travel retail and in mainland China are expected to return to growth.

In Asia travel retail, this growth assumes the continued reduction in retailer inventory as well as the anniversary of some business disruptions we experienced last year. Currency translation and the potential risks of further business disruptions in the Middle East are each expected to be dilutive to reported net sales by one point. We expect third quarter adjusted EPS of $0.36 to $0.46, for a decrease between 3% to 24%. Currency translation and the potential risk of further business disruptions in the Middle East are each expected to dilute EPS by $0.03. Adjusted EPS in constant currency is expected to range between an increase of 3% to a decline of 18%. For the full year, we expect reported and organic net sales to range between a decline of 1% and an increase of 1%.

Our plants have been running at reduced capacity, reflecting the pull-down of production in line with our lower shipments and to support the reduction of inventory levels both in-house and in the trade. This has resulted in inefficiencies in some of our manufacturing locations and may trigger a requirement to recognize the related manufacturing costs as in-period costs instead of when products are sold. We have reflected this potential expense and the corresponding pressure to gross margin in our outlook for the balance of the fiscal year, primarily in the third quarter. Our full year operating margin outlook remains unchanged and is expected to be between 9% and 9.5%, a contraction from 11.4% last year, and planned to partially offset the incremental pressure to gross margin through disciplined expense management.

We now expect our full year effective tax rate to be approximately 35% compared to 26.5% last year. The increase reflects a larger mix of our expected fiscal 2024 earnings in higher tax jurisdictions as well as the unfavorable impact of previously issued share-based compensation. Diluted EPS is expected to range between $2.08 and $2.23 before restructuring and other charges. The potential risks of further business disruptions in Israel and other parts of the Middle East and currency translation are expected to dilute earnings per share by $0.08 and $0.07 respectively. In constant currency, we expect EPS to fall between 34% to 38%. Given the progress we have made in strategic initiatives the first half of the year, we expect to return to organic net sales growth and stronger operating profitability in the second half.

In November, we announced a profit recovery plan to support the progressive rebuilding of our profit margins in fiscal years 2025 and 2026. Today with the announcement of a two-year restructuring program, we have further expanded this plan. As Fabrizio mentioned, we are focused on strategically leveraging our strengths to accelerate our return to more sustainable profitable growth while elevating our consumer activations and increasing our operating agility. The restructuring program is designed to right-size and streamline select areas within our organization, which unfortunately necessitates us making the difficult decision of an expected net reduction in positions globally of 3% to 5%. The restructuring program is expected to begin in the third quarter and continue for the duration of the profit recovery plan.

We expect to take charges of between $500 million and $700 million and generate annual gross savings of $350 million to $500 million before taxes. A portion of these savings is expected to be reinvested in consumer-facing activities to drive long term sustainable profitable growth. We now expect to drive incremental operating profit through all initiatives under the profit recovery plan of $1.1 billion to $1.4 billion, inclusive of net benefits from the restructuring program announced today. The plan is expected to yield almost all of the anticipated benefits by the end of fiscal year 2026, with slightly more than half of these benefits realized and contributing to operating profitability in fiscal 2025. In closing, we express our sincere gratitude to our teams around the world as they work tirelessly to execute against our priorities and drive our business forward.

We believe that with the work that is being done to position us to return to growth in the second half of the fiscal year and beyond, and with the successful execution of our expanded profit recovery plan, we will be better positioned to return our company to long term sustainable growth and profitability. That concludes our prepared remarks. We’ll be happy to take your questions at this time.

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Q&A Session

Operator: The floor is now open for questions. [Operator instructions] Our first question today comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

Dara Mohsenian: Hey, good morning guys. First, just a couple clarification questions under the restructuring and profit recovery program. Could you just give a little more detail on the structural changes in the program beyond the job cuts, and in the past, you’ve done a pretty good job of delivering upside to savings goals, so how do you think about other savings areas that could potentially emerge over time and are you pushing beyond what’s potentially announced? Then if you’ll be generous enough to entertain a question on China, I think clearly there are some structural changes that have emerged in China beauty – the consumer perception of the category itself, willingness to be ostentatious, etc., changes in daigou selling, promotional impacts, mass brand performance.

There have been impacts to Estée brand share, so maybe Fabrizio, just take a step back and broad thoughts on the opportunity in China from here, but also specifically how do you adjust to these changes, what are your focus points from here in this new China reality? That’d be helpful, thanks.

Tracey Travis: Dara, I’ll start with your question on the profit recovery plan. What we shared in November was our primary focus of the plan is to rebuild our gross margin, which is where we’ve lost, as you all know, quite a bit of margin. Some of the strategies that we spoke about at that time that we were putting in place is really to focus on more profitable channel mix, to get our inventories under control, which should improve our obsolescence as well as some of the discounting that has gone on over the last few years. We are being more granular in terms of some of the strategic pricing initiatives that we have, and we also talked at that time about from an expense standpoint, implementing an incremental indirect procurement program to reduce some of our expense areas, so those were some of the initiatives that we spoke about that made up the $800 million to a billion in terms of the profit recovery plan at that time, and then obviously we’ve announced an additional element to the program with the restructuring.

On China?

Fabrizio Freda: Yes, so on the China question, first of all, we had some soft consumer sentiment in the recent period that drove this lower prestige sales growth. However, first of all, we remain very optimistic about the long term opportunity in China and continue to invest for growth. The second point is you asked about the brand health and what’s changing. Our brands are really, really strong. The retail sales growth has been much better than the net growth, and have been extraordinary, double-digit growth on many of our brands, particularly in luxury, like La Mer, Tom Ford, Jo Malone, Bobbi Brown, Kilian, Frederic Malle and Aveda, also Le Labo continues to track. In terms of market share, importantly we gained market share over the fiscal year in quarter two, despite there was a small reduction from market share in quarter two, but we gained market share in skin care category 80 points, we gained in fragrances, we gained in healthcare, and there are several important of our–many of our brands, we had really top ranks in 11.11.

Another element to support the strength of our equity is the freestanding store double-digit growth both in total and in live doors in mainland China, and I should also mention the strength in Hong Kong, where we grew substantial market share, in part reflecting success with the Chinese consumers. Where we go from here? As I said, we are going to continue to invest in China and we believe we have a great team there and determination to continue building market share, winning in the long term. The first step is building our distribution in winning online channels, that this will continue, particularly accelerating the win in the short term, and continue to build market share in new cities in brick and mortar, where I would like to underline is in quarter two, we grew substantial brick and mortar market share in China.

We’ll also continue to leverage our current trend where retail sales [indiscernible] and we will support very strong holiday plans, which as you know, there is a high concentration of sales in China during the various holiday plans in the course of a year. We also believe that there is a particularly strong opportunity in the luxury area, around our luxury brands, which as I said are doing very well, and I’m referring to Estée Lauder Re-Nutriv launch that we mentioned in the prepared remarks. La Mer, Tom Ford, Le Labo, Bobbi Brown have extraordinary aggressive plans. Strong innovation plans in H2, by the way, will continue and will accelerate, leveraging the new laboratory in Shanghai, which is an important opportunity for us. It is important–you asked what is changing in the various other aspects, so in the relationship with travel retail and in the managing of the overall pricing and promotions across the China consumer framework, we have dramatically improved the model or the process between the China team and the PR team in making decisions about promotionality, pricing, channel prioritization, and this is working better and better for the future.

Also about the development of local brands, for the moment they are mainly in mass. We completely acknowledge there will be a continuous development of local brands, and the strength of our innovation and the differentiation of our brands is going to be key, and so we’ll continue to invest in this [indiscernible] and in the strengths. The investment in our local lab, that will develop a lot of local innovation, is part of the answer to how to compete in this evolving environment as well. Last, we are shortening the supply chain with a factory in Asia Pacific and the ability to plan more accordingly to demand, and to be more agile in responding to demand is the added big capability that will increase the flexibility, the agility of our China team in following demand.

Net, we have a strong business in China, we have strong market share, and we are determined to continue to invest for the long term in China.

Operator: The next question comes from Bryan Spillane with Bank of America. Please go ahead.

Bryan Spillane: Thank you Operator. Good morning Fabrizio and Tracey. My question is just related to maybe how you’re going to measure yourself as an organization over the next two years, so the ’25 to ’26 time frame, and I guess I ask that in the context of stock clearly today reflecting an inflection, right – a positive inflection, but at the same time, there’s a lot of mix things, right? China, slower than it was, but again optimistic for the long term. You’ve got a lot of work to do underneath the hood, right, to execute on the restructuring program and improve margins. I guess I’m just curious how you’re thinking about how linear this improvement would be, and again, are you going to change the way you’re going to maybe measure yourself in the near term, just given how much work you’ve got to do and maybe how different it was versus business as normal over the last couple of years. Thanks.

Fabrizio Freda: Yes, absolutely. Your question gives me the opportunity to give an overview of what we are trying to do. I hope you realize that the work we have done in the last several months culminates today in what we define as an inflection point. It’s first of all acknowledging the need of some important changes to align to the future opportunity to address our key pressure points developed in this post-COVID environment, so I’d like to summarize first of all what we are doing, and then I will measure ourselves. The way we look at it is that, first of all, we are addressing the need to change and we are addressing the key pressure points. The first is the meaningful progress we have done on retail stocks in Asia, that as we said as of April, they should be aligned, and this will determine the ability to align in the future retail and net in this very important channel for us and for the industry in general.

That’s a big pressure point that we are addressing. The second, the part that was driving margin was obviously the need of gross margin, addressing our gross margin, addressing our cost structure, and right-size our organization, and so the profit recovery plan enlarged and the execution of it, which is strongly advanced, and the additional restructuring are addressing decisively our ability to recover profitability at an accelerated pace. At the same time, this profit recovery plan is designed to resource our future growth plans more aggressively and to develop the right agility and speed to market in the organization, and we are going to measure this and to measures ourselves on that. For agility, I mean agility to allocate resources in this more volatile world more promptly and faster, as the one, for example, supply chain I just mentioned in the previous question, and the speed to market of innovation to better compete with local brands.

The other important part of profitability and margin was skin care, and obviously we need to recover our skin care growth to address the profitability, as we discussed several times. I just want to clarify that the skin care growth during quarter two was very strong in the Americas, in EMEA, in APAC ex-China. In China, we didn’t grow skin care during quarter two, but we grew market share of skin care, as I said before, in a very strong way. We are addressing the skin care opportunity and the innovation of skin care that we are announcing, the one on Estée Lauder, De La Mer Fresh, De La Mer future innovation, the Clinique repositioning, [indiscernible] leveraging its heavy touch position, the The Ordinary activation and future of The Ordinary globally, all these are engines that should continue to grow also in the long term our skin care, now that [indiscernible] the retail stocks in [indiscernible] will build.