William P. Lauder, President and CEO Richard W. Kunes, Executive Vice President and CFO Philip Shearer, Group President Daniel J. Brestle, Chief Operating Officer Dennis D’Andrea, Vice President, Investor Relations

Bill Picoriello, Morgan Stanley Christopher Ferrara, Merrill Lynch Amy Chasen, Goldman Sachs Wendy Nicholson, Citigroup Linda Bolton Weiser, Oppenheimer & Co Alice Longley, Buckingham Research Sandhya Beebee, HSBC Leila Kanniainen, Prudential April Scee, Banc of America John Faucher, JP Morgan

Good day everyone and welcome to the Estee Lauder Companies 2006 Third 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 Vice President of Investor Relations, Mr. Dennis D’Andrea. Please go ahead sir. Dennis D’Andrea, Vice President, Investor Relations: Good morning everyone. On today’s call we have William Lauder, President and Chief Executive Officer; and Richard Kunes, Executive Vice President and Chief Financial Officer. Also with us today is Philip Shearer, Group President, responsible for Clinique, Origins, Aveda, Bumble and Bumble, and our online business. Dan Brestle, our Chief Operating Officer, is also here and he’ll be available for the Q&A session. Since many of our remarks today contain forward-looking statement I will refer you to our press release where you’ll find factors that could cause actual results to differ materially from these forward-looking statements. I’ll turn the call over to William. William P. Lauder, President and CEO: Thank you Dennis. Good morning everyone and thank you for joining us. We reported that sales for our fiscal third quarter were $1.58 billion, up 3%, earnings per share were $0.29. The press release provides more detail and Rick will go through specific numbers later on. The prestige cosmetic business continues to grow at a safe pace, around 3-4% annually in the U.S. and much higher in emerging markets. There are a number of exciting growth opportunities in the beauty business. New products, creativity, and great branding create excitement and fuel demand. Half of the baby boomers have already turned 50. They are remaining active and healthy longer and they want to look their best. Additionally, the ethnic population in the U.S. is growing rapidly. At the Estee Lauder Companies we are well positioned to benefit from these growing industry trends. We believe the economic and industry trends underlying our business are positive. Recently, we’ve been impacted by several unusual factors that have hindered our growth, yet we still feel that we have still generated a solid underlying performance. We’re confident that once we get over these hurdles, mainly the Federated-May merger, we should be poised to resume stronger sales gains. The later Easter holiday in April impacted results across the board for much. But more importantly, growth in mainstream U.S. department stores, still our core business, has been sluggish at best. For us in particular, the pace and execution of the Federated-May merger continues to depress our results. We now expected Federated to close a total of 75 doors during our 2006 fiscal year. For us that means an expected $70 million less in revenues coming from loss sales, returns, and disruptions. With their integration not complete, business in the remaining stores hasn’t yet stabilized. During the ongoing consolidation stores will close, move, refurbish, and reopen. As Macy and Bloomingdale become national chains, promotional calendars will be altered. As a result, we anticipate that it will be difficult to establish meaningful sales comparisons for Federated for at least another year. It is likely that during our next fiscal year there could be a resolution in the pending sales of Lord & Taylor. We’re positioning ourselves mainly to address this new reality. We are restructuring the sales force to better service our retail customers. We’re excited about having the ability to promote our brands nationally. This should allow us to run broad advertising programs and reach new consumers in a manner we have not been able to do before. While the contraction in department stores is difficult now, we’re optimistic that the changed landscape eventually will prove beneficial. For us, dealing with the condensed department store universe isn’t a new development. To give you some perspective, in 1970, the Estee Lauder and Clinique brands were sold at 202 different department store names in the United States, and we were with 75 by 1990. Today, there are just 17 department store nameplates that sell our products, and it’s possible that one or more of those could disappear in the not too distant future. However, while the nameplates decrease, over the same time period the number of prestige stores has increased. North American department stores currently comprise 37% of our total sales, down from 46% four years ago. We built out business on that distribution channel and still believe in its viability and vitality. That said, we’ve also followed our consumers as they have found other places to shop for cosmetics. Just as we’ve expanded our portfolio to 25 brands, our distribution options are more diversified and we’re not as reliant on any one channel. Distribution diversification has been a cornerstone of our strategy for at least a decade and we reaffirmed it in the strategic imperative we outlined at the start of this fiscal year. For travel retail channel, high-end specialty stores, our own retail stores, saloons, and online have been sold contributors to growth. As measured by sales, our high-margin travel retail division has become one of our largest international affiliates. International passenger traffic is expected to grow at least 5% annually, which should lead to continued strong sales gains at travel retail locations. MAC is the biggest cosmetic brand and we’re seeing strong results throughout the upper end specialty store channels. Overall our retial stores write up sales increases in the high single digits, led by MAC’s 136 worldwide locations. Our online business has also become sufficiently large to be meaningful to the bottomline. In terms of what we sell, we’ve taken steps to strength our two largest franchises, Estee Lauder and Clinique, and are pleased with some early results. Although Estee Lauder’s overall share has slipped at retail it still boasts the two top fragrances in the United States prestige department stores, Pleasures and Beautiful, and the one number one anti-ageing product, Perfectionist CP+. The Estee Lauder brands share a fragrance that has stabilized in the last few months. Consumers have responded to an ad campaign featuring actress Gwyneth Paltrow as the Face of Pleasures with sales of that scent increasing 32% retail during the quarter. As a result, Pleasures overtook Beautiful to become the top ranked fragrance. Gwyneth Paltrow also is promoting our new Pure White Linen fragrance, which is on the counter as we speak in time for Mother’s Day. We’re optimistic our Classic Appeals will bear a similar result. As we mentioned last quarter, Tom Ford brought renewed attention and buzz to our namesake brand, reviving sales particularly in Europe. It’s anxiously awaited spring line will be introduced shortly and is more extensive than the first collection. The Estee Lauder brand recently gained marketshare in China, thanks to strong genuine promotions and a very positive season for our new products. The brand of our skin care lines geared to younger consumers in Asia, where the average age of the department store shopper is the youngest in the world. We expect the Estee Lauder brand to perform well in international markets where it has greater opportunity. About 60% of its sales comes from outside of North America. At Clinique, the brand is reemphasizing its roots stressing its core three-step regimen and allergy tested underpinnings. Clinique has created a dramatically different gift with purchase content that will be unveiled in the spring of 2007, and we expect to reinvigorate the program. Philip Shearer is on the call and will discuss more about Clinique shortly. At a company like ours that owns a multitude of brands targeting diverse consumers, some brands perform better than others at different times. The more exclusive brands that are stable, MAC, Bobbi Brown, Jo Malone, and Crème de La Mer were fast growing in our third quarter. MAC, which has shown robust double digit sales growth year over year, shows no signs of slowing. In the third quarter of sales at retail it grew 23% led by international. Almost one of every $3 spent on prestige makeup in the U.S. last year went to RF, an alternative brand, from next to nothing a decade ago. We sold Stila last month allowing us to focus on our two leading makeup artist brands, which continued to gain share. That move was part of our commitment to optimize our brand portfolio, another strategic objective. The fragrance business has been challenging, but we have good news to report. Thanks to inventive marketing, Sean John’s Unforgivable became the number one selling men’s fragrance in the U.S. department stores after its February introduction, making it the most successful men’s launch in the industry in the last four years. Its sales more than doubled our expectations and the fragrance is attracting a younger urban audience. For the first time, we used an Internet-based marketing approach in order to reach fans of Sean Comb’s music. We designed a web portal for the brand, got banner ads, hiked interest of 200 sites, and created an E-card containing a controversial ad that people could e-mail to friends. We will roll the fragrance out to the UK at travel retail locations shortly and introduce ancillary products. We’re optimistic that Unforgivable could become a multi-year success, thanks to Sean Comb’s huge following. If that transpires, it should bolster the fragrance category, one of our strategic imperatives, and help improve fragrance profitability. We continue to stretch our reach geographically, another imperative we outlined to penetrate new markets, search for promising opportunities brand by brand, and expand the ones that are put down stakes. In China, Estee Lauder and Clinique are the fastest growing prestige brands as measured by same store sales, driven by skin care and makeup. La Mer, MAC, and Bobbi Brown entered China about a year ago and consumer reception has been enthusiastic. Some of our largest brands are sold in 130 countries and territories. The other lines have much expansion potential left. In the third quarter, MAC entered Jordan and Estee Lauder was introduced in Vietnam. Bobbi Brown is exploring points of sales in Turkey, Central Europe, and the Nordic region. It is expected that when Bobbi Brown is available in the Seoul Airport this quarter, the counter will become its largest door in the world. On the cost side, work is progressing on our SMI initiatives and the powered project Aveda remains on track to be implemented at the end of this calendar year. In several years, when it is fully operational company wise, the effort is expected to result in annual savings of about $80 million. We’re committed to cut cost by approximately $45 million this fiscal year under our cost savings initiatives. Going forward we expect to realize savings from this program of approximately $75 million annually. We continually search for ways to boost the bottomline through stricter cost controls and better business practices. As we have often said, we run the company with a long-term perspective. While we hope to achieve positive results each quarter, because of calendar shifts, product introductions, and promotional timing, such a short-term standard is difficult if not impossible to be measured against. We have often said our performance should be measured over a wider timeframe. We’ve managed our business for 50 of the last 60 years on a long-term multi-year basis. With that in mind, the company will be moving from the current practice of providing half and full-year guidance to giving guidance on a full-year basis beginning with the next fiscal year. I understand this is a big change but we believe this will appropriately focus all of us on the long-term performance of our company. We plan to offer greater insight on the growth drivers of the business and significant trends to continue to provide investors with a better understanding of the factors that affect our performance. To sum up, we’re confident the company is well positioned to resume our long creation of solid annual growth. We have a commanding presence here at home and tremendous growth potential abroad. Combined with a focus on sharpening our execution and enhancing our growth drivers, we’re confident we can maintain our position as a preeminent global prestige beauty company. Now, I’d like to hand it over to Rick Kunes, our Chief Financial Officer, to take you through the financial details. Richard W. Kunes, Executive Vice President and CFO: Thank you William and good morning everyone. Our discussions today will focus on our results from continuing operations. As William noted, the company achieved third quarter sales of $1.58 billion, a 3% increase over last year’s third quarter. In local currency, sales rose 6%. We reported diluted EPS of $0.29, which included a $0.15 per share special charge related to our cost savings initiatives. Our press release today details net sales and operating income by product category and geographic region. I’ll expand on just a few key items regarding those results. In the quarter, skin care sales were led by our Asia and Europe, Middle East, and Africa businesses where we benefitted from several product introductions from Estee Lauder and Clinique. In this category, our La Mer brand continued to grow during the quarter and with Origins, the ongoing strength of modern products and sales of its new doctor wireline were positive contributors. Philip will speak to some of our results related to Clinique. In makeup, MAC and Bobbi Brown continue to be the sales growth frontrunners with each generating solid gains worldwide. Our BeautyBank division reported lower sales as they were up against a difficult comparison with last year when the brand rolled out to approximately 300 new cold stores. Our fragrance business increased nicely over the prior year’s quarter and was up in each region led by the Americas. Contributing strongly to the category was the terrific launch results of our new Sean John Fragrance, Unforgivable, which William noted has far exceeded our expectations. The ongoing domestic success of these two along with its international rollout helped lift the category sales as well. Estee Lauder Pleasures is continuing its strong performance, once again up double digits reflecting a positive effect of the Gwyneth Paltrow marketing campaign. When we look at our geographic results for the quarter, the mid single digit sales growth in the Americas reflected the strength of most specialty stores and more modest growth in our other department stores. All product categories except skin care were up. The introduction of Unforgivable by Sean John bolstered our fragrance results, our makeup artist lines, hair care brands, and Internet businesses lifted our other categories in the region. Overall growth in Canada and a strong performance in Mexico were positive factors. We continue to experience softness in our core brands primarily reflecting retailer consolidation as well as competitive pressures. In Europe, the Middle East, and Africa our business in Russia and Middle East distributors each rose more than 50% this quarter in local currency while France turned in a solid double digit sales increase. Our retail grew in tandem with the increase in the airline passengers. Asia-Pacific saw the highest percentage growth with our business in China and Hong Kong continuing to post very strong double digit local currency sales increases. We’re also pleased with a strong return of momentum in Korea and a solid growth in local currency in Japan this quarter. Our gross margin of 73.9% for the quarter decreased 90 basis points over last year. Factors contributing to the decline were an unfavorable change in the mix of our business within our geographic regions and product categories of approximately 90 basis points, an increase in our special charges of approximately 40 basis points and a charge related to non-utilized tooling of approximately 30 basis points. Partially offsetting these decreases were favorable changes in promotional activities of approximately 70 basis points. Operating expenses as a percentage of sales for the quarter increased 340 basis points to 66.5%. The cost savings initiative charge of $52 million, primarily related to an employee voluntary separation program made up almost all of the increase of approximately 330 basis points. Operating expenses were also negatively impacted by about 80 basis points due to the estimated effect on net sales of retailer consolidation. The incremental stock-based compensation expense added about 40 basis points. Partially offsetting these increases were the company’s aggressive and disciplined spending efforts including savings associated with our cost reduction program. Operating expense improvements of approximately 80 basis points resulted from sales growth in brands with lower advertising, merchandising, and sampling cost structures and higher spending controls as well as approximately 30 basis points related to sales growth from our travel retail business. As a result, our operating income for the quarter was $116.3 million, compared to $178.8 million last year. I’d like to note that by the end of this fiscal year we will have achieved significant cost savings in selling distribution and general and administrative expenses, reducing these costs by approximately 210 basis points over the past four years. We have reinvested some of those savings in advertising, merchandising, and sampling true to our beliefs that consistent investment spending will further drive our growth and ensure the long-term viability of our business model. Looking at operating profit by category, skin care was lower due to difficult comparisons to prior launches in some of our four brands. Operating results in fragrance also declined due to lower sales from certain established fragrances along with higher launch costs. Makeup results were flat reflecting improvements in our makeup artist brand, which were offset by declines in certain core brands and at BeautyBank due to the difficult comparison I mentioned earlier. In Americas, operating income increased due to higher sales. Our region operating profit in the Americas declined, primarily reflecting changes in certain of our core brands due to competitive pressures and retailer consolidations. Adding to the decrease was cost related to stock-based compensation. These decreases were partially offset by healthy operating income gains in our makeup artist brands and online business. In New York, the Middle East, and Africa operating income grew primarily due to improved results in Russia, France, Germany, and our Middle East distributor business. Our business in Asia-Pacific generated strong operating income growth with Japan, Australia, and Hong Kong reporting the largest increases. We’re beginning to see improved and consistent results in Japan, which has been a difficult market for a long time. Regarding our interest cost, we reported net interest expense of $6.6 million this quarter versus $3.3 million last year. This increase is primarily due to outstanding commercial papers during the quarter. Our balance sheet and cash flow remains strong, providing us with the financial flexibility to take advantage of the right opportunities. Our net cash flow from operating activities for the nine months ended March 31, 2006, improved 61% to $476 million. For the full fiscal year we expect net cash from operating activities of approximately $575 million. During the first nine months we spent $353 million to repurchase approximately 10 million shares of our stock under our share repurchase program. We anticipate capital expenditures of approximately $275 million in fiscal 2006, higher than last year due to our company-wide systems initiatives. Regarding our working capital, inventory on March 31, 2006 was $718 million, slightly lower than last March. Inventory days were 158 at the end of the quarter versus 168 last year, continuing the improving trend you’ve seen over this fiscal year. Our Days Sales Outstanding was 51 days at March 31st, compared with 54 days a year ago. Let me briefly talk about the balance of this fiscal year. We are reaffirming our previous sales growth estimate of approximately 3% in constant currency with foreign currency translation expected to negatively impact reported sales by approximately 1.5%. Our estimate of reported diluted EPS from continuing operations is $1.61 to $1.72. As a reminder, this EPS forecast includes the estimated impact of the Federated-May merger, stock-based compensation, and the special charge associated with our savings initiatives, which collectively amounted to between $0.46 and $0.50. Our projection of EPS from continuing operations is consistent with the $1.87 to $1.94 we made in October 2005, at which time we did not estimate the special charge. Let me say that Federated Store closures and the business disruption associated with their merger remains a moving target. We now have built into our forecast for this fiscal year 75 fewer stores compared with 62 last quarter. The remaining 14 stores that have been announced for future closure and the resolution of Lloyd & Taylor will be part of our fiscal 2007 plans. Our EPS estimate also includes the $45 million of incremental cost savings we described on last quarter’s call. In connection with these statements initiatives, this fiscal year we expect to record special charges of up to $90 million. As I’ve said before, we will continue to be very aggressive in pursuing financially justifiable cost savings throughout the company. For the full year, we expect gross margins to decrease slightly with supply chain savings offset by the impact of the unfavorable gift program in the first quarter, pressures on our cost resulting from higher energy prices, and negative foreign exchange. We also anticipate a significant increase in operating expenses due primarily to the special charge. Operating expense margins will also reflect the effect of slower sales growth and about a 50 basis point negative impact on stock-based compensation. These will be partially offset by the positive effect of our cost savings. As a result, our full year reported operating margins is expected to decline substantially. At this time, our effective tax rate is projected to be 37.4% throughout fiscal 2006. We are currently in discussions with the IRS regarding a field audit of fiscal years 1998 through 2001. It is probable that additional tax liabilities will result from these discussions, but an estimate of the final outcome cannot be made at this time. We may conclude negotiations during our fourth quarter and if a resolution is reached, we expect it to be reflected in our year end reported results. Please remember that we run our business on an annual basis, and as such we will be changing to annual guidance beginning next fiscal year. This concludes my comments for today, and I’ll turn the call over to Philip Shearer. Philip Shearer, Group President: Thank you Rick. Good morning everyone. As William said earlier, I’m responsible for Clinique, Origin, the other brands which are Aveda and Bumble and Bumble, as well as the EFC Online which coordinates our online activities across all brands. This portfolio represents roughly 40% of global sales of the EL company. Today, I’m going to speak specifically about Clinique, an integral part of the company’s portfolio optimization strategy, and we’ll be pleased to answer questions on that. As you know, Lynn Green took over leadership of the brand in January and her extensive expertise will help drive Clinique’s strategies worldwide. Clinique’s distinct position in the first plan developed with the dermatologist has helped it become the largest global beauty brand. Clinique is the leading brand in department stores in the U.S., U.K., and Canada. Now, the opportunities I’m trying to do is by region. Let’s start with North America. North America is the number one player in prestige beauty and a greater than 50% share of prestige in calendar 2005. In skin care and makeup its share of prestige exceeds 20%. If you look at the closely at Clinique, sales are almost three times as many units in skin care as the second largest player, and in makeup Clinique sales are more than a quarter of all units. For sales among women’s products sold in U.S. department stores, Clinique has the right among of sub-players in dollar volume in calendar 2005. Clinique’s position in North America is very strong, but lately our growth in this market has slowed, which in my opinion is due to three main factors that go into our sales. First of all, competition from emerging players in prestige that have brought us down as well as competition from some less market brands trying to co-op Clinique positioning. Our response to this challenge is to reemphasize our core equity. We have just re-launched three sets of our largest franchise in North America. We grew about 8% in the last quarter at retail, well above the market average. From the success we plan to aggressively promote three more products with an extensive use of national TV thereby leveraging the consolidation of our retailers. Also this, strength will make successful additions to the turn-around franchise leading one of our strength in exportation, which is absolutely essentially to the brand. To support our core positioning on a wider basis, we’re also leveraging our partnership with a leading medical institution to enhance our knowledge of the skin which we’ll then use in developing products. Second challenge has been our beautification programs which support about 30% of our sales. Starting next spring, we will resume the program by partnering with beauty authorities such magazine editors who will choose the products offered in the gift thereby endorsing the promotion. Also, for consolidation of our distribution we will move to national dates, which is an opportunity to improve the execution of the program. Of course, the manufacturing is in our basic business where we can leverage the expertise over a highly trained and knowledgeable beauty consultant, a major point of difference. Third, we are challenged by the department store consolidation, which probably affects Clinique more than other players because of this disproportionate share of unique product. Clinique was the first brand in the company to realign itself together with our retailers, which improves our efficiency within the new retail structure. Additionally, we continue to evaluate the latest retailer development to decide what is best for the brand. From a simple marketing point of view, we are also extending our programs to capture a new consumer who may not shop in traditional channels. Although the North American market is going to be difficult, we’re addressing the challenges as well as to think about the future. There are two significant opportunities worth mentioning. One, the North American market is growing. To take advantage of these opportunities while advancing some of our products and advertising to the next generation of young consumers that has different ethnic backgrounds. Two, we are the leader in prestige men skin care which is growing double digits. We know that because of its universal appeal Clinique is well accepted by all groups. I have just reviewed North America, which is about 45% of Clinique’s business. Now, let’s talk about the other 55%, the international side, which has been growing solidly in the mid single digits. Starting with Europe, Clinique’s position is strong. We estimate that the brand ranks four in five in terms of prestige and has gained share over the past five years. With lead in skin care and with consistent gains and secondly makeup also with a share gain. We’re quite confident that the brand had strong appeal is it suggested price points and we’re expecting it to improve to another position in the years to come. Actions which have been the re-launch of products last fall, our strength in foundation should drive growth in the future. We continue to perform well in the U.K., which is our largest European markets, and we’ve also been very successful in Central Europe in Poland, although this market remains small but growing. Third, through the Asia-Pacific regions. Japan’s revenue represents about 40% of Clinique’s sales and has been a challenge over the past several years. I’m quite happy to report that we have made significant progress and it’s a positive trend. In the fiscal year we recorded consistent monthly growth and stabilized our share of prestige. Actually over the first part we gained share. We accomplished this by building on our core equity products, again three steps, exportation and by significantly enforcing our education program. The recent survey around Clinique ranked 1st in consumer counters, which is critical to serving the Asian consumer. We also have updated our point of sales interest and successfully launched the new advertising campaign. As a result, internal data shows a significant increase in new consumers. For the rest of Asia we’re seeing strong gains in China, we’ve announced 51 stores and expect to open several more by the end of the fiscal, as well business is improving in Korea and Taiwan, we’ll have started to approach we have in Japan. For East Asia, it’s more in volume, and in general we have good market position. For product samples we’ll have specific products for the region and our new dermatology line is off to a very strong start across all markets. For the south Clinique is number two in Australia. But there are other opportunities for the brand in small but fast growing markets such as the Middle East and some Latin American countries. In terms retail we remain a very significant contributor. In conclusion, Clinique is significant brand worldwide with solid growth potential and we’re actively pursuing the opportunities ahead. At this time, we’ll be happy to take your questions.

Thank you. The floor is now open for questions. If you have a question, you simply press the “*” key followed by the digit “1” on your touchtone telephone. Questions will be taken in the order in which they are received. To ensure everyone has the opportunity to ask a question, we will limit each person to one question and a related followup. Time permitting, we will return to you for additional questions. Just queue again by pressing the “*” key and the digit “1.” Our first question today comes with Bill Picoriello with Morgan Stanley. Bill Picoriello, Morgan Stanley: Good morning. My question is on the Americas, if you could just decompose the components of the growth for us in terms of how much was the US that you mentioned, the Canada and Mexico contribution, also how much did cores decline and what was the contribution from the alternative channels, the company-owned stores in Internet? William P. Lauder, President and CEO: The non-US, Mexico and Canada, I think the total contribution for them was about $8 million and I think the remaining was in the Americas, which was around $23 million in its totality. Kohls were down and I don’t have the exact figure, but it was down somewhat because of the anniversary of the 300 stores, which was launched last year. I’m sorry the rest of your question… Bill Picoriello, Morgan Stanley: Getting the alternative channels, the company-owned stores in the Internet contribution? William P. Lauder, President and CEO: The company-owned stores are up solid single digits. They did pretty nicely in the quarter and our makeup artist brands did very well in the quarter, and our Kohl brands remain somewhat challenged again because they’re really the most affected by the disruptions with the consolidation of Federated May. Bill Picoriello, Morgan Stanley: Also, I just wanted to follow up what’s in store in the U.S. Could you comment on the JC Penney Sephora deal, are you going to allow your brands in that channel, does that change any developments with the Kohls strategy, and then with that decline on the BeautyBank, what’s your outlook for growth there in the coming quarters, and what are the plans to reactivate the growth there? William P. Lauder, President and CEO: Well, in the four questions embedded in the one, I can knock them off one at a time. For the Sephora JC Penney announced during venture, it certainly is an interesting development for both of those retailers. We are in discussions with Sephora about what their plans will be and have not yet concluded anything as to whether to not any of our brands will be participating with them on that. As we develop our conversations with them, of course, if there’s any significant result, we will share that with you, but we’ll announce it with the broad community. The next part of your question was the possible impact of this joint venture with Kohls and Beauty Bank, we don’t believe there will be any impact at all. It’s our understanding that the vast majority of the 800 or 900 or so stores that are JC Penney stores throughout the United States are predominantly in regional malls where we also have a distribution, and the cornerstone of the strategy with BeautyBank and Kohls is that Kohls is not in regional malls, so we have other brands in distribution. Kohls is really counter programming themselves to the more traditional department stores in regional malls, so we do not expect that there will be much of an impact. The next two parts of your question, can you please refresh my memory? Bill Picoriello, Morgan Stanley: Just in terms of what the growth outlook at the BeautyBank and what you’re going to do there to reactivate the growth there. William P. Lauder, President and CEO: Well one of the things we’re seeing now that we’re about 18 months into active retail management with Kohls is that we’re getting into, if you will, the basic blocking and tackling of growing the business at retail, which is something we have a little bit of experience in, and what we’re finding is some of the key core principles of…this is door by door, build the business, build the product with the consumer, get management support in, we find that there are general trends, whether it’s the store manager who really believes in the business and encourages his team to support, we’re seeing great results in traction with experience tells people in this store. There are a number of different factors, and we are going to be building this business over a long term. We have a multi-year agreement with Kohls in building these brands. We don’t build brands overnight. These are new brands that consumers were never aware of before they were launched 18 months ago, and this is a new category of merchandise that is being offered in these stores for the consumers. We’re seeing good improvement of penetration of the cosmetics brands, our brands, through the store total, which is the best measure we can use as success, and we’re continuing to get strong support from the merchandising and store operations organizations encouraging their local store management to improve performance on a penetration basis door by door. Bill Picoriello, Morgan Stanley: Thank you.

Our next question comes from Chris Ferrara with Merrill Lynch. Christopher Ferrara, Merrill Lynch: I was wondering if you could just say whether or not the EPS in this quarter was ahead of your internal expectations. Richard W. Kunes, Executive Vice President and CFO: Chris, EPS was pretty in line with our expectations and as you know we didn’t give guidance for the quarter, but we’re comfortable with our guidance that we gave for the second half and that is the same guidance as I mentioned in my prepared remarks that we gave when we came out of our first quarter at the end of October. Christopher Ferrara, Merrill Lynch: Great, and then also, can you talk about U.S. skin care? I mean, if I heard right, I thought you guys said the three-stage drive of 8% growth for that product in the U.S., but skin care was down in the U.S. So if I’m right on that, if that’s the case, what happened to the rest of Clinique’s skin care in the U.S.? Philip Shearer, Group President: The 8% I mentioned was retail numbers and what happening on the U.S. side at the net shipment level is the some the retails that are happening in the stores, the net shipments have been down. So, there’s a gap between what’s happening at retail and what’s happening at net, specifically where it’s extremely powerful, and other products you can perform probably as well. William P. Lauder, President and CEO: You have to remember, Chris, the biggest impact of the Federated-May door closure was felt by Clinique and by Estee Lauder. So when there’s big return coming from those stores that are closing and in effect those brands, and there’s a big piece of that that’s related to skin care. Christopher Ferrara, Merrill Lynch: So, what’s you sense of what takeaway was for the rest of skin care, I guess, you know the retail takeaway for the rest of skin care and Clinique ex three-step? Philip Shearer, Group President: Overall Clinique skin care was up over the first quarter, and it was also somewhat expected by the lack of performance. Christopher Ferrara, Merrill Lynch: Right, thank you very much.

Our next question is from Amy Chasen with Goldman Sachs. Amy Chasen, Goldman Sachs: Good morning. You mentioned the change in the sales force, William, can you just flush that out, I couldn’t quite understand what you’re doing? Philip Shearer, Group President: I’m taking that question. Before the sales forces was mainly organized geographically by all the regions and the different states, and that’s the way it was organized. Now, with the consolidation of retail lines through explaining that now we have a lot less main place to deal with, we have found that it was more effective probably for the long run to have specific dedicated people to each and every account, so that we tend to have specific programs that are run on a more efficient basis, and that’s what we have done lately. That should rise some efficiencies both at the level of this relationship with the remaining retailers and also eventually with the number of people who call on the accounts. Amy Chasen, Goldman Sachs: And is that how your competitors are organized or are they still doing this regionally? Philip Shearer, Group President: As far as I know, but I think they’re organized for the most part retail, but I couldn’t tell specifically. Amy Chasen, Goldman Sachs: I’m sorry, but I just couldn’t catch at all on the GU&P change, can you just walk us through a little bit more slowly what you’re doing there for Clinique, how it’s changing? Besides, I heard the part about the Beauty Editor but I didn’t understand the other part about the national timing of it. Philip Shearer, Group President: Okay, what’s happening now is since there are less retailers, we go to what we call national dates, if you will, and most of the promotions we were running were run by different dates depending on the part of the country where it was run. So, by using what we call national base we will have more specific dates for each of the key retailers, which by the way will make the reading of the retail sales next year quite challenging. But the point is that this will drive efficiency, because, one, you will have less promotion in the marketplace at a given date, because there are less promotions overall, because there are less retailers, and that should be more efficient. Second, there’s the opportunity to leverage our relationship with the existing retailers by reallocating some of the resources, especially the promotions, you know everything we do with them when it comes to advertising extensively or promotions. With this, I think we have an opportunity to relocate them; first, because even though the number of markets remain the same the number of promotion set aside will decrease. So, we see it as a positive in the long run, even though we known the transition will be quite erratic.

And we’ll take our next question from Wendy Nicholson with Citigroup. Wendy Nicholson, Citigroup: Hi, my first question has to do with advertising spending, and I know you talked in December about a real shift in advertising from December into March and I’m wondering, given that margins came in at least higher than I had expected, whether we saw all that advertising hit in the March quarter, and I guess maybe the best way to answer that is giving me some sense for the full year, since I know that’s how you break out advertising spending as a percentage of sales. Are we on track for spending in the 29% of sales range or something different than that? William P. Lauder, President and CEO: Wendy, I think first part of your question, we spent more in reported dollars than in constant dollars in the quarter and on a year-to-day basis in advertising merchandising and sampling than we did last year. What you are seeing though that is affecting the percentage of sales is the fact that some of our best performing brands right now, fastest growing brands use less advertising, merchandising, and sampling as the vehicle to drive their sales. We have talked about this for sometime that you would see over time that relationship to sales on a percentage basis begins to come down and some of that effect is happening right now when you see it in the third quarter, and you will see that for our fiscal year as well. Wendy Nicholson, Citigroup: Okay, and I know that’s been a strategy anyway for Clinique and Estee Lauder to the decline as a percentage of the overall mix, but I was thinking that because you were spending more given the new product activity there that somehow that number would go up for the full year. William P. Lauder, President and CEO: Wendy, let me put a finer point here. This is really a mix issue. If you will, the lower users, percent of sales A&P brands, such as MAC, Bobbi Brown, and Crème De La Mer are growing at a faster rate than Clinique and Lauder, which are at a higher number. So, if you were to look just at the Estee Lauder and Clinique brands as a percent of sales, their A&P in fact is going up because their stand on a constant basis is staying about the same if their sales are even. So, the real result is there’s a mix on the total what, you’re seeing is the percentage changing. And don’t forget, one of the key components to our total presentation to the consumer is selling cost, which is the cost of the makeup artists, Clinique consultants, Estee Lauder beauty advisors in the store, and that investment is going up because we believe that is one of the key differentiators of our brand. Wendy Nicholson, Citigroup: Fair enough. The followup question though I had is it relates to advertising, and I guess maybe this is a question for Philip, I maybe way off base, but it strikes me that one of the things that has really helped the Estee Lauder brand has been some changes in the advertising strategy not only with different people like Gwyneth Paltrow and whatever but just more modern fresh updated advertising. But my sense is with the Clinique brand, because you don’t use people to do the advertising, it’s all just pictures of the product and maybe your hands are a little bit tied behind your back in terms of what you can do to reposition the brand visually, am I crazy or is that something you’re thinking about changing because would that help pick up sales growth for the brand? Philip Shearer, Group President: Well, I would answer on the first part of the question, but on the second, I would say that Clinique communication is very clearly what it is. In other words, we made our point very clear. The stand with Clinique is one where we don’t say this is an ingredient, this is a beautiful, it’s an ingredient, and you’re going to look like that face. That’s not at all what Clinique is. So, we focussed our efforts on customizing our offering to each and every customer by way through the skin diagnostic, and all this I would think we do pretty well. When it comes to advertising, it has to be consistent with that positioning. Hence, the emphasis on the product as we speak to people, not to show them what they may or may not look like, but what really is core through our communication studies. Now, this being said, we are evolving in the way we do this. So, I don’t think we will change the format, we will not change the idea, but we’ll probably evolve as we have already in Asia in the format. In Asia we have used a face, but that’s not a face, we call it face of the canvas. So, the idea is to exaggerate the product benefit of that face within the philosophy of Clinique not to be literal in its communication when it comes to people, but an indication of what the product can do. Based on the same idea in the same format, we have also and you’re going to see it in the fall in North America, where we’re emphasizing the voice of Clinique. Something that made Clinique very, very special in the early days was the voice and the communication, and you will see coming in the fall almost everywhere in the world, a more aggressive way of saying who we are, and probably you have not seen or have seen what we’ve done on pre-statics. We took a line, which was the original line of the first article that was recent at the time, which was “Can great scenes be created?” And the answer is yes. So, we put more voice. So to summarize, we are evolving advertising to the core communication concept where we mean basically the same as the execution would evolve through new photography, through more voice, and it’s on top of the world, it’s an ideal setup that we’ve used quite successfully in Japan.

Our next question is from Linda Bolton Weiser with Oppenheimer. Linda Bolton Weiser, Oppenheimer & Co: Thank you. I just have two questions, one on Clinique. We had noticed that Clinique is carried by ADSA in the U.K. and I’m wondering if that kind of shift to a different channel a little bit there is contributing to the international growth, and if you would consider some channel alternatives in North America for Clinique. And then the second question has to do with Fragrance profitability. The profitability of Fragrance has deteriorated year over year in each of the three fiscal quarters so far and even with Sean John doing well, this quarter it still has not really improved year over year; can you restate again, William, your strategy for improving Fragrance profitability? William P. Lauder, President and CEO: Okay, I’m going to take your last one first because by the time you were done with the last part I forgot the first two parts, but let me make a real quick comment. We do not sell any product of our brand that is also by ASDA. It’s a very grey market good and that is not any part of our strategy going forward. The last part of the question, improving our Fragrance performance; one of our key core compliance is making sure we can be competitive on a global basis in performance in Fragrance. There are a number of factors that are challenging us at the moment. Most of it is driven by our positioning, our brand positioning in the mix of business as a result. The predominant of our American oriented brands in the offering affect our cost in a margin mix as a total because the American Fragrance business as you know overall is more than somewhat challenged and is very heavily promotional, which drives up the cost of goods. The single largest Fragrance market in the world, which is Europe, is predominantly oriented towards more European-based brands, which we are sadly somewhat weak on it in our total offering, which gives us a competitive challenge in the broad global reach. But, how do I look at this as a glass which is half full, which is our skin care and makeup businesses are a heavier portion of our total than many of competitors, which have much higher margins of the total, but in the single largest prestige market in the world, Continental Europe, where 60% of the business is done in Fragrance, we need to be and must be more competitive, and we are actively looking for opportunities and options that will address this. At the same time, we are enforcing a far stricter financial discipline on how we execute our business, and the fact of the matter is we do have a brand in Europe like Missoni and we have Jo Malone, which are both European Fragrance brands, but the Fragrance business overall is tending towards a more commoditized mass-oriented business in the rest of the prestige sector as a total.

Our next question is from Alice Longley with Buckingham Research. Alice Longley, Buckingham Research: Hi, good morning. My question is about travel retail. How fast is that channel growing and what’s happening with your share within travel retail specifically in Fragrance? William P. Lauder, President and CEO: The travel retail business on a year-to-day basis and for this fiscal year is up very strong single digits, 8-9%, so we’re happy with its performance. And your second part of your question was how’s our market share related to the Fragrance piece of that business; we are less penetrated in Fragrance than our competitors in travel retail, and as we mentioned that’s related to our strength in Europe in the Fragrance category, but it’s something that we’re working on, but our share in skin care and makeup is much more heavily weighted in share, and I do believe our share is growing in the travel retail business overall. Asia, as a sector of travel retail, is the fastest growing sector and that is a predominantly skin care oriented sector. Alice Longley, Buckingham Research: Okay, do you have your share within travel retail overall then, forgetting Fragrance in all categories? William P. Lauder, President and CEO: As far as I understand, the travel retailers are not very forthcoming in that information. So, a lot of it is somewhat self-reported, but it’s our understanding from what knowledge we do have on a door-by-door basis our share has been increasing over the last few years, mainly because of the mix of our brand. Alice Longley, Buckingham Research: And did travel retail grow 8-9% in the March quarter as well as year-to-date? William P. Lauder, President and CEO: Year-to-date, yes, in the March quarter it was a little bit less. Alice Longley, Buckingham Research: Okay, thanks a lot.

Our next question is from Sandy Beebee with HSBC. Sandhya Beebee, HSBC: Good morning, I want to start off with asking about Europe where the performance has been pretty strong, is it just off in a sort of weak number last year or are you seeing the European prestige market showing signs of recovery. My second question was on Clinique. We talked a little bit about what Clinique could do on the marketing side and gifts with purchase, but what about with the product side, is there something you can bring from an innovation standpoint that can become more relevant and revitalize that brand again? And my last question was just on 2007, it seems like the impact of Federated and May from a store standpoint will be the same as it was in 2006, but do you think there is going to be less of an impact from a revenue perspective as maybe some of the opportunity to take advantage on the efficiency side makes up for the lost dollar sales of having fewer doors? William P. Lauder, President and CEO: Right, let’s try to take each of these pieces one at a time. I’m going to ask Dan to take the Federated question first. Daniel J. Brestle, Chief Operating Officer: Sandy, let me just address the Federated. We continue to see the May company doors, now opened by Federated, performing much weaker than the Federated doors cosmetically. We think we’re over the hurdle for most of the major closings of the doors. As you all know, as Federated has published, the next critical date will be that September 9th date when they change the names in the 400 May company doors to Federated. We expect some disruption there, we don’t know exactly how much, but we’re preparing for it. We’re overstepping for it. We’re getting people in the stores to make sure the transition is smooth. Places like Chicago where Marshall Fields, the main place to start, we think may give us some problems. The lone remaining major disruption will be what happens to Lord & Taylor, and we are waiting anxiously like everyone else as to how that plays out. But yes, there will be efficiencies whether it’s the way Philip described his organization structure, better servicing or efficiently servicing with the accounts and the fewer promotion activities, the multiple ads because of the multiple promotions. So, there will be efficiencies from that side. William P. Lauder, President and CEO: The next part was Clinique… Philip Shearer, Group President: Okay, Clinique product line, I think that’s what’s your question? Each brand has its own personality. Our personality is one of simplicity and that’s what has been really driving the very core equity of this very powerful brand. So that being said, if you take three-step as an example, which had not evolved for quite a number of years, we have recently introduced a gel form, which is the key moisturizer. We have just now introduced a liquid soap as opposed we had only bar soaps. So, we did a franchise like keeping the same fundamental methods we had evolved in formula, we evolved also in terms of product delivery and convenience to the customer, which is very crucial as part of the equity of Clinique that we are very functional in the way we deliver products. This being said, in other categories of treatment, like exfoliation, we have reactivated our exfoliation high charge with the launch of a new product. We also have launched last year and to the new territory which goes beyond protection as such, which is one of the core territories of the brand, with the introduction of the Superdefense and introduction of a new concept which is to go beyond the single protection external of the skin and try to give more of the Superdefense, which has been a very successful product all around the world, and I’ll save the details. We’ve got other franchisees such as Monster Search. When it comes to makeup, we are probably the leader in foundations undoubtedly in North America as well in Europe overall, so we have constantly launched new formulas that are updating our expertise, if you will. Recently, we launched perfectly real makeup two years ago and now we’ve come up with a compact form of that great foundation base all in one. We just launched specific mascara for in Asia. We also have repackaged a lot of our product lines, especially the eye shadow, we’ve come up with a new lipstick case, and also we are what we call a trend and we’ve been very successful at coming up with what I call other products which make the work of the consultants more interesting. At the same time in Asia, we now have a few categories there with products which again deals with our knowledge and expertise that being coupled with our dermatology sheet background. All this is to say that we are very active when it comes to product line, but we try and we remain simple, functional because that’s the way we’re positioning with brand, and we entry points for particularly prestige and that’s why we are so powerful as a unit almost everywhere we are. That’s the personality of brand… William P. Lauder, President and CEO: The European mix, if I’m not mistaken, travel retail as of Europe… Richard W. Kunes, Executive Vice President and CFO: Travel retail is certainly part of Europe. It contributed to the results of Europe, but our overall European business was also up reasonably solidly. So, our markets performed fairly well, but I’m sorry if I’ve forgotten the specifics of what you asked…you have to remember when we reinforced Regroup towards our global travel retail business in the European region because all of our shipments for travel retail around the world come out of European-based distribution center. To break it down more if you will take travel retail out, we also have the Middle East and Africa, which is also growing on a very healthy basis. The more traditional western market, the larger western European markets are not growing as quickly as the emerging markets in Central Europe and Russia, for example. The U.K. while not growing at the same pace as it has historically is still growing at a nice pace and we’re very pleased with the way the U.K. business is evolving overall.

Our next question comes from Connie Maneaty of Prudential Equity Group. Leila Kanniainen, Prudential Equity Group: Good morning, this is Leila on for Connie. Just a quick question on the BeautyBank weakness in skin care, was this expected, I mean was this kind of taken to the budget? William P. Lauder, President and CEO: Well, I wouldn’t want to characterize BeautyBank as weakness, it’s very difficult for new brand launches…if you were to ship 300 brands in 300 stores simultaneously, you’re going up against a pipeline of filling a pipe versus regular year-on-year business. So, I wouldn’t characterize it as weakness. We’re seeing very solid store-for-store growth in like doors at retail at BeautyBank. We consider that to be successful. What you’re looking at from our standpoint is the shipments, shipments of pipe versus shipments of replacement business, which are really not comparable. Leila Kanniainen, Prudential Equity Group: Okay, is this only in makeup or is it skin care as well? William P. Lauder, President and CEO: I think we are characterizing it. It’s predominantly makeup. Skin care is a smaller portion of the total business there. Leila Kanniainen, Prudential Equity Group: Okay, can you talk about the profitability of the BeautyBank, Bill? William P. Lauder, President and CEO: Well, we really don’t break out to the profitability on a brand performance basis, but we can say that they’ve improved dramatically over the previous years and they are on our plans and expectations for the long-term growth. Leila Kanniainen, Prudential Equity Group: Okay, and lastly, can you talk about the expectations for the balance of the calendar year for BeautyBank? William P. Lauder, President and CEO: We really only would talk to you about our fiscal years. As we’ve said on an overall basis we’re confident with the guidance we’ve given you for the balance of our fiscal year and as we get through our programming, we’ll be sharing with you what our expectations are for the following fiscal year.

We’ll go next to April Scee with Banc of America Securities. April Scee, Banc of America Securities: Hi, thank you. Just a couple of quick questions; first on May Federated, after seeing the early history of this, are you seeing what’s happening is inline was your expectations or are you maybe losing less of the business than you had originally anticipated? And then on Kohls, a couple of questions; can you comment on the Daisy Fuentes initiatives that has been reported, what you might be doing there? Can you talk about promotional testing that you’ve mentioned and what impact that maybe having on the business. And then just two quick clarifications, cost savings during the quarter, did you mention what those were, should we assume that it was $8 million? Thanks. Dennis D’Andrea, Vice President, Investor Relations: For the cost saving question, we’ll go to the media store. Daniel J. Brestle, Chief Operating Officer: Cost savings was about a third of our stated $45 million, so roughly $15 million in the quarter. William P. Lauder, President and CEO: Let me get the second one, Daisy Fuentes has a very nice business going on in Kohls. We’ve got together and we will be launching the Fragrance as we announced a couple of weeks ago, we expect great things. The wonderful fragrance that we’ve launched using Ashley Judd for the American Beauty line has made tremendous success. So, we see Fragrance as a real opportunity in that category. So, we have great expectations for that. It will stay exclusive with the venture with Kohls. I think Federated is pretty much as we expected. We’re getting a high transfer of the basic business customer as long as the stores and it did vary a little bit division by division, took the appropriate stepping levels and ordered the appropriate inventories when you merge stores. Everyone’s focussing on Federated. I just don’t want to leave it hanging out there. I realized that another probably 12-13% of our business is also up for sales are now buying the SAX Northern Group and we’re going through that exercise with them. So, there is a lot of disruption in the marketplace and a lot of our people are focussed on other things in driving business because of that disruption, but Federated for us pretty much is expected. The capture of the gift with purchased customer is much less, it goes about 60%. So, I think averaging 60-75% is where we thought it would be based on different parts of the country. We’re looking at $70 million one way or the other.

Our next question is from John Faucher with JP Morgan. John Faucher, JP Morgan: Yes, good morning and thank you very much. I want to follow up on some of the advertising questions, which you guys have sort of talked about in the past your ability to adjust spending sort of on the fly, depending on how the quarter’s going. So, a more macro question, which is would you say the overall ad spend was in line with what you were thinking heading into the quarter, given your commentary on the last conference call? And then you talked about the mix impact from the Estee and Clinique brands in terms of bringing down the growth in ads or at least bringing down the ad to sale, could you talk a little bit about what you’re doing in terms of spending on those brands year-over-year, are you spending more money as you looking to re-launch and refocus, or again, did you adjust some of the spending in the quarter on those brands given where the trends came in? Thanks. Richard W. Kunes, Executive Vice President and CFO: John, spending on our big brands is more or less in line with the sales and you’ll see that for the year and it certainly was the case in the quarter. As I mentioned, our investment in advertising, merchandise, and sampling has increased in the quarter and on a year-to-day basis versus the prior year. As William described, it’s what we have as a percentage of sales is really a mix issue, which is the brand that uses less of that vehicle, less advertising, merchandising, and sampling are our fastest growers, and it’s really just the mathematics of the relationship with sales. As far as expectations are concerned, John, I guess it depends on whom you ask. If you were to ask those with whom we advertise the most, our advertising isn’t nearly up to what they’d like or expect. And if you would ask some of brands, they’d like to be able to spend more than perhaps what they have, but we’re trying to manage this in a manner that makes it the most efficient spend to generate the sales dollars that are appropriate, and I want to reemphasize one of the key ad spending, if you will, and put that word in quotes, is the selling cost and the makeup artist for MAC and Bobbie Brown with Estee Lauder beauty advisers, the Clinique consultants, the Origins guys, the Prescriptors analysts, whatever we call, those people who represent our brands and stores are very key components to what we put forward for the consumer for promoting and building the equity of the brand.

Ladies and gentlemen, that will conclude today’s question and answer session. If you were unable to join for the entire call a playback will be available at 12 noon EST today through May 11th. To hear recording of the call, please dial 888-203-1112, pass code number is 6155241. That does conclude today’s Estee Lauder Conference Call. I would like to thank you all for your participation and wish you a good day. You may now disconnect your phone line.