Dennis D'Andrea - VP of Investor Relations Fabrizio Freda - President and CEO Tracey Thomas Travis - EVP & CFO John Demsey - Group President

Lauren Lieberman - Barclays William Schmitz - Deutsche Bank Alice Beebe Longley - Buckingham Research Chris Ferrara - Wells Fargo Olivia Tong - BofA Merrill Lynch Stephen Powers - UBS Connie Maneaty - BMO Capital Markets Ali Dibadj - Sanford C. Bernstein Caroline Levy - CLSA Javier Escalante - Consumer Edge Research Neely Tamminga - Piper Jaffray

Good day, everyone, and welcome to Estée Lauder Companies Fiscal 2014 Fourth Quarter and Full Year 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: Good morning, everyone. On today's call are Fabrizio Freda, President and Chief Executive Officer; Tracey Travis, Executive Vice President and Chief Financial Officer; and John Demsey, Group President. John will discuss the makeup and luxury categories in the context of his global brand portfolio. 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 these forward-looking statements. Our discussion of our financial results and our expectations are before restructuring and other charges, including the remeasurement charge related to Venezuela. In addition, we will generally discuss results before the impact of accelerated retail orders that took place in the fourth quarter due to the July implementation of our Strategic Modernization initiative. We will also explain the impact of the shift in sales on our fiscal 2015 first quarter and full year expectations. You can find reconciliation between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website. Now I'll turn the call over to Fabrizio.

Thank you, Dennis. Good morning, everyone. Fiscal year 2014 capped five years of our strategy by delivering an excellent financial performance setting new records and transforming our company in many positive ways. I am pleased to be able to celebrate and share these important accomplishments with you. Throughout our winning strategy, we have aligned our organization, created multiple engines of growth, improved our profitability and solidified our leadership in global prestige beauty. The Estée Lauder Companies has many unique attributes that contributed to our achievements including a diverse portfolio of powerful prestige brands, huge global reach, a business that's balanced across category, geographies and channels and superior talent in creativity product quality and innovation. By strengthening our asset pursing the best opportunities and sharpening our execution, we have delivered outstanding results year after year. We believe the foundation we have worked so hard to develop over the last five years set us up for continued success creating desirable product, consumer covered and creating value for our stockholders. We are fortunate to be in an exciting and growing industry that strives on newness and attract millions of new consumes every year. We are confident we can build on our success and continue to deliver sustainable profitable growth that outpaces global prestige beauty even when certain geographies or categories may be challenged. Fiscal year 2014 was highlighted by strong topline growth. Sales increased 7% in local currency to a record $10.8 billion, excluding accelerated orders relating to our recent SMI implementation. These results were in line with our estimates and approximately three points ahead of global prestige beauty growth. All regions and categories contributed to our performance. We successful leveraged our higher sales and created greater efficiencies to boost the bottom line. We grew our sales and profit in the phase of several challenging markets, including slower prestige beauty growth in the U.S. and China and softness in certain other countries including Southern European and Korea. Additionally the competitive environment in global beauty intensified our ability to successfully manage through these headwinds enable us to deliver an impressive performance. By targeting our investment to the most promising opportunities around the world, we achieved record financial results including sales, gross margin, operating margin, EPS and cash flow from operations. We accomplished many of our strategic goals, gained global share in prestige skin care and makeup, due in part to strong innovations. Our two biggest brands Estée Lauder and Clinique each reformulated one of their iconic skin care products with new technologies to deliver greater value to the consumer. We had several strong skincare launches in Asia with watery lotions, a large sub category where we had not previously represented entered with new innovations. In the U.S. Estée Lauder, Clinique and La Mer products were the top 10 SKUs in prestigious skin care for the fiscal year. Our makeup category was vibrant, lipstick sold especially well across several of our brands as did hybrid products that incorporate makeup and skin care like CC Crème. We maintained our strong leading position in prestige makeup in the U.S. The six best selling makeup SKUs for the year were from M-A-C, Clinique and Estée Lauder. M-A-C has one of its best years ever and the popularity of this global makeup powerhouse keeps soaring. The brand's highly creative collections and standing visuals are steeped in the latest fashion and culture strengths. M-A-C expanded its global distribution and awareness through those brick and motor stores and grew it's digital audiences significantly. Our fragrance business accelerated its sales growth as planned and we gained share in U.S. prestige led by recent launches such as Estée Lauder Modern Muse, the Michael Kors collection and Tory Burch and also importantly our luxury brands. Due to first year investments in some big launches, our profit for the year declined and we expect our profitability in the category to improve going forward, thanks to leveraging successful launches and our more profitable luxury brands growth. Our small and mid size brands were among the fastest growing, especially our luxury brands, which primarily focus on one category of prestige beauty, La Mer for instance, which specializes in luxury skin care, had global success by building it's selective distribution reach, creating incremental usage with new products and attracting new consumers. Turning to our geographies, in China, our sales climbed double-digits and we remained the largest prestige beauty company. We delivered terrific results despite lower beauty industry growth rates. During the year, we entered 12 additional cities, increased our presence in Tier 3 and Tier 4 cities and launched our Jo Malone brand. In the online space, Estée Lauder opened a shop on Tmall, which contributed to our eCommerce business in China more than doubling. We generated strong sales growth in other emerging markets, which represents an important part of our expansion plan. Taken together, these markets, which include for example Middle East, Turkey, Russia are climbing double-digits. In our established markets, our U.K. business was exceptionally strong, led by M-A-C and Jo Malone. We gained share by seeking opportunities in smaller cities and underserved areas in catering to multicultural consumers. We grew our business in the U.S. reflecting new product introduction, while selectively increasing distribution for some of our strongest and fastest growing brands. In terms of channels, we've continued our strong performance in the high growth ones where we are focused. Our online business rose double-digits and travel retail once again posted strong growth far ahead of passenger traffic. Our three largest markets in the travel retail channel are in Asia and each generated double-digit gains. In fiscal '14, we prepared the last major wave of our strategic modernization initiative, which included North America, Japan and travel retail amounting to the largest volume of sales going live at once. We worked closely with our retail partners and suppliers and I am pleased to say our detailed planning and training paid off as large mass implementation has gone smoothly thus far. Today approximately 93% of our sales are SIP enabled and we expect to see greater efficiencies from the new processes in demand in years to come. Our fiscal '14 performance build upon the dramatic progress we made in the past five years. Over that period, our sales grew by $3.5 billion, excluding the accelerated orders in fiscal year '14. This was a compound annual growth rate of 8.1% and twice as fast as global prestige beauty on average. We oriented a company distribution to high growth channels. As a result, our online sales have tripled our travel retail business more than doubled and we have added nearly 220 free standing stores bringing our count to almost an 950 directly owned stores today across the globe. We eliminated more than 800 million of costs, which enabled us to reinvest in business driving activities including substantially increasing advertising. We increased our operating margin by 910 basis points faster than we expected allowing us to raise our long-term operating margin targets. We posted double-digit EPS growth every year. We increased our dividend very sharply and all told, our stockholders saw a total return on investment of 383%. As I noted, this five years period, is a solid foundation for our future growth and underscores the confidence in our strategy. Thus we are updating our long-term operating margin goal to 17.5% in fiscal year 2017 with at least a 50 basis point improvement on average each year. We continue to be guided by our 10-year compass a high level roadmap of expected economic and consumer trends. It helps us position our brands in the largest, fastest growing and most profitable categories, regions and channels, which should enable us to deliver consistent solid growth for years to come. As for the current year, we estimate that global prestige beauty will continue to grow at about 3% to 4%. Our strongest growth is anticipated to again count from our online business and emerging markets across the world where in the aggregate, we expect to post double-digit sales gains. Our results confirm we have strong strategy and we will focus even more on excellent execution and building capabilities while maintaining the flexibility to anticipate and respond to new opportunities and dynamic market conditions. Our outlook for Asia Pacific is bright. We anticipate China will deliver solid growth. Japan meet single-digit improvement will continue and our business in Korea will show sales gains. Our sales in Europe, the Middle East and Africa are expected to further increase. Certain European countries are expected to improve and others that have been soft are forecasted to stabilize due to our portfolio strategies as well as strengthening economies. The U.S. retail landscape continues to show stronger growth at the high end, which bodes well for our company and particularly our luxury brands. Over the past five years our emerging market sales have more than doubled to explore the next wave of growth we will use our diverse brand portfolio to address varied consumer preferences in different geographies. We will also expand the development of freestanding stores, which are essentially in some countries because of limited distribution opportunities. It is also important we will be casually attuned to our consumer, through our product offering, advertising and services. We have prioritized our emerging markets and there are several that we believe have the best prospects for growth. China our largest emerging market remains the most promising and our brands are positioned to win by taking advantage of the best opportunities there. Our goal is to grow a double-digit compound rate over the next three years by strengthening our largest brand and making them more locally relevant. We also expect to increase the pace of innovation in key subcategories and deepen our penetration in smaller cities. All our other emerging markets taken together are growing double-digit and generate sales growth greater than our China business. Our large heritage markets are essential also to our continued growth. We are number one in prestige beauty in the U.S. and in the U.K. and intend to grow our share profitably by farther optimizing our brand portfolio sourcing consumer from mass and expanding our digital presence. Multi acting consumers are a growing opportunity and we will enhance our efforts to appeal to them. Internal distribution, global department stores remains our core channel and we will concentrate on building traffic on the beauty floor by making our merchandizing and high-touch services more engaging. Our Bobbi Brown brand for example is building traffic by amplifying its free makeup metabolism at its counters and that service has significantly increased the average unit sales per customer. We continue to demonstrate success in higher growth distribution channels as well as we expand in specialty multi across the globe and we match the right brands with the right retailers. Our plans also include continued global expansion of our freestanding store to reach consumers where prestige distribution is limited and in busy locations. M-A-C is piloting several new store formats featuring different designs and sizes. As I mentioned earlier our eCommerce business has grown tremendously as we plan to keep up with exceptional pace. In fiscal 2015, we plan to bring more brands online in several new markets. We are building on the success of Clinique and Estée Lauder on Tmall in China by opening origins there later this year and looking at more brands to follow. We also plan to expand our mobile capabilities. Believing more bi-commerce holds the rate potential in many countries. Our online business grew more than three times the rate of the total company and mobile is the fastest growing component of e-commerce with its sales having doubled last year. M-A-C is our leader in M-commerce. We've enjoyed sharp growth in travel retail and have many initiatives underway to drive further momentum. We are the leader in skin care and makeup categories as well as in Asia and plan to strengthen our position in these areas to capture opportunities in prime travel corridors. As for our product offering skincare sales will be in integral to our growth strategy and we have a number of key innovations from our biggest brands. Clinique recently launched two major products that reinforced its authority in customization and cleansing. One is its mass Smart Custom-Repair Serum that treats different concerns depending on individual skins and the other is Clinique Sonic System Purifying Cleansing Brush, which works in concert with its three steps cleansing system. Both products started on clinique.com with very positive results and are rolling out globally this quarter. In hair care our brands play in the relatively small but growing prestige niche. Aveda our largest hair care brand expands its rising strength in Asia to continue. It opened its first freestanding store in Korea and Thailand last year and will accelerate its travel retail expansion in Europe and Asia. We intend to increase our R&D investment this year. Our innovation pipeline is robust across our brands and this year is more focused on wide spaced products that will fill intact areas for us. These kinds of product generate incremental net sales because they incur us tryout by both new and existing consumers. We also will continue innovating existing products in core franchises to keep them fresh which drives loyalty for existing consumers. Many of the new innovation will be locally relevant and targeted to the specific consumer segment before possibly rolling out more broadly. To help fewer our company investment across all our business we will leverage our SMI enabled capabilities to achieve greater efficiencies and cost savings. We now have better visibility into vast amounts of data information from our brands and countries that we can analyze and use to improve our operations. During the next phase of growth we will focus on superior execution in all facets of our strategy. I am proud of what we have accomplished over the past five years and excited about our journey still to come. Our brands will be using their amazing creativity to set trends, create the most desirable high quality beauty products and size opportunity evident in our compass as well as others we can even imagine now. It’s a winning formula that we believe will enable us to deliver sustainable consistent growth throughout our strategy. In fiscal 2015, we expect growth to come from many different engines together producing healthy constant currency sales gains of 6% to 7% and double-digit increases in EPS. Tracey will provide more details on our financial outlook. Our company has made terrific progress and I thank all of our employees for this fantastic achievement. Their passion and excellence has resulted in another year of outstanding growth and creativity and helped build a strong winning foundation for our future. Now I’ll turn the call over to John.

Thank you, Fabrizio. I’m glad to be here today to share some details about our portfolio and our forward looking strategies. I am going to focus primarily on the growing makeup category and our luxury business. I joined the company 23 years ago with the Estée Lauder brand and helped build the M-A-C brand. Now as Group President I oversee nine brands some of which include Estée Lauder, M-A-C, Bobbi Brown, La Mer, Tom Ford Beauty and Smashbox. One of the core strength of the Estée Lauder companies is our large and diverse portfolio. We have more than 25 prestige brands in four major beauty categories across a range of price points and position to appeal to a multitude of consumers. Our channel, geography and category diversity lets us dial up and dial down what we are investing and seeking opportunities. Our broad range allows us to react quickly and optimize our brands to focus where the industry is growing and navigate where there may be weakness. Makeup is a key growth driver for us. The Estée Lauder Company is the global leader in prestige makeup and the category is the second largest and fast growing one for the company. In the United States the Estée Lauder Company share in prestige makeup is over 45%. We have the top two brands M-A-C and Clinique and the last 10 of the top 20 prestige makeup launches in the United States were from our brands. We are outpacing industry growth and global prestige makeup, which is expected to be the fastest growing category in many markets. We are well positioned in this category since it plays to our competitive advantage, creativity and innovation. Within face we leverage much of our skin care technology to create high performance foundations. In color we are able to leverage our extensive color library within the unique formulas of each of our brands. This is the area where we use our creativity the best, tapping into makeup artist to create collections and products that surprise and delight the consumer. We also have great reach from entry to largely price points. Our makeup brand span the spectrum in terms of pricing and target consumers. Let me tell you about some of the brands that are driving our makeup success. Our makeup focus brands are expected to grow by double-digits this year through a combination of strong organic growth and increase selective distribution. M-A-C one of our powerhouse brands is our best known and largest makeup brand. Its democratic pricing and all ages, all races, all sexes appeal literally to everyone. To give a quick fact on average in fiscal '14, M-A-C sold four products every second. M-A-C has thousands of makeup artists globally and supported more than 425 shows during fashion weeks in New York, London, Malone and Paris. M-A-C has grown from its strong North American roots and has diversified geographically. In fiscal '14 M-A-C’s international sales again surpassed those from its North American business. We opened M-A-C doors in six new countries for distribution in total of 94 countries and even as we are expanding M-A-C, we were generating strong comp door growth at the same time. Department stores continue to account for the majority of M-A-C’s business drawing multigenerational consumers. M-A-C had great success at Nordstrom where it's has been the best selling beauty brand for many years and also at Macy's where it recently became the number three beauty brand behind Clinique and Estée Lauder, which is an amazing accomplishment given the fact that it has only sold less than half of the Macy's doors. M-A-C’s freestanding stores are also a key distribution strategy and act as a great venue for learning and experimentation, which lets us apply their success to other channels. M-A-C is our top brand in terms of the number of retail stores and we added almost 60 of them last year. These stores full represent the philosophy and positioning of the brand globally and showcase our amazing creativity. M-A-C also expanded its digital audience through successful social media channels. It became the largest beauty brand on Instagram and increased its Facebook fans by 25% in fiscal 2014. In addition every week M-A-C launches successful fashion and pop culture collaborations that bring consumers to its counters and stores and online. This year will be no different with collections as varied as pop culture favorite Mark Simpson from the Simpson’s to Brooke Shields. Another of our pure-play beauty makeup brands is Smashbox, which has doubled in sales and profitability since we acquired it four years ago. Smashbox occupies a unique space in the industry with its photo studio positioning. Smashbox resonates well online and with Millennium. The brand won a clear for best digital social campaign and was an honorary for the top two online awards. Smashbox is a perfect fit for the specialty multichannel and remains a clear leader in makeup. It's one of the top three brands and primers and BB and CC creams in North America prestige beauty. This year we plan to continue this trend with exciting launches in contouring, primer and eye shadow. Smashbox also has been opening new international markets during the past two years and there is significant expansion potential to come including strong growth in the European region. We also have had great strength in makeup within our multi-category brands. Estée Lauder is a global three category power house with wide multi-tire distribution and a strong focus on Asia and skincare. This year Estée Lauder is leveraging its leading authority in serums by launching Perfectionist Foundation rooted in Perfectionist Serum. We plan to leverage Estée Lauder Heritage and Iconic franchises, which are some of the best known in the business. Last year we modernized the pure color franchise with Pure Color Envy Sculpting lipstick, which hydrates with a time release moisture complex and shapes and sculpts lips. This year we will build upon success with Pure Color Envy eye shadows. Clinique is one of our company’s largest brands and the second largest prestige makeup brand in the United States. While it is not part of my portfolio, I could not talk about makeup with our talking about Clinique, allergy testing and fragrance free Clinique occupies a unique position in prestige, which embraces healthy beauty. Clinique is a leader in foundation in the United States because its formulas offer flawless skin instantly and dermatological benefits over time. A philosophy that says, pretty can be easy as to the broad appeal and also Clinique draw consumers of all ages and retain them through product innovations like chubby stick. Chubby sticks make color easy to apply and expand the chubby franchise of eye, lip and cheek to help anchor Clinique’s leadership role in the category in North America and around the world. Our other makeup artist brand Bobbi Brown has a luxury and classical positioning that helps women look like themselves only better, prettier and more confident. The brand has been making great strides in the specialty-multi channel and plans to expand its distribution there over the next several years. Bobbi’s makeup lessons in departmental stores and freestanding stores differentiated as a teaching brand and are a strategic service that drives significant traffic and loyalty. Next year, Bobbi will build upon this service with locally relevant menus by market and makeup lesson videos featuring multi-ethnic models. Bobbi is also rapidly and successfully embraced the digital world. Its eCommerce site in the United States is its number one door worldwide and that it's accreted an outstanding social media results with 72 global digital platforms that are followed by a subscriber base of 4.5 million consumers. The brand has been number one rank branded beauty channel on Youtube with videos that have been viewed globally 10 million times. We’re confident about our continued strength in makeup this year based on our innovation pipeline, planned distribution expansion. We expect to capitalize on strong established markets like North America and the U.K. as well as increasing demand from emerging markets. We expect another key growth driver to be our luxury brands. As the luxury market continues to grow, driven by affluent consumers around the world, sales of our luxury brands La Mer, Jo Malone and Tom Ford has been rising double digits globally for several years. These three luxury brands cut across different product categories are largely in skin care and fragrance. Additionally, Bobbi Brown as I mentioned is our main luxury entry in makeup and has generated double digit growth over the past five years. Tom Ford also offers a Q-rated Super Luke’s makeup collection in limited distribution that is also enjoying rapid growth worldwide. La Mer our luxury skin care brand has doubled its net sales in just four years making it now one of the top five brands within the company’s portfolio, an honest to becoming a billion dollar brand. What’s even more impressive is that La Mer has grown this fast while still in limited distribution maintaining a strategic balance between accessibility and exclusivity. To put its global presence in perspective, La Mer is an about 6% of the doors of the Estée Lauder brand is in and has sold in less than half of the countries where we do business offering ample expansion opportunities. La Mer’s had brilliant success with the moisturizing soft cream, which continues the brand’s strong track record in moisturization. More recent launches include the treatment lotion and the Lifting and Firming mask, which have expanded its success beyond moisturizing products. La Mer continues to focus on the Luxury consumer creating compelling product innovations leveraging the heart of the sea in the surpassed experience in store. Jo Malone has also seen double-digit growth across every channel that it is in, doubling its business in the last three years. It’s success is balanced between heritage sense as well as recent launches such as peony & blush suede in the U.K. its home market where it is the number two women’s fragrance brand and Jo Malone comes with a number one fragrance position in some high end retailers across the globe. We see excellent growth opportunities believing Jo Malone has the potential to become one of the largest and most successful high end fragrance brands in the world. We expect the brand to flourish by strengthening categories beyond sprayed fragrance capitalizing on its lifestyle positioning and leveraging it’s freestanding stores under unique fragrance combining experience. Our Tom Ford brand sets the standard of the luxury for beauty. In fiscal 2014, our sales grew double digits at all regions and profits doubled versus the prior year. Tom Ford continues to tap in to the growing demand for luxury and we expect to continue toward this amazing track record to increase distribution in key luxury revenues strengthening pillar fragrance franchises and expanding its Neroli Portofino collection. We also see a major opportunity to develop Tom Ford’s makeup line in high end luxury retailers around the world. And there are large luxury segments within our brands as well. For example, Mrs Estée Lauder was a pioneer in luxury skin care and created Renutra part of her name sake brand. It’s one of the top selling luxury skin care brands by itself in the world and we continue its tradition of harnessing nature’s rarest and most powerful ingredients. Renutra plans to launch a new anti-aging serum in the fall to build upon the luxury consumer’s desire for highly effective and technologically advanced products. We have been nurturing our makeup and luxury brands for several years and now they’re poised for even further growth. One of our company’s greatest strengths is building brands and we’ve strengthened the equity of these small and midsized brands and now even met one of our largest to improve their productivity, profitability and desirability so they’re ready to embark on the exciting stage of their growth. These brands share several important characteristics. They’ve been highly successful in travel retail and still had a great expansion potential. They’re digitally savvy and less dependent of traditional advertising. They expressed their authentic equity through an editorial social media freestanding stores and luxurious counter services. We will continue to partner with department stores to elevate the experience with our brands to keep them fresh while selectively broadening their geographical and categorical reach and potential. We will continue to ensure that our makeup and luxury brands stay relevant to consumers in every region. It is thanks to our affiliates with their deep insights of local taste and effective go to market capabilities that have made our brands and product as successful and desirable in small European towns as they are in Midtown Manhattan. With our strong innovation pipeline and this is an exceptional product quality and creativity at local and global capabilities, we’re confident about the growth plans I've outlined today because they build upon our existing strengths. At the heart of our makeup and luxury are our brands and our brands have always been the strength of our company. The brands I discussed today are at different stages of their development and we’ll nurture them profitably. I want to thank our employees and our regions and affiliates for contributing the success of these brands and our company. We expect our larger brands will continue to grow and some of our mid size brands have the potential to become billion dollar brands over time. Thank you. I would now like to turn the call over to Tracey.

Thank you, John and good morning everyone. I will briefly review our fiscal 2015 fourth quarter and full year financial performance and then share with you our expectations for fiscal 2015. Please note that my commentary excludes the year-on-year impact of restructuring and other charges, primarily the Venezuela remeasruement charge we took in the third quarter of this year. Also excluded is the fourth quarter and full year impact of the acceleration of retailer orders that otherwise would have occurred in the first quarter of fiscal 2015 related to our July rollout of SMI. The final impact of that shift was $178 million in sales and $127 million in operating income equal to approximately $0.21 per share. This amount was larger than the estimate we provided in May primarily due to higher advanced orders from our travel retail customers. A full reconciliation between GAAP and non-GAAP financial statements can be found in today’s press release and on our website. I am pleased to report that for the fourth quarter net sales rose 6% to $2.55 billion. Excluding the impact of currency translations sales grew 5%. Net earnings grew sharply and were 81% higher at $175.2 million compared with $96.8 in the prior year quarter and diluted EPS was $0.45 above the top end of our expectations primarily due to the timing and discipline of expense management. Regarding our regional performance, sales in the Americas increased 4% in local currency with 4% growth in the U.S. and double digit growth in Canada and Latin America. We continue to realize double digit growth in the U.S. through specialty multi-stores, online, our freestanding stores and salons and spas and low single-digit growth in department stores. Latin America, double-digit growth was driven largely by Brazil. In the Europe, Middle East and Africa regions, sales increased 6% in local currency. We achieved double-digit sales gains in most emerging markets including Turkey, the Middle East and South Africa. In the more established markets, continued strong growth in the U.K. and Northern Europe was partially offset by softer results in Spain, Italy and Greece. Our sales in the travel retail channel rose 8% primarily reflecting continued growth in global passenger traffic and the expansion of our brands. Sales in the Asia Pacific region rose 7% in local currency, led by double digit gains in China. Like-door growth in China was flat, which was an improvement from recent quarters. Hong Kong and Singapore contributed solid growth while Korea declined slightly. Our gross profit margin increased 10 basis points to 80.4% primarily related to pricing and mix. Operating expenses as a percent of sales improved 350 basis points to 70.5%. The primary drivers were lower advertising, merchandizing and sampling of 280 basis points reflecting the planned cadence of marketing increased to earlier in the year as well as impairment charges in the prior year of 70 basis points. Operating income rose 68% to $252.2 million and operating margin increased 360 basis points to 9.9%. Let me now turn to the full fiscal year. We managed to deliver strong full year results while again navigating several macro-challenges as Fabrizio indicated. We achieved these results because of the breadth of our product portfolio, our agility in managing resources to fund the best opportunities and the continued focus on the elements of our multiyear strategy. Net sales rose 6% to $10.8 billion, excluding the effects of currency translation, sales grew 7%. Net earnings grew 11% to $1.16 billion and diluted EPS increased 12% to $2.95. Every region and product category contributed to our sales result again this year with international growth continuing to outpace domestic growth. Gross profit margin increased 10 basis points to 80.3%. The increase came primarily from positive mix and pricing. Operating expenses as a percent of sales improved 80 basis points to 64.2%. The decrease was primarily due to leverage in our marketing and advertising costs reflected shifts in our mix of brand sales as John indicated as well as a planned shift of media spending to the first half of the year to support major launch activity. We also continue to benefit from our cost savings initiatives and reinvested a portion of those savings in the business building activities we’ve indicated before. Operating income rose 12% to $1.74 billion and operating margin increased 90 basis points to 16.1%. Net interest expense declined 7% to $50.8 million primarily due to the debt refinancing charge in the prior year and the higher interest income this year. Our effective tax rate for the year was 30.9%. On a reported basis, inventory days to sell rose to 198 compared with 183 days last year primarily to support planned growth, the SMI transition and the expansion of our retail stores. The cash flows generated by operating activities increased 25% to a record $1.54 billion compared to $1.23 billion last year primarily reflecting higher earnings and certain working capital improvements. We invested $510 million in capital projects mainly for counters, retail stores and information systems. We’ve returned approximately 100% of our free cash flow to stockholders consistent with our stockholder actions since fiscal 2012. This included $667 million to repurchase approximately 9.6 million shares of our stock, which was a 72% acceleration in dollars from last year’s share repurchase activity and $302 million in dividends, which reflected an 11% increase in the quarterly dividend rate and a dividend payout ratio of approximately 26%. We continue to review our capital structure annually and at this time, we’re comfortable maintaining our current credit rating, which gives us flexibility by way of borrowing capacity at favorable rates for acquisitions or to manage through an economic downturn. As I mentioned before, over the last three years, we’ve distributed 100% of each year’s accelerating free cash flow to our stockholders through a combination of dividends and share repurchases. We will continue to be opportunistic with regard to future share repurchases while expecting to subtly increase the dividend, which combined with our focus on operating performance and growth, we believe will create the best frame work for us to deliver total stockholder return. Clearly, we have demonstrated that opportunities we have to reinvest back into our business yield for higher stockholder return, given our growth profile. We’ve increased our dividend rate by 191% over the past five years. Our payout ratio, which has always risen from a base of 20% in fiscal 2010 currently stands at approximately 26% of earnings in line with many other growth companies. We will continue to review our dividend on an annual basis keeping it within the larger framework of a sustainable payout ratio, while being mindful of our continued growth opportunities. Looking ahead, over the next three years, we plan to build on our strategy by continuing to focus on superior executions. We expect global prestige beauty to continue growing about approximately 3% to 4% in fiscal 2015 and to potentially return to 4% to 5% annually thereafter. Our goal remains to exceed this growth by at least one percentage point annually by focusing on the areas that represent the greatest opportunities for momentum and sustainable growth. Our fastest growth is expected to be coming from emerging markets reflecting the continued expansion of the middle class and our medium sized brands as they build awareness and loyalty and expand into the more countries and doors. Skin care and makeup will remain our largest categories and we believe we have an exciting innovation pipeline for the next few years across brands, categories, and geographies. And from a channel perspective the fastest growth is expected to come from our direct to consumer businesses, freestanding stores and online as well as from specialty-multi and travel retail. These topline growth drivers plus cost leverage and savings should allow us to deliver at least 50 basis points of average annual operating margin expansions each year to reach a target of 17.5% in fiscal 2017 as Fabrizio indicated. That takes into account our reinvestment and growth drivers and capabilities necessary to enable the growth and translate into our ability to deliver double digit annual EPS growth in each of the next three years. Last month SMI implementation was the last major wave of a long term project that has enabled us to standardize our key business prophecies around the world. This was an enormous undertaking and our teams executed it superbly. SMI gives us greater consistency and execution, enhanced visibility of information for improved management of inventory and expenses, and process scalability to support growth. As the major deployment phase has ended, we’re focusing our attention on realizing the full value that SMI can deliver through better process adoption and proficiency with using the new technology to drive many efficiencies across the organization. Some of the key areas of opportunity we’re addressing include improvement in forecasting capabilities, which should result in reduced inventories, fewer sales returns and less obsolescence, improved management of the total cost of global and local launches and better enabling our AMP effectiveness, additional indirect procurement savings and improved customer service to name a few. In addition to these planned four benefits, we certainly expect to uncover additional areas of opportunities as our global understanding and visibility of SMI prophecies and SAP technology increases. Importantly we have a governing structure in place to support our initiatives and ensure we have continuous cost improvement every year through leveraging the SMI capability. These savings and efficiencies combined with some pricing mix benefits should allow us to deliver the net margin improvement I mentioned as well as reinvest a portion of the savings generated back into critical areas fundamental to our success and sustainably delivering our strategic objectives, areas such product innovation, digital and ecommerce and retail capabilities as well as supply chain agility to name a few. Now let me discuss our outlook for fiscal 2015. The SMI shift discussed earlier adverse affects the first quarter and full fiscal 2015 year and will also create a difficult comparison in the fourth quarter of fiscal 2015. This is something to keep in mind when modeling the quarters and the full year. So to put this in perspective, I’ll provide our financial expectations for fiscal 2015 both including and excluding the impact of the shift. First, our expectations for reported result, for the full year, sales are forecasted to grow 3% to 4% in constant currency with growth in our international regions continuing to outpace North America. Currency translation is estimated to negatively impact our full year sales growth by approximately 2%. Our estimate assumes weighted average exchange rates for the full year of 1.3 for the Euro, 1.63 for the pound and the 104 for the yen. Reported EPS is expected to range between $2.89 and $2.99. As I mentioned previously, the $178 million of accelerated retail orders equal to a $0.21 per share, which benefited our reported numbers of fiscal 2014, would have normally occurred in the first quarter of fiscal 2015. So let me share with you our comparable non-GAAP expected results excluding the impact of this SMI shift. Constant currency sales growth is forecasted to grow approximately 6% to 7% in line with our long range goals. We plan to achieve expense leverage through a combination of cost savings, net of investments, which combined with improved gross profit margin, our expected to drive operating margin improvement of approximately 40 basis points. Our cost savings initiatives are primarily focused on productivity, indirect procurement, AMP effectiveness and returns and obsolescence. Investment areas include innovation, R&D, supply chain planning and travel retail expansion, as well as retail and HR systems. SMI savings post high procure are somewhat offset by the ongoing support, maintenance in additional depreciation related to SMI. Throughout the fiscal year we will continue to be flexible in our investment spending behind the activities that demonstrate the best momentum which could impact the quarterly cadence of our spending. As you know, our guidance excludes the one-time charge related to the devaluation of the Venezuela Bolivar last year. And as a reminder, in fiscal 2014, we derived less than 1% of our net sales from Venezuela. Earlier in this calendar year, the Venezuelan government enacted a margin cap law, along with controls on foreign currency exchange, that affect our comparability in fiscal 2015 to the prior year by approximately one percentage point of earnings growth or $0.03 of EPS. The guidance we are providing this year absorbs the impact of this lower margin. Our fiscal 2015 rate is planned at 30% to 32%. Adjusting for the SMI shift, we are forecasting full year EPS in a range of $3.10 to $3.20. This would be comparable to our fiscal 2014 EPS of $2.95 before charges in the accelerated orders. Depending on the magnitude of exchange rate movement, the approximately 2% negative currency impact on our top line this fiscal year equates to about $0.09 of EPS. Excluding this foreign currency exchange impact, our EPS is expected to rise by 8% to 12%. In fiscal 2015, we expect to increase cash flow from operations to approximately $1.7 billion. Our capital plan is $560 million and it will continue to support consumer phasing investments in counters, retail stores, and retail and HR systems. We expect a modest improvement in inventory days in fiscal 2015 with more aggressive improvement in future years as we fully leverage the benefits from SMI. So that is our guidance for the full fiscal year. In our first quarter, on a reported basis we expect sales decline approximately 1% to 2% in constant currency. Translation could hinder growth by approximately one percentage point. We anticipate that EPS will be between $0.51 and $0.55. Adjusting for the SMI shift, first quarter sales are forecasted to increase between 5% and 6% in constant currency and EPS is expected to be between $0.72 and $.76. Our first quarter profitability is expected to be impacted by the timing of expenses related to new launches and promotional activity compared to the prior year. This is an addition to the increase spending for capabilities I just mentioned. So that concludes our prepared remarks. We'll be happy to take your questions at this time.

(Operator Instructions) Our first question today comes from Lauren Lieberman of Barclays. Lauren Lieberman - Barclays: Thanks. My first question was just around capital structure. I think many of us, just even based on what you shared in the recent past conference and so on expected. A little bit more of an update really change in terms of capital structure particularly as you have seen greater visibility and the potential for improvements in cash and inventory after SMI is implemented. So could you just maybe elaborate a little bit more there, if you have plans for where inventory levels could go over the next couple of years, and what your priorities will be for any changes in Cap structure once that comes to path? Thanks.

Sure Lauren. So again, now that we are in the hyper care stage as it relates to SMI and certainly starting to deploy some of the insight that we’re getting from SMI to aggressively reduce the inventory levels that we have. There are quite new initiatives going on this year that should meaningfully impact our inventory levels towards the back half of the year and certainly in the next few years. So I think we have spoken about at least a 20 to 30 day improvement in inventories over the next few years that we could see clear visibility to. That as it relates to at least our structure currently, most of the free cash flow that we generate is returned to shareholders via dividend and share repurchase activities. So certainly as we free up cash from working capital as we demonstrated this year, with some of the areas of working capital improvements that we had, we fully expect to redistribute that back to shareholders assuming that we don’t have other uses for that cash which -- in the acquisition area. So I think certainly we expect over the next few years that our free cash flow generation will increase as our working capital improves. Lauren Lieberman - Barclays: Okay. Thank you. And then I did have one question for John. The Estée Lauder with Pure Color Envy that and Modern Muse I feel like there has been a pretty significant shift in the maybe call it the tone of the Estée Lauder brand advertising. Have you done any consumer testing at this point or a sense if the consumer profile has shifted at all with those two launches over the last I guess it will be six-plus months now younger, more mobile any kind of change there to know that this is maybe having a bit of the impact you’re hoping for?

Sure I'll have it over to Lauren welcome back. Lauren Lieberman - Barclays: Thank you.

Lauren welcome back, this is Fabrizio. Lauren Lieberman - Barclays: Thank you so much.

In truth, yes, the new inventory round Pure Color Envy and Modern Muse has brought a younger more contemporary customers to the Estée Lauder brand. We’ve seen fantastic performance for both Modern Muse and for Pure Color Envy which is the most successful lip color launch that the brand is having over a decade. So we are bringing younger consumers and the good thing about fragrance and makeup is being transactions. Lauren Lieberman - Barclays: Great. Okay, I'll pass it on. Thank you.

Our next question comes from the line of Bill Schmitz of Deutsche Bank. William Schmitz - Deutsche Bank: A couple of questions, the first is how do you really know what sales from SAP pulled forward and what are normal, meaning like, does the retailer tell you like we’re buying this because, you need to got your SAP stuff in order. And then my real question is, on skin care is there a plan to take back market share because, obviously some of the selling data has been great, but some of the market share data which has improved recently has been a little bit soft. So is there an urgency there and should we expect market share gains in '15? Thanks.

Okay. so, on the SMI orders what we do is work with our retailers to look at the first few weeks after go live of what the expected sales that they have will be on the expected shipments that we would normally have to support those sales. And those are the sales that we pull forward. So it's skew by skew, its week by week in terms of how we plan with our retailers. Obviously this pull forward was greater than all of the others that we’ve had A, because the markets that were involved were larger, and the time frame of the year is larger. So July is a big time period for us as well as certainly for our retailers in terms of receiving shipments. It’s all the timeframe that we have big launches as you heard from retail, as it relate to Clinique and some of our other brands. But it is the first few weeks of the July time period that we worked with our retailers to plan.

To answer the question on skin care, definitely there are very strong plan to grow market share on skin care. I just wanted to clarify that in fiscal year '14 we did grow market share of skin care globally and we plan to continue to do that. If you’re referring to the North America market U.S. market share, trend in skin care, yes, we didn’t grow market share in the U.S specifically and we have plans to go back to growth via, first of all, innovation. Innovation, which is much more wide space in new areas and less cannibalizing than what we experience in the beginning of fiscal year 2014 and strongly improved merchandising store in this area and new services connected to the skin care area. Also, globally the skin care local relevant approach of our innovation is actually giving us some great returns and so we plan to continue growing market share globally in skin care also across fiscal year 2015. William Schmitz - Deutsche Bank: Right, thank you very much.

Our next question comes from the line of Alice Longley of Buckingham Research. Alice Beebe Longley - Buckingham Research: Hi, good morning. One housekeeping question. Can you tell us what the organic sales growth was for the year overall for Clinique and Estée Lauder. So we can see the difference between those and the other brands of your growth overall? And, your organic sales growth in the fourth quarter was 5% and you’re saying its 5% to 6% in the first quarter, both of which are lower than what you think are sustainable organic sales growth will be including for fiscal 2015 overall. Why should we expect that acceleration next year?

First of all, our fiscal year '14 overall, our constant sales growth was 7% and we are forecasting 6% to 7% for '15. So, is not acceleration for the year is consistent. In term of the sales by quarter, again they are heavily dependent on the amount of new innovation to happen in the quarter or in other also in the geography where these innovation is launched and finally in the category in which these innovation is launched. So, as I say every time, don’t attribute too much into reading a single quarter, read our fiscal year overall trend which I think is a much more solid element for predicting the direction and the solidity of our business trend. So, we are 7% in 2014, we predict 6% to 7% and this will be driven as I said by market overall at 3% to 4% in our estimate. So consistent overall global market growth, but a strong innovation our brands and the profile of our growth, will continue to be the double-digit energy market, double-digit online, very strong results into our retail and some markets like the U.K. are doing fantastically well that we expect to continue. And growth in China is expected to continue. And so, there is a full consistent approach to growth which is the strength frankly of our strategy.

And we don’t comment on individual brand growth.

But I want to clarify on the individual brand growth that Lauder and Clinique are growing. They are growing globally for the fiscal year and that will continue to grow globally if in some markets their growth has been below the market growth meaning losing some share points, but little share points in some markets but this will not distract by the fact that both of these brands are growing and growing globally. Alice Beebe Longley - Buckingham Research: Are they growing globally in line with the prestige market globally?

They are growing globally in line with the prestige market, also likely below depending by quarter and by brand and that's the ones that we want not to comment on to give too many details, public details… Alice Beebe Longley - Buckingham Research: But for the year overall?

On our growth rate, but they’re growing and they're growing in a way as I said, we plan to grow market share also in these brands globally over the next two years. Alice Beebe Longley - Buckingham Research: Okay. Thank you.

Our next question comes from the line of Chris Ferrara of Wells Fargo. Chris Ferrara - Wells Fargo: Fabrizio, against your advice I apologize, I have to ask a question about the quarter, but I was hoping in the context of the picked up investment you’re going to see that you’re talking about in Q1, can you just talk about how extensive that’s going to be to the point that it would not knock earnings lower year-on-year? And I guess, if you can marry that with the fact that the topline for the quarter is expected to be below what the full year range is, I am just curious with the dynamic is there? And then just a quick follow up for Tracy, I think you said 20 to 30 days in inventory coming out, but I thought that you had said over time the number would be much more extensive than that. I thought you guys did something like 130 days, 140 days of inventory might be more reasonable? So, any color there would be fantastic. Thank you.

So in terms of the quarter and again, some of it has to do with what we’re anniversarying. So, we had major launch activity last year and we have solid launch activity this year as well. There are some margin differences, gross profit margin differences between the launch activity we had last year and the launch activity we had this year. So, that is suppressing some of the margin expansion that you would normally expect to see I think in the first quarter. Clearly it’s even down over the course of, over the year and it’s really first quarter phenomena for us from a gross profit standpoint. In addition to that, I talked about some of the investments that we have in the first quarter. We do have SMI hyper care going on. So that is an investment this quarter that we didn’t have last year. We had SMI going on but much of that activity was, some of that activity was capitalized and some of that activity was expensed. It’s all expensed this quarter as we are in hyper care other than obviously the system itself. We do have some consulting expenses for some projects that we have going on this year that are impacting us in the first quarter as well. So, all of those things are impacting us in Q1, which is why we -- and Fabrizio made the comment quarter-to-quarter really the focus should be on the full year as I think we demonstrated quite solidly last year. As it relates to inventory, you are right on the both the counts, so what I said we have near-term visibility to 20 to 30 days and the team, as the actions in place to drive to that and then we have visibility over time and plans over time to achieve greater than that. So, you’re right on both counts.

And I just want to add one your question on reconciling rest of the sales growth, many of the investments Chris as you referred to are not necessarily in advertising at the immediately the sales growth within the quarter. For example, we are investing in the first quarter into the big part of our R&D investment will happen there. In the direct channel going more direct online sites and things will happen there. We have a trial retail investment that will happen there and then we all benefit the rest of the fiscal year and finally we have investments on the consultants that was discussed in creating the savings that then will impact possibly the next of the fiscal year and in other capabilities like in the area of supply chain fundamentals. So, some of this investment will not provide immediate results on sales within the quarter. We’ll provide first of all sustainable growth in the long term and results on profit in the second part of the year. Chris Ferrara - Wells Fargo: Thank you very much.

Our next question comes from the line of Olivia Tong of BofA Merrill Lynch. Olivia Tong - BofA Merrill Lynch: First, why do you only expect operating margins to be up 40 basis points on a like-to-like basis in fiscal 2015, perhaps can your parse out a bit more in terms of the major drivers there. I know you’ve thought obviously on hyper care expenses, but what have you expected that to be offset more or less by the savings associated with SMI, and then Fabrizio I just want a follow up on your comment about growth in the small and mid size brands versus the Clinique's and Lauder’s are you seeing an acceleration in the divergence of the Lauder and Clinique brands relative to the others or is it just a continuation of what you’ve already being seeing for some time? Thank you.

I’ll answer first there on the growth profile of our company. I think I said in the last calls, the profile of our growth is that we have created multiple engine of growths by brand, by channel, by region. Some designs go in certain moments at double digit, other at single digit. But they all provide support to the growth. So, from brand standpoint and John commented on some like M-A-C or the luxury brands which are definitely driving double-digit because of their level of development at their profile and their opportunity for expansion. There are other brands that are definitely, Lauder and Clinique are in this camp in that fiscal year that are driving single digit. The same profile is by channel, we have channels like online, travel retail, freestanding stores, which are driving the business at double digit and other channels like our core department stores which are driving at single digit in this moment. And then during the years, this has changed and our ability to flexibly react to these changes and make sure that we invest where the opportunity is in a given moment of time is also the strengths of our model. So we do keep the flexibility to make these changes and these adjustments on purpose in order to be able to leverage growth where growth is. I'll let Tracey answer the other question.

In terms of the 40 basis points, the hyper care just affects the Q1 year-over-year comparison. The SMI net is a benefit this year and we have many other costs savings activities that benefits this year. Some of the investments that we have spoken about as it relates to increasing R&D innovation and other investments to support capabilities for future growth are impacting this year. But we feel very confident that if the sales growth materializes this year then we will very much deliver double-digit profit growth.

Our next question comes from the line of Stephen Powers of UBS Investment Bank, Research Division Stephen Powers - UBS: Great, thanks. Maybe, Tracey, if I could push on the capital structure point just a bit. I understand that you are returning much of the excess free cash flow that you are generating to shareholders. But looking forward, clearly you're confident in underlying P&L momentum, and you seem well positioned to accelerate free cash flow ahead of income growth, given the working capital opportunities. So with that plus your starting point of a net cash position, why not take on a bit more positive leverage just in order to accelerate returns to shareholders? Or are there other cash uses, priorities, that we should be considering more near-term -- like M&A, for example?

So clearly as we have spoken previously M&A is a high priority for us. We certainly have locked the activity going on in terms of looking at acquisition opportunities and we certain want to reserve flexibility for M&A activity so that's certainly a piece of why we would not consider taking on additional debt at this particular time. And as I mentioned in my prepare able remark, given the improvements that we have made and we will continue to make in certain areas of working capital and the improvement that we have in front of us as it relates to inventory, which now that estimates behind us we can certainly expect more steady improvement as it relates to our inventory turnover that should deliver very strong returns to the shareholders. We are mindful that in order to keep and support the wonderful brands that we have it requires investment. It requires investments in advertizing. It requires investment in infrastructure and in capability. So we balance all of that when we look at the capital structure as well as our plans for any fiscal year. Stephen Powers - UBS: Okay. That's great. Thank you. Then maybe John, you talked a lot about the strength of your current brand portfolio. But with that M&A consideration, maybe looking at things through a different lens, where would you say you have the largest opportunities to fill gaps in the portfolio? And I guess how many of those gaps can be filled with existing brands being extended, versus maybe looking outside to realize opportunities through acquisition?

This is Fabrizio. I think I’ll take this one because I don’t think we can start talking openly about acquisition opportunity by brand or by gap because this would be frankly to match information to our competitors so more than to you. But the key point again as we stated is our overall M&A strategy. Our overall M&A strategy is first of all is a strategy looking at brands, which has global potential. As you know we don’t have a strategy of weak M&A partnership but rather is about buying brands that we can develop over the years. M-A-C is the example of the ideal acquisition strategy for a settled company buying a medium sized brand and making it use huge over the years that’s our strategy in M&A. Now in which areas we focus I said it repeatedly obviously skincare acquisition around the world particularly in Asia at an area where we are starting the market continuously and then there are opportunities in all the area, which are high profitable and growing and where our portfolio is today not completely filled in. and the last thing I want to say is not necessarily a gut feeling strategy. It is really our M&A strategies about buying amazing brands with amazing potential that we can leverage thanks to our great R&D and global reach and create global brand Alamak also in the future. That’s what we are looking for. We are scanning the global market continuously for opportunities and we want to keep the flexibility to engage in these activities when the opportunity arises.

Our next question comes from the line of Connie Maneaty of BMO Capital Markets. Connie Maneaty - BMO Capital Markets: Good morning. I was hoping to get some detail on what is going on in China. Could you tell us what the same-store sales growth did in the fourth quarter in the Tier 1 cities, and why the sales growth in China picked up overall? Sounds like it was above 10% in the fourth quarter; is that right? Also, what is the status of Osiao? Is it out of test and into full distribution yet?

Okay, so China in the fourth quarter net sales were up 20% and for the year it were double digit and about 13% so very solid performance overall in China across the year. The like door the same door sales in the quarter was actually plus 0.1% so flat and this is a big improvement versus the decline of the overall prestige market same-door in China and our pervious performance in the previous quarter was mine 2.3% so an improvement trend. What is driving that in China again I explained that the big cities because of the developmental of the online, because of the saturation of the market are not growing are not growing anymore same-door sales for sure. While the big expansion is in secondary in Tier 3, Tier 4 cities and online basically expanding the reach of the many interested Chinese consumers have been able to sell to them, that’s what we are doing and that’s why we are successful. We continue build the reach. So we get new consumers into our brands, new Chinese consumers into our brand every quarter. The other thing I said already I want to repeat the fact that the same-door sales are flattish should not scare because for example our Estée Lauder brand has the highest productivity per door in the world in China. So as table says same-door does not have a significant impact on profitability. The other positive of China that this new consumers that we are reaching expanding in secondary cities are also very good travelers and when they travel they are interest in our brands because they get to know them better and they buy more of our brands in travel retail or in the big capital travel like Paris, New York or whatever. And thus the other big benefit that we are following up in our analysis and how to continue to build the China’s market. So that's what's happening and as I said I have a big trust that China will continue to be growth driver for us in the future in the next three years on the plan that we are discussing.

Our next question comes from the line of Ali Dibadj of Sanford C. Bernstein. Ali Dibadj - Sanford C. Bernstein: Hi, guys. I have two questions. The first one is -- so SMI this quarter, the shift is much larger than projected. So I wanted to use that as a jumping point, because we have seen a lot of, over the years, SAP going to companies; and I think we've rarely seen it be as long or drawn-out or unpredictable as the implementation of this SAP or SMI implementation. So I am trying to understand: Why so many challenges? Perhaps more importantly, if we believe your guidance, whether it be operating margin guidance or even at this point the inventory guidance, it is hard to see what benefit you are actually seeing from SMI. So can you help us unravel that a little bit and give us a sense of quantification of what you will be getting from SMI after all this pain? And is that included or incremental to your guidance? Then I have a follow-up.

Okay. I want to take the first part of the question and Tracey will take you through the benefits of SMI that we see in the next year, which by the way are significant, but the first point why we got high order was mainly our travel retail customers. They decided to order more than we originally estimated because it's their decision how much they want to assess the risk of being under lever under-shipped in the months of July and they want to protect their business. because the business is doing well and so they want to protect and avoid the risk of outer stock because of SAP. As you know many companies in the past had issues in executive SAP meaning that they have some periods where they cannot ship, cannot deliver product after their implementation. So that's why our customers sometimes decide to protect themselves because they have this bad experience from the past. Now the good news is that first of all we monitor that and we don’t double count that. Second good news is that we didn’t give so far any issue to them so that we are really executing SAP with excellence and I believe we are one of the best companies in the way we are executing SAP and avoiding the issues that probably you have seen or volatility and consistency that come from the implementation in other cases. So that's as far as the volume orders.

Ali. You are right. It has been a long journey. The good news is that this last wave that we just went through is our last major wave. We have a few markets left to go alive on SMI, but we think we can manage those within normal course of business. So the supply chain team, the finance team, the business team that have been focused on SMI implementation are now focused on value realization and really levering the benefits of the system where the organization has been focused on a long drawn out SMI implementation as you indicate. The areas of improvement that I mentioned in my prepared remarks the improvement in forecasting capabilities area real and we are putting action plans together. We have good start to action plans to improve those forecasting capabilities that should help us in the areas of inventory. It will help us in the areas of margin. It will help us in the areas of freight. So as we look throughout the P&L we have to identify where saving opportunities will occur. And as it relates to launches, some of the improvements that we expect to see in terms of some of the resources involved in launches, from some of the better visibility that we get with SAP indirect procurement savings. We have launched Phase II of our indirect procurement savings, which will deliver a meaningful amount of savings over the next few years. As we look at over the next three years the SMI saving there are certainly some embedded within this fiscal year and in fiscal '16 and '17 even greater amount of SMI savings. As it relates to this year and why you are not seeing more of it, one of things as a global company with lots of opportunities we pace the investment of that opportunities and right now it's based on some of the saving imitative that we we're generating from SMI and other initiatives. So where in the past we have had more benefit from a combination of saving activities and margin expansion, gross profit margin expansion, I think I have indicated in the past that more of our margin expansion opportunities will come in the cost saving areas. So cost saving actions have actually become more contributing in terms of our ability to not only expand margin but also to reinvest back into business. So what you are seeing is the net impact of all of that, but Fabrizio mentioned R&D innovation. There are lots of areas this year that we are ensuring our foundation for not only this year’s growth but the next few years of growth that allow us to be able to stay with a good degree of confidence based on our insight right now that we continue to deliver double-digit growth.

Our next question comes from the line of Caroline Levy of CLSA. Caroline Levy - CLSA: Thank you. I would like to go back to China if I might and just ask a couple more questions about that. The Chinese in travel retail, you mentioned you were optimistic because more people knew your brand and were traveling out of China. But did you actually see a pickup in Chinese purchases in travel retail of your brands? And related to that, Korean brands appear to be doing very well in Korea, in China and globally and I am wondering if that's having a negative impact on you at all, or if there is perhaps an acquisition opportunity that you can look at, if there are any because it's been a while since you've actually found something you have been able to land of any scale. Is that on your radar, the Korean brands?

So first of all, travel retail, Chinese will continue for a long term to be one of the most travelers. In the last year, we didn't see -- we saw an increase of overall number of Chinese traveling and their destinations have changed dramatically. The Southeast issues like turmoil in Vietnam or in Thailand or the Malaysia, unfortunate situations and they create for example a decrease in travel of Chinese in South East Asia. The Chinese now travelled much more in Japan and in Korea, some of these also influenced by currencies interest of the Chinese travelers, the Hong Kong situation, the Chinese traveling will be less to Hong Kong. So it’s a very volatile situation, more than volatile, dynamic situation where the overall traveling trend for Chinese continue to be strong, although growing at lower pace than in the last year, but continue to be strong. Where they travel is very dynamic and so the companies that are able to better understand these, analyze it and make sure the trends are dynamically moved accordingly to their corridors are the companies that will do a better job and I think we’re very good at that and we’re following this carefully and as I said we value the flexibility of our model exactly because of this. The second part of your question is Korean brands. Now clearly in Korea, Korean brands have done very well and as we said, we took a couple of years to understand how to more effectively compete. I think we’re some interesting results. Some of our new brands like Jo Malone and Aveda they’re doing fantastically well in Korea, so we’re learning how to compete also with our new brands in this market and in other markets like China, we see Korean brands mainly in mass being very successful. Frankly in prestige they’ve not yet impacted in any way our trends to continue to be very solid as you see and in travel retail, in Korea, mainly in Seoul, Korean brands are significant. There’s been significant frankly in our new -- been significant for the last three or four years. But around the world, it still is growing. You’re right. But it's not to a pace where in any way is limiting our current growth but they are a formidable competitors. They definitely are an additional formal competitor, which meant yes, we’re looking and we’re evaluating opportunities on how to compete or participate to this growth in a more efficient way in the future.

Our next question comes from the line of Javier Escalante of Consumer Edge Research. Javier Escalante - Consumer Edge Research: Good morning, everyone. I would like to go back to travel retail and perhaps, Tracey, if you could tell us, for Q4 specifically, what was your retail sales growth and your shipment growth. Because it seems to me that you ship ahead of retail sales, but it still fell below passenger traffic. And if you can tell us what is happening in the travel retail channel -- LVMH commented on very low conversion rates. What gives you confidence that sales in these channels are going to rebound? Thank you.

Just want to give you the data, our retail sales for fiscal year '14 in travel retail has been plus 8% and our net sales just a little bit higher than that and the traffic was about 5%. So just to keep the record straight, we’ve been growing solidly ahead of traffic in term of retail sales and travel retail. Now Tracey will…

And Javier, so in terms of obviously they went live with SAP. So we certainly advanced shift in Q4 in support of the first few weeks of go-live and they did increase -- our customers did increase their shipment as it relates to that. We’re starting to see passenger traffic pickup. One of the reasons why travel retail increased their orders was July is a very important travel period for travel retail. So it’s a heavy volume period and to make sure that they had the product in order to support that volume period, if we had any issues they wanted to have a greater degree of certainty. So we’re starting to see passenger traffic pickup and as Fabrizio said, we’ve continued to outpace passenger traffic in the last few years in our travel retail business. So we benefit from traffic growth. We’ve also been as John indicated earlier expanding some of our brands, particularly our luxury brands and other brands in the travel retail channel, which has been an accelerator on our travel retail growth and we continue to see opportunities and that is certainly in our plans this year to continue to have travel retail be an outperformer in channel growth and our overall growth.

We have time for one more question. Our final question comes from the line of Neely Tamminga of Piper Jaffray. Neely Tamminga - Piper Jaffray: I want to thank John upfront for spending so much time on his brands. He's had a fantastic career at Estee Lauder; it's great to hear from him. For retail, I want to ask you a little bit more of a philosophical question around distribution in this digital era. So as consumers are migrating more online for both their search and purchase behavior and activities, obviously essentially landing people directly to your brand sites -- so I am just wondering, hypothetically speaking in the future how is the role between Estee Lauder and the retail and distribution partners, how is it going to evolve in this digital era? Any insights you can share with us? That would be helpful.

Yeah, frankly my point of view is that the digital area will strengthen our relationship with our retail partners and we are constantly working side to side with them to support their eCommerce and their digital expansion of activities. So all the customers, which have the retail partners which have the best dot com activities are also the one which delivers the strongest brick-and-mortar sales. There is a clear strong connection between success of the retailer online and success of the same retailer in brick-and-mortar. So we are participating to the development of the business of our retail partners both in brick-and-mortar and online and we’re very supportive including putting our capabilities in cooperating with them in developing this business because this Omni channel approach, that many of the global retailers that we partner with are taking I believe is the future. It is the right future. So it's true that we’ve also some of our brands with strong direct sites, which we sell direct to the customer like it's true that we have some of our strong brands with great freestanding stores where we sell our brick-and-mortar direct to the consumer as well. So we see our direct size like our freestanding store M-A-C for example and they used to penetrate the markets where our retail partners are not or to create flag-shipped brand equity building activities and show creativity and strength or to complement high traffic areas. But they never used in competition with our retail partners. So all the move to direct online and in brick-and-mortar is actually -- is a great move for accessing the consumer around the world and to develop the brand equities and our wholesale business is actually benefiting from these activities in a big way. So my view is very positive and very constructive.

That concludes today’s question-and-answer session. If you are unable to join for the entire call, a playback will be available at 1 PM Eastern Time today through August 29. To hear a recording of the call, please dial (855) 859-2056, passcode 82074353. That concludes today's Estée Lauder Conference Call. I would like to thank you all for your participation, and wish you all a good day.