Good day, everyone, and welcome to the Estée Lauder Companies Fiscal 2015 Second Quarter Conference Call. Today's call is being recorded and webcast. For opening remarks and introductions, I will turn the call over to the Vice President of Investor Relations, Mr. Dennis D'Andrea. Please go ahead, sir. Dennis D'Andrea: Good morning. On today's call are Fabrizio Freda, President and Chief Executive Officer; and Tracey Travis, Executive Vice President and Chief Financial Officer; and Chris Good, President of the U.K. and Ireland. Chris is going to discuss both the strategy and our current business in the area. 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 expectations for the full fiscal year are before the impact of accelerated retail orders that took place in the fourth quarter of fiscal 2014 July implementation of our Strategic Modernization Initiative, which would have occurred in our fiscal 2015 first quarter. You can find reconciliations between GAAP and non-GAAP figures in our press release and on the Investor Relations section of our website. And I'll turn the call over to Fabrizio.

Thank you, Dennis, and good morning, everyone. Our global business delivered strong financial results in the second quarter of fiscal 2015. Net sales rose more than 5% in local currency, better than we anticipated, and earnings per share also exceeded our forecast. Many of our brands, channels and countries contributed, and importantly, we expect this momentum will accelerate in the second half of our fiscal year due to the strength of our upcoming launch calendar. Prestige beauty continues to grow, sustained in part by heavy spending by key companies and occurred against the backdrop of increasing volatile macro events, including sharp currency fluctuations, political unrest and slower growth in some countries. We continue to invest in the future by acquiring 4 prestige brands that position us well for our sustained growth and profitability. I will start to discuss these acquisitions later on. Our results this quarter clearly demonstrated our strategy is working, since we were able to deliver solid performance when faced with market challenges and currency volatility. This is also a testament to our talent and the flexibility we have built into our business model to create resilience and agility. We are able to quickly adapt and change our focus when we see consumers and market dynamics shifting. Our consistent success is rooted in our multiple engines of growth, which has been -- which has enabled us to find opportunities across geographies, channels, consumer demographic, brands, innovation and acquisitions. We have strategically broadened our reach, so when the unexpected occurs, we are less exposed and have more positive levers to pull. Our strength in the second quarter was led by many of our prominent growth engines. Our luxury and makeup brands were standouts, which continued a recent pattern. We enjoyed excellent double-digit growth in the U.K. and most emerging markets, and by channel, in our own lines, specialty-multi and freestanding stores. Sales rose in most product categories. Skin care, our largest, was supported by recent launches, including Clinique Smart Custom-Repair Serum, which climbed to the #2 position in prestige serums in the United States. Clinique Sonic System Purifying Cleansing Brush also performed well and is gaining momentum globally. It's a strong seller in travel retail, and in key Asian markets it has overtaken its main competitor to become the bestseller device. Throughout December, we estimate that nearly half of all North America consumers who purchased the brush also brought at least one of the Clinique 3-Steps products. The brush is part of Clinique's strategically important 3-Step cleansing system and reinforces its authority in this area. In other skin care news, Estée Lauder luxury Re-Nutriv Ultimate Diamond Dual Infusion has been well received and soon will be paired with the new lifting cream. We have had good consumer acceptance the Re-Nutriv franchise, strengthening the brand in the high-end segment of skin care. Our makeup momentum continued and we generated strong sales growth, most evident in our 3 makeup-oriented brands. M·A·C sustained its fantastic brand, with growth in all regions and notably in many emerging markets, including China, Brazil, Turkey. Its Holiday kits sold out in North America, and business in its freestanding store worldwide was brisk. Smashbox growth was also stellar, thanks to strong retail in specialty-multi and online, expanded global distribution and popular new palettes. Within makeup, our brands are significant players in the key subcategory of foundations. One of the highest loyalty products, Bobbi Brown Skin Foundation Stick and Estée Lauder Perfectionist and Double Wear products were bestsellers. Beyond Perfecting, Clinique's newest liquid foundation, incorporates concealer and is beginning to launch in the stores now. The Estée Lauder brand makeup business climbed high single digits globally, driven also by its usually popular Pure Color Envy lip franchise. Also in the lip category, we expect the spring launch of Clinique Pop Lip Colour and Primer to generate excitement. In fragrance, sales declined against heavy launch activity in the previous year period. However, our luxury scents from Jo Malone and Tom Ford continue to rise sharp double digits, and we had a nice lift from our successful Michael Kors Collection. In hair care, Bumble and bumble generated strong U.S. sales and has 2 exciting hair care products launching this fiscal year that we expect to boost its salon business. As you see, there is a great deal of product excitement across the portfolio that we believe will contribute to accelerate in sales in the second half. We also continued to drive sales from several high-growth channels. Our e- and m-commerce business rose more than 30% in the holiday quarter with double-digit increases on brand and retailer sites, and even larger gains on third-party sites. Also impressive is that nearly 1/3 of the sales came through mobile devices. Importantly, all metrics, traffic, conversion and orders increased over last year. The lion's share of our company's e-commerce business comes from the U.S. and the U.K., and our second quarter sales in each country surpassed the market's overall online growth. The largest market for e-commerce in the world is China, and we are making good progress there as well. We have now 6 brands online in China and their combined online sales increased nearly 200%. We have tremendous opportunities to expand our online footprint by brand and country around the world. Our midsized brands are growing in importance to the company overall, and this is also true in travel retail. Aveda, Jo Malone, La Mer, Tom Ford accounted for much of the 4% increase in retail sales in the travel channel. Our net sales in travel retail declined approximately 4% because retailers rebalanced inventories. Additionally, the Chinese New Year holiday is later this year, moving the shipment [ph] to the third quarter. Sharp currency moves and political unrest in part of the world has a curtailed travel and has affected groups that had large purchases of beauty products, including Russians, Brazilians and Chinese. A bright spot was Japan, where travelers took advantage of a weak yen and we had strong retail growth. Another positive factor is our continued expansion in the channel. We opened more airport door for certain brands, which are generating good growth. From a geographic standpoint, we tailor our product and resources to where we see the best growth prospects. We continue to believe China is one of the most exciting opportunities and will remain a key growth driver over the next decade. China's prestige beauty growth remains at high single digits, and we see wide space opportunity to enter additional cities, doors and channels and launch more brands. Our net sales in China rose 4% in the quarter. We were competitive promotionally, and our retail sales climbed 15% with virtually all brands rising double digits. Estée Lauder, the leading prestige beauty brand in the market, had a terrific performance, especially in December, when retail sales rose sharply and it widely outperforms the industry. We expect its positive retail trends to continue for the rest of the fiscal year. Chinese consumers are passionate about beauty products and branching out beyond skin care. M·A·C, Bobbi Brown, Tom Ford and Jo Malone had fantastic results, pointing to higher makeup and fragrance consumption in that market. M·A·C emphasized Korean beauty trends that are popular throughout Asia, sending its sales up sharply. Emerging markets beyond China had been helping to drive our consistent growth as our compass predicted. The group, which includes Brazil or India, maintained its healthy momentum at 25%. Our business in Europe, the Middle East and Africa were strong. Net sales growth in constant currency in Western Europe rose mid-single digit. And we estimate we gained share in Germany, Spain, Switzerland, Benelux and Nordic region. Emerging markets there grew more than 20%, driven by Russia, the Middle East and Turkey. The U.K. has done a phenomenal job embracing the company's strategy with outstanding execution, strategic innovation and local relevance. There are many lessons we had learned in the U.K. that are applicable to other markets. We should foster future gains around the world. Chris will elaborate shortly. Our net sales in Hong Kong declined slightly as protests and tensions impacted retail traffic. But our results were better than we had anticipated. Although spending by tourist is expected to remain low, we anticipate a return to growth in the second half as political unrest abates. Our sales grew modestly in Korea, although local brands continued to gain share. We are encouraged that the number of our brands, including Aveda, Origins, La Femme [ph] -- or Jo Malone are accelerating in some heritage brands, assuring signs of recovery. In addition, we successfully launched Tom Ford Beauty in Korea with very strong demand. Retail sales of prestige beauty improved in the U.S.A. A trend led by many of our brands, the holiday period was promotional for all prestige beauty, culminating in a strong retail showing for the month of December. The consumer sought value and responded well to our holiday programs that were popular across brands and channels. We expect sales to accelerate in the U.S. in the second half, reflecting a strong launch calendar and marketing activities. We are working to extend our scope by reaching new consumers demographics. And one of our most exciting initiatives comes from the Estée Lauder brand, which signed 19-year-old Kendall Jenner as a spokesmodel. Kendall is star in social media and has a huge built-in audience with over 18 million followers on Instagram. The Estée Lauder brand remains focused on its core consumers as evidenced by innovation into luxury and anti-age business. However, at the same time, it is taking steps to broaden its appeal and be disruptive in a way that will draw the attention of a new generation. Our namesake brand has other exciting announcement and launches planned and it tries to attract more influencers and millennials. Now I'd like to update you on the newness brand in our portfolio. Each one we recently acquired has a unique position in the fast-growing area of prestige beauty. RODIN olio lusso in oils, Le Labo in high-end fragrances and sensory body products as we discussed last quarter. More recently, we added GLAMGLOW, a Hollywood skin care brand focused on fast-acting facial masks with a robust presence in specialty-multi channels. And Editions de Parfums Frédéric Malle, which offers a collection of luxury fragrances crafted by some of the world's most talented perfumers. Over the years, we have acquired many small brands that today are formidable global competitors in the prestige beauty space. Our creative and operational strengths position us well to develop this next collection of brands into more sizable brands for the future. We warmly welcome the brands and their entrepreneurial founders into the Estée Lauder Companies family. We look forward to accelerating the momentum of each of the brands by leveraging its strengths, and together, we will develop their potential. These brands are being overseen by 2 talented executives, who bring complementary skills and intimate knowledge to our company. Caroline Geerlings, who most recently head the Tom Ford Beauty, is focused on commercializing the brands and their operations. Daria Myers, who has extensive brand and R&D experience oversees innovation, product development and creative initiatives. Both executives report to Group President, John Demsey. Our long-term strategy emphasizes our many pillars of strengths, including a strong bench of talented leaders, diverse brand portfolio, balanced geographic presence, and most importantly, multiple engines of growth highlighted in our compass. We are committed to strengthening our robust growth levers, finding new ones and continue our journey to keep delivering sustainable profitable growth. With a solid first half behind us and exciting programs ahead, we are confident we can execute against the global challenges and risks we may face, and deliver another year of above-industry constant currency growth. I want to thank all our talented employees who contributed to our excellent performance throughout their collaborative spirit and dedication and ability to steer through many volatile environments. Now I will turn the call over to Chris, to talk about our fantastic U.K. business, which on a local level mirrors the terrific global collaboration and execution I just discussed. Chris?

Thank you, Fabrizio, and good morning, everyone. I am delighted to be here. I have been with Estée Lauder Companies for 15 years in a variety of leadership roles in Asia and Europe, and for the past 3 years as President of the U.K. and Ireland. The U.K. was the first market to be opened by the company outside North America in 1960, and indeed, it remains our second largest market after the U.S., representing more than 8% of total company sales and an even greater share of profits. Fabrizio spoke of the company's multiple areas of growth and the U.K. is one of our largest engines. Our company is #1 in prestige beauty in the U.K. and #2 in total beauty, which includes mass. The U.K. business is large, complex and has a very different distributional profile from Continental Europe. Many would view the U.K. business as mature. Average growth for total beauty has hovered between 3% and 5% for the last few years, with prestige beauty growing at approximately 5% on average. However, we view our U.K. business as an emerging market. What we mean by this is that we pursue high-growth opportunities across geographies, channels, categories and consumer segments. This approach has resulted in 3 years of growth trending well above the market. Our net sales in constant currency grew 11% last year and we are currently up 13% for the first half of fiscal '15. Strong results in an economy with GDP growth of only 2.6%. The U.K. is one of the world's most diverse nations and a top tourist destination. We go to great lengths to offer the most ethnically appropriate mix of business at every counter. We ensure our staff in merchandising is well-suited to the consumers of each location. Our approach is also successful by product category. Prestige skin care is growing modestly across the U.K., but if you look at specific subcategories within skin care, there is good growth to be had if you have the right product and the right targeting. For example, masks are a high-growth subcategory where we are a leader. Origins has the #1 rank in prestige masks in the U.K. Crème de la Mer has jumped up to #3, following the launch of its Intensive Revitalizing Mask and Lifting and Firming Mask, with its masks sales quadrupling in value. Our brands combined show a growth of plus 28% for the first half in masks, more than double the prestige growth. In fragrance, our best performance this year had been the luxury brands Jo Malone and Tom Ford, which both grew at over 20% against prestige fragrance as a whole at 3%. This bodes well for the new acquisitions of Frédéric Malle and Le Labo, where we are poised to take advantage of the U.K. consumers' strong appetite for luxury fragrance. A further area that illustrates our granular approach is our distribution. We have continued to expand our freestanding stores into new areas, including major transportation hubs. M·A·C and Jo Malone stores opened at St Pancras International train station, and both are now trading ahead of plan. Further opportunities exist for distribution in areas that might not be the most obvious choice, but quickly prove their worth. The new Jo Malone freestanding store in the popular tourist golfing destination of St Andrews in Scotland is an example. We have also had success with new formats, such as pop-up stores, to test and learn in new locations. Example is a Jo Malone in Brown Thomas in Dublin and Clinique in London's Covent Garden. Our well-balanced portfolio brand is helping drive growth. We've had solid single-digit growth from our heritage brands, Estée Lauder and Clinique. Clinique is the #1 brand in the U.K. and continues to resonate with consumers. The brands new launches, Smart Serum and the Sonic System, propelled facial skin care growth of 10% retail during the first 6 months. The heritage brands are fortified by strong double-digit sales growth of M·A·C as well as the next tier of brands such as Jo Malone and Bobbi Brown. And this, the next tier, including Tom Ford, Smashbox and Bumble and bumble are all demonstrating well above industry growth rates. This balanced portfolio of brands at different phases of their evolution allows us to continue to grow at above average rates overall. For this reason, we are very excited about our latest acquisitions, which have tremendous potential. The U.K. has a successful history of growing new acquisitions. When we bought Jo Malone 15 years ago, it had just 2 locations in the U.K. Today, it has 53 stores and counters and is the fastest-growing fragrance brand in the top 5. Throughout our business, we deliver High-Touch at everything we do. We have 7,500 dedicated sales representatives at retail and our freestanding stores, bringing High-Touch services to the consumer. I believe that in this era where a consumer can get whatever she wants, whenever she wants it, the brands that can provide unparalleled service are best positioned to grow. The U.K. has a higher percentage of mobile shoppers than any other European country and we have made great strides. All our brands in the U.K. have mobile sites. According to a recent survey by industry think tank, L2, we have the top 5 mobile sites for beauty. Our reach-out growth for the second quarter was led by strong results from Jo Malone, M·A·C, Smashbox and Tom Ford, each of which saw sales rise 20% or more. The U.K. recorded its strongest ever Cyber Monday, with online sales up 46%. At Jo Malone, great demand for personalization such as the new online engraving service for cologne, candles and bath oils, boosted sales. While e-gift cards, click and collect and same-day delivery service in London strengthened the brands' omnichannel experience. We had strong results across our channels, with several growing digits. During the holiday season, online was a marked success with our own sites growing at 32% and retailer sites, 36%. The developing click-and-collect capabilities of many retailers are a key factor in their growth rates. In our own channels, we have also started to offer click-and-collect services for Jo Malone and Bobbi Brown, which helped drive for success and demonstrated our High-Touch approach to the consumer. Specialty-multi channel had healthy growth in the quarter, up more than 10%, led by Boots. As part of our strategy to expand brands in specialty-multi retailers as appropriate, Smashbox and Bumble and bumble brands expanded their presence in Boots. And our freestanding store channel was a huge success, growing at more than 30%. Department stores remained a key channel for us in both brick-and-mortar and online. We had solid growth overall and double digit sales gains in a number of our largest department store partners. Going forward, we remain optimistic about the macroeconomic situation in the U.K. and confident in the continued growth in prestige beauty. Thanks to our tremendous team in the U.K. and our proven ability to execute with excellence, we remain committed to pursuing the best opportunities to grow our business ahead of the industry and continue to be an important growth engine for the company overall. I will now turn the call over to Tracey.

Thank you, Chris, and good morning, everyone. First, let me briefly review our fiscal 2015 second quarter results, and then I will share with you our expectations for the third quarter and the full year. Reported net sales for the second quarter grew 1% compared to the prior year and rose 5% in constant currency, exceeding the top end of our expectations. December sales accelerated beyond what we expected, driven by the strength of our holiday programs, as well as the results in Hong Kong being better than what we had anticipated, despite the disruption from the political protest. Our gross profit margin of 81.2% was 50 basis points above the prior year, primarily reflecting favorable manufacturing variances and foreign exchange. Operating expenses rose 140 basis points to 60.4% of sales. The largest driver of the increase was higher general and administrative cost of 150 basis points, primarily reflecting strategic investment and capabilities, such as R&D and information technology as well as our acquisition activities. Retail store expenses rose 40 basis points, reflecting the addition of almost 150 freestanding retail stores over the past year. Partially offsetting these increases was 60 basis points of favorability and advertising, merchandising and sampling expenses, due primarily to the mix impact from the strong growth of our lower advertisement brands as well as the cadence of major launch activities for our heritage brands. As a result, operating margin decreased 90 basis points to 20.8%. Earnings per share came in at $1.13, approximately $0.08 above the top end of our guidance range, up 3% from the prior year, due primarily to the impact of the better-than-expected holiday results and improved tax rates and the decision we took to shift some of our marketing investments to the second half of the fiscal year to support planned strong launch activity. EPS would've been $0.07 higher on a constant currency basis for the quarter, resulting in strong EPS growth of 10%. All elements of working capital continued to improve during the quarter, compared to the prior year. Inventory days to sell decreased by 15 days to 171, which was driven by a combination of both currency translation as well as improvements in service level. During the first 6 months of the fiscal year, we generated approximately $1 billion of cash from operating activities, a healthy increase of 27%, or $211 million, versus the prior year period, which is primarily due to the improvements we achieved in working capital. We reinvested $187 million in capital projects to support the business as we continued to primarily invest in customer-facing areas, such as counters and new retail stores to support our brand growth plans. And regarding return of capital stockholders, we also took the opportunity to accelerate our stock repurchase activity, deploying $479 million of cash to repurchase approximately 6.4 million shares of stock. This level was more than twice the amount we repurchased during the first half of last year. And as a result of the accelerated share repurchase activity that we began last year and are continuing this year, we have reduced our diluted shares outstanding by approximately 9 million shares from the prior year period, which has also contributed to our earnings per share growth. In addition to our share repurchase activity, we have also distributed $169 million in dividends to stockholders in the first half of this fiscal year, which was a 14% increase to the prior year's first half. Over the past 5 years, we have steadily increased the total amount of annual cash distributed to stockholders with steady increases in both our dividend rate and stock repurchase level in addition to delivering solid earnings growth. During the second quarter, we also completed the acquisitions of RODIN olio lusso and Le Labo, which we funded outside of our free cash flow with a combination of cash on hand and commercial paper. We are proud that our financial performance generates ample free cash flow to reinvest back into our business to fund growth, while at the same time, allowing us to continually increase our distribution of cash to our stockholders. We ended the quarter with $1.2 billion in cash and cash equivalents and $500 million in short and long-term investments. As you are aware from our earlier remarks, we have again utilized our strong liquidity in the third quarter to acquire 2 additional brands, Editions de Parfums Frédéric Malle -- Fabrizio says that much better -- and GLAMGLOW, and to continue to opportunistically repurchase shares and support our dividend program. We are well positioned to fund our new acquisitions with a combination of cash on hand and leverage as appropriate. Let me now turn to our outlook for the third quarter and for the full fiscal year. To provide additional clarity on our underlying business performance, my commentary for the full year continues to exclude the impact of the acceleration of retailer orders that shifted sales from the first quarter of fiscal 2015 into the fourth quarter of fiscal 2014 related to our July rollout of SMI. As a reminder, the impact of that shift was $178 million in sales and $127 million in operating income, equal to approximately $0.21 per share. Reported and adjusted results are also reflected in the press release you received this morning. As we complete the first half of this fiscal year, we do continue to expect global prestige beauty growth of 3% to 4% this year. However, we remain cautious with respect to the macro environment, given the high degree of political and economic uncertainty. So now let me walk you through our guidance for the year and try to clarify for you the expectations for our underlying business performance, the impact of currency headwinds we're experiencing and the initial impact of our acquisitions. In our outlook for the remainder of the fiscal year, we are reconfirming the range of our constant currency sales and EPS guidance. That means that our sales growth guidance for the fiscal 2015 full year remains at 5% to 6% in constant currency. The 4 acquisitions we've completed to date are relatively small today and are expected to contribute a combined incremental 40 basis points to sales growth this year, still within our full year guidance sales range. As you are all aware, the U.S. dollar has continued to strengthen since we provided guidance last quarter, and currency translation is now expected to negatively impact our full year sales growth by approximately 4 percentage points, which equates to approximately $480 million in sales. Our estimate assumes current stock exchange rates for the remainder of the year of 1 13 for the euro, 1 51 for the pound and 1 18 for the yen. On a reported basis our sales growth guidance, including the negative currency impact, is 1% to 2%. Regarding earnings per share, we are also reconfirming our previous guidance for the full fiscal year in constant currency, and that growth expectation remains at 7% to 10%. This excludes the impact of negative currency translation on our earnings, which was a 4% negative sales impact equates to approximately $0.23. Therefore, our revised expectation for reported EPS, including the negative currency impact, is a range of $2.93 to $3.01, so an extra $0.10 from what we had expected last quarter. This compares to our fiscal 2014 EPS of $2.95 before charges and the accelerated orders. The impact of our acquisition is expected to dilute operating margin by approximately 40 basis points and EPS by approximately $0.06. We expect to manage the EPS impact of these acquisitions within our previous guidance range. Our sales in the third quarter are expected to grow 6% to 7% in constant currency or flat to last year on a reported basis due to the impact of the strong dollar. Contributing to the sales acceleration on a constant currency basis in the third quarter are: multiple new skin care and makeup launches from Estée Lauder and Clinique, as Fabrizio mentioned, coupled with strong marketing support; 70 basis points of incremental growth from acquisitions; a recovery in Hong Kong; our return to more normalized growth in travel retail; and easier retail comparison in North America against the prior year's severe weather and late Easter; and an easier comparison in Venezuela now that we will anniversary the transition to SICAD II. As I mentioned earlier, the cadence of our launch activity is greater in the second half of the year, and we plan to increase marketing support for these launches at a level greater than sales growth in the quarter. Additionally, we expect approximately $0.02 dilution from acquisitions. Therefore, we anticipate the third quarter EPS will come in between $0.45 and $0.50. The approximately 6% to 7% negative currency impact on sales growth in the quarter equates to approximately $0.07 per share. The momentum we have experienced in our business in the first half of the year in markets like the U.K., which Chris shared with you, our emerging markets in EMEA and a powerful and resilient brand portfolio, which we have recently expanded, coupled with the strength and dedication of our global teams gives us the confidence that our strategy is working and that we will continue to manage well through these volatile times and achieve our long-term goals. That concludes our prepared remarks, and we'll be happy to take your questions at this time.

[Operator Instructions] Our first question today comes from Olivia Tong with Bank of America Merrill Lynch.

First, just a shorter-term question. I think it's impressive that you're expecting improved growth in Q3 relative to Q2 on a like-for-like basis. And you walked through a couple of the key drivers just now, but which ones are trending better relative to your going-in expectations?

Our business is accelerating. First thing, our Clinique and Lauder brand are accelerating. And in the third and fourth quarters, we are going to have some important launches with very solid advertising spending and support in some key regions of the world. So that's the key factor, one of the key factor for acceleration. The second is the continued growth of our midsize brands, that has continued to accelerate, and this also is acceleration in distribution around the world entering other markets. And then, the amazing performance of M·A·C, so that's on the brand side. And then, as we -- as Tracey just explained, we have an expectation of a recovery in Hong Kong. We have returned to normalized growth in travel retail that, as we explained, has been growing 4% in the second quarter, but the net was minus 4% because of adjustment of retailer stocks that we are expecting to be finished. So the combination of these factors, combined with a relatively easier base period for what Tracey explained like, for example, the very severe weather conditions in the United States, make us believe that we are going to accelerate our growth trend.

Your next question comes from the line of Lauren Lieberman with Barclays.

I have so many questions. I guess, 2 things, one was just on the acquisition math. I understand the 40 basis points drag, but was just curious if you're including transaction costs in that. And then the second thing was I know it's very early and it's just been announced, but Fabrizio, your perspective on how Macy's acquiring Bluemercury could impact your business? Are there brands that you currently distribute in Bluemercury that have less distribution in the U.S.? That sort of thing would be great.

So Lauren, on the 40 basis points, yes, it includes transaction costs. It includes the performance of the acquisitions for the time that we've owned them, and it also includes our current preliminary estimate for purchase accounting, so it includes all of those things.

And on Bluemercury, yes, I think your observation is correct. We have some brands, which are in Bluemercury, which have a lower distribution in the U.S., and they're doing very well within Bluemercury. So the plan that Macy's announced yesterday of expanding Bluemercury and to continue building their business the way they announced yesterday will be very favorable to our brands and to the distribution strategy of some of our high-end brands in the United States.

Your next question comes from the line of Ali Dibadj with Bernstein.

Guys, couple of things. One is -- I just wanted a little bit more clarification. On the one hand we hear about bullishness and acceleration, which is great. And on the other hand, I'm trying to understand how that translates to EPS because you're taking down basically by $0.10, as you said, the back half of the year -- I don't know your guidance -- but that's on top of a $0.08, $0.09 beat on the quarter. So it's kind of a bigger takedown on EPS than one would have expected from currency. So I want to understand kind of the bridge there a little bit more. And in that context, secondly, if you can talk a little bit more about your expectations in the rebound in Hong Kong and in China more broadly? When we were there visiting recently, we found that there was certainly a social unrest aspect to it. There's also a lot of discussion around the Chinese consumer trading down and that might be more secular. So I love your point of view about that, if possible, too, please.

So on the first question in terms of our EPS guidance. We spoke about the fact that we did make a decision within the last quarter to shift some of our marketing funds into the third quarter, primarily, and some into the fourth quarter to support our second half launches, particularly for our heritage brands, given the some of the strength in those programs, so that's the piece of it. And then the other piece is from an EPS standpoint, within the range covering the dilution effect of the acquisitions. So those are the 2 pieces that are impacting that.

And I just want to underline that there is a conscious decision to support our new innovation on Lauder and Clinique in a significant way because one of our priorities is to accelerate the growth trend of our Clinique and Lauder brands. And if we are able to do that, obviously, this will further improve our really strong brands as an overall company. Now to answer your second question is the -- so what is our expectation? Hong Kong, we expect to go back to growth, but we agree, and our expectation is not that we'll go back to the kind of growth that was there a couple of years ago. It is the fact that there is less traffic there than before in the stores of Chinese tourists. And it's the fact that these Chinese tourists are -- not trading down probably is not the right word, but the profile of the Chinese tourist, which is in this moment in Hong Kong, is less high end than they used to be. So because of this, we are prudently assuming that Hong Kong will go back to growth, but we are not assuming back to the kind of growth that was a few years ago. In terms of the Chinese having overall attitude to trade down, I don't think so. I think Chinese are just -- the high-end Chinese, which continue to spend well, are just changing their destinations. And it's true that Hong Kong so less of this kind of profile, but it's also true that places like Japan are seeing more than at places like London or Paris are seeing more solid travel of high-end Chinese in Europe is actually on an increasing trend. So Chinese consumer remains good travelers. They remain heavy spenders when they travel, remain very passionate, interested in beauty. And they remain interested in a very high-end prestige beauty products, but the destinations are switching and that's why what we were saying before, our agility and our ability to manage these traveling corridors in the best way and to evolve our traveling management, depending on how they travel, is a big strength. And I think you will see the results of this in the next months.

Your next question is from the line of Connie Maneaty with BMO Capital Markets.

So a couple of things. On the acquisitions, is the dilution limited to purchase accounting and will it last a quarter or 2? Or will it also stretch into next year? Then I have a question on China.

Okay. So the purchase accounting is -- or the dilution is related to 3 things: One, are the deal acquisition costs, so those are onetime costs. They will not continue forward, obviously. The second is the -- just the operating performance of the combined acquisitions, which is small. And then the third piece is purchase accounting and right now we have an estimate for purchase accounting for a couple of the acquisitions we have not closed the purchase accounting yet, and you will certainly see all of that reflected in our 10-Q when we issue it later today. And that will continue forward, the purchase accounting impact. So -- but obviously, we have great expectations for the 4 brands. Chris talked about how excited he is to have them in his market and what he thinks the U.K. can do from an acceleration standpoint with the brands. So we would expect that dilution to mitigate over, certainly, into the next few years.

Okay. And then on China, I think you said sales rose 4%, but what did same-store sales do?

You mean the same-door? Sorry, what is the question?

Yes, same-store sales growth in China. What did that do?

Plus 4%. So the numbers in China this second quarter were plus 15% retail growth, plus 4% same-door retail growth and plus 4% net sales.

A trend change from the first quarter.

Yes, big acceleration for the previous quarter. And as I said in my prepared remarks, with the acceleration across all brands with a great performance of the biggest brand in prestige beauty in China, Estée Lauder, and in acceleration all our midsize brands as well at the same time.

Your next question is from the line of Wendy Nicholson with Citi Investment.

On Asia, can you tell us what local currency sales in Asia would have been, excluding...

We lost your first part of the sentence. Could you repeat?

Sure. Sorry about that. Just following up on Asia. Number one, can you tell us what local currency sales growth in Asia would've been if you excluded the pressure from Hong Kong? And just to put that in the context of kind of your long-term revenue growth target of 6% to 8%, Asia has been trending -- I know it's very bumpy quarter-to-quarter, but it's been trending actually slower than your other regions. And I'm wondering your confidence, just long-term with the challenges in Korea, and you call out Taiwan and Singapore, all being weak. Does Asia go back to growing at the higher end of the other regions? Or are we in sort of permanent slowdown mode in Asia? And then my other question is, just going back to sort of your enthusiasm about Clinique and Estée Lauder specifically. It's awesome that those brands are reaccelerating, but doesn't that put some margin pressure on you because that's where you advertise more heavily? So if can you talk about your confidence about your margin goals, given the fact that those brands are accelerating, that would be helpful, too.

So let me start with Asia, Wendy. And thank you for those questions. In terms of APAC, excluding Hong Kong, APAC for the second quarter would have grown low single digits.

Okay, so on Asia. It's the fact that in this moment, as we explained, Asia is not at the top growth of our -- it's for the reason you summarized, meaning Hong Kong is slow, China has slowed down on average, although we have an excellent quarter too. Korea is flattening and Japan is being in this recession environment. So it's a fact. Interestingly, one of our best-performing countries in Asia, and it's normally it is Australia and New Zealand. So yes, it's a fact that today Asia is in a moment of softness. Now, my point of view, our compass and our strategic work for the future will -- it counts on the fact that this will change. This -- Asia will be and know that will be volatile, will be up and down. This is a down moment. But Asia is a long-term opportunity and a very strong region in terms of projecting long-term growth. And the reason for that is obviously the huge increase of the middle-class, the growth of the prestige channel overall in these markets. The fact that we have deployed to Asia only a small percentage of our portfolio for the moment, the distribution opportunity which are in Asia. So when you look at the opportunity for growth and assumed a stabilization of political or economical turmoil, Asia is definitely continue to be a long-term opportunity. And as I said in my prepared remarks, China, particularly, continued to be a very important long-term opportunity for the company, and Chinese consumers, wherever they travel, particularly. Last, I don't want to meet the travel retail -- Asians are formidable travelers and they're very heavy spenders and travelers. So we really are going to drive the travel retail in China and Asia the best we can and we believe we continue to be a success story in the long term. Now your second question on Lauder and Clinique. Yes, we are speaking about acceleration, but to be clear, Lauder and Clinique today are growing less than the average of the company. And so our enthusiasm is just for the beginning of this acceleration. Frankly, more to come. And that's why we want to invest in making this happen because that will be the other important engine that we want to activate at this matching of stand. But as I said before, I'm very pleased to see that we are delivering an exciting growth ahead of the others of the industry, even if for the moment, the engines of Lauder and Clinique are not full speed. And so our intention is to bring these 2 engines full speed. Now when we will do this, I don't -- this will not be dilutive to our profit. Actually, Lauder and Clinique, combined, are profitable brands. It's a fact that we want to invest into these in advertising, but not to be confused with the other brands that are less advertised than Lauder and Clinique have cost in other areas of their P&L. So the overall profitability of Lauder and Clinique, the moment the 2 brands grow at the right level is definitely accretive to the profitability of the company. So it will be a very good thing. And that's why in our prepared remarks, we are saying that we continue to be comfortable with our long-term margin acceleration objectives.

Your next question is from the line of Caroline Levy with CLSA.

I actually did want to just pursue that margin conversation a little bit, because as you see these opportunities behind launches, how do we think about what your goals are coming off of what will be a very low-margin year because of SMI? I mean -- because of, yes, the transitions. Do you see maybe fiscal '16 being an unusually strong margin year? How much are you going to let flow to the earnings level versus invest behind these ideas?

I'll let Tracey add what she wants to, but I want just to frame the point. I mean, we are trying to manage this company for the long-term, sustainable, profitable growth. And you see out there the amount of volatility and continuous changing environment and continuous competitive environment that we are facing. I believe that what we've built, meaning our agility and flexibility to respond to these external and internal challenges that we face in this long-term evolution, is a strength. And so in order to manage these strengths the best, we have given you our long-term objectives. And within that, we will be managing for optimization, depending on internal and external situations. So the mix of, as we said, mix of our brands, growth, leverage, ability, productivity improvement, combined with cost savings that come from SMI, that comes from many other opportunities that we are constantly working on. And the growth acceleration in the region and as -- and sorry, I should mention that China, the acceleration, already high profit channels that we're managing like travel retail, online, et cetera, this combination, we believe, will definitely deliver the long-term goals. How we will do it by quarter or by 6 months is the flexibility we are trying to preserve, to be able to leverage our key strengths, which is the agility to win in a very volatile world. Tracey?

I think you said it well. The only thing I would add is we spoke a quarter or 2 ago about the program that we have established for the next few years on cost savings, and we have quite a structure around that. The team is delivering results in multiple areas, in direct procurement, returns, there's focus on obsolescence. And as I mentioned in my prepared remarks, some of the benefits that you're seeing from inventory and working capital is a result of on the efforts of the teams working together on really improving supply demand match and starting to bring, with increased service level, starting to bring inventory levels down. So more of that will be coming over the next few years and we certainly see a bigger year from an impact standpoint in fiscal '16. That is supporting, as Fabrizio mentioned, some of the investments that we're making in these other areas for long-term growth. So we are very pleased with the model we have, the combination of cost savings and investments for long-term growth.

Your next question is from the line of Michael Steib with Crédit Suisse.

Fabrizio, wanted to follow up on your comments regarding the performance in travel retail channel, if I may. It's been such a strong growth driver over the years. I think this quarter, you mentioned it was growing at about mid-single digits, a bit of a slowdown, but you expect it to return to more normal growth patterns going forward. I wonder what that confidence is based on. Is this based on innovation? Or are you expecting to gain share going forward?

So we are gaining share in travel retail. In fact, the data on travel retail of retail, which are available to now at the first 9 months of the calendar '14. And in these 9 months, we continue to grow ahead of the market. So we continue to grow market share in travel retail. We plan to continue to grow market share in travel retail. The key drivers of that are the expansion of our brand portfolio, the continuous expansion of airport and opportunities and the growth in the existing high-traffic airports, which is driven mainly by increased conversion, meaning today, between 10% and 15% of the travelers buy anything. And so just 1 or 2 points increase in this conversion is a great growth opportunity. So the combination of these will provide growth. The amount of traffic in airports, which is the other factor we monitor, as you know, is growing. So this slowdown versus the traffic in this last period is not attributable, in my opinion, to any long-term trend. It's to a very specific situation and it's mix of travelers. Basically, it's not only we had been growing slightly below traffic, but entire industry has been growing. So we are still ahead of the industry. The industry is below traffic. The reason for that, the moment the traffic, which is -- the mix is changing and the increase of travelers are Americans and Europeans, and the decrease of travelers are Brazilian, Russian and Chinese, you understand that unfortunately, the level of growth in the selling, meaning in the conversion changes, so it's a temporary mix of travelers impact that makes that growth of the travel retail sales be slightly below the growth of traffic. As soon as the balance, the mix of travelers would again evolve, this will change again and I believe the conversion factor will push again, sales growth well ahead of traffic. Now we have a competitive strength in this area because we are the market leader of a both skin care and makeup combined. And we are, on the contrary, not the market leader in the fragrance part of the business. So when we have populations, which are very interested in makeup and skin care being the traveling -- sorry, the growing part of the traffic, we have an advantage. And that's why in our compass clearly show that we should be favored by the travel mix in the long term.

Your next question is from the line of Bill Schmitz with Deutsche Bank.

I have a couple of housekeeping questions and then a broader sort of question. The first is on FX impact. Is that transaction and translation? Or just translation? And then maybe, like sort of how you view your pricing versus if there's any pre-buy ahead of maybe some pricing and some mix to offset some of the currency hit? And then on the acquisition side, so the math is $40 million of sales, but it seems like based on your guidance for the EPS dilutions, it's a $33 million loss. So I'm just trying to figure out how that happened? And then the longer-term strategic question is: First, Greater China, if you included Hong Kong, Macau, travel retail and the mainland, what that would be as a percentage of sales? And then the implications. It sounds like wholesale prices in China might be going down because I guess there's some stuff going on with e-commerce where they waived the duty on products there. So do you think that shifts consumptions back to mainland and maybe away from some of the other faster-growing channels like travel retail? That would be really appreciated. I'm sorry for the long-winded question.

No, that's fine, Bill. So let me start. In terms of the foreign exchange impact that we spoke about, both for the quarter and the year, we were speaking about translation impact. However, embedded, obviously, in our reported results is the impact of transaction foreign exchange. So I did mention that on cost to goods, we actually had a benefit in for -- transaction foreign exchange. And that is related to some of the favorable hedges that we have in place, which over time, will mitigate. But it is primarily the reported numbers that I gave you were translation numbers. As it relates to the acquisitions, again, there are 3 parts to that dilution effect for this year. A portion of it is onetime and that is the deal-related cost for 4 acquisitions. A portion of it is purchase accounting, and again, that is preliminary purchase accounting and we will certainly true that up in the next -- within the next quarter or so. And then a portion is the operating performance, a smaller portion is the operating performance of the acquisition, which should be accretive, certainly, at least the operating portion of the acquisitions accretive in the next year or so. The purchase accounting, because of the structure of the deal, is dilutive and will be dilutive, but not nearly as dilutive as this year.

Okay. And on Hong Kong, China and this -- I would exclude the traveling, but Hong Kong, China is about 10% of our business. And the travelers is -- we don't look at it in this way because we look at travel retail via corridors. And wherever there are Chinese shoppers, there are also Korean, Japanese, and so it's very difficult to define any place Greater China. So -- but Hong Kong, China is about 10% and then obviously, that is a very interesting path of travel retail, which is attributable to traveling Chinese consumers. And we believe this, as I said, this remains a very big opportunity of growth for the long term and we have an extremely solid portfolio. We are the market leader in this segment. We have an amazing portfolio of brands, but we have not yet deployed to these group of people all our strengths. For example, we are not yet deployed also in new acquisitions. So the only changes or regulations in China, frankly, there are frequent evolution and changes. But I don't believe that in -- again, there will be an impact on travel retail and other winning channels like online. I personally believe that the online channels within China will continue to grow, just because the consumer habits and the consumer preference or the way they're shopping will continue to go in that direction and we are ready to gain market share all this time in that area. And travel retail, again, is the result of the passion of Chinese for traveling and for buying during their travel. And so even if the price differential had to go down, I still believe there will be a very interesting growth factor on traveling Chinese.

And then I would just add, Fabrizio called out the results that we saw in the last quarter as China is accelerating in terms of performance. So I think in terms of what is going on now with e-commerce and the ports, we are not seeing an impact yet from any of that activity.

We have time for one more question. Your last question is from the line of Jason English with Goldman Sachs.

A couple of questions, one on margins and one on top line. So I was a getting excited about your gross margin this quarter. I think it's the highest quarterly gross margin we have on history, at least for the last decade or so we have modeled. But Tracey, you took a little bit of it out -- the excitement out when you said there's hedge gains in there. So can you walk us through that gross margin, what's driving and how much of that benefit is transitory? And then secondly on top line, I love the enthusiasm behind your heritage brands, on Estée and Clinique. It's hard to buy into some of that enthusiasm based on what we've been seeing in the U.S. or seeing and hearing about in terms of market share trends, the sluggish performance of which I think you once again called out in the press release this morning. So can you zoom in a little bit more on the U.S. and talk about the initiative you have to revitalize these 2 core brands in the U.S?

So we're glad we squeezed you in as well. In terms of the gross profit margin, about 20 basis points of the 50 basis points that I spoke about was related to transaction -- foreign exchange transaction gains. And then the balance was related to manufacturing variances and a little bit of mix. So as you know, mix, category mix and geographic mix, has a big impact on our gross profit margins as does, obviously, the impact from pricing as well. So we certainly expect that we will continue to see benefits, but they will vary quarter-by-quarter, depending on our region mix and depending on our channel mix. But that's really -- that was the impact in the quarter specifically related to the transaction gain.

Okay. And on the acceleration on the brands, given what you say you're seeing in the U.S., and only on Lauder and Clinique brands. First of all, our enthusiasm is for the beginning of an acceleration process. So I want to, again, be very clear, it's only the beginning of an improvement. And second part of our enthusiasm is for our belief in the programs, which are in front of us in the next 12, 18 months on these 2 brands. So we are enthusiastic about seeing early improvements and we are enthusiastic about the programs of the next 12, 18 months, and we understand, if you are not yet fully buying into it, and we need to prove it to you. The second thing we are enthusiastic is in the learning we are taking when we put these 2 brands in the condition to win, where we can show the strengths, which is in the heritage brands. Clinique and Lauder are among the best brands of the industry since a long time. And in fact, one of the things that was in the U.K. presentation, we show you what these brands can do when they are in the right distribution support initiative mode. So I'll ask also Chris to explain in a few moments what are the learning in the U.S. that we will actually transfer to other region, including the -- sorry, the learning in the U.K. that we will transfer to our regions, including the U.S., which is the other part of our belief in the future acceleration. Chris?

Thank you, Fabrizio. Yes. Well, first and foremost, it's really about growing the consumer base. And in that sense, we've been working very hard on sourcing for mass, and we've seen great results in that area. And also specifically targeting many of the new consumer groups, like the multi-ethnic consumer and the growing emerging consumer in that area. Also broadening the breadth of product usage of our existing customers, so getting them to buy across the brands and across the portfolio. Playing the portfolio very strongly indeed because we have in the U.K. the 4 portfolio of brands, almost the 4 portfolio. Reaching consumers in the way that they want to shop, so really building upon and developing the omnichannel experience. And finally, and very importantly, executing with excellence the terrific innovation that the brands deliver for us.

And in -- with these conditions implemented with the current innovation plan, Lauder and Clinique are growing mid-single digit in the U.K. as we speak, so even before the acceleration programs.

That concludes today's question-and-answer session. If you were unable to join for the entire call, a playback will be available at 1:00 p.m. Eastern time today through February 19. To hear a recording of the call, please dial (855) 859-2056, passcode 67722547. 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.