Richard W. Kunes - Chief Financial Officer, Principal Accounting Officer And Executive Vice President Lynne Greene - Global President of Clinique, Origins and Ojon Brands Fabrizio Freda - Chief Executive Officer, President and Director Dennis D'Andrea - Vice President of Investor Relations

Christopher Ferrara - BofA Merrill Lynch, Research Division Linda Bolton-Weiser - Caris & Company, Inc., Research Division Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division Nik Modi - UBS Investment Bank, Research Division David Wu - Telsey Advisory Group LLC William Schmitz - Deutsche Bank AG, Research Division Alice Beebe Longley - Buckingham Research Group, Inc. Zeke Kramer Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division Caroline S. Levy - CLSA Asia-Pacific Markets, Research Division

Good day, everyone, and welcome to The Estée Lauder Companies Fiscal 2012 First Quarter Conference Call. Today's call is being recorded and webcast. For opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Dennis D'Andrea. Please go ahead, sir. Dennis D'Andrea: Good morning, everyone. On today's call are Fabrizio Freda, President and Chief Executive Officer; Rick Kunes, Executive Vice President and Chief Financial Officer; and Lynne Greene, Global President of our Clinique, Origin and Ojon brands. Lynne will discuss the positioning and strategic progress at Clinique. 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. There, you'll find factors that could cause actual results to differ materially from these forward-looking statements. You can also find a reconciliation between GAAP and non-GAAP results in our press release and on the Investor Relation section of our website. And I'll turn the call over to Fabrizio.

Thank you, Dennis. Good morning. I'm pleased you have joined us for our fiscal 2012 first quarter earning call. As we reported this morning, the strong sales and profit growth we have enjoyed throughout the last 2 years continued this quarter. We are particularly encouraged that our exceptional results were broad-based as the company achieved double-digit gains in every geography region, including the United States, our home market. We also reported double-digit growth in Skin Care, Makeup and Hair Care. And our science category showed solid growth. Overall, we outpaced our competition in prestige and mass and gained share in many of our important markets, such as China and Korea. Our sell-through has exceeded prestige growth in most of Europe and the Middle East. Financially, our operating margin expanded strongly and our underlying fundamentals remain robust. Our improved financial model leverages our sales growth for greater productivity. The outstanding 18% sales increase is even more remarkable given the economic uncertainty, stock market volatility and shaky consumer confidence in many parts of the world. We believe these results are a testament to our strategy, which is clearly working. We are strongly growing sales in existing doors around the world and, at the same time, increasing distribution, mainly in emerging markets. Our performance give us further confidence in the key tenets underlining our business model behind each of our strong brands to create fewer but highly innovative quality products, which are supported with focused and compelling advertising and marketing programs and a unique consumer shopping experience that delivers fantastic high-touch service globally. These principles will remain integral to our strategy. In a few minutes, Lynne will describe how well this model is working at Clinique. There are several factors, including certain positive macroeconomic trend, as well as internal improvements we have made that are contributing to our performance. This includes strong demand from luxury shoppers for our world-class brand portfolio and our focused investments, unrivaled innovation and a more efficient organization. Across the world, the luxury sector remains strong. A recent study estimated global luxury sales will climb 13% this calendar year. Our results benefited from the global prestige beauty retail environment that has remained robust. The affluent consumer has been more resilient than the lower income shopper and is purchasing across many product categories, from cosmetics to big ticket items. Among U.S. department store, those at the high-end, such as Nordstrom, Neimans or Saks, showed the fastest growth for the 3 months ended September. And Macy's, our largest customer, also rang up strong increases. Many department store chains cited beauty as an outperforming category during the quarter. Overall, prestige beauty sales outpaced mass in our fiscal '11 year in the U.S. That trend accelerated in our first quarter. According to NPD, prestige beauty sales in U.S. department store and Sephora rose 11% from July to September. In comparison, mass brand gained just 2%. Within the fastest growing prestige channel, our brands gained share of 1.3% in our top priority category, Skin Care. Recent launches like Estée Lauder Idealist Even Skintone Illuminator and Clinique Repairwear Laser Focus have been some of the drivers of the growth. The strength in the top-tier of luxury is reflected in our own brand portfolio. Many of our high-end prestige brands, including Bobbi Brown, Jo Malone, La Mer and Estée Lauder, were our best performance globally this quarter, posting double-digit sales growth in every region and in travel retail. To strengthen our presence in the super luxury segment, our Tom Ford brand is building on its strong fragrance portfolio with its current launch of the Tom Ford cosmetic collection, which we believe will be coveted by the global luxury shopper. We introduced the Tom Ford cosmetic collection in London in September and early results show it is a top seller. The collection is launching in the key U.S. cities this month. Our success is also due to our diverse portfolio of 28 prestige brands and extensive geography reach. At any given time, we can make greater investment in the most promising opportunities by brand, country and channel. And we react swiftly by being flexible, relocating our resources and backing our winners. We can leverage opportunities strategically. For instance, as we said in our last call, great growth potential in China, where the growing middle class is drawn to our aspirational brands. So we are increasing our investments in the country to maintain our momentum. We opened 37 counters in the first quarter for our existing brands, as well as 103 for the rollout of Lab Series, and we have plans for many more by the end of the fiscal year. We also continue to launch brand websites in the market, most recently for Origins. Our e-commerce business in China reaches consumer in 345 cities even though we have a physical presence only in 42 cities. Our increased China investment has paid off. And as a company, we gained share in our distribution in the recent quarter as sales in the local currency grew 34%. In aggregate, sales in our emerging markets grew 23% and we're not diluted to our operating margin. We also got off to a terrific start in the U.K., our second largest market and plan to fuel our sales to the holiday season and second half with TV commercials for Clinique, Estée Lauder and DKNY. With the advertisers' support, our U.K. business is projected to grow at twice the rate of beauty this fiscal year. Company-wide, our increased ad spending across TV, digital and print is -- in selective countries has been an important contributor to our robust sales growth and that effort will continue. As we previously noted, we ramped up our spending toward the end of last fiscal year, which certainly helped drive our growth this quarter. We also believe that our innovation and imagination has contributed to our success. Innovation is at the core of what we do and much of our talent and resources are spent unleashing our creativity, and not just in product development. In the digital area, we launched many new concepts. The Estée Lauder brand introduced a channel on YouTube, with 35 original how-to videos giving makeup lessons. The brand also created a short film inspired by its new fragrance, Sensuous Nude, which can be accessed via cell phone. In other digital news, Bobbi Brown launched a blog about Bobbi's world and interest. And she was featured on Taxi TV in New York City cabs during fashion week. Now the brand is building a state-of-the-art digital media center to continuously create fresh content that it can be sent worldwide in minutes. In terms of broadening our portfolio, we signed licensing agreements with 3 top fashion designers for high-end fragrance brands, which is the fastest growing area in the crowded world of scents. Ermenegildo Zegna is a terrific men luxury brand growing rapidly, particularly in Asia. It will provide great opportunity to broaden our reach in both men's fragrance and international markets. Marni will help us play more specifically in the women high-end segment, which is growing steadily, and will give us stronger foothold, notably in the important European fragrance category. Tory Burch is a sophisticated lifestyle brand for which fragrance is a natural next step. The Tory Burch branch will add critical mass to our U.S. fragrance business and extend our global reach, particularly in North America, Asia and emerging markets. These brands complement our existing portfolio of leading designers, which we are also committed to continue develop strategically. We constantly search for new frontiers to explore in order to grow our business and lead the industry to new heights. We are upbeat about our future and confident in our strategy. Our company is strong, both structurally and financially. From our vantage point, although there will continue to be worrisome signs in some markets, we haven't seen the assets on prestige that we thought we would have back in August. We believe we are better positioned than ever to weather market volatility or softening. We have proven we can grow faster than prestige beauty in good markets and bad. Structurally, we have created a more efficient, tighter organization and our brands have unified and rally around the enterprise as a whole. We work more collaboratively in teams and more focused on assuring that our business are locally relevant and has developed a discipline on expense control. Our financial position is healthy. We have ample liquidity and expect to generate more than $1.1 billion in operating cash flow this year. Looking out at the remainder of the fiscal year, we believe our long-term market fundamentals are solid and we are confident we can continue to achieve sustained growth and increased profitability. As a result, based on our better-than-expected first quarter results, solid financial position and positive outlook, we are raising our full year sales and earning estimates. We now forecast sales to increase 8% to 10% in constant currency and earning per share before charges to be between $4.25 and $4.45. In addition, I'm pleased to say, we are confident in our ability to meet our long-term goals. And as we announced this morning, our board has increased our annual dividend by 40% to $1.05 per share and declare 2 for 1 stock split. We have a winning formula and an amazing global team of leaders, which I believe is the best in the beauty industry. With our superb creativity, fashion for perfection and will to win, we see enormous opportunities ahead. Now I will turn the call over to Lynne.

Thank you, Fabrizio. Good morning, everyone. I've been with the Estée Lauder Companies for over 20 years, working in several brands, including Estée Lauder, Origins, La Mer and Jo Malone. I was thrilled to become the President of Clinique worldwide in 2006. Clinique, a brand introduced in 1968, was the first dermatologist-developed brand, heralding the innovative proposition of allergy-tested and 100% fragrance-free. At inception, Clinique democratized skin care, building on the promise that great skin can be created for every woman. Clinique is loved by women and men around the world. It is an iconic brand that appeals to consumers of all ages, with 61% of the business being done outside North America. In the United States, Clinique is not only #1 in Skin Care but #1 overall, including mass and prestige. A little known fact is that Clinique is also the #2 prestige makeup brand in the United States and, by the way, the #1 prestige liquid foundation brand sold around the world, selling almost 14 million units annually. Clinique is one of most trusted beauty brands in the world. This trust begins early, as Clinique is often the first prestige beauty brand used by a young consumer. It's no wonder then that Clinique has become the #1 skin care brand in Russia as well, with growing market share throughout Europe. The quick climbed to #1 illustrates the opportunities that exist across the globe in emerging markets. Over the last several years, we've elevated technology and innovation to build new desirability. True to our heritage, we view skin care through the lens of a dermatologist. In the process of doing that, we created a new skin care architecture for the brand called Dermatological Solutions, products that target very specific and unique concerns such as redness, acne and hyperpigmentation. This architecture gives us a reservoir of new opportunities across the globe. Two of the most successful launches under derm solutions have been Even Better Clinical and Repairwear Laser Focus. Even Better Clinical is a product that has the power to even skin tone with results equal to a leading prescription ingredient. We launched Even Better Clinical and Repairwear Laser Focus in 2010, and these 2 products together account for almost 20% of the brand's Skin Care business. Both products premiered with a unique media mix. TV had previously been a single-digit investment in the total media plan. With these 2 products, TV became the biggest portion. We have committed to evolving that model across the globe. Digital is a significant increase as well. This TV and digital initiative is becoming a global revolution for Clinique. We have proven that we have creative edge in TV production that resonates with consumers around the world, and the mix of TV will continue to expand in existing TV markets and into new markets with other products. Clinique's digital expertise ranks as one of the best in the beauty industry. We will continue to evolve that know-how globally, often creating new, wide space opportunities in emerging markets, as well as developed markets. Our efforts have not only focused on media but also on strengthening high-touch merchandising and store design elements that create a superior experience for the consumer. Some of these high-touch initiatives include Service As You Like It, not only a new counter design but a new consumer engagement model that invites the consumer to shop the way she chooses to shop, give her what she wants when she wants in the way she wants it. Her response, understandably, is overwhelmingly positive. iPad diagnostic, a skin care diagnostic tool that has access to over 180,000 product combinations. The iPad recommends the product combination that is exactly right for the consumer's skin care concerns. It adds great authority to the consultation. The product printout recommendations are a constant reminder of the skin care system as is the subsequent email to the consumer. The multiple languages will add new relevancy to the brand in many countries. Enhanced navigation. New global designs that allow the consumers to browse and to easily locate their needs. Education and consultants. Education is in our brand DNA, but enhanced education has made high-touch even more dynamic. Smile bracelets. With a smile and a wink, we ask the consumer to wear a bracelet that illustrates how she chooses to shop. It's a new dialogue that starts a different conversation. For example, one of the bracelets simply says browsing and happy. By the end of fiscal '12, the majority of our doors globally will contain either the full Service As You Like It presentation or several elements of this new model. The combination of pull and uniquely created high-touch elements has brought dynamic results from different perspectives. In North America, the pull elements have recruited thousands of new consumers to department stores. In Europe, the enhanced selling navigation system has enabled new and existing consumers to locate the product advertised more easily and find companion products. In Asia, the combination of pull and push is starting to ignite accelerated growth. We continue to evolve Clinique's pull and push model. This synergy is unrivaled by mass players. In addition, we continue to leverage the franchises with new elements. In fact, Even Better foundation leveraged Even Better Clinical. The results have been excellent. Both Even Better Clinical and foundation grew high double digits, lifting the growth of the entire brand. Additionally, the foundation expanded the entire multicultural consumer base. Now that campaign will expand globally. We're entering the holiday season in a strong position, and we feel optimistic about the business both in-store and online. We feel confident in our product offerings and our service proposition, optimizing the browsing and buying experience for the holiday shopper. The Clinique team is committed to providing our consumers with a personalized, engaging and informative experience at every touch point globally. Our Clinique to success is largely due to our mission to provide disruptive innovation in as many aspects of our business as possible. The original equity and heritage of this unique brand has evolved into a contemporary design that continues to excite consumers around the world. Now I will turn the call to Rick. Richard W. Kunes: Thank you, Lynne, and good morning, everyone. My discussions on the quarter and the outlook exclude restructuring and other charges, which were minimal. As Fabrizio said, we had terrific momentum coming into the quarter, following the substantial advertising and marketing investments we made in the June quarter. Even so, sales came in better than we anticipated. In local currency, sales rose 14%, about 2 points better than the midpoint of our guidance. Currency translation added 4 percentage points, resulting in reported sales growth of 18% to $2.48 billion. Net earnings for the quarter rose 45% to $281.5 million compared with $194.4 million in the prior year quarter and diluted EPS was $1.41 compared to $0.97. Importantly, growth was very broad-based, demonstrating the robust health of our business globally. All 3 regions, as well as our 2 largest product categories, rose double digits in constant currency. The strategically important Skin Care category continues to thrive. Sales rose 20% in local currency and grew double digits in every region. Our strategy of launching strong innovation, backed by compelling advertising and customized service, is fueling growth in the category. In Makeup, local currency sales rose 13%, driven by growth in our Makeup artist brands, Estée Lauder and Clinique. The Makeup category also grew double digits in every region. Our Fragrance business grew 3% excluding currency, driven by strength in the European region. The high end of the category performed well, with very strong double-digit growth on Tom Ford and Jo Malone. New launches from Estée Lauder, DKNY and Coach helped to offset declines in some existing fragrances. In Hair Care, sales rose 8%, reflecting global growth at Aveda and the expansion of Bumble and bumble at Sephora in the U.S. On a geographic basis, our sales in the Americas grew 10% in local currency on top of the 12% we saw in the prior year quarter. Virtually all brands contributed, and we saw particular strength from our top 3, Estée Lauder, Clinique and M-A-C. Additionally, Latin America grew 27% and Canada gained 11%. From a channel perspective, the best growth came from our online business, which rose 25%. Department and specialty stores rose double digits, while our own stores were up mid-single-digits, and salons and spas were up modestly. In Europe, the Middle East and Africa, sales rose 19% in local currency. With few exceptions, markets in the regions grew double digits. Travel retail grew 35% as the channel continued to benefit from improved traffic led by Asia and the Americas. Our U.K. sales rose 16%, helped by solid retail momentum across the majority of brands and the impact of our television advertising behind key innovations at Estée Lauder and Clinique. Our business in Western European countries grew double digits, with Spain the only major soft spot. Eastern European markets rose strong double digits, except Russia, which saw 18% [Audio Gap] but lower net sales due to the timing of shipments. The Middle East and Africa grew more than 20%. In the Asia-Pacific region, net sales rose 15% in local currency. The region’s growth was again led by China, which gained 34% for the quarter. New brands, new doors and 16% like-door retail sales growth fueled the momentum. We also saw strong sales gains in Hong Kong, Taiwan, Korea and Thailand. Japan declined only 1%, better than expected, while Australia continues to be soft. Our gross margin improved by 170 basis points this quarter to 78.4%. The increase was primarily from positive mix of 150 basis points and currency of 20 basis points. These figures include the benefit of our cost savings initiatives of $38 million. Operating expenses as a percentage of sales fell 140 basis points to 60.9%. Advertising, merchandising and sampling expense increased 20 basis points to support the company's biggest innovations, while all other significant operating expenses were 230 basis points lower. The improvements were partially offset by currency losses at 50 basis points and higher stock-based compensation expense of 30 basis points. These figures reflect savings of $6 million from our cost-reduction program. As a result, operating income rose 43% to $434.1 million, and operating margin rose 310 basis points to 17.5% of sales. We realized total savings of $44 million in the quarter from our cost savings program, and we continue to expect to save between $100 million and $125 million for the year. Net interest expense was consistent with last year at $16 million this quarter, and the effective tax rate was 32.7%. We recorded $4.1 million or $0.01 per share in restructuring and other charges in the first quarter. For the full fiscal year, we expect to record charges of between $25 million and $40 million. Our September quarter cash flow is normally light due to the working capital requirements ahead of the holiday season. This quarter, net cash used for operating activities was $36 million compared to $39 million last year. Our days sales outstanding were unchanged at 50 days this quarter, while inventory days rose 4 days to 181, reflecting our expectations for near-term sales growth and to improve service levels. We spent $81 million for capital expenditures, which includes counters and retail store construction, as well as our company-wide systems initiatives. During the quarter, we spent $403 million to repurchase approximately 4 million shares of our stock. For the year, we expect to generate more than $1.1 billion of cash flow from operations and invest about $400 million to $450 million for capital expenditures. The growth in capital investment reflects cost efficiency projects, namely systems, and as well as revenue drivers like improved point-of-sale inventory and retail stores. Both types of investments create the opportunities for continuous, sustainable sales and margin growth globally. As Fabrizio mentioned, our board increased the annual dividend by 40% to $1.05 per share, which is expected to use about $200 million of the free cash flow this year. While we see risk in Europe and volatility in the currency markets, we have not experienced any major impact on our business. Our outlook assumes a softer market for prestige beauty, but we are raising our expectations to reflect the conference we have in our strategies and our ability to execute through the volatility around the world. For the year, we are increasing our sales forecast 2 percentage points and now expect local currency sales growth of 8% to 10%. Our business is stronger than when we issued guidance in August. We are assuming full year average rates of $1.36 for the euro, $0.80 for the yen and $1.58 for the pound. This scenario would not impact reported sales growth materially. The increased leverage from higher sales, combined with cost savings, are expected to be partially offset by continued increases in advertising and investment in new systems. This translates to an operating margin improvement of between 80 and 100 basis points this year. We continue to estimate our effective tax rate will be between 31% and 33%, and we are raising our full year non-GAAP EPS forecast to between $4.25 and $4.45. Our EPS forecast is before the stock split. The holiday season in the U.S. is expected to reflect an improvement in consumer spending at the high end compared to 2010. Additionally, we are forecasting approximately one percentage point of our third quarter sales may move into the second quarter. This is because retailers may decide to build stock before the next wave of the affiliates-launched SAP, which is planned for January. Our sales growth for the second quarter is forecasted to come in between 8% and 10% in local currency. The impact of currency translation should be minimal. We anticipate EPS for the second fiscal quarter to be between $1.85 and $2 on a pre-split basis. This equates to first half estimated local currency sales growth of 13% to 14% and EPS of $3.26 to $3.41. Keep in mind, that our first quarter growth was exceptional and benefited from the extra marketing spend in the June quarter, as well as favorable currency. Additionally, many of our major launches fall in the first half of this year. Our second half sales and EPS growth anticipate some slowdown in Europe, slightly less favorable currency comparisons and the shift in sales into the second quarter I just mentioned. These forecasts assume there won't be a major downturn in any of our key regions. Should there be an unforeseen major slowdown, we may need to revise our outlook at that time. That said, we are pleased with the strong start to the year and we are optimistic about our prospects. Our business model I described last quarter and adhering to strict productivity guidelines and carefully targeted reinvestment should give us the flexibility we need to execute effectively. And that concludes my comments for today, and we'd be happy to take your questions.

[Operator Instructions] Our first question today comes from Caroline Levy with CLSA. Caroline S. Levy - CLSA Asia-Pacific Markets, Research Division: I wonder if you could update us on how travel retail has looked to date, and forgive me if that was in the text. And then, if you could just talk about -- Lynne, it was great to hear the Clinique story. Is Asia where you wanted to be in terms of the foundation having built -- been built for growth? And what do you see as the biggest opportunities for Clinique in Asia? Love to hear that.

Okay, let me -- this is Fabrizio. Let me start from travel retail. Travel retail has been growing more than 30%, and the quarter specifically was 35%. Now this is coming from travel retail traffic around the world, growing about 6%. And we're growing much faster than that because of building market share and increasing conversion of travelers into shoppers. And also, I explained in other calls, thanks to the strong growth within travel retail or Skin Care and Makeup where other -- our portfolio brand is having particularly strong success. The other thing to say -- important to say on travel retail that there is obviously the majority of the increase come from Chinese consumers. So all our investment and success in China has also the effect of pushing our travel retail globally. Said this, we remain cautious on the volatility of travel retail, which obviously is subject more than our channels to whatever various natural disasters or sudden ups and downs. That's why we are prudent in the way we manage the channel also for the future. As far as the Clinique question, I'd like Lynne Greene to take this and answer to you.

First of all, let me say that in Asia, I think there's one very important thing to note, that in Japan, Clinique, in our distribution -- in our existing distribution is the #3 brand. As we expand the concept of Clinique throughout Asia, we have seen acceleration in that we have the launch of the 2 products, Laser Focus -- Repairwear Laser Focus and Derma White Brightening Essence, which is also having a very good effect on the business in Asia. We always have an eye with the Clinique brand of recruiting that younger consumer. And in these markets, the serum is both recruiting the younger consumer and the more mature consumers. So that's the foundation of the way we're building the business.

Our next question comes from the line of Nik Modi from UBS. Nik Modi - UBS Investment Bank, Research Division: Two quick questions. Just wanted to follow up on Caroline's question on travel retail. Any sense on how much conversion is helping the business there? Just trying to get a sense. Obviously, say, 10% of consumers walk in to Duty Free buy but just curious how that conversion trend has been moving since you started all these new initiatives? And then the real question is, how sustainable do you think the U.S. department store businesses? I mean, I would bet the variance for most models, not everyone is really looking for double-digit growth in the U.S. business. Just curious how you think of it internally going forward.

So on travel retail, I don't have the number. In the sense, we do not have a recent research that measure a gain to conversion. I did mention, this 10% conversion was the standard we started from. We believe we are making big increases, and we will measure this again in some time from now. But -- so I cannot give you a precise answer but I can tell you it's working, and we are converting more and more consumers. And we are actively improving our effort there, meaning we are learning what works, what does not work and we are constantly improving our programs in that area. On the U.S., we frankly believe that our new model is pretty sustainable. I think that the new marketing model of the big brands of The Estée Lauder Company are supporting the growth of the prestige channel in general and department stores specifically in the U.S. Because on top of improving our in-store activities and selling better and more successfully with higher value from services and better products to the existing shoppers of department store, the new program where we have this amazing high-quality innovations supported by strong advertising is also bringing in new traffic to department store. And the source of this traffic is also mass. So we are actually really working on increasing traffic in prestige stores, strengths to our strong brands and innovation and then, supporting the service elements to this new traffic via amazing high-touch experiences. This model working -- I believe this model will continue to work. And I cannot answer the question, will be every quarter double-digit or not? But definitely, it will be a continuous sustainable growth. Richard W. Kunes: And we have pretty strong results. We mentioned 25% growth in online. And in some of our what we call specialty retailers as well, we have quite strong growth. So North America is doing fairly well.

Our next question comes from the line of Bill Schmitz with Deutsche Bank. William Schmitz - Deutsche Bank AG, Research Division: Have you ever looked at what the sources of your volume gains are? Because you're obviously growing at a multiple of the category. Richard W. Kunes: Yes. Yes, we -- and Fabrizio just mentioned that we believe we are taking business from mass for sure, and we believe we're gaining market share in the prestige arena as well on a global basis. So we are taking share from our direct competitors in prestige but also from the mass market.

And I want to add also, in emerging markets, specifically, there just -- there is a new middle class, which start buying this prestige product for the first time. So there's multiple source. They source from people they were not buying before. People that were buying only and exclusively in mass before from some of our prestige competitors. And again, this very different by category. We are successful in our oldest front in the area of Skin Care. In area of Makeup, we are doing good progress. Hair Care is just the beginning of a journey of creating a more -- a stronger hair care prestige category. And in Fragrances, with the new portfolio of the designers that we have a license that we believe we will further accelerate our growth in the high-end, which is as I say is the most promising and profitable of the Fragrance category. William Schmitz - Deutsche Bank AG, Research Division: Great. And then just one follow-up, if I could. Euro-funded clearance, I guess, have some pretty negative commentary about Europe and saw like a pretty dramatic slowdown, but it doesn't seem like you're seeing any of that. Could you just comment on that briefly? Obviously, to talk about competitors but I was curious why there's a disconnect on the commentary about the market?

Yes, I cannot comment on disconnect. I can comment what I see in Europe. And in Europe, there is indeed softening, meaning the total market is softening. However, the high end of the market is suffering less. And we, Estée Lauder Company brands, are growing much faster than the market. So we do see some softening but less of -- in the high end. But we are growing much, much better. In other words, let me give you the example of Italy. Italy, the overall market of prestige in Italy has been, in the quarter, minus 1%. We have been growing 7% in Italy. So it's about that our plans are working. And as I was commenting in my initial remarks, the new confirmation that, frankly, we are very proud of, that we are working -- we are growing very well in winning markets like travel retail and China where the market is growing. We are growing faster than the market. But now we are also winning big in soft markets like Italy, where the market is minus 1% and we are plus 7%. So we seem to be able, with our new model, to grow both in strong market and soft market. That makes the big difference.

Our next question comes from Chris Ferrara with Bank of America. Christopher Ferrara - BofA Merrill Lynch, Research Division: I guess as the opportunities shifts on the margin side to SG&A from cost of sales, where you had some pretty dramatic improvement over the last couple of years, I guess, it strikes me that even this quarter where your SG&A margin was down 130 basis points, your SG&A in dollars are still up 16% and currency is still a piece of that. But I guess, can you talk a little bit about, in absolute dollars, what you think about SG&A and where you think it can go over time?

Yes, let me first -- and I'll Rick comment on the specifics of the absolute number, but let me explain. As you say, the cost of goods, we're making a lot of improvements so gross margin was the majority of our improvement. SG&A will be an opportunity. But the dynamic within SG&A is very important. So we are reducing our overall costs, but we are increasing the investment in some specific area at the same time. So we are increasing investment in advertising and the advertising behind the biggest, strongest innovation. That's a big change and is driving the growth. We are increasing investment in modernizing the systems in our company that was needed, particularly to really exploit our global reach. And this will create more savings opportunity in the longer term, but in the short term is an extra cost. We are investing in building new capabilities, particularly in R&D, to fuel this great innovation and then we support with advertising and in digital and in consumer insight. Anything else is going down in cost. So there is -- SG&A as a total will give you some messages but the internal of the movement of SG&A is a very important area, I believe, behind our progress. I'd like now Rick to comment on the specific numbers. Richard W. Kunes: Sure. And we did, during the prepared remarks, Chris, talk a little bit about how our advertising, merchandising and sampling expense was up about 19%, 20 basis points. And that every other significant category was down about 230 basis points. And that ties in exactly with what Fabrizio was saying there. We came into the year and we mentioned to you that we had, in this year, a model that was based on pretty big -- one more year of big gross margin improvements, and that was in the operating expense area. We're making savings across the board in many areas, but we're reinvesting in some of the things that Fabrizio mentioned. And it's our sort of philosophy at the moment to while our business is going well, while we're growing our profitability, while our sales are growing terrifically, that now is the time to make some investments to build a sustainable model that will allow us to continue to drive top line growth but continue to drive efficiencies and build a platform and foundation for the future. So I think that -- I think we have a pretty solid business plan quite honestly. And I think it's being executed pretty well, and you see it in our the results. Christopher Ferrara - BofA Merrill Lynch, Research Division: And just, I guess, following up, specifically, if you take 2009 recessionary lows out of the equation, right, SG&A this year is probably still going to run around all-time highs as a percentage of sales. So I guess, can you give any color around how much of the strategic reinvestment you're making, which is obviously sizable? And I guess -- and I get that A&P is going to stay high and it should. But outside of that, how much of the strategic reinvestments are running above, say, a normalized run rate, right? And how much opportunity is there to get this back down? Because even if you look at the early 2000s, right, I mean you were talking about the number that looked more like 62%, 63%, not 65%, 66%.

Yes, let me again paint the full picture and give Richard the specific number. The picture is, out of what we are investing, the AP will remain high. However, over time, we are going now to learn also how to make our AP investment more efficient. We have a project internally that we are working on since 6 months, which is all focused on making more efficient A&P spending. We started increasing spending in areas that we know are working well that we have opportunity there. So that's one area. The second area is obviously all the investments in the modernization and systems of the company, when the change will be finished, we will have less of these costs and most importantly, we'll start yielding savings related to the utilization of the systems in a smarter way. And then in the area of R&D and consumer insights, once those new capability will be built, at least these costs will stop increasing. And so over time, the productivity of this investment will also improve. Richard W. Kunes: Yes. And Chris, you have to remember, there's probably 30 or so basis points of promotional spending that used to be in our cost of sales that shifted into operating expenses. So that's just a movement of the way our P&L is constructed. And the other thing to keep in mind is that we're expanding pretty aggressively retail stores. Retail stores have a very big gross margin, but they have higher operating expenses associated with them. And in operating income numbers, for the most part, our retails stores are equal to or better than the average of the company's. But that again is kind of a mathematical distortion of the percentage of sales numbers that's in there. But generally, for the year, you will see all operating expenses, including those 2 shifts that I just mentioned, other than advertising, merchandising and sampling, be more or less flat. And that the incremental change year-over-year would be mostly around the advertising, merchandising and sampling expense.

Our next question comes from the line of Alice Longley with Buckingham Research. Alice Beebe Longley - Buckingham Research Group, Inc.: Questions, my first is on margins and what we should be modeling in for, I don't know, the next 3 years for your expansion into parts of the emerging markets where you're not as well as established as Asia? So for instance -- but I guess, most importantly, Latin America and India, is it fair to assume that your push into those areas might add one percentage point to grow top line but take 20 basis points out of operating margins incrementally every year as you try to build that up? Could you just sort of quantify the impact of those efforts?

No. Frankly, it's difficult to quantify the impact in a specific way because we need some flexibility in which emerging market we push. As I said, one of our strengths in this moment that we flexibly converge our resources to the winners and stop losing where we don't succeed much faster than we used to. So flexibility and agility are frankly our new strengths, so it's difficult to make a 5-year estimate of this kind of number. But overall, I can say, definitely, the emerging markets penetration will increase our top line substantially, but they will not dilute our margin. The way we're expanding in emerging markets is not dilutive to our margin except in maybe the year 1 or 2 of some new emerging markets. But when you look at the total of the emerging markets, the total will not be dilutive to our expansion year after year. Alice Beebe Longley - Buckingham Research Group, Inc.: And my other question is about travel retail. Can you just give us an update as to what percentage of sales that's now generating? And then, could you break out where the travel retailers are now? Like, what percentage are actually in Asia, what percentage in Europe, what in the Americas? Richard W. Kunes: So travel retail is about 10% of our sales. As far as a geographic split, I think Europe is still the biggest area but it might have shifted in the last quarter or 2 to be fastest in Asia. So it's about 50%, I guess, in Asia and a smaller number in Europe. But I don't have the numbers off the top of my head, Alice, and Dennis can get those to you.

But overall, to be clear, we -- the world of travel retail for us is shifting toward Asia consumers. And as I was explaining, we will come back to you with the specific number for the quarter. But it shifted into Asian consumer and the key reason is that Skin Care and Makeup are the key request of Asian consumers. So the new consumer traveling or the growth of traveling consumer is coming mainly from consumers which are particularly passionate for Skin Care and Makeup where our portfolio is very strong in Asia.

Our next question comes from the line of David Wu from Telsey Advisory Group. David Wu - Telsey Advisory Group LLC: On Europe, again, you're obviously doing very well, taking considerable share there. How much of the growth is driven by higher sales from existing doors versus new distribution? And if you exclude door sales, are you still seeing strong momentum in local spending? Fabrizio, I know you mentioned Italy taking share there. It was up 7%, but I was wondering about some of the other countries.

So yes, we are doing well in Europe. We had a terrific quarter in the U.K., as I mentioned. Our business in emerging markets are Europe, Russia, Middle East are growing very well. Middle East is strong. Russia has retail level. We were growing 18% in the quarter. We are doing well in growing market share in the large majority of the market. The markets we see obviously, Greece is soft for us as well; Spain is relatively soft for us. But apart from those 2 markets, frankly, we see strong progress everywhere. Now where -- what is driving this progress? To be clear, progress ahead of the market? The market, overall, as I explained before, is softer but we are promising a building share in that market. Now what is driving it is mainly existing doors. Actually, it's mainly great innovation on our core brands, supported by advertising, which is creating growth in our existing doors. Then there is some growth with freestanding stores, which are obviously new doors, which is on top of that. This is for Continental Europe. In emerging Europe, like Middle East or Russia, obviously, there are also new doors to be added to that. David Wu - Telsey Advisory Group LLC: Excellent. And then just on as a follow-up, can you update us perhaps just on your distribution plans in Europe, where you are currently and which countries that you see have the most opportunity for further expansion? Richard W. Kunes: Frankly, in Europe, we are everywhere. So the countries where we see -- we will -- we believe U.K. will continue to be very important and strong for us. We believe that Continental Europe, we will continue to work to grow market share and presence. And the east part of Europe continue to be a great opportunity in terms of future growth. Middle East is a great opportunity we are focusing on. And then in our case, we consider part of the European organization also South Africa, Turkey, India, which are emerging markets and which we are putting a lot of attention for the future.

Our next question comes from the line of Mark Astrachan with Stifel, Nicolaus. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: Is it fair to assume the emerging market growth will get better next quarter, assuming that Russia sort of normalizes from a sell and sell-through standpoint? I guess, you said that Brazil and mainland China growth was better than the overall 23% number that you gave in the first quarter. So I guess, first question, is that fair?

It's fair that Russia will normalize because it's fair that in Russia, retailing has been better than shipments in the first quarter and this -- we count on this normalizing in the next couple of quarters. For the rest of emerging markets, I would say, there is not a difference. They're pretty normal. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: So it's Russia that explains that difference better in the quarter.

Yes. That is really Russia, yes. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc., Research Division: Great. And shifting to the Fragrance business a bit. Given all these new partnerships, with an emphasis on designers, I'm just sort of curious when this results in more consistent sales and profit growth for the business? And more, just a bigger picture, how this all changes your thinking of that business going forward since it seems to be a bit of a shift from where it's been over the previous years?

Yes, the big strategic shifts -- first of all, the business is more profitable for us than it used to be. And we have become -- we have greatly creativity and good quality marketing. So at this point, we need to leverage the strengths in a better, more consistent way. So first of all, the new designers are on the high end of the market where there is more profitability and where there is more market in Europe travel retail and in the future, in Asia or in places like where we believe there a lot of opportunities. So we have better position to exploit the market where the market is more profitable and growing the fastest. Second, we have rationalized the way we manage our current business and we will -- we plan to continue to grow it accordingly to the development of each one of our designers.

Our next question comes from the line of Ali Dibadj with Sanford Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., LLC., Research Division: I wanted to see if you guys could talk a little bit more about the income type of the consumer that's fueling your growth today versus what it was historically, showing the developed markets, with our view was brands like M-A-C and Aveda and Origins, which were just much more attainable were benefiting the company by having the aspirational consumer, kind of more middle income consumer trading up into those brands. But it sounds very much that that's a little bit different now. It sounds very much that you're planning to and are currently being driven much more by the high-end consumer, the more stable consumer. And so I wanted to get a little bit more understanding of that and maybe specifically, are you actually seeing less middle income trade up? You mentioned out of mass, people coming out of mass. But is that more of the luxury consumer, higher-income consumer who had traded down, who's coming back or is it really people are trading up? So any ideas about that currently and as you imagine your business going forward would be helpful.

Ali, that's a great question. Let me say, I think the answer is all of the above. In a sense that the beauty of Estée Lauder Companies strategy, I believe, is also its portfolio brand. We have 28 brands. These brands goes from the new Tom Ford, which is the high-end, with La Mer, Jo Malone and others, Bobbi Brown, et cetera, and the Clinique and M-A-C, which are at the entry price point of prestige for example and everything in the middle. So in reality, we are managing our portfolio to do all of the above and that's what give us the broad-based strengths that depending how the economy goes, by market, we can any way attract the consumer that in the moment is the consumer which is more active. And we have become a bit more sophisticated to be able to do that. So in this moment, what we see that the high-end consumer is pretty strong across the globe, even in Europe in this moment. So our high-end brands, like La Mer, I think are really attracting this consumer across. At the same time, our Clinique brand or our M-A-C are definitely converting consumers from mass into prestige in North America and in emerging markets, where many consumer at the middle class, which is emerging and get into this aspirational brands, most of the time will start from entry price of prestige and then trade up to the other brands over time when they can afford them. So our portfolio brand can trade up consumers from mass into, for example, M-A-C and Clinique, and then later into Lauder and then one day into Tom Ford, or address directly the consumer that today are affluent and want to start from the high end or that today and forever want to stay at the entry price of prestige. And this is very different by country. It's very different by moment, depending how the economy is, and we can tailor our efforts to this dynamic. I would like Lynne maybe to add a little bit of perspective on the role of Clinique in that portfolio strategy.

And I think, to add a perspective on Clinique, the best example and the most concrete information that we have is really the push to concept, which I've already spoken about, but we really started that in the United States. And you see a recruitment of a new consumer to the department store, and you see that new consumer is recruited from that. That is also a multicultural consumer. You see a 20% increase in that consumer coming to the prestige beauty or specifically coming to Clinique.

Our next question comes from the line of Connie Maneaty with BMO Capital Markets.

It's actually Zeke Kramer for Connie. In the press release, you note that there's additional investment spending over the next 3 years to implement upgraded capabilities and continue the SAP rollout. And since this is beyond the timing of the existing restructuring plan, will the increased spending involve incremental restructuring charges or are they going to be absorbed in the income statement? Richard W. Kunes: Well, we don't see -- other than the program that we've already announced, we don't see any incremental restructuring cost in our future, certainly, over that 3-year time frame.

Okay. And I guess, just what are the largest SAP projects for fiscal '12? Richard W. Kunes: Well, right now, we have for the most part, it's in our sales companies, so our sales and distribution companies. And we have a number about 8 or 9 affiliates going in group 2, which are going to go live in January. And we continue to roll out. We have 45 sales companies, and this is the second wave of them that we're doing. So we have a couple more waves to go.

We have time for one more question, please. Your last question comes from the line of Linda Bolton-Weiser with Caris. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: I was just wondering a little bit more about Brazil. When Avon's significant stock declined and issues there and Avon has actually commented that they think the Brazilian beauty market is actually slower growth than it used to be. Can you comment on whether you would consider it at all important to have the direct selling capability to be able to grow in Brazil or are you happy with the opportunity you can have through your channels of distribution? And maybe, can you comment on how your fragrance launch went? I think you launched a fragrance in partnership with another direct seller. And also, can you tell us how many of your own stores that you currently have in Brazil and maybe what the plans are for growing the number of stores this fiscal year in Brazil?

Yes, very briefly. So the answer is, we are developing in Brazil with a very specific strategy, which is, however, different by brand. And so yes, our launch of fragrance with a partner in that area was successful -- is successful, and we're doing well there. But we do not think to enter door-to-door, so that's not our strategy. We will enter Brazil with our retailing approach. The majority of our brands will enter Brazil with retailing store, meaning freestanding stores. That's the main strategy, plus specialty distribution, which is present in Brazil. And more specialty distribution could be building in Brazil in the next years, and we will go along with it. Now our 2 main brands in our Brazil plan of expansion are M-A-C and Clinique. That's why I'd like Lynne maybe to say a few words from a Clinique point of view.

And we are working very aggressively on the plan for Brazil. We have 2 freestanding stores in Brazil right now. And I would like to add that one of the significant opportunities that we believe exists in Brazil is also online. So along with the freestanding store strategy, we're looking at online and looking at the different aspects of that to build the business.

That concludes today's question-and-answer session. If you were unable to join the entire call, a playback will be available at 1 p.m. Eastern Time today through November 17. To hear a recording of the call, please dial (855) 859-2056, passcode number 21162779. 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.