Dennis D'Andrea - Vice President of Investor Relations Fabrizio Freda - Chief Executive Officer, President and Director Thia Breen - Global President of Estee Lauder Brand Richard W. Kunes - Chief Financial Officer, Principal Accounting Officer And Executive Vice President

Wendy Nicholson - Citigroup Inc, Research Division Lauren R. Lieberman - Barclays Capital, Research Division Nik Modi - UBS Investment Bank, Research Division Alice Beebe Longley - Buckingham Research Group, Inc. Christopher Ferrara - BofA Merrill Lynch, Research Division Caroline S. Levy - CLSA Asia-Pacific Markets, Research Division Constance Marie Maneaty - BMO Capital Markets U.S. Linda Bolton-Weiser - Caris & Company, Inc., Research Division Javier Escalante - Consumer Edge Research, LLC John A. Faucher - JP Morgan Chase & Co, Research Division William Schmitz - Deutsche Bank AG, Research Division

Good day, everyone, and welcome to the Estée Lauder Companies Fiscal 2012 Second Quarter Conference Call. Today's call is being recorded and webcast. For opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Dennis D'Andrea. Please go ahead, sir. Dennis D'Andrea: Good morning, everyone. On today's call, we have Fabrizio Freda, President and Chief Executive Officer; Rick Kunes, Executive Vice President and Chief Financial Officer; and Thia Breen, President of our North American affiliate. Thia's going to recap the holiday season and discuss our strategic progress in North America. 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. Except when noted, our discussion of our financial results and our expectations are before restructuring and other charges. You can find a reconciliation 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. Good morning, and welcome to our Fiscal 2012 Second Quarter Earnings Call. First, I want to acknowledge the passing of our dear friend and colleague, Evelyn Lauder, who was the heart and soul of our company. She was best known for her work in fragrance development and breast cancer awareness, but she was truly a pivotal architect of our vision, values and culture. Her incredible strengths, compassion and generosity will leave a lasting legacy on all of us personally. Now let me turn to the quarter. I'm pleased to tell you that our company once again achieved strong double-digit sales and profit growth, and the second quarter results was largely higher than the top of our expectations. Importantly, our terrific performance was broad based across geographies, categories and brands. For the period, our sales rose 10%, and our earnings per share were $1.01 after the recent 2:1 stock split. We are now in the third year of our strategy and extremely gratified that we continue to achieve solid gains worldwide regardless of economic conditions. This clearly demonstrates that we have a winning and sustainable strategy and that consumers are drawn to our unique and innovative products and High-Touch service approach. As a company, we continue to increase share in many large and critical markets, outpacing both mass and prestige competitors. Here in the United States, our largest market, our brands increased share by 40 basis points in the high-margin prestige skin care category, where we had focused much of our resources. We also improved our competitive position in key categories in countries across Asia and Europe, including China, France, Germany, Turkey and Italy. Spending by affluent consumers remained buoyant this quarter, particularly for the kind of affordable luxuries that we offer. Sales of our higher-end brands, including La Mer, Bobbi Brown, Jo Malone and Tom Ford, enjoyed chart double-digit growth globally. What's driving consumers to our brands, whether in Shanghai, London, Los Angeles or Milan, is a winning formula that combines incredible innovation, brilliant advertising, local relevance and improved High-Touch services. We have attract thousands of new multiethnic consumers, increased our repeat business and even launched products that created new subcategories. We began this approach about 2 years ago by strategically advertising several cutting-edge skin care products from Estée Lauder and Clinique with the more frequent use of TV. Now we have taken the same approach to makeup. Using a full spectrum of television, digital and print ads in key markets worldwide, we recently started aggressive campaigns for foundation products. And later this year, we'll promote eye and lips products on television, in numerous websites as well as in magazines. Our advertising is compelling and creative. Early results for the new makeup ads are extremely encouraging. For instance, at the end of the first quarter, Clinique ran a commercial in the U.S. for Even Better makeup, which helped lead foundation sales and its entire makeup category. The TV ads, our first for makeup, followed a major TV campaign for the continuous skin care product, Even Better Clinical Dark Spot Corrector. And some ads promote the 2 products together. Clinique makeup sales in North America grew 13% this recent quarter, confirming that our advertising works and draws new consumer to our innovative products. We've also been collaborating with our retail partners to reinvigorate the beauty floor in North America department stores, and results continue to be robust. Both Estée Lauder's and Clinique's sales in the channel climbed high single digits. Much of this is driven by sourcing demand for prestige skin care, and Estée Lauder enjoyed great success. Its North America skin care sales jumped 23%. During the holiday season, total U.S. retail sales rose 4%, according to the National Retail Federation, in line with prestige department stores. However, prestige beauty sales did even better, up double digits. Our holiday business was strong, and Thia will elaborate on our many successful efforts in North America. In fast-growing Latin America, where luxury brands are booming, we saw exceptional growth, especially from Brazil, an exciting growth opportunity for us. In Brazil, our company is growing the fastest in prestige in gaining share in makeup, skin care and fragrance. M-A-C is #1 in makeup and has expanded distribution through freestanding stores and e-commerce, which is planned in the coming months. Our fastest growth was Asia/Pacific, where virtually all countries contributed. In China, we continue to see solid opportunities for success by building awareness and distribution and bringing in new brands and products. The company sales rose an impressive 44% this quarter on top of 29% last year allowing us to add a point in share. The outstanding gains were led by Estée Lauder, La Mer and Origins and their desirable skin care products. Some of the highest sales came from door expansion. We entered 10 more cities, bringing our footprint there to 52 cities. Looking ahead, we are mindful of factors that [indiscernible] the base of future growth in China economy. Our European region grew on the strength of Travel Retail and higher demand in the Middle East and Italy. Our brands advanced in the region through their product services offering and expanded distribution. For example, in Italy, overall prestige skin care retail growth, less than 4%. But Clinique and Estée Lauder had double-digit gains, demonstrating the consumer response to our superior offering even amidst tough times. Expanding its High-Touch concept, Clinique opened its first Service As You Like It counter at Galeries Lafayette in Paris, which generated significant media buzz. And Bumble and bumble opened a new retail average through 10 John Lewis stores in the U.K. Higher passenger traffic and successful marketing activity fueled Travel Retail, particularly in America and Asia. We are pleased that with these results, it seems the channel’s had exceptionally strong growth in the prior year quarter. While we believe we are outpacing our competitors in Europe, our outlook reflects continued cautions of a slowing market growth as a result of the economic uncertainties that are dampening consumer sentiment there. Turning now to our fragrance business. We had strong results in the Americas and Asia, particularly in our luxury brands and from scents that we have created for specific markets. Our hair care category grew nicely on the strengths of a promising new collection for Aveda and Bumble and bumble expanded retail distribution. Across our product categories, our e-commerce business rose double digits in all regions. We have brand sites in 15 countries and continue to roll out sites globally. As our digital effort increased in importance, we are widening our corporate and brand presence in social media. Even with our strong sales growth, we have maintained our financial discipline and our focus on creating greater efficiencies and productivity. As a result, we achieved a gross margin improvement of 150 basis points, reaching nearly 80%. And our operating margin rose 50 basis points to 22% of sales. Building our capabilities remained an important strategic priority, and we successfully launched another wave of our Strategic Modernization Initiative in affiliates across Europe, Asia, including Italy, Spain, Korea and Australia. Our Smashbox and Bumble and bumble brands also went live. We had terrific, terrific success implementing SMI today. We are encouraged it's going so smoothly, and we expect to eventually reap the benefits of new efficiencies throughout our organization. As planned, we are substantially ramping up our global advertising spending in the third quarter due to the timing of major launches and to support existing franchises. We believe these additional investment in advertising will allow us to maintain our strong growth in the fourth quarter in spite of a softening business climate. One of the exciting new introduction we will advertise is a skin care product from Estée Lauder brand developed specifically for the European market called Revitalizing Supreme Global Anti-aging Cream. It's based on exclusive technology and created after extensive consumer research about what European women want, which is a multitasking cream. This is a great example of our mission to be both locally relevant as well as creativity driven and consumer inspired. Increased advertising spending will also go towards commemorating the 30th anniversary of the Estée Lauder Advanced Night Repair franchise, as well as toward Clinique Even Better skin care and makeup products. Separately, we are proud at Estée Lauder's most recent big success. Idealist Even Skintone Illuminator won the Marie Claire Prix d'Excellence award last month in France. The award is given to the most innovative cosmetic products and is a prestigious honor. These products continues to help drive Estée Lauder's skin care business in France. Our high advertising spending behind our most desirable skin care and makeup products is carefully chosen depending on the country and region. In every case, we are locally relevant and invest our money where we think we can have the greatest input. For instance, Clinique is our main focus in the U.S., Estée Lauder in China, M-A-C in Brazil. We put our resources behind the most promising brands in the fastest-growing markets, and when circumstances changes our investment due too, we are nimble and flexible and attuned to market conditions globally. Over the past 3 years, we have generated higher sales by pushing the best opportunities at any given time at every given place around the world. In our new global business model, our increased sales generates improved productivity, profitability and value creation. We are a growth company, and our bottom line reflects our ability to leverage our highest sales growth for increased profitability. We believe this financial model is sustainable, and we see strong growth ahead. That condition stems from our continuous emphasis on innovation across product development, packaging, High-Touch services, advertising, merchandising, and now, digital media. We are confident we are well positioned to exploit the growth potential of prestige beauty across our categories and regions. Today, our best opportunities lies at the crossroad of our state-of-art aspirational skin care products and the growing appetite of the global Chinese consumer for the best of beauty. With half of the fiscal year behind us, we are confident in our ability to obtain our goals and financial guideline. We are taking up the bottom of our full year earnings per share estimate by $0.03 to $2.16 to $2.23 a share positively. This more positive outlook reflects continued momentum in our underlying business, which we believe we compensate for expected softer markets in Europe and the stronger dollar. One of the areas where they're most excited about is the fantastic growth in our largest market, the United States. We believe this market will remain vibrant and should help to mitigate slowing in other regions. Now Thia will talk to you about some of the promising opportunities we see in North America.

Thank you, Fabrizio and good morning everyone. First, let me give you a little background about myself. I've been with the Estée Lauder Companies for more than 30 years in several brands and various positions. Most recently, I was the Global President of the Estée Lauder brand until 2009, when I was honored to be chosen to lead the company's newly created North American affiliate. Since then, working with my experienced team, we have reignited growth in our home market, which is by far our largest, while improving profit margins. I'm pleased to say that our efforts have been a great success. In fiscal 2011, North America had its best performance in a decade with sales growth of 9% and record profits. Thanks to our sustainable strategy, that trend has continued. Our holiday business was strong and broad based across categories, brands and channels. Sales in our core channel, U.S. department stores, rose a healthy 8%, and online maintained its rapid pace, up 24% this quarter. Many of our brands' special holiday sets performed well. Importantly, as the leader in U.S. prestige beauty, we're gaining share against mass and building strong share gains in skin care which is one of our strategic priorities. In fiscal 2011, total U.S. prestige skin care and makeup gained 2 points against mass brands. In skin care, Clinique, Estée Lauder and La Mer increased share against many major prestige and mass competitors. And across our brands, we gained share in our largest accounts. Clinique is the largest beauty brand in the United States in both mass and prestige. And with our large portfolio of diverse brands, much of what we do sets the tone for the overall beauty industry. Our fragrance share in prestige declined in the recent quarter, which was the result of a planned reduction in promotional activity and underperforming products. We're optimistic about the upcoming launches and the continued success of our higher-end fragrance brands, including Jo Malone and Tom Ford. Our success has been achieved by careful design. As I'm sure you recall, the U.S. department store beauty business had languished for many years, but when we embarked on our multiyear strategy in 2009, we worked closely with our retailers to change course. With U.S. Department stores accounting for 2/3 of North American sales, our business in that channel is clearly of vital importance. By creating an affiliate in North America, we've been able to support retailers with one strong voice on behalf of all our brands, allowing us to be more efficient and effective. Internally, our brands are sharing and leveraging ideas and resources, making for a more cohesive entity. Our carefully honed strategy has reinvigorated our department store growth and also fueled higher sales in other channels. The pillars of the strategy involve pulling customers into stores with compelling and frequent advertising that features our brands' newest and most innovative products. Once consumers come to our brands' counters or websites, we offer personalized, High-Touch services for a customized fit, improved navigation and cutting-edge tools that lead to a pleasurable shopping experience, higher sales and repeat business. Last year, we improved our media mix, putting more money into TV, print and digital campaigns and taking some out of promotions, and it paid off. The average sale per launch in the U.S. jumped by 67%. When shoppers come to our counters, they may be surprised to discover it's not the same old experience anymore. Clinique is rolling out elements of its Service As You Like It format depending on the size of the door. The brand has installed more than 1,000 iPads at its counter that can recommend 180,000 possible product combinations based on skin concerns. By the end of the fiscal year, Clinique expects to have 1,500 iPads at about 1,250 doors in North America. Sales at the stores with iPads are running 3% higher than trend which is a terrific result. Estée Lauder has created a separate studio that offers excellent lighting conditions to match the right foundation to skin tones. The Bobbi Brown brand highlights Bobbi's picks, her favorite cosmetics and collections to help consumer choice. Each of our brands is rethinking its in-store experience to appeal to today's consumer, and several exciting pioneering concepts will debut later this year. Our strategy has not only brought new consumers to our brand but also into department stores to shop for beauty for the first time. As part of a mix, we've attracted both a younger and more diverse consumer. Here's a case in point. During the recent launch of Idealist Even Skintone Illuminator, Estée Lauder recruited many new consumers. Nearly 1/2 were new to the brand and more than 1/4 hadn't previously purchased at a department store beauty counter. The company's flagship brand also reached a more ethnically diverse group. In North America, we've also boosted sales in other distribution channel. Our 500 freestanding stores express a brand’s equity in the most meaningful way and establish a direct connection with consumers. M-A-C's 2-year-old Times Square location is so busy with locals and tourists that it's the brand's highest-grossing store in the world. Several of our other brands that operate retail stores also have secured prime locations in highly populated areas. Our e-commerce sales are expanding rapidly. The North American online business continues to be robust, thanks to both our own brand websites as well as retailer partner sites. The sales in multi-brand specialty beauty stores are also amongst our fastest growing. In recent months, we added several brands in Sephora, including Origins, Bumble and bumble and Bobbi Brown. Our Aveda and Bumble and bumble hair care brands launched major national print campaigns last year to introduce new products, and those ads helped drive consumers to salons, freestanding stores and Sephora. Lastly, we are refocusing our efforts on Canada which is the company's sixth largest country and where we see a major opportunity. We established an affiliate there last July to create a dedicated focus on Canadian consumers and retailers to improve our competitive position. Canada's growing beauty business is vastly different than the U.S., so we have to adapt to its culture. For instance, 40% of prestige beauty sales in Canada come from high-end beauty boutiques within drugstores compared to virtually none here. We will use some of the strategies that have been successful in the U.S. to help drive sales and gain share in Canada. These include running TV commercials to advertise Estée Lauder and Clinique products for the first time and supporting department stores as our key retail channel using some of the merchandising and High-Touch approaches that have worked well in the U.S. To expand our brand's presence, we'll continue our growth in Shoppers Drug Mart, an important retailer for prestige beauty and in Sephora as it expands in Canada. We also intend to launch our brands' e-commerce sites. To build on our North American momentum, we continuously improve our capabilities, particularly in consumer insights and consumer relationship management skills. We implemented our first strategic research programs in Canada to get a better understanding of the Canadian consumer, so we can create product and programs that are locally relevant. We are also designing targeted marketing programs to reach multicultural and multi-generational groups of consumers and are seeking opportunities to expand into new and existing channels, strength in our social media skills and improve our merchandising and in-store capabilities. We have reduced beauty advisor turnover to the lowest level in a decade and implemented programs to attract and retain our best talent, resulting in more effective sales force and several million dollars of savings. We expect fiscal 2012 to be another record year in North America with strong growth across all our major prestige channels. We're excited about the company's future in its largest markets, as we look to leverage our portfolio and strengthen our leadership position. Now I will turn the call over to Rick. Richard W. Kunes: Thank you, Thia, and good morning, everyone. My discussions on the quarter and the outlook exclude restructuring and other charges. Additionally, all earnings per share information reflect the 2-for-1 stock split, which was effective on January 20. As Fabrizio discussed, we had another solid quarter with broad-based growth among all of our regions and most key categories. In local currency, sales rose 10%, the high-end of our guidance range. Currency translation was minimal, resulting in reported sales growth of 10% to $2.74 billion. As expected, some retailers, primarily in Asia/Pacific, ordered extra inventory before the January launch of SAP in several of our affiliates. This increased our second quarter sales by $30 million, or slightly more than 1 percentage point and operating income by about $23 million is equal to $0.04 per share. These sales would have likely been made in our third quarter. Net earnings for the quarter rose 13% to $401.1 million compared with $355.8 million in the prior year quarter and diluted EPS was $1.01 compared to $0.89. Our skin care category continued to thrive. Sales rose 13% in local currency and grew double digits in the Americas and Asia/Pacific. A strong innovation pipeline and continued support of existing products fueled skin care gains at the Estée Lauder and Clinique brands. The strength of La Mer also contributed to growth in the category. In makeup, local currencies sales rose 12%, primarily driven by our makeup artist brands as well as Clinique and Estée Lauder. The makeup category grew double digits in every region. Clinique used skin care technology and newly launched products to benefit the makeup category. The launch of Tom Ford beauty also contributed. Our fragrance business declined 1%, excluding currency, as growth in Asia and the Americas was offset by a decline in the European region. The high end of the category performed well, with strong double-digit growth at Tom Ford and Jo Malone. Increased sales from recent launches were more than offset by lower sales of certain existing fragrances. In hair care, sales rose 9%, reflecting solid growth at Aveda, notably in international markets, as well as the expansion of Bumble and bumble and Sephora in the U.S. Partially offsetting these gains were lower sales to the direct response TV channel for Ojon. On a geographic basis, our sales in the Americas remained robust throughout the holiday season and grew 9% in local currency. Virtually, all brands contributed with particular strength from our top 3 as well as our luxury group. The United States rose 9%; Latin America grew 19%, led by exceptional results in Brazil; while Canada declined modestly. From a channel perspective, our online business had a terrific holiday period, with sales up 24%. Multibrand, specialty beauty stores rose strong double digits, while department stores rose high single digits and our own stores were up mid-single digits. In Europe, the Middle East and Africa, sales climbed 7% in local currency. Growth by market varied, reflecting circumstances specific to each country. Travel Retail expanded 15%, reflecting 5% growth in international passenger traffic and strong execution by our brands at point of sale. Travel Retail had a very difficult comparison this quarter after growing 45% in the prior year. Solid growth was delivered in several key markets. The Middle East and Africa rose nearly 25%, Turkey was up more than 30% and Italy rose mid-teens. Spain and France rose high single digits, and Germany delivered a very respectable mid single-digit growth. Our U.K. sales were flat, as retail slowed and stores kept inventories lean, reflecting uncertainty in the economic environment. Russia had terrific growth at most retailers but continued to report lower net sales due to destocking at a major account. The relative strength of the Swiss franc is causing consumers to shop across the border, hurting sales in the local market, and Greece remains weak overall due to continued austerity and political turmoil. Early orders to mitigate potential SAP disruptions added $3 million to the region's sales in the quarter. The Asia and Pacific region led the company's growth this quarter, as sales rose 18% in local currency. Growth was again driven by China which jumped 44%. New brands, doors and cities, as well as double-digit, light-door store sales growth fueled the momentum. We also saw strong sales increases in Hong Kong, Korea, Australia and Thailand. Japan declined low single digits. Early orders to mitigate potential SAP disruptions added $25 million or about 5 percentage points to the region's local currency sales this quarter. Our gross margin improved 150 basis points to 79.9%. The increase was primarily driven by positive mix of 130 basis points, manufacturing variances of 20 basis points and currency of 10 basis points, partially offset by higher obsolescence charges of 20 basis points. These figures include the benefit of cost-savings initiatives of $29 million. Operating expenses as a percentage of sales rose 100 basis points to 57.9%. The primary drivers were advertising, merchandising and sampling expenses, which increased 70 basis points to support the company's biggest innovations and impairment charges of 20 basis points. These figures reflect savings of $7 million from our cost-reduction programs. As a result, operating income rose 12% to $603.1 million and operating margin rose 50 basis points to 22% of sales. We realized total savings of $36 million in the quarter from our cost savings programs and still expect to save $115 million to $140 million for the full year. Net interest expense was slightly higher than last year at $17 million this quarter. In mid-January, we repaid $120 million in senior notes, with a 6% interest rate, with cash from operations. This is expected to save us around $7 million annually and was already reflected in our guidance for the year. In November, we settled a commercial dispute that was outside of our normal operations for $10.5 million, which is recorded in nonoperating income. This item, along with the $6.7 million in impairment charges, was not included in our guidance. Our effective tax rate was 32.5%. We reported $6.1 million, or $0.01 per share, in restructuring and other charges in the second quarter. For the full fiscal year, we expect to record charges of between $25 million and $40 million. For the 6 months, net cash flows from operating activities was $610 million compared to $508 million last year. We spent $182 million in CapEx, $522 million to repurchase approximately 11 million shares of our stock and paid our stockholders $204 million in dividends. Our days sales outstanding at December 31 were 45, up 3 days from last year due to timing of collections, while inventory days fell by 3 to 165 days. As Fabrizio mentioned, we have built into our forecast continued slower market growth in certain Western European countries and a stronger dollar. However, our business overall is healthy, and our vitality is broad based, allowing us to mitigate weaknesses in one area with strengths in another. We run our business on a full-year basis, and for the year, we forecast local currency sales growth of 9% to 10%. The operating leverage from higher sales and cost savings are expected to be partially offset by planned increases in advertising and investments in new systems. This translates to an operating margin improvement of about 100 basis points for the year. The full year non-GAAP EPS is forecast between $2.16 and $2.23 per share, equal to growth of about $0.17 to $0.21 -- 17% to 21% rather, versus last year. For the year, we continue to expect to generate more than $1.1 billion of cash flow from operations and invest about $400 million to $450 million for capital expenditures. We still estimate our effective tax rate will be between 31% and 33%. We have a number of items that will cause some unusual comparisons in both sales and profits in our second half. First, the third quarter sales growth comparison is affected by the pull forward of $30 million in orders to the second quarter this year, ahead of the January launch of SAP. The prior year reflected an additional $42 million in sales ahead of an April launch of SAP. These 2 factors are expected to reduce third quarter sales growth by slightly more than 3 percentage points and EPS by $0.09. Second, currency comparisons are expected to be more difficult in the second half. We are now assuming weighted average rates of 133 for the euro, 78 for the yen and 157 for the pound for the full fiscal year. The euro, in particular, is expected to weaken in the second half. Lastly, the cadence of our planned advertising spending this year is weighted to the third quarter, which should help maintain our sales momentum. We expect to increase our advertising spending in the third quarter by about $80 million or the equivalent of $0.14 per share. Taking all of this into account, our third quarter sales growth is forecasted at 4% to 5% in local currency. Reported sales could be negatively impacted by about 1 to 2 percentage points due to the currency translation. We anticipate EPS for the third quarter to be between $0.28 and $0.32. We are pleased with a strong first half of the year. Our adherence to strict productivity guidelines and carefully targeted reinvestment should enable us to deliver our financial objectives for fiscal 2012. And that concludes my comments, and we'd be happy to take your questions.

[Operator Instructions] Our first question today comes from Wendy Nicholson with Citi Investment Research. Wendy Nicholson - Citigroup Inc, Research Division: My question pertains to the outlook and the guidance, I guess, for Europe, but in particular, for Asia and the pretty dramatic sequential slowdown you're expecting. And is it, I guess, expecting or guiding for? Is there anything that's fundamental to you that you see? Has there been a delay in your orders? Do you feel like there's any place where you're losing share? The numbers out of Sasa, I know with the Chinese New Year weren't great. But is there something specific to you that you're seeing that makes you so cautious? Or is it just an undue level of conservatism as you look to the next 2 quarters?

Wendy, no. I think that -- again, we will try to make available the very specific number of the reconciliation of the input of SMI changes. And so anyone who wants to call Dennis later to ask really every single detail, please do it. But let me summarize the outcome. That's not the way our business is coming in. After an outstanding first quarter in comp at plus 14%, after readjusting all the movements of stocks by quarter because of SMI, we have basically grown every quarter between 8% and 9% which is an outstanding number and fully in line with our original expectations. And we don't see any slowdown in that sense, we just expect movements the way we just explained. So internal markets, what we see very specifically is that we do see softness of the markets in Europe. So originally, we were expecting a beauty market that would grow in the year in the range of 4%. Now because of the European softening, we see a beauty market that will grow 2% or 3%. But our growth in this market is actually accelerating, and we are building market share. So the differential between the market and our growth actually remains the same. So that's why I'm saying it's basically 9% per quarter. This is the reality of what we see. The second thing we see is a stronger dollar. And because of the stronger dollar, we, obviously, lost some comparison in the second quarter. Net our stronger business results than expected are compensating for some softening in the base market and for the stronger dollar. But we don't see any weakness in our business. Actually, we are building market share in the large majority of the strong markets of the world that counts. And namely, we are winning big in China which is our top priority. We are winning big in Travel Retail, which is our key profit driver. And we are building market share in Europe, but we have been -- our own growth is softer, but we are building some significant market share in strong markets like France and Italy that will be fundamental for our future. And then as you heard from Thia, our biggest market, North America, is in excellent shape. Wendy Nicholson - Citigroup Inc, Research Division: And just following up on that. China, specifically, I think you said the growth was 44%, which is a sequential acceleration, not only just from the first quarter but for all of next year last year. I mean, is there a point where law of large numbers is going to kick in, and we should think of China as a considerably slower-growth market? Or do you still think you're talking 20%, 25%, 30% type growth rates there for some time to come, albeit in a maybe slowing economy? But the fundamentals of the category, do they still remain that robust?

Yes. We see China remaining very robust. I mean, it's a country that is probably having a GDP that will go from 10% to 8%, which we feel is still very robust. And our same-door growth in China was 14%. So we see this market to continue same-door probably in the high single digit or double digit. But because of the expansion of number of cities there, of new consumers that become more affluent that enter the category, and because importantly, of the continuous increase on traveling Chinese consumers, we see that China and Chinese consumers will continue to be a very strong growth driver of our market. Despite that, we are assuming that some points of softness in the same-door growth that China will deliver in the next 1 year or 2, that's what happened in the last couple of years. But this will not change in any way, the fact that China will be fast-growing and a very important part of our business.

Your next question comes from the line of Lauren Lieberman with Barclays Capital. Lauren R. Lieberman - Barclays Capital, Research Division: Just wanted to follow up on some of the launch activities. So I guess, first thing is in the press release, it sounded like there were some spending that even happened in the second quarter to support upcoming Q3 launches. Then you've, obviously, talked about the big investment in Q3 specifically. So could you just give us -- I know there's the European global -- the global skin care product, there's the Advanced Night Repair anniversary. But what are the type of -- some that are big ones we should be watching for? And are the timing of those kind of mid to end of the quarter? Or are they kind of a full quarter benefit?

So we will be launching products in every quarter. It's clear that the third quarter this year contains a couple of very important launches that were not present that equal this stance last year that's why we see a particular increase on advertising in the third quarter. And I mentioned in my prepared remark that the supreme cream of Lauder in Europe is, obviously, a very important one that makes a big difference, but also the Clinique launches in foundations and the Clinique newly created support for makeup, which is not going to pay out very well, is also another one. But to really correctly answer your question, I want to clarify that in every single quarter this fiscal year, we're spending more in advertising, merchandising and sampling than the previous year. It's just that this differential last year was pretty important in the fourth quarter, while this year, the biggest differential is in the third quarter. And this is because of calendarization of our launches. But every single quarter, we spend more in advertising this than last year. Lauren R. Lieberman - Barclays Capital, Research Division: Okay. Great. Is the supreme cream launch -- is that also in the U.K.? And is there hope that, that helps reaccelerate the business? Because I know, surely, macro concerns, but it was a pretty big deceleration sequentially in the U.K. So what's the thought there over the next year or so?

Yes. Also in the U.K., we have very, very important launches. The supreme launch will be first in Continental Europe, and then we will decide how to expand it in other countries. But in the U.K., there are, a set of very, very promising launch in the next 6 months as well. So it's a strong, solid program. The U.K. market, by the way, is part of the markets where we are referring to when we say that we see softness in Europe, also, we see some softness in the U.K. market. But again, I'm trying to use the right words. We don't see any collapse in markets, we see softness. And to clarify the softness, we see the markets growing 1 or 2 points below what we originally expected because of the current consumer feelings and political turmoil, but not more than that.

Your next question comes from the line of Nik Modi with UBS. Nik Modi - UBS Investment Bank, Research Division: Fabrizio, can you just give us some perspective. As you think about the next couple of years, is there a cap on the spending level? Are you targeting a certain percentage from the sampling, the advertising standpoint? Just trying to get a sense in terms of the incremental spend over the next couple of years and how you're looking at that.

Yes. It is, obviously -- we have targets in terms of percentage of sales of what we'll believe will be reasonable for the advertising level. But I want to explain the dynamic -- or the way we are increasing advertising spending. If you look at our cost structure, you will see that every single cost line is going down with except of advertising, merchandising and sampling, which is going up. And then as you know, we are investing in SMI mini systems, and we are investing in some new capabilities in the area of R&D, digital and consumer size. But the real big investment are advertising and SMI. The -- all the rest, we are saving money. The second element to understand is that when we say that we reduced promotions, which we are actually doing, so that we can invest more money in advertising, you will see the impact of production -- of promotions, sorry, reductions in cost of goods. And so when you see gross margin continue to progress very well, this includes also a reduction of promotions. While on the contrary, the increase in advertising is all visible in the OpEx line. That's why the path of the gross margin improvement is in reality also allowing a advertising increase, because it's exactly how to switch from promotion to advertising that we are driving locally.

Your next question comes from the line of Alice Longley with Buckingham Research. Alice Beebe Longley - Buckingham Research Group, Inc.: My question is about your operating margins. If I adjust out the forward sales of $30 million and operating profits of $23 million, I'm backing out adjusted operating margins that are basically flat with the year ago at 21.5% or so. And I'm wondering why we're not getting margin expansion at such an important part of your story, and what I should expect on an adjusted basis for the second half? Richard W. Kunes: Sure, Alice. If you -- and that's one of the reasons that we went through that sort of lengthy explanation of the sales shift. And I think that Dennis can certainly refresh you with those numbers, if you want to give him a call. But I mean -- and if you look at our fiscal year, we're growing our sales 9% to 10% in comparable currency. We have 150-basis point gross margin improvement, roughly 100 basis point improvement in operating margin, a 20% growth in EPS, $1.1 billion of cash flow. So we think those numbers, in total, they were actually a very solid year. We're not overly concerned about the third quarter operating margin. It's really due to the factors that Fabrizio's explaining from an... Alice Beebe Longley - Buckingham Research Group, Inc.: I'm talking about the second quarter. The one you just reported. If you take out the $30 million and $23 million that were forward shipments and the profits on those, it looks like your operating margins were not up in the second quarter. Richard W. Kunes: Again, in the first half of the year, I think our profitability increased by about 25%. So I don't think we want to get in too hung up on the quarter quite honestly, Alice. And you know that we've always treated our business on an annual basis, and this year, in particular, because a lot of these shifts. I don't think it really warrants any more explanation, honestly. Alice Beebe Longley - Buckingham Research Group, Inc.: Okay. And then my other question is about fragrances. I understand you're shrinking that business very intentionally. Should we assume it continues to be flattish? Or are your launches going to make it start growing in the second half? Richard W. Kunes: Well -- and I think we mentioned in the prepared remarks that the fragrance grew 11% in the quarter last year, and this year was slightly down. We continue to strategically think about our fragrance business with the long-term objective of eventually gaining market share and turning that business around to grow in a profitable way. And I think that some of the activities that you've seen that have happened have been focused on the reductions of promotions around the fragrance business, which has dropped our volumes somewhat, especially during the Christmas time. But we think it's -- the long term, it's a smart move to make and the right strategy for the category. And we should see some increase in -- due to launches and in some other activities in the second half of our year. We'll see some growth.

Your next question comes from the line of Chris Ferrara with Bank of America Merrill Lynch. Christopher Ferrara - BofA Merrill Lynch, Research Division: I guess, on the fragrance piece. I just want to get a little clarity, I guess. I mean, is this a situation where it's kind of like 2 steps forward, 1 step back? I mean, there were some low-hanging several hanging fruit to capture in fragrance, and now you kind of have to retrench a little bit and make some more structural change before we see a better trajectory going forward? Or am I making too much of 1 quarter on a tough comp?

I think that you're making too much of 1 quarter. The simple thought is, again, look at the year. In the year, we'll make -- continue making some decent progress. I'll have -- also this year, by the way, is not finished. We are trying to make our fragrance mix more efficient, which again is also about making less of a promotional business and more of a business-driven by great fragrances and great equity and profitable. Obviously, the key to the holidays, meaning the November, December period is where the larger majority of the promotions are concentrated. So if we need to do these strategies, reaching for a promotion, you will see a bigger impact in our second quarter than in any other quarter. So please don't attach so much to the quarter movements in the business like ours, because we are trying to drive some fundamental strengthening of our business model. And this really doesn't happen month by month, but we have to look at this as a year.

Your next question comes from the line of Caroline Levy with CLSA. Caroline S. Levy - CLSA Asia-Pacific Markets, Research Division: A couple of questions. One, is it possible to quantify what Russia did to sales and profits in the region, and whether you think that will come back in the next quarter or 2, or if it's a permanent reduction, or there's something wrong with the retail climate there? So a little more flavor on Russia. And then secondly, just on the fragrance. It does seem that the category grew very strongly in North America and Europe last year, sort of unexpected recovery. Do you want to play bigger? Do you need to play bigger behind some of the more mainstream brands? Are you reevaluating that strategy at all?

Yes. The answer is yes to your -- let me start on your second question. Yes, the category has started growing again very nicely, and we want to continue playing in this category and making this category being profitable for us and growing nicely for us in the future. But the key point is that we want to play in this category more and more in the future profitably. And that's why we are focusing on new strategy on our Estée Lauder and Clinique brand. And we will continue building our 80th brand on our key designer. And we have added 3 designers that we believe will be very strategic to our business. And particularly, we believe that Marni and Zegna will be very strategic in Europe and Asia and the addition Tory Burch, very strategic and continually revitalizing our North America business. So the combination of our existing designer plus the designer, the new strategies on Lauder and Clinique. And finally, I should add a very successful trend on our high-end, meaning Jo Malone and Tom Ford. The combination of these will definitely give more strength to our fragrance business in the future, and that's our firm intention. But profitably, not promotionaly, but even so, probably you will see us playing less aggressively in areas like big holiday season, big promotional moments and more aggressive in sustained fundamental growth. On Russia. Yes, Russia is -- our retail in Russia has been outstanding, in fact, in the quarter, so -- and the market has continued to grow very nicely. And the market share of our brands has been growing. So the Russia, in the quarter, is really specifically attributable to one big retailer deciding a destocking action. And we believe that this will be, over time, being -- going away. Richard W. Kunes: And just 2 things to add to that. One is that you will see that we will grow our profits faster than our sales in the fragrance category, which is our object long term just as Fabrizio described. So you'll see that result this fiscal year. And Russia, in total, is a little over 1% of our company's business. So just wanted to make you aware of that.

Your next question comes from the line of Connie Maneaty with BMO Capital. Constance Marie Maneaty - BMO Capital Markets U.S.: Could you talk about the change or the reduction in turnover amongst U.S. sales? I forgot what you called them, the people who work in department stores. A few years ago, I remember that, that number might have been as high as 75%. So can you discuss how it's changed over time? And what's the sales and profit impact of that change is?

Sure. And you remember correctly, it was in its upper 70s in terms of the turnover of our beauty advisor. So first of all, these department stores are our primary channel in North America, and we have High-Touch beauty advisors, makeup artists, Clinique consultants, which are key drivers of our growth. And we've seen 18 months of solid growth and -- which we believe will certainly continue. And department stores have been great supporters of our strategy in terms of High-Touch and in terms of beauty advisors. And moving more customers from mass into prestige. So when we talk about the High-Touch, we have -- we've invested in terms of point of sale and our overall imagery, and the consumers responded. And whether it’s Clinique's Service As You Like It or the Estée Lauder Foundation Finder, this consumer loves what she's seeing at the counter and it's -- and she's responding. And certainly, this turnover reduction has been very much by design. We have incorporated a much more -- with the North American affiliate, a much more consistent approach to interviewing. We've had much lower turnover as a result of that. And you're right, it's the lowest turnover that we have seen in a decade, which makes it more efficient for the field. They spend far less time trying to recruit and hire and develop the counter staff, if you will, and it's a much more pleasurable experience for our consumers as well, because they come back to the counter and see the same person. So this High-Touch and the reduction of turnover has been a key component to the kind of growth that we've seen in North America.

So our next question comes from the line of Linda Bolton with Caris & Company. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: Can you just -- on the fragrance business, in terms of potential structural changes in the business. That business, part of it, for you, is a heavily licensed business as the whole industry is. Is there anything coming up in terms of license renewals or points at which you might renegotiate things that could stepwise change the profitability of the business?

No. These -- as I said, we just got 3 new license agreements, and those are very important. Those are all concluded, and we're already working on this project. That's the biggest change in our portfolio. Apart from these, our focus now is to make our existing designers become more and more successful -- is to build a great business for the new designers that entered our portfolio, and as I said, continue building aggressively on our high-end part of the portfolio, Jo Malone and Tom Ford, and revitalizing our cosmetic brands, Lauder and Clinique fragrance business.

Your next question comes from Javier Escalante with Consumer Edge Research. Javier Escalante - Consumer Edge Research, LLC: I would like you to expand a little bit of what's happening in Travel Retail. And if you can help us understand the sustainability of this implied increase in conversion rates that you are seeing since the June quarter. If I have my numbers correctly: Shipments grew 15%; lapping, 45%; and last year, you shipped 35%, when air passenger traffic was also up 5%, accelerating from the 10% we saw in the June quarter. So do you have enough visibility over consumer takeaway at Duty Free counters and of their level of product inventory? Or I am -- my concern's whether you may be overstating these conversion rates, and therefore creating a risk of product returns or inventory writeoff in the future.

No, I think we are in very good control. Travel Retail is one of our most clear, well-managed channels. And we are very well in control of our shipments, and we have very tight relationship and understanding of the stock level in our retailers. Our actual quarter results has been plus 15% in this channel after last year, plus 45%, I think, so on a very, very difficult comp, so an amazing result, if you look at the 2 years. And also, keep in mind that the traffic increase, which is the key benchmark was in the quarter about 5%, 6%. So we have been growing 3x traffic, which means we've been continuing converting people at the plus 15%, after a plus 45% last year. Also, as I explained in other times, in Travel Retail, we are building huge market share, because the increase of traffic in Travel Retail is mainly driven by Asian consumers, which are very keen of skin care and makeup. And in the Travel Retail channel, our market share in skin care makeup is definitely more significant than the one in fragrances. So basically, the market is growing in our direction. And that's why it's a combination of traffic growth, plus consumer conversion, plus market share growth that we see in our numbers. And obviously, if you look at the actual year-to-date in Travel Retail, our number is plus 24% and the estimate for the full year is still well above 20%. So it's a very solid channel and a solid channel growth, well ahead of increase in traffic.

Your next question comes from John Faucher with JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: I just want to clarify something, Fabrizio, you talked about earlier. When you talked about some of that softness in the category, I think a couple of times, you said you were doing better. And so I guess, I was trying to figure out is that better, you're still -- meaning you're still gaining share, growing faster than the category? Is that better on an absolute basis sequentially? So could you clarify that comment for me?

Sure. I think that actually means both of your comments. Better -- we are raising our 8% to 10% forecast for our sales to 9% to 10%. So basically, we believe that our top line will be strong and lastly less risky than we considered in the previous call. So we are stronger believer. So the battery is better than what we believe before, in terms of risk in this case, because we are only taking up the bottom part of the guideline and better versus competition. Because we are growing market share in every one of these market and better in terms of GAAP versus market, meaning, before we were expected to grow in every quarter to know after reconciliations, 8% to 9% in a market that was growing 4%. And now we continue to grow 8% to 9% in a market that grows 2%. So better versus the market. So better versus the market, better versus competition and better -- slightly better at least in risk assessment versus our previous guideline.

Your next question comes from the line of Bill Schmitz with Deutsche Bank. William Schmitz - Deutsche Bank AG, Research Division: Just in terms of the China commentary, can you elaborate on that? Is it really just sort of the GDP slowdown? I think the comment was mindful about conditions that could slow growth in China. So is anything beyond just the potential GDP slowdown?

No, I -- and again, we don't see any risk, big risks in consumption increases in China. I was thinking about slowdown -- it was slowdown and meaning sales in same doors or in markets, which within China are pretty well developed, like Shanghai, Beijing and some other big cities. And again, slowdown means that doors that we're growing at 12%, 15%, now are growing at 8%, 9%. So again, it's softening -- is the right word or slowdown, but it's nothing that is worrying. The point, as I already explained, is for us, even if there is few points of slowdowns in the overall consumption in same doors, the opportunity for growing distribution and to reach new consumers is so strong that we still believe that China, for us, will continue to be a strong contributor to growth. And by the way, we are speaking now the next year. But then in the long term, I want to clarify, this is even more true. I believe China and Chinese consumer, in general, will be, if you take a 3- to 5-years look will be, by far, the strongest drivers to growth in the category globally.

That concludes today's question-and-answer session. If you are unable to join for the entire call, a playback will be available at 1:00 p.m. Eastern Time today through February 17. To hear a recording of the call, please dial (855) 859-2056, passcode 41305126. 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.