Estee Lauder Cos Inc Class A EL
Q1 2011 Earnings Call Transcript

Operator: Wendy Nicholson, Citi Investment.

Wendy Nicholson - Citi Investment: My first question has to do with the fragrance business and the margin that you saw there, which I think is the highest I've ever seen, and I am wondering how much that is now a realistic run rate? Is fragrance now permanently a double-digit margin business or is there a chance that as new products move to the forefront of your priority list, margins dip down into the single-digits again?

Richard W. Kunes - EVP and CFO: Wendy, what I think you're seeing in the first quarter is the benefit of some of the launch activity that we mentioned, so there's a lot of if you will, sell-in of those new launches. So, we're making pretty good progress in improving our profitability, but no, that double-digit number in the first quarter is not indicative of where we think the year will be. Although, the year will certainly show substantial improvement over last year, and we'll continue to show if you will, going forward, measured improvement in the fragrance category.

Operator: Alice Longley, Buckingham Research.

Alice Longley - Buckingham Research: One of the shifts that you're making is less promotional activity to gifts-with-purchase and purchase-with-purchase I guess in more advertising, online, in print and TV. Can you go over what you see as any possible risk of doing that in the holiday season, and that I believe your holiday sales historically have been driven in the U.S. to a good degree by these kinds of promotions, and can your – and gift sets, excuse me, gift sets as well, and maybe you quantify what percentage of sales in the holiday season in the U.S. historically have been driven by gifts and what percentage you expect to be driven by this year?

Fabrizio Freda - President and CEO: No. I personally don't think our strategy is risky. We're doing these changes very gradually and globally, and we're not taking the risk in the short-term. Particularly, during the holiday season, we're going to add a lot of various promotion as I was saying in my prepared speech, and we have also had some very interesting value activities for our consumer during the holiday season. If you look to the first quarter and if you look to the year as a total, you will definitely see a reduction of our gift and promotional activity in total and increase at the same time of advertising spend in print magazines, in television and online advertising. The other important different, these activities of extra advertising have been focused and concentrated of our most successful and biggest launches globally. Which means there is another advantage versus the past model where the level of support as our most potentially activity we are having is dramatically increasing. In fact a lot of our accelerated growth came from this extraordinary success or some of our launches like Clinique, Even Better Clinical or Lauder's Advanced Night Repair DKNY Pure which is also the response to a concentrated effort of advertising on those initiatives. Obviously, the reduction of promotional activity and more push activity has an influence, meaning, we'll reduce a little bit of our volume but this is being more than offset, by the benefit we see in more focused and increased advertising.