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AUGUST22,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&TECHNOLOGYDEBORAHWEINSWIG@FUNG1937.COMUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

(EL) 4Q16 RESULTS: EPS BEATS CONSENSUS, SOLID BUT MIXED GUIDANCE

2Q16 2Q15 YoYChange

Revenues(USDBil.) $2.65 $2.52 4.8%

GrossMargin 80.7% 80.7% 3bps

SG&A/Sales 71.5% 71.6% (11)bps

AdjustedOperatingMargin 9.2% 9.0% 20bps

AdjustedEPS $0.43 $0.40 8.3%Source:Companyreports

• EstéeLauderreportedadjusted4Q16EPSof$0.43,aheadofthe$0.40consensusestimateandup8.3%yearoveryear.Revenueswere$2.65billion,up4.8%yearoveryearandslightlybelowtheconsensusestimate.

• Makeupwasthestrongestproductcategoryinthequarter;revenueswereup12%yearoveryear,andskincaresalesgrewjust3%,bothinconstantcurrency.Europe,theMiddleEastandAfricawere thestrongestgeographic regions,with salesup12%, Asia Pacific was up 6% and the Americas were up 4%, also in constantcurrency.

• Forfiscalyear2017,guidanceisforsalesup6%–7%inconstantcurrency,slightlyabovetheconsensusestimate,andEPSguidanceis$3.38–$3.44,belowthe$3.52consensusestimate.

4Q16RESULTS

Estée Lauder reported 4Q2016 revenues of $2.65 billion, up 4.8% year over year andslightly below the consensus estimate. Revenues increased 7% excluding currencyeffects.Salesincreasedinallregionsandproductcategoriesexceptfragrance.

AdjustedEPSwas$0.43,aheadofthe$0.40consensusestimateandup8.3%yearoveryear, and excludes $99.4 million of restructuring and other charges. GAAP EPS was$0.25.

ByProductCategory

Skin Care sales increased 2% (3% in local currency) in the quarter. Makeup salesincreased10%(12%inlocalcurrency),Fragrancesalesdeclined2%butincreased2%inlocalcurrencyandHairCaresalesincreased3%,5%inlocalcurrency.

Fortheyear:

• Skin Care—Sales declined 1% but increased 3% in local currency, owing todouble-digit sales gains for Genaissance de La Mer The Serum Essence, TheRenewalOilandTheLiftingEyeSerum,aswellasstronggrowthfromOrigins.This was offset by lower skin care sales from Estée Lauder and Clinique,partiallyduetotolowersalesincertainAsia-Pacificcountries,particularlyHongKong.

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AUGUST22,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&TECHNOLOGYDEBORAHWEINSWIG@FUNG1937.COMUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

• Makeup—Salesincreased9%and15%inlocalcurrency,owingtodouble-digitincreases fromM•A•C, Smashbox and Tom Ford and solid gains from BobbiBrown, in addition to higher sales for the Estée Lauder and Clinique brands.

• Fragrance—Salesdeclined5%asreported,butincreased10%inlocalcurrency,owing to double-digit gains from luxury brands Jo Malone London and TomFord, contributions from recent acquisitions, higher sales from Jo Malone,partially offset by lower sales of certain Estée Lauder, Clinique and designerfragrances.

• Hair Care—Sales increased 4% and 7% in local currency, owing to recentproduct launches,suchas InvatiMen,ShampuredryshampooandtheAvedaThickening Tonic by Aveda, as well as increases in salons, online and travelretail,andfromselectiveglobalexpansionatBumbleandbumble.

ByGeographicRegion

Inthequarter,revenuesincreased1%intheAmericas(up3%inlocalcurrency),9%inEurope,theMiddleEastandAfrica(12%inlocalcurrency)and4%inAsia-Pacific(4%inlocalcurrency).

Forthefiscalyear:

• TheAmericas—Sales inthecompany’sonlinebusinessgrewbystrongdoubledigits,howevernetsaleswereimpactedbyadeclineinretailtrafficintheUS,primarilyinmid-tierdepartmentandotherstores,fromadecreaseintourism.

• Europe, theMiddle East and Africa—Nearly all countries recorded net salesgrowth.Many posted double-digit increases, led by theMiddle East, CentralEurope, the Nordic countries and India. There was solid growth in the UK,GermanyandItaly.

• Asia/Pacific—SalesincreasedinconstantcurrencytermsineveryregionexceptHongKong,includingdouble-digitgrowthinAustralia,thePhilippinesandNewZealand.SalesgainsweresolidinKorea,JapanandChina,withhighersalesinChinareflectedinmostbrandsandfromhigheronlinesales.

Source:Shutterstock

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AUGUST22,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&TECHNOLOGYDEBORAHWEINSWIG@FUNG1937.COMUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

FY2016RESULTS

Fiscalyear2016netsaleswere$11.26billion,up4.5%andup9%inconstantcurrency.Adjustedforrestructuringandothercharges,adjustedEPSwas$3.20(includinga$0.26reduction fromcurrencyeffects), compared to$3.05 in theprior year.GAAPEPSwas$2.96.

OUTLOOK

Thecompanycommentedtheglobalprestigebeauty industryremainsvibrantandtheindustry is estimated to grow approximately 4%–5%. Estée Lauder expects to growapproximately twopercentagepoints faster thanthe industry for the fiscalyear.Risksincludesocialandpoliticalissues,currencyvolatilityandeconomicchallengesthataffectconsumerbehaviorincertaincountries,aswellasthedeclineinretailtraffic,primarilyinmid-tierdepartmentstoresandtourist-drivenstoresintheUS.

Forfiscal2017,thecompanyexpects:

• Net sales growth of 6%–7%, i.e., $11.94–$12.05 billion, above the consensusestimateof$11.91billion.

• AdjustedEPSof$3.38–$3.44,belowtheconsensusestimateof$3.52.

For1Q2017,thecompanyexpects:

• Net sales growth of 1%–2%, i.e., $2.86–$2.89 billion, below the consensusestimateof$2.94billion.

• AdjustedEPSof$0.73–$0.77,belowtheconsensusestimateof$0.89.

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AUGUST22,2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&TECHNOLOGYDEBORAHWEINSWIG@FUNG1937.COMUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnHarmon,CFASeniorAnalyst

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