Key questions from the second quarter earnings call conducted by The Estee Lauder Companies Inc. on February 1, 2008.

Justin Hott (Bear Stearns): Could you talk about some of the decisions for the management changes going on and the rationale of the process?

William Lauder: The rationale we were talking about how we can look at our management team, look at our strengths and find a way to compliment the strengths and deep experience that our senior management team has in our industry. The average tenure in the Prestige Beauty industry of the senior executives at our company is over 20 years and that brings a great deal of benefit to our company but we also felt that there was an opportunity for us to bring a new vantage point and a new view to the way we manage our business and grow our business in the future. We started looking for the best talent and abilities around, we tried to cast our net far and wide to look for the best product branding and consumer oriented talent we could with disciplines that would be beneficial to our company. In the process I was fortunate to meet Fabrizio as an available executive and great leader whose mind I have a great deal of respect for and he and I clicked well.

Justin Hott (Bear Stearns): Can you talk about his background and what you found particularly compelling in it?

William Lauder: His career was predominantly with P&G, however he did spend some time with the Gucci Group in Italy. He has been both a country manager for P&G as well as a category manager. He has had some exposure to the luxury good sector at P&G and I thought his strategic thought process, the way he builds an argument and a thought process as well as the disciplines he takes to building his business I thought would be compatible and would add a great deal to what our company is all about.

Alice Longley (Buckingham Research): What are you planning to do with costs in the Americas to offset the weakening sales?

Richard Kunes: We are experiencing what everyone is experiencing. There is not going to be a lot of cut back. The cores of our business, continue supporting our promotional program, continue supporting our demonstration which is our people behind the counters, they will all stay in place. We will be smarter in some of the discretionary expenses we have but we are not going to walk away from the market. We are going to continue to participate. Sometimes in bad times there is more opportunity than the good times, so we are looking forward to it.

Alice Longley (Buckingham Research): Do you assume a margin decline in the Americas despite these costs for the year?

William Lauder: I think you should assume that. Our business is soft in the US and it will put pressure on our margin but we try to manage our business globally and we try to manage our business to meet our financial obligations and commitments to you the investment community. We are using our strength in international to not only fund investments in international but to also offset some of the difficulties that we have in the US.

Richard Kunes: When we talk about softer businesses we look at the productivity of our makeup artist, beauty advisor, consultant and we will adjust that staff versus that productivity. If traffic is down we naturally adjust the staff to that so we maintain a selling cost. It is not business as normal; we are adjusting our staffing based on the environment.

Alice Longley (Buckingham Research): By adjusting the staffing at retail are you basically supporting fewer people or supporting them less?

Richard Kunes: We will not fill openings as quickly if we do not have the productivity from the existing counters. Each of our beauty advisors, each of our brands, has a certain benchmark and whether it is $200,000 per person or $150,000 per person, we expect to get that from every employee at the counter. We adjust that up and down based on the business.

Amy Chasen (Goldman Sachs): In the third quarter you expect your US business to slow materially given some of these excess inventory levels, but when you look at the second half of the year do you expect that to be substantially slower than the first half?

William Lauder: For the second half of the year our sales in the US will be the slowest growing region. I do not think you will see the softness in the fourth quarter that we are going to see in the third quarter. The third quarter is being impacted by what was sold in the second quarter which did not totally sell through. The reorders are softer but it is not disastrous for us. Everything other than US department stores in the Americas region grew by 25% in the second quarter and that trend we expect to continue.

Amy Chasen (Goldman Sachs): It sounds like in the third quarter your US sales are going to be down, but you are saying that the fourth quarter growth will not be as bad as the third quarter growth. Does that mean that for the fourth quarter you expect sales to be up?

William Lauder: Our third quarter’s sales growth rate will be down, but our sales will not be down in the third quarter versus prior years. Our fourth quarter growth rate will be more in line with the first and second quarter.

William Schmitz (Deutsche Bank): Where the margin leverage is coming from?

Richard Kunes: In the first quarter we exceeded what our guidance because we had not spent all of the money that we anticipated and in particular in some of the international markets and so we said that that spending would carry over into our third quarter and in the guidance that we gave for the second quarter we knew about the $40 million shift from the first quarter to the second quarter so that was all sort of built in. We are investing heavily internationally, our business is doing terrific, and some of those investments are markets where the profitability is still developing. China and to some extent Russia, where we are making heavy investments but they do not generate the same profitability level but it drives share growth, it drives sales and it positions us well for the future.

William Schmitz (Deutsche Bank): Accounts receivable only increased about 9.5% year over year but sales were up 16%, does that mean that sales slowed down toward the back end of the quarter?