Operator: Hello everyone, this is Olga Levinzon, Coty’s Senior Vice President of Investor Relations. Thank you for joining us today for the prepared remarks portion of Coty’s Third Quarter Fiscal 2024 Earnings. On Tuesday, May 7, 2024, at approximately 8.15 a.m. Eastern Time or 2.15 p.m. Central European Time, we will hold a separate live Q&A session on our results, which you can access via our Investor Relations website. Joining me for our presentation are Sue Nabi, Coty’s CEO, and Laurent Mercier, Coty’s CFO. Before I hand the call over to Sue, I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty’s earnings release and the reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except we're noted, the discussion of Coty’s financial results and Coty’s expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. Thank you. I will now turn it over to our CEO, Sue Nabi.

Sue Nabi: Welcome everyone, first, let me begin by saying that Coty’s very strong Q3 results, with double-digit growth, reinforce our nearly four-year track record of delivering results in-line to ahead of expectations. We continue to see a strong and dynamic global beauty market even in the midst of a challenging geopolitical and macroeconomic environment. Coty’s diversified portfolio and strong execution have enabled us to once again outperform the broader global beauty market; and, our global and multi-category presence has proven to be a key area of strength and differentiation, as subdued trends in very few markets and subcategories, such as U.S. mass cosmetics, were more than offset by continued strong momentum in the majority of our core categories and markets. This global and multi-category presence, coupled with our industry-leading capabilities and desirable brand portfolio, equipped Coty to boost consumers’ desire for beauty through our disruptive innovations and established icons. Our strong growth in Q3 was accompanied by strong and disciplined financial delivery, as we generated robust profit growth and margin expansion, allowing us to raise the midpoint of our guidance for the third time this year. Overall, we continue to target sales growth ahead of the beauty market, growing our profit ahead of sales, steadily deleveraging our balance sheet, and positioning Coty as a beauty powerhouse with still significant untapped potential. Let me summarize the key messages from our results today. First, we saw continued double-digit like-for-life growth in Q3 and year-to-date as we once again delivered market leading revenue growth, marking nearly four years of Coty reporting results in-line to ahead of expectations. Our like-for-life revenues grew 10% in Q3 and grew 13% year-to-date, trending above our guidance of plus 9% to 11% like-for-life for the current fiscal ‘24. In Q3, we continued to deliver on our balanced growth agenda, with strong like-for-life growth in both Prestige and Consumer Beauty, across all regions and in each of our core categories fragrances, color cosmetics, skin care, and body care, all supported by a broad range of our leading brands, and with contribution from volumes and price mix. Second, in Q3 and year-to-date, we delivered strong profits and margin expansion despite reinvestments in the business, with adjusted gross margin increasing by 190 basis points in Q3 and up 20 basis points fiscal year-to-date to 64.4%. At the same time, our Q3 adjusted operating income and adjusted EBITDA both increased double-digits year-over-year, which drove 30 basis points of expansion in the EBITDA margin. Third, we continued to execute and make progress across our strategic growth pillars, which we’ll discuss in more detail later in the call. Finally, we are achieving strong results and milestones while delivering robust profit growth and margin expansion, allowing us to raise the midpoint of our fiscal ‘24 guidance for the third time this year. We expect FY ‘24 like-for-life revenues to grow at the upper end of the previously announced plus 9% to plus 11% range, which is clearly ahead of our mid-term target growth of plus 6% to plus 8%. We continue to expect modest gross margin expansion in fiscal ’24. And, we are raising our FY ‘24 adjusted EBITDA margin expansion to the upper end of the 10 basis points to 30 basis points guidance range. At the same time, we expect fiscal ‘24 adjusted EBITDA to be consistent with our previously guided range of $1,080 million to $1,090 million as EBITDA margin at the upper end of the guidance range is partially balanced by FX headwinds expected in Q4. We now expect adjusted EPS, excluding the equity swap, to be at the high-end of prior guidance range of $0.44 to $0.47, implying strong year-over-year growth at the upper end of 16% to 25% range. I will now take a few moments to cover our revenue trends during the quarter, before Laurent takes you through our financials. Then I will finish with an update on our strategic progress and our outlook. Starting now with our revenue performance. As you can see in the third quarter, like-for-like revenues grew 10%, which is trending ahead of our second half revenue guidance of plus 6% plus 8% in like-for-like growth. Fiscal year-to-date, our revenues grew 13% like-for-like, coming in ahead of our full-year fiscal 2024 guidance of plus 9% to plus 11%. Our Prestige business grew 13% like-for-like in Q3 and 17% like-for-like fiscal year-to-date. The continued strong like-for-like sales growth in Prestige was well balanced across regions and categories, including

Laurent Mercier:

.:

.: Regarding the conflict in the Red Sea and the Baltimore port closure, it is important to highlight that we currently see limited risk from these events as we have been using alternate routes and purchasing some safety stock. This inventory build does represent a moderate headwind to our free cash flow expectations for the year. Finally, with more elevated impact from excess & obsolescence in first-half ‘24, we see these headwinds moderating in H2 ‘24 and in to fiscal year ‘25 I will now provide an update on our All-in-to-Win program. In the third quarter, we delivered savings of approximately $25 million, bringing our fiscal year-to-date total savings to over $90 million. We are maintaining our savings target in fiscal ‘24 of $110 million to 120 million which reflects ongoing productivity projects whose savings are partially reinvested in our structural growth capabilities and teams, particularly in digital advocacy, skin care and retail. Looking to next year, we reaffirm our fiscal ‘25 savings target of $75 million. In sum, having delivered approximately $700 million of savings life-to-date, we continue to optimize our processes and expenditures, positioning Coty to be flexible and fully equipped to invest in our strategic priorities. Moving tour gross margin performance. Q3 adjusted gross margin of 64.8% increased substantially by 190 basis points from last year, as we anticipated. Our Q3 adjusted gross margin improvement was driven by

Sue Nabi: Thank you, Laurent. Let me take a few minutes to discuss the progress we continue to make on our six strategic pillars. Beginning with our first strategic pillar, growing our Consumer Beauty business Consumer Beauty revenues grew 6% like-for-like in Q3 and 7% like-for-like fiscal year-to-date. Importantly, the global mass beauty market continued to grow by a mid-single-digit percentage in Q3, while our Consumer Beauty business continued to grow in line with the mass market. We once again benefitted from the geographic and category diversification of our Consumer Beauty portfolio. We delivered solid growth in mass color cosmetics even as the market growth has normalized toward historical levels and the industry saw softness in the U.S. mass cosmetics category. At the same time, our diversified portfolio allowed us to benefit from strong category growth in mass fragrances, mass skin care and body care, which drove double-digit percentage growth in many of our brands, including brands Beckham, BrunBanani, Monange, Bozzanand Paixao Channel-wise, we continue to outperform in the critical e-commerce channel, once again gaining market share. Our Consumer Beauty e-commerce revenues grew approximately 30% like for like in Q3. And in brick & mortar, Coty’s global shelf space remained broadly stable in the resets that took place in Spring 2024, and the initial indicators suggest that our shelf space should remain broadly stable in fall 2024. As we discussed on our first and second quarter earnings calls, our focus in fiscal 24 has been on actively step-changing our social media reach in order to drive our brands and build stronger community engagement, underpinned by disruptive innovation. We’re already seeing very strong positive impacts. In fact, in March, CoverGirl propelled to the number three rank for earned media value in the U.S. among the brand’s peer set, which is a very strong increase from the brand’s number five in Q3 and the number six rank in Q3 of last year. And, CoverGirl’s year-over-year EMV rose nearly 1.5 times in the third quarter, which was the highest growth amongst the brand’s competitive set. This speaks not only to the quality of CoverGirl’s disruptive innovations, like the Simply Ageless Skin Perfector Essence, as well as Outlast Lipstain, but also to Coty’s activation strategy, where the launches have been amplified by thousands of influencers. As a result, Essence has become a Top five foundation on Amazon and number one in Canada’s omnichannel. The combination of CoverGirl’s distinctive brand equity, disruptive innovation and the strong momentum we are gaining in social media advocacy is allowing CoverGirl to outperform the established cosmetics brands at U.S. mass retailers while simultaneously outperforming in e-commerce. At the same time, our leading European brand Rimmel has risen to the number four rank in earned media value in Q3 in the U.K. among the brand’s peer set, up from number five in third quarter of 2023. Rimmel’s year-over-year EMV growth was over 75% in Q3, as we’re actively working with Rimmel’s Creator Crew to develop new products and launches and promote our hero products. Our mission is to outperform the mass market through disruptive innovation amplified by social media advocacy and of course we will continue to overdrive on advocacy across our other Consumer Beauty brands. Turning tour second pillar, focused on accelerating our luxury fragrance business and establishing Coty in prestige makeup. The fragrance index remains as strong as ever as we saw the fragrance category growth accelerating sequentially in Q3 to mid-teens percentage growth, driven by continued robust global volume growth and ongoing premiumization. Against this favorable backdrop, our prestige fragrance execution continues to be robust with Coty gaining market share and growing sell-out in the high teens percentage. Our market share gains are broad-based, including in mature markets like North America, France, and Germany, and growth engine markets like the Middle East. Our prestige fragrance net revenues grew 12% like-for-like in Q3 and 18% like-for-like fiscal year-to-date supported by multiple growth engines, and fueled by strength in existing icons coupled with strong contributions from new launches, like Burberry Goddess, Cosmic Kylie Jenner and Marc Jacobs Daisy Wild Most of Coty’s leading fragrance brands grew net revenues by a double-digit percentage fiscal year-to-date. This robust Q3 and year-to-date prestige fragrance growth across our leading brands is evidence of the broad-based momentum we’re seeing across our portfolio and the structural multi-year momentum we are seeing in the fragrance category worldwide, as more consumers use fragrances more frequently and opt for more premium offerings, supporting well-being and also accessing affordable luxury. Within the strong momentum we are seeing across our Prestige fragrance portfolio, the performance of our new launches continues to be exceptional. Beginning with Burberry Goddess, Coty’s biggest fragrance launch ever. Consistent with the very strong results we shared last quarter, Burberry Goddess Eau de Parfum continues to be a top female fragrance launch in key markets. The phenomenal success of Burberry Goddess has elevated growth in other Burberry franchises, like Hero and Her, which has resulted in total Burberry fragrance revenues growing over 60% fiscal year-to-date. We are continuing to build on our track record of exceptional fragrance launches with two new hits which were launched this spring. In Q3, we launched Marc Jacobs Daisy Wild and Cosmic Kylie Jenner, both of which have already reached the top ranks Marc Jacobs Daisy Wild is the number one fragrance launch in the U.S. calendar year-to-date, which has also benefitted the full Daisy franchise. And, Cosmic Kylie Jenner, the first fragrance launch under Kylie, is the number two fragrance launch in the U.S. calendar year-to-date. This means that Coty innovations hold the Top 2 spots amongst U.S. fragrance launches this spring, with Burberry Her Petals also reaching a Top 10 position Cosmic Kylie Jenner has also performed very strongly internationally, providing a halo effect on the broader brand. These winning launches reaffirm Coty's position as a leading fragrance expert with best-in-class end-to-end capabilities, from developing a winning scent which resonates with consumers across all regions, to activating distinctive marketing campaigns, and finally to disruptive in-store and online activations. Speaking of disruptive innovation and winning scents, we have recently launched Infiniment Coty Paris, our most ambitious and premium fragrance project to-date, with the goal to capitalize on the whitespace opportunities we have in the rapidly growing ultra-premium niche fragrance market dominated by pure player brands. For Coty, this is a major milestone because for the first time in half a century, we have a Coty branded fragrance collection. So far, the response has been overwhelmingly positive. Infiniment Coty Paris is anchored in modernity, with a patent pending, Molecular Aura technology extending the fragrance’s signature up to 30 hours, and a collection of scents which are simultaneously luxurious, niche and wearable. And, as part of our commitment to sustainability, Infiniment Coty Paris is the first globally distributed full fragrance collection to be manufactured using 100% carbon-captured alcohol, and the bottles are refillable, stackable and reusable, as the brand has pioneered art cycling through specially designed bottles that can be stacked together to create new works of art. In March, we opened our first Infiniment Coty Paris boutique in Paris with promising early results as well as a counter at the Liberty London niche perfumery area, where Infiniment is already the best-selling Coty fragrance brand amongst our brands sold at the retailer. And we’re also planning to pen an Infiniment boutique in New York this summer. At the same time, sales on the Infiniment Coty DTC site are also strongly exceeding our Expectations Together, let’s watch our Infiniment Coty Paris brand video. [Video Presentation] We are also continuing to strengthen our Prestige makeup business. In Q3, Coty’s Prestige makeup sales grew over 25% like-for-like with all brands growing by a double-digit percentage like-for-like. Fiscal year-to-date, our prestige makeup business generated double-digit percentage growth like-for-like with contributions from Burberry, Kylie and Gucci. The very strong success of Burberry Goddess has driven a halon Burberry makeup, which generated very strong double-digit percentage sales growth in Q3 and fiscal year-to-date. Similarly, the success of Cosmic Kylie Jenner is also driving a significant halon Kylie’s cosmetics business. For Kylie Cosmetics, we are continuing to actively expand the assortment with recent launches including powder plush long wear foundation, powder blush sticks, and wisp lash mascara. And the recent launch of Kylie Cosmetics in India and Malaysia is off to a great start, with sales ahead of target and the brand reaching top cosmetics rankings in this initial period. And last but not least, Gucci makeup continues to resonate with consumers, generating double-digit percentage growth like-for-like in Q3. Shifting now to our third strategic pillar, building our skin care portfolio over the mid-to-long term, led by our prestige brands

Operator:

Earnings Transcript for COTY - Q3 Fiscal Year 2024

Company

Support

Get updates