Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Coty Inc (COTY, Financial) reported strong growth in its Brazilian market, with a 20% increase in fiscal 2024.
- The company is seeing significant success with its prestige fragrances, particularly in China and the US.
- Coty Inc (COTY) has successfully reduced the time to market for new products to as little as six months.
- The company is experiencing strong e-commerce growth, which is outpacing overall company growth.
- Coty Inc (COTY) has implemented significant price increases in Brazil, contributing to improved gross margins.
Negative Points
- Retailers in the US are managing their inventory with caution, particularly in the color cosmetics segment.
- The skincare market in China is experiencing negative growth trends, which may continue in the coming quarters.
- There is a high level of inflation impacting the company's cost structure, particularly in Argentina.
- Coty Inc (COTY) is facing competitive pressures in the US mass beauty market.
- The company has noted that some US retailers are managing their inventory and payment terms more tightly, impacting cash flow.
Q & A Highlights
Q: Can you elaborate on the global distribution expansion for beta and the timeline for rolling out in new countries?
A: Sue Nabi, CEO: We are accelerating the expansion of our sub-premium skincare brand, leveraging its high number of awards and presence in high-end stores like Harrods and Saks Fifth Avenue. We plan to open many new high-end doors in fiscal '25, targeting consumers willing to shop for premium products.
Q: Are there any unannounced launches we should expect in fiscal '25, and can you touch on pricing versus volume mix?
A: Sue Nabi, CEO: We have several new launches planned, including Burberry Goddess Intense and innovations in color cosmetics and skincare. Laurent Mercier, CFO: In fiscal '24, pricing was a significant growth driver. For fiscal '25, we expect a more balanced contribution from volume, price, and mix, with targeted price increases and a focus on improving product mix.
Q: Can you discuss the cautious order placements by retailers and how you're planning inventory as a result?
A: Laurent Mercier, CFO: Retailers are managing inventory cautiously, especially in the US color cosmetics market. However, this is a small part of our revenue. We see dynamic growth in other regions and categories, which supports our overall positive outlook.
Q: What level of promotional environment have you seen in the US market, and how are you planning to respond?
A: Sue Nabi, CEO: For brands like CoverGirl, the focus is on a mix of TV advertising, influencer marketing, and minimal couponing. We are not seeing a significant impact from promotional pressure but rather a trend of consumers trading up to entry prestige categories.
Q: How did you achieve such high growth and margin improvement in Brazil, and what role does it play in driving overall profitability?
A: Sue Nabi, CEO: Brazil has seen rapid growth, particularly in fragrances and body care. Laurent Mercier, CFO: Significant price increases, portfolio optimization, and local manufacturing have driven gross margin improvements, making Brazil accretive to our overall profitability.
Q: Can you provide more details on your fiscal '25 guidance and the visibility into the second half of the year?
A: Laurent Mercier, CFO: We expect sequential improvement, with easier comps in H2 and strong innovation pipelines supporting growth. Our capital allocation remains focused on deleveraging, with plans for share repurchases and potential divestitures.
Q: What is your outlook for China, and are you reallocating investments to other growth markets?
A: Sue Nabi, CEO: Despite current challenges in China's skincare market, we see strong growth in prestige fragrances and are preparing for future skincare growth. We continue to invest in high-growth markets like Brazil and the Middle East.
Q: How quickly can you get new products to market, and what are your expectations for the promotional environment heading into the holiday season?
A: Sue Nabi, CEO: We can launch new products in as little as six months, and we are focusing on maintaining this speed. We expect a competitive promotional environment but are confident in our innovation and marketing strategies.
Q: Can you discuss the drivers of gross margin expansion for fiscal '25 and your outlook for category growth?
A: Laurent Mercier, CFO: We will continue targeted price increases, mix improvements, and productivity initiatives. Sue Nabi, CEO: We expect mid-single-digit growth in mature markets, with double-digit growth in high-growth markets and channels like travel retail.
Q: What is your strategy for managing retailer orders and inventory levels, particularly in the fragrance category?
A: Laurent Mercier, CFO: The fragrance category remains dynamic, with strong growth in prestige fragrances. We are closely monitoring retailer inventory levels and adjusting our strategies accordingly.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
