Release Date: February 10, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Coty Inc (COTY, Financial) achieved a significant milestone by reducing its leverage to below 3 times for the first time in over eight years, indicating improved financial health.
- The company's adjusted gross margin expanded by 170 basis points year-on-year, showcasing strong supply chain savings and pricing benefits.
- Coty Inc (COTY) reported a 16% growth in EPS, excluding the equity swap impact, demonstrating strong profitability despite sales challenges.
- The fragrance segment, which accounts for over 60% of Coty Inc (COTY)'s revenues, continues to perform well, with high-single-digit sell-out growth in prestige fragrances.
- Coty Inc (COTY) is on track to deliver over $120 million in savings for fiscal year '25 through its All In To Win program, supporting future cost efficiency and margin expansion.
Negative Points
- Coty Inc (COTY) faced significant sales pressure in Q2, with like-for-like sales trends below expectations due to challenges in China, Asia, Australia, and the US Consumer Beauty market.
- The company's Consumer Beauty segment saw a 4% decline in like-for-like sales in Q2, driven by market deceleration and tight inventory management by retailers.
- Coty Inc (COTY) anticipates continued sales headwinds in the second half of fiscal '25, with like-for-like sales expected to decline by 1% to 2%.
- The strengthening of the US dollar is expected to create a forex headwind of approximately 3% to 4% in the second half of fiscal '25, impacting reported sales.
- Retailers' tight order and inventory management practices have led to a disconnect between sell-in and sell-out, affecting Coty Inc (COTY)'s revenue performance.
Q & A Highlights
Q: Can you elaborate on the impact of the current geopolitical and tariff situation on Coty's operations?
A: Laurent Mercier, CFO, explained that the geopolitical and tariff situation remains fluid, adding uncertainty. Coty has minimal sourcing from China, Canada, and Mexico into the US. Potential tariffs could impact EBITDA by a few points, but adjustments in product flows and sourcing, including shifting production to North Carolina, are underway to mitigate this. Pricing adjustments in the prestige beauty market are also a potential lever.
Q: How is Coty addressing the challenges in the mass color cosmetics market?
A: Sue Nabi, CEO, noted that despite a complex market with moderate declines, Coty is strengthening its brands through social media advocacy and agile innovation. CoverGirl and Rimmel have seen increased earned media value and market share gains online. Coty is focusing on fast innovation cycles and influencer engagement to maintain brand relevance.
Q: What are the key growth opportunities Coty is focusing on for fiscal year '26 and beyond?
A: Sue Nabi highlighted several initiatives, including blockbuster launches under top prestige fragrance brands, geographic expansion, and new licenses like Swarovski. Coty is also expanding its skincare brands and capturing growth in markets like Brazil, Mexico, and Southeast Asia. The company is committed to sustainability, with improved CDP Climate scores.
Q: Can you provide more details on Coty's financial performance and outlook for fiscal year '25?
A: Laurent Mercier stated that fiscal '25 is a transition year with expected flat like-for-like sales. Despite sales headwinds, Coty is delivering strong profit growth, EPS growth, and margin expansion. The company anticipates adjusted EPS growth of 9% to 13% and free cash flow of approximately $400 million, driven by higher profit and lower cash taxes.
Q: How is Coty managing its debt and leverage?
A: Laurent Mercier reported that Coty has significantly reduced its debt by over $4.5 billion since fiscal year '20, with leverage now below 3 times. The company expects further reductions, targeting leverage below 2.5 times by the end of calendar year '25. This is supported by strong cash generation and disciplined financial management.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
