Coty’s Q1: Continued Strength in Prestige and Consumer Beauty

Coty has announced its results for the first quarter of fiscal year 2024. Net revenues for the quarter ended September 30, 2023 were $1.64 billion, an increase of 18% as reported and LFL. This was driven by a 22% LFL increase in prestige and a 10% LFL increase in consumer beauty, according to the company behind leading prestige fragrance franchises that include Gucci and Burberry and mass market beauty brands like CoverGirl, Rimmel and Sally Hansen.

Coty—ranked No. 8 in Happi's 2023 Top 50 Report—says it “continued to deliver strong financial momentum, with growth once again ahead of the beauty market, while consistently executing across its strategic growth pillars.”

The performance marks the 13th consecutive quarter of operational results inline to ahead of expectations, according to the beauty company.

Coty's Q1 sales growth of 18%, as reported and LFL, came in well ahead of expectations and recently raised guidance of +10-12% for the first half of FY24, the company said. The beauty and fragrance firm said it once again delivered a balanced growth equation, with low-single-digit percentage volume growth, estimated high-single-digit percentage pricing contribution, and high-single-digit percentage benefit from mix and other.

Prestige

In 1Q24, prestige net revenues were $1.0 billion or 65% of Coty sales, increased by 23% on a reported basis and 22% on a LFL basis, supported by strong momentum in prestige beauty demand, which led to double-digit percentage growth in all regions, and outperformance in Americas, APAC and Travel Retail.

During Q1, the Prestige fragrance category continued to see robust growth across North America and Europe, with nearly all major markets generating double-digit percentage growth, led by the U.S., Canada, Germany and Spain. Coty's Prestige fragrance revenue grew approximately 25% LFL in Q1, maintaining momentum driven by strong beauty demand, ongoing premiumization and fueled by existing icons and new launches. Global Travel Retail trends were very robust across all regions with growth of over 20% LFL in Q1, propelled by the continued recovery of international travel and Coty's expansion in the travel retail channel. In addition, Coty's service levels exceeded expectations in the quarter, supported by successful dual sourcing and build up of component inventory. At the same time, Coty's recent launch of the Burberry Goddess fragrance is setting new market records and overall Burberry fragrance revenues have nearly doubled year on year.

Additionally, Coty's other recent innovations including Gucci Flora Gorgeous Magnolia, Gorgeous Jasmine and Gorgeous Gardenia, Burberry Hero and Her, Boss Bottled Elixir and Chloe Atelier des Fleurs continued to deliver very strong performances in the quarter. While Coty's prestige makeup business was constrained by the gradual recovery in China, the company's Burberry makeup line delivered strong double-digit percentage growth LFL. Finally, Coty's leading Prestige skincare brands, philosophy and Lancaster, grew double-digit percentage growth LFL in Q1, building momentum since relaunching in spring 2023.

Consumer Beauty

In 1Q24, Consumer beauty net revenues of $576.7 million, or 35% of Coty sales, increased by 10% as reported and LFL, led by growth in color cosmetics, mass fragrance and mass skin and body care. Most regions generated strong LFL growth in the quarter, including North America, Europe, Brazil and Latin America.

During the quarter, revenues grew in the mid-single-digit to high-double-digits percentage LFL across cosmetics, mass fragrances and mass skin and body care. Coty saw momentum in Q1 in many of its brands, with solid LFL revenue growth in CoverGirl, Rimmel, Sally Hansen, Monange, Risque, Beckham, and Nautica. The Consumer Beauty business saw particular momentum in e-commerce, with over 25% sales growth LFL, delivering share gains in the channel.

Geographic Performance

Geographically, all regions generated double-digit percentage revenue growth. EMEA sales expanded 20% as reported and 18% LFL in Q1, driven by double-digit percentage growth across most markets and Travel Retail. Americas sales rose 17% as reported and LFL, driven by strong momentum in all markets and Travel Retail. Asia Pacific sales grew 16% as reported and 19% LFL in Q1, with strength in broader Asia and Travel Retail. In China, sell-out growth in Coty's Prestige business was well ahead of the market, growing by double digits percentage in mainland China and triple digits percentage in Hainan.

The strong Q1 sales momentum translated into significant profit expansion. While gross margins declined as anticipated, on the back of elevated inflation and normalization in fragrance giftsets as part of the mix, Coty's Q1 reported operating income of $197.5 million grew 15% YoY, adjusted operating income of $302.2 million grew 21% YoY, and adjusted EBITDA of $360.3 million grew 17%, aided by strong operating leverage.

“We are proud of our great Q1 results, with sales growth once again amongst the best in our peer set and ahead of the beauty market. Coty continues to deliver on our balanced growth agenda, with strong LFL growth across both divisions and all regions, with growth contribution from volumes and premiumized mix, complemented by targeted pricing, and from our key categories including fragrances, cosmetics, and skincare,” said Sue Nabi, Coty's CEO.

“While the external environment remains complex and consumers are being considered in their spending, the beauty category remains advantaged, at the nexus of affordable luxury, self-care, and confidence boosting. We remain well positioned to benefit from this strong beauty performance, while capitalizing on the multiple white space opportunities in our portfolio, including female fragrances, ultra premium fragrances, skincare, China and travel retail. These opportunities and our strong Q1 delivery enable us to raise our FY24 guidance for the second time this fiscal year,” Nabi added.

Outlook

Several months into FY24, the beauty market remains a strong and outperforming category, with ongoing premiumization trends. Coty continues to benefit from this attractive market dynamic, with momentum across its core categories, strong launch results, and early wins in key white spaces. Against a favorable backdrop and given Coty's strong Q1 delivery, the company now expects FY24 LFL revenue growth of +9-11%, ahead of its recently raised guidance of +8-10%. For the first half FY24, Coty now expects LFL revenue growth of +11-13%, an increase from its previous outlook of +10-12%. Reported FY24 revenues are expected to include neutral to 2% benefit from FX, primarily in first half of FY24, and a 1-2% scope headwind from the divestiture of the Lacoste license, concentrated in the second half of FY24.

Wella Stake

In light of what it calls its “strong free cash flow trajectory in first half FY24, its successful Paris dual listing, and given misalignment on final deal terms,” Coty and its counterparties have decided to end the partial sale of its Wella stake.

Coty said it remains fully on track to reach its targeted leverage of ~3x exiting CY23 driven by its strong free cash flow trajectory and its successful Paris dual listing, as well as leverage of ~2.5x exiting CY24 and ~2x exiting CY25, as it continues to target the full divestiture of its Wella stake by end of CY25.