05.09.22
Sales for Coty Inc. increased 15% in the third quarter of 2022, ended March 31, 2022.
Strong results in both prestige and consumer beauty were the main drivers in this growth, with overall revenue growth in-line with sell-out performance. Geographically, revenue growth was fueled by the continued recovery in many EMEA markets, a strong rebound in travel retail, and continued momentum in the US e-commerce maintained its momentum, with double digits e-commerce sales growth in Q3 and year-to-date, supporting high teens e-commerce penetration, even as stores re-opened.
"Our Q3 earnings mark the seventh consecutive quarter of Coty reporting results inline to ahead of expectations,” said Sue Y. Nabi, CEO, Coty, Inc. “I am extremely proud of the organization for delivering these results, and outperforming the overall beauty market, in an increasingly volatile environment. This confirms that Coty has the brands and the people to win in the beauty market, guided by our strategic priorities of delivering above-market sales growth and expanding gross margin, allowing for brand reinvestment, profit expansion and continued deleveraging.
Coty's prestige segment reported robust sales growth of 21% versus the prior year and 25% on a like-for-like basis, even as reductions in value distribution had a low single-digit negative impact on growth. Prestige fragrance sales continued to accelerate, increasing over 20% in Q3, with particularly strong growth from Gucci Beauty, Chloe, Burberry and Hugo Boss. This was driven by the continued in-market success of Coty's Q1 fragrance innovations, Gucci Flora Gorgeous Gardenia and Burberry Hero, combined with the success of Q3 launches of Hugo Boss The Scent Le Parfum and Burberry Her EDT.
The two strong female fragrance launches this fiscal year demonstrate clear progress on Coty's strategy to further elevate its position in the large female fragrance market. Prestige cosmetics nearly doubled year-over-year in both Q3 and fiscal year-to-date, led by the continued momentum of Gucci Beauty, as well as solid performances by both Burberry and Kylie Cosmetics.
Consumer beauty revenues increased 8% as reported, and 10% like-for-like in Q3, with strong performance across color cosmetics, mass fragrances and body care. While the global mass beauty market was moderately positive in the quarter, Coty continued to outperform the market and grow share on a global basis for the past five consecutive months. Rimmel delivered market share gains across its key geographies, driven by the success of the Kind & Free cosmetics range. Max Factor, Sally Hansen and CoverGirl also recorded share gains, although temporary supply constraints on CoverGirl’s Clean mascara have weighed on the brands more recent share performance. In addition, the recent re-positioning of Bourjois in its home market, France, has seen strong initial success, with the brand's growth outpacing the category by roughly four times in March, and becoming the No. 1 mascara in the highly competitive French market.
Despite the challenged inflationary environment, Coty continued to generate strong gross margin expansion in the quarter, while also maintaining an increased level of media investment to further fuel revenue and sell-out growth. In Q3, reported gross margins expanded by 240 bps year-over-year to 64.3%, while adjusted gross margin grew 240 bps year-over-year to 64.6%. This brings Coty's year-to-date reported gross margin to 64.0% and adjusted gross margin to 64.2%, a robust expansion of 450 bps year-over-year. This substantial gross margin expansion was driven by favorable product and category mix, pricing and higher volumes. Coty delivered Q3 reported operating income of $57.1 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $182.5 million. Year-to-date adjusted EBITDA totaled $772.9 million, reflecting 22% growth year-over-year.
Financial net debt improved by over $200 million to $4.2 billion at the end of Q3, fueled by the $210 million Wella shareholder distribution and the remaining cash proceeds from real estate sales. During Q3, Coty’s retained 26% Wella stake was adjusted lower by $210 million to reflect the Wella distribution during the quarter, while its fair value increased by $61 million as a result of stronger results and outlook. As a result, Coty's Wella stake was valued at approximately $1.03 billion at quarter-end, with the company's economic net debt totaled approximately $3.2 billion.