Q2 Sales Decrease 3% for Coty

Q2 sales for Coty decreased 3% the company reported, fully driven by a 7% headwind from FX, with sales up 4% on a like-for-like basis, which includes approximately 300 basis points of negative impact from the Russia business exit. 

 

The beauty company's Q2 sales performance came in ahead of expectations, despite significant industry-wide constraints in key fragrance components, the company said.

 

"I am incredibly pleased by Coty's tenth consecutive quarter of delivering results inline to ahead of expectations, especially as most quarters surpassed expectations despite the highly complex external environment, with particular pressures this quarter from component shortages and FX,” said CEO Sue Y. Nabi. “This delivery validates the strength of our brands, our teams, and the growing nimbleness of our organization, positioning us for success in various macro scenarios.”

 

1H23 sales declined 1% as reported, while like for like sales grew 6% including approximately 300 basis points of negative impact from the Russia exit. As a result, 1H23 like for like sales growth for the core business surpassed the company's 1H23 guidance of +6-8% like for like growth, adjusting for the impact of the Russia exit.

During the quarter, consumer demand for beauty products, particularly prestige fragrances, remained robust, with high-single-digit growth in the prestige fragrance market and mid-single-digit growth in the mass beauty market. Although the company delivered strong like for like growth across both divisions, as expected Coty's Prestige revenue and sell-out growth continued to be constrained by industry-wide component shortages stemming from accelerated fragrance demand. Encouragingly, the Company has already begun to see an improvement in its prestige service levels entering Q3.

 

Coty's prestige business delivered solid performance in Q2 due to the success of key innovations, even as this year's launch pipeline was primarily composed of brand extensions. Q2 prestige revenues decreased 5% as reported and grew 3% like for like, which included approximately 300 basis points of negative impact from Coty's exit from Russia. Coty's key fragrance launches reached top positions, with Burberry Hero EDP ranking as a Top 3 innovation, Boss Bottled Parfum a Top 2, and Gucci Flora Gorgeous Jasmine as a Top 3 innovation in most key markets. Meanwhile, prestige makeup revenues were impacted by the COVID-related total lockdowns in China. However, Coty continued to drive momentum outside of China, with particular strength in the US, where retail sales of Gucci makeup and Kylie Cosmetics grew over 40%.

 

Coty's consumer beauty business delivered a strong performance in Q2, supported by solid market growth and Coty gaining market share. Consumer Beauty Q2 revenues decreased 1% as reported and grew 6% LFL, which included approximately 250 basis points of negative impact from Coty's exit from Russia. Like for like revenues grew across key categories, including cosmetics, body care and mass skincare. During the quarter, the global mass beauty category grew at a mid-single-digit pace year-on-year, while Coty continued to outperform the market, delivering a full year of global market share gains in the portfolio.

 

Geographically, revenues grew in all regions on a constant currency basis. EMEA sales declined 10% as reported due to significant FX headwinds, but grew 2% like for like in Q2 and 6% like for like in 1H23 despite a 5% negative impact from the Russia exit. This solid growth was fueled by significant travel retail momentum and growth across most markets. Americas sales rose 6% as reported and 8% like for like driven by strong momentum in Brazil and Latin America, while the continued strength in US demand was offset by supply constraints. Asia Pacific sales declined 5% as reported but grew 2% like for like in Q2 and 6% like for like in 1H23, with strong momentum in Asia-ex-China and Travel Retail, while China revenues were impacted by COVID-related total lockdowns.

 

Despite the continued inflationary environment, Coty continued to generate material gross margin expansion in the quarter, while also maintaining strong level of media activities to further drive revenue and sell-out growth. In Q2, reported gross margins expanded by 110 basis points year-over-year to 65.5%, while adjusted gross margin grew 90 basis points year-over-year to 65.5%. This solid gross margin expansion was driven by the full benefit of Coty's pricing execution exiting Q1, enhanced planning and productivity, and improvements in trade spend. Coty's Q2 reported operating income of $199.3 million was lower than 2Q22 primarily due to a real estate gain recognized last year. Meanwhile, adjusted operating income of $261.4 million grew a very robust 11% year-over-year despite a high-single-digit headwind from FX. Adjusted EBITDA of $317.6 million also grew 2% year-over-year.