Coty Inc.
Q2 2024 Earnings Call Transcript

Published: 7 Feb 2024

[Operator:]

Hello, everyone, welcome to the prepared remarks portion of Coty's Second Quarter Fiscal 2024 Earnings. On Thursday, February 8th, 2024, at approximately 8.15 a.m. Eastern Time or 2.15 p.m. Central European Time, we will hold a separate live Q&A session on our results, which you can access via our Investor Relations website. Joining me for our presentation are Sue Nabi, Coty’s CEO, and Laurent Mercier, Coty’s CFO. Before I hand the call over to Sue, I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty’s earnings release and the reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except noted, the discussion of Coty’s financial results and Coty’s expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. Thank you. I will now turn it over to our CEO, Sue Nabi.

[Sue Nabi:]

Thank you, Olga. Welcome, everyone. The strength of our Q2 and first half results reinforce several of our convictions, including

[Laurent Mercier:]

Thank you, Sue. In the current macroeconomic environment, I am pleased to share that we continued to deliver strong financial performance, with the Q2 results marking the 14th consecutive quarter of operational results in-line to ahead of expectations. Let’s begin with an update on how we’re managing the global supply chain, as well as our visibility in to the inflationary environment. In Q2, Prestige and Consumer Beauty service levels remained very strong at approximately 96%. And, as anticipated, COGS inflation moderated quarter-over-quarter and was in line with our expectations, benefitting from stabilization in commodities and transportation inflation. We have been balancing these inflationary impacts through a combination of our execution on premiumization, mix management, and productivity, complemented by price increases. In the second half of fiscal 2024, we continue to expect COGS inflation to ease significantly, with the main inflationary remnant being general inflation. It’s important to note that with the significant moderation in inflation, we will be very limited and targeted on any future price increases. Finally, with the conflict in the Red Sea dominating headlines, it’s important to highlight that we currently see limited risk from this as we have been using alternate routes and purchasing some safety stock. This inventory build does represent a moderate headwind to our free cash flow expectations for the year. I will now provide an update on our All-in-to-Win program. In the second quarter, we delivered savings of approximately $30 million, bringing our fiscal year-to-date total savings to approximately $65 million. Due to our very strong project pipeline, we are increasing our target for savings in fiscal 2024 to $110 million, $120 million from our previous outlook of over $100 million. The savings are driven by material cost savings, structural A&CP savings and trade investment. Importantly, the increased savings are helping us fuel reinvestment in our structural growth capabilities and teams, particularly in digital and skincare. Looking to next year, we reaffirm our fiscal 2025 savings target of $75 million. In sum, having delivered over $660 million of savings life-to-date, we continue to optimize our processes and expenditures, positioning Coty to be flexible and fully equipped to invest in our strategic priorities Moving to our gross margin performance. Q2 adjusted gross margin of 65.1% was in line with our expectations, decreasing by 40 basis points from last year. Our Q2 adjusted gross margin decrease was driven by

[Sue Nabi:]

Thank you, Laurent. Let me take a few minutes to discuss the progress we continue to make on our six strategic pillars. Starting with our first strategic pillar, which is, stabilizing and growing our Consumer Beauty business. In Q2, our Consumer Beauty revenues grew 5% like-for-like, bringing the growth in the first half to 7% like-for-like. This is in line with the global mass beauty market, which similarly grew in the mid-single digits percentage. We once again benefitted from the diversification of our Consumer Beauty portfolio, as we delivered solid growth across our categories

[End of Q&A:]