Q1 2020 Earnings Call
Gentlemen, my name is Maria and I'll be your conference operator today.
At this time I would like to welcome everyone Cody first quarter fiscal 2020 results conference call.
As a reminder, this conference call is being recorded today November six 2019.
On today's call appeared Livia Chief Executive Officer.
<unk> Chief Financial Officer.
I would like to remind you that many other comments today may contain forward looking statements.
Please refer to Codis earnings release, and the reports filed with the FCC, where the company lists factors that could cause actual results to differ materially from these forward looking statements.
Commentary on like for like net revenue reflects a comparison of the business a constant currency in the current and prior year, excluding the impact of acquisitions and divestitures.
In addition, except where noted the discussion of our financial results and expectations reflect certain adjustments as specified in the non-GAAP financial measure section of our earnings release.
You can find the bridge from GAAP to non-GAAP results in the reconciliation tables in the earnings release.
I'll now turn the call over to Mr. Libya.
Thank you Mary.
Welcome everybody to cookies ferrous scrap del Friscos on T. comfort on school.
Oh, we stopped by reviewing the point I says we have made on all told the on plan in the last few months.
Okay. Although he will then discuss all financial results outlook and some of the at least some strategic developments.
Oh Q1 that can be characterized by several key developments.
We have begun activating all tone on plan announced on July 1st.
Second.
Oh passionate and financial results illustrate that we're off to a city stoffel to you.
And that's we are showing improvement on the parameters that we seek to life.
And well do we remain confident into fiscal Twentys targets, we laid out on the last earnings call.
I was hoping mine to mill, we'd be at all told them on plan aimed at sort of being what we consider all most crushing issues.
More specifically, we have to king of the need to.
It drives the trajectory of focus and I do see business.
Retain the high performance Liberal Follicular and publishing a beauty businesses.
Close a margin gap against the appeals.
They coincide oh organizational design and all size.
And beat.
An engaging culture, relying less on Pearson, a genius and more on qualities masterly.
To begin stabilizing all kinds in consumer beauty, we had been refocusing all teams on the most pushing fundamentals, namely a working media strategies.
In Q1, working media spend increased 11% was the biggest step up behind consumer beauty bonds.
With the consumer beauty, we are actively focusing our resources behind our priority Brian concrete combinations.
Leading to an investment in copies of close to 40% on these strategic priorities.
We'll also be doing as you may have not used to is at least since announcement on copaxone.
To a marketing started you voted on all strongest distinctive buying assets.
We are also beginning to it that I saw gross margin gap in said waterways.
First and foremost well know, making sure that we had the best supposed to bid alignment between saline and set out.
Thus avoiding value destructive sitting tactics.
Two.
Our plans include lease price increases well whatever.
Which I've already been helpful. As we speak all being activated in several countries.
Finally, we always been seeing you know objectives to beat the leader on mobile line organization.
Supported by on an evening culture was the right balance of key acuity and discipline.
We have define our new organizational culture.
And I couldn't have been communicating it for the core functions and in bucket.
We are currently acutely liquidating externally and internally for our new I'm, Saddam headquarter, which would be ready by Q4.
And we have recently named which I'll, Jordan Sadler, but you supply officer.
The child joined noticed with extensive experience into beauty industry and he is a key addition to our leadership team to lead all codes and Sq you watched simplification agenda.
[laughter].
To be sell day on the progress we have made up all of it. It's all your ports to defining market don't onto plans has no coville approximately 50% to fall business.
This include consumer beauty, U.S., UK, Germany, and Brazil, as well as last year, the UK I know, but what do we view it if it was a few blind.
In these markets we have the lives I call findings identified the value at stake and have begun deploying action plans.
These I noticed you could approach is no being the deployed in consumer beauty washout, Poland and Canada.
Well, that's what should the U.S. on Germany, where we expect Mindy well just send findings and conclusions.
Oh remaining buckets will be called building the next wave to 18 months.
Well no well stealing the early stages of activating all plans well beginning to see some green shoots you know passionate performance.
In the UK.
Well he made the number one cosmetics mascus mix when.
Had experience mccutcheon I always runs.
Actions and but even the 200 basis points improvement instead, I would times diving buckets you again.
Behind this improvement Oh.
Substantially increasing working media investment, particularly TV.
This strong performance of recent launches one deluxe mascara and lasting much foundation.
Both of which well launch opinion pricing.
And why this t. daily.
Limited demand industry should you will extend and see what do we always on pricing actions.
In line with all expectations.
In Germany, well me seeing many of the same dynamics into mass fragrance category.
We know about any the number one mass fragrance blending the market has also significantly increase each set out performance for them, but does decline to a double digit growth.
Feeling to go Oh.
This strong performance of the views recently launched loyal men pagans.
Increased media support for both the made on female lines.
And to successfully expansion of the blend into the show Elgin category flu product Hunch challenge.
In the U.S., we have also seen some early positive signals, though we are clear, but the boss to stabilization will take some time.
[noise], Saudi Hanson the number one they binding the U.S. mass market as together, we says declines will sit adios.
Oh I need it you could approach identified to call substance, we must focus on as well as a kid either sales to dive consumer engagement.
Innovations months Wehave increase all digital media support for the premium you'd like to enjoy line.
Improved the packaging all treatment public times.
And deploy season, even event is still displays including a Halloween team is stuff that I called out prediction.
I was always a it.
While the mass nine markets continue to more than likely decline both Sally Hansen.
Niccolo and their treatment back to city growth.
And eco Gil widely implement it deal alert blends set out there has been momoda right Oh actions plans Oh trend fitting performance in key areas.
Oh stopes eight some bonds, we took on full to fail. The blend says Oh, no back to growth, marking a pretty handily 20 basis point improvement.
Underpinning this improvement you just told that I'm, but in TV.
In TV supports the lead behind the subway lines.
While our sales continued to be weighed on the shelf space collection, we are seeing productivity improvement you know caucus the mills.
So let us say its growth in the uncut centers, such as Amazon and into.
[laughter].
Speaking of time as Owen.
As we can do to focus on improving fundamentals, both offline and online.
We have seen very swung a little for fall blends on them as on both in U.S. and globally.
These tone Wolf has been supported by our close collaboration with Amazon stop of the global vendor management program.
The increase TV support fall he also blends.
Exemption focus on course can use that to a possibility weighed on the mezzaluna.
As a result in Q I know a mass brands listed on the mezzanine grew over 40%.
We know Hyve Oh, yeah, she on Amazon across most categories, which is a substantial change for us.
Okay.
In luxury and professional beauty well continuing to deploy all studies of Premiumization and particularly extension.
In luxury the she's illustrated by Gucci accumulate garden, which remains amongst the dose top performing the topic I'm collection.
I know, we all playing only owning to support the launch.
Oh Cooley's I'd tell you the flu.
We're also seeing some success in extending all it should be buying into the cosmetics category. Weisel Q1 luxury makeup size three times the level of last year.
In professional beauty. The team has continued to drive conventional fleeting Saddam to the premium vis vis liquidity. Some people think was any plus line.
Following the call principle of innovation penetration diving.
Gee is D is based on these strong positioning entity shouldn't ask that's enough to launch is very successful glide Hood Bush.
Although geese positive cigna's give us confidence that we have the wide binds the right people and the like action plans to steadily improved cookies performance and unlocked significant value.
With that it'd be Tony do you have to be anomalies.
Thank you care and good morning to to everyone. So or rule as you have seen or Q1 results Oh.
Or in line with the Weve expectation and signed <unk>, so distant to add to the your.
Starting with took line or like for like net revenues decline minus 1.1 concerns, which was where you don't significantly by the way performance in unique and a full for the rest of the scope on net revenues were practically stable at minus 0.1%.
This was obviously partially helped by local variables in Q1, that's true, but it was nonetheless, an improvement from the approximate humana's prepas since like for like decline on the same scopes excluding unique.
Infrastructure and in a full year 19 over [noise].
Supporting the like for like the from US was strong growth in luxury in professional beauty and the sequential improvements in consumer.
As we focus on on gross margin improvements and continued culturally gross or adjusting or bridge income grew 10% countries are team 110 basis points of a bridging margin expansion I come back on the on that point in more details in a few minutes, but first and shift to a go through that.
Did you Division result, and starts with a weve lecturing.
As you can see she on this side the campaign for than your Tiffany and have a fragrance launch a is expanding the brand into both male and female fragrances over the course of Achterberg. Your line has been excluded these two bloomingdale's and U.S., but to your we're already seeing strong strong result.
The census, Tiffany and those on the very foods, they have launched exceed an entire reach itself or the initial t. funny signature fragrance launch I'd be pleased to see that's a cluster of the sales are coming from the mail line speaking to the appeal of the Tiffany brand across vendors.
On the right of the screen close on the heels of the launch of all good. She lipsticks globally. We also have been Relaunching. The battery makeup line focused on Asia Pacific and the results I've been very promising.
So if I move to luxury financial performance then in Q1.
Division delivered another quarter of low to mid single digit growth. This included a growth in Europe and that in May our you know luxury fragrance category that continues to grow in the low single digit including in the U.S.
Well our revenue growth was broad based in thoughts helped by easier Comparables. Some of those sales were impacted by the protest in Hong Kong. This has been hampering our growth in the city and the surrounding travel retail corrigo throughout the quarter.
From a brand perspective, though we are seeing so did the financing or innovation, both Gucci and Bill Murray makeup continued to expand contributing over a third of our divisional growth in the quarter and this confirms is from potential of several of our luxury fragrance brand to expand into adjacent beauty category.
Yes.
As I mentioned earlier, Tiffany I love of a strong start to a strong style.
Switching in Wow, that's been a study that is shown to be expanding gucci portfolio and Hugo boss booked or infant needs continue to be successful shooting further distribution expansion.
From a margin standpoint, a luxury drove strong gross margin improvements coupled with cost control and this resulted in over 300 basis points of operating margin improvement.
I know turning to consumer beauty you can see on on the next slide the number of a recent success food initiative on the left of this crannies linear reinharts, an actress and deliberate he was strong for winning or most jan that consumers and she will be the new 'cause I go.
Is the breezy beauty food and better though.
Consumer response engagement reviews announcement as being quite positive.
For Adidas, we're capitalizing on the strength of the sports brand with the launch of free New fragrances, which are working well in markets and its pure discussed already said he Hudson a significant these prove its momentum through a number of initiatives, including or how do we know correction and assisted infill displays.
So, let's turn now to the financial performance of.
The division.
For the clubs or the like for like net revenues declined 7.8% improving from the minus 10% decline X uniques Lex last quarter I mean for your 19.
Europe .
Reported solid results with a group of net revenues, reflecting incremental improvement instead I would so that's important.
North America, the performance was mixed but encouraging recently uncertain once again back to growth and noticeable improvements from the prior Utica. They go. It's can use is already a this goes back yeah. We expect such improvements to continue in the coming across her as a shelf philosophies mode.
Right and as their investment continues showing construction.
No just we choose in most.
Countries for consumers drive healthy and sustainable sales for Green managing the you keep move at yourself and as a result revenue declined in this region.
In the Division I think the rest of the group we remain indeed focus on driving gross margin improvements and these tradeoffs, Sweden Louis to free up gross margin going out to reinvest in the business.
And so on this point in Q1, we actively ramped up working media and redeploy it leads to a priority brands.
We've been working media investments behind these brands or 38% descriptor, we saw a noticeable improvement into trends of such sales, which declined low single digits. In Q1. This is high single digit decline in a full year.
Confused because you didn't mention.
So as expected this significant increase in NCP, coupled to revenue decline drove a construction in a bridging lodging in Q1.
To end up on consumer wise.
The definitions of these division remains weak descriptor, that's true positive answers or initiative and we look forward to more gradual improvements in the coming quarters.
I know shifting to professional beauty.
Ghd continued its strong momentum across core countries. It by innovations such as the GLEI hook brush and the platinum plus styler as you can see on the left and as Christmas. He's getting close you should really look at this as a gift ideas for the people who really knows that's a great ideas.
Recommended.
On the rights you see that will be I also returned to strong growth supported by easier Comparables and successful execution of some overcorrection you see on the screen difficulties correction.
[noise] talking about financials for the division a professional beauty returned to growth as expected reporting a strong 5% like for like.
We saw strong growth in Europe , and North America, partially helped by low comparables in the case of the U.S., specifically as expected U.S. consumer customer this cooking that effective ourselves into second half of Lester has run its course, and we have been shipping in line with consumption.
The combination of Destocked line extension that cause the shipping drove over 400 basis points of operating margin expansion, which stood at close to 10% for the quarter.
Well, that's what for the from the Division and I know going back to go to you as a whole.
A key outcome of the beginning of the series the changing shape, although piano as we are seeing direct t. focus on gross margin translating into results gross margin to come through with Andrew and 60 business going to 62%, which was a strong improvements throughout the quarter.
Consistent with our covenants in August we significantly increased working media in the quarter by 11% and this resulted in an overall increase of 70 basis points in their NCP as we continue rationalizing nonworking media.
This is a key outcome.
Since it be Elsevier Choosy question, where gross margin progress is finance investments behind our brands, which we gradually or revenues and in turn on gross margin.
It's also the main driver of roof over a bridging income which was a 10% in Q1 hundred 10 basis points increase indeed, a intensive operating margin.
Just ER as Andy that's seven cents dress dawns. This is 11 cents reported lesser which itself included four cents of nonrecurring tax benefit and therefore, a obstruct absent from this tax benefits, yes as being stable.
And turning to get some statements, which as you know is an important element for us for US why Q1 is always a seasonally weak period for cash generation, we did improve a free to true very meaningfully by hundred 69 million you're a year. These growth reflects strong underlying improvements.
Cash generation as well as an additional 75 million that all from victory.
Having closed the unique divestiture in the quarter, we received 50 million of perceived and at the same time repurchase the remaining stake you know surfaced Asia JV for 45 million, though in total.
Aided by FX.
On that and resultant leverage moved on mid or thesis is that structure.
Less than $7.4 billion for the funded it.
So I know moving to a two slide 18 or in summary, Q1 was a solid that you've read on that metric towards as well a turning point in the management over a question and first milestone in the construction of all turnaround plan. This makes us.
Confidence for the rest of the your and we're happy to confirm or target for fiscal <unk> 20, Atkinson scope I said in the last earnings call in detail that means like for like net revenue stable to slightly lower year over year and separate team kind of constant scoop and constant currency growing 5% to 10% a mid single digit growth.
Yes, and a murder its improvements in our free cash flow, we expect Q2 trends to be generally consistent with he's growth algorithm.
[noise] to end up let me remind you of an important decision, which we announced two weeks ago.
Right well turn it on to any fundamental to building a better business and you have seen some food sentiments of delivery.
We have we the both come to conclusion that we need to accelerate the transformation of cookie.
<unk> increased focus on could trigger isn't to free up resources to invest we are these categories, namely fragrances, because missy and skincare.
And therefore, we've decided to engage with strategic review of the professional beauty business associated to have brands as well as the Brazilian operations.
The teams in these businesses have done an incredible job over the past few years in creating strong platforms in their respective business.
However, we believe we need to work to identify the best options for then we very simple objectives number one and look shareholder value added to sharpen our focus on a fragrance Caracas metric and skin care business here and by doing so reduce the complexity of our portfolio.
And with potential proceeds de leveraged cookie with a target pro forma leverage we treat seeks that's wrong free times.
We anticipate the review will be completed by summer 2020 on Amos said that we have already received multiple lots of interest which is I think says about the high attractiveness of these assets.
After the submission of our supply chain. After the building of alter on plan. This is a key decision to accelerate the transformation of our company into a focus and competency.
Companies.
That's the end of or opening comments. Thank you for your attention and.
No go to your.
Good questions you may.
Thank you Sir the floor is now open for questions. If you wish to ask a question at this time simply press Star then the number one on your telephone keypad.
If at any point. Your question has been answered you may remember yourself from the Q by pressing the pound key.
Our first question comes from the line of Robert Ottenstein of Evercore.
Great. Thank you very much.
I was just wondering good morning, I was just wondering if you can maybe just help us understand a little bit more.
Of why.
So selling professional is a strategic imperative great business importing cash flow generator I think I think we were a little surprised to hear about how you're thinking about it. So just really trying to understand.
You know in a little bit more depth kind of the thinking around that and then once you know assuming assuming that happens.
Maybe give us a little bit a sense of.
Any issues in terms of stranded costs or scale issues that could result from the sale and then finally, along those lines what that does too you know you're you're kind of expected medium term algorithm, whether the kind of targets you have for fiscal 2020.
Would make sense as a medium term algorithm a after that divestiture. Thank you.
Okay and that is killing them.
I think the.
You know the reasoning is very is very simple we have freed grade categories. We believe in each of them.
But we also believe that.
Each of them as a lot of potential and we need to be able to put the means human and financial behind each of them to develop them.
We don't believe a dominance.
We will be in the best positioned to manage the free at the same time four regions, which has to do we've leveraged from the one hand and for reasons, which have to do with complexity of and focus on on the other so.
We've chosen to focus on a two segments, which are luxury and consumer which in reality category wise fragrances, cosmetics and skin care and because we believed by focusing on on these categories and only these could theory. We can go so that's true.
Creating value with them and weekend.
Shopping or focus on ER and transformed to transform the good thing.
At the same time.
We believe that's by putting the professional business that had business and the Brazilian business in the difference context, that's going to give these business as well the means it needs to a they need to develop.
So it's it's really a matter of focusing of giving yourself a more attention to the categories. We've Suzanne.
Freeing up financial needs as well and recovering finished the flexibility to invest behind the news and this is we believe the way we are going to maximize the value creation for all shareholders.
With respect to stranded costs distancing when we'd we'd have to deal with that we are nuts overly worried for a couple of reasons a domain one being that so most of the tone wrong time for I'd been focusing on a on consumer.
He and luxury and therefore, a defensive depends going to remain on this a base and we think that's going to be definitely ILUVIEN goes to deliver the target he or she calls him at the time, which was a 14% to 16% operating margin or do which we have confirmed a recently so essentially it doesn't.
Change or targets in terms of a gross margin and the Britain margin improvements.
And we hope is going to help us accelerate the transformation of because of the group.
And Andy yet in terms of the algorithm what do you see is a good medium term algorithm.
Next divestitures.
What do you mean diagonally them.
Well you know just in terms of expected topline growth operating profit growth EPS growth as you know the kind of targets you gave for fiscal 2020.
Okay. So.
You know we're upping the strategic review and I think it's early days to talk about all that.
What we are confident about is our ability to deliver a substantial margin improvement than to talk into 14% to 16% and then for the race, we need to a we need to work we need to work.
Our next question comes from the line I've, Olivia Tong of Bank of America.
Great. Thanks, good morning.
Just on luxury if you could just breakdown of the performance of pet because it decelerated. Despite comping against a period, where you had some supply chain issues. So are there still all disruptions you're working through.
It does seem like the underlying categories changed much, particularly fragrances and then if you could just talk about your exposure to Hong Kong and travel retail that'd be great. Thank you.
Yeah, I can I can think it then a check on a cash component.
And it's true luxury head of favorable.
Base. So that's what you do the way to read a 4% is that.
It's a very strongly to strong performance, but at the same time.
And it reflects easy comps and the Hong Kong and travel retail impact has been a have been mentioning and so if you you should return to a Q2 you would expect to reverse how you would expect that the cone talking to be much higher and therefore, a probably is a luxury agreed to be low single digit growth.
So in this particular quarter.
We continue seeing fundamentally change buoy key drivers of performance a into fragrance, India extension to the Christmas Inc. and at the same time, we have distribution as well, which is likely to to continue impacting us for a few a few questions.
Our next question comes from one of Nik Modi RBC.
Hi, good morning, everyone.
Two quick questions from me first I, just want to make sure I heard it like that your second quarter outlook is inline with the full year I thought I heard that I just wanted to confirm that and just given how important the December quarter as for the beauty general just any any more clarity on specifics you can give us and kind of how you're thinking about.
That Steve will be very helpful. In terms of selling and new products are programs or or anything that would give us a little bit more clarity and then the second question just bigger picture question on make up obviously a lot of companies have been struggling in this area just wanted to get your views on what you see going on in that market. You know do you think it's something that can be turned.
Around is it really just a function I love cyclical change between skincare make up that tends to go every three to five years any thoughts around that would be helpful.
I think you scale I think the last question first and then.
Hollywood Studios are the ones.
I think our vision on the makeup is that probably.
There has been a beyond a beat up to.
Been spending if I may say, so and.
And I think would probably all in all those side could have a have a multiplication effect change by consumer other categories Maxed out you probably don't pay TV shopping days increased penetration by going to ages.
Younger religiously.
But but we do feel that clearly we have seen a battery on a few keys quantity of fetches over the years.
I think well cycling through that.
We also have he had a certain number of Oh.
Chat noted, which are not major elgindy into typical pattern and the like we are talking on the online business and and.
I assume that if we have such a good performances and I would it be may not be the only one having that performance.
As a consequence, I think I'd tell you Chenodal OTI also taking their fair share. So a few poppy to shift in China is a pays all heal and you'll be should that tenant, we see and probably of going through I would coty collection cycle of pitches for the last two years, we should we need to cycle.
But we do have been does it get to go we've seen a potential that possibility. We really believe that the category has we have potential intellectually side of this category.
In.
Haney Kim on rent so on the new launches as a couple of a couple of things. We've already mentioned if anything it's funny enough, which is really a acute who are going to be a Q2 events, which is of his tongue stop as you have seen we'd have in addition, Gucci bloom on Brazil.
And the first sign we have pretty poor the TV U.S. and you gave but these are very early days, we burberry her or the buffer I falls, a which is a adding to the range of.
Burberry for Uh Huh.
And we have as well to shades of Peachtree lipstick for which she which are going to come in addition, and widened a an widened the range and that is for the for luxury. So we are we continue a we continue a coming with their innovation on the on on the market.
With respect to a Q2 and what we which we expect so.
You all know that's a debate of compares any particular for luxury on TV was loonies culture, and therefore, you would expect to have a.
Steel.
Lead on Thursday performance as these two businesses next sponsored but.
Probably.
Beyond the higher base driver and at the same time, we expect to see continuing progress in a in consumer beauty. So if I didn't get the consensus now on a net revenues I would say that we are comfortable.
Comfortable with that.
On the operating income for H., one given the strong start reach for about a is attributable to phasing elements.
I would see yeah I in the loop out of the range, we have given all the for the years, which means about a mid single mid single digit so Q2, which will be on the different base very much in the continuation of a of with we actually in Q1, and we've Oh, reflecting ER.
Substantial improvement in the in the individual.
Thank you very much.
Thank you.
Our next question comes from on essentially all at Deutsche Bank.
Yes, hi, good morning.
A couple of questions.
So first I just wonder.
Did you decide to include the Brazil.
And as part of your strategic review, because I thought that business is doing reasonably well.
To the rest of consumer beauty.
Just wanted to clarify how much did you know, Brazil, and the retail healthcare business contribute to growth.
This quarter on an organic basis.
And then I also just wanted to ask about gross margin and was hoping that you could decide.
Margin increase here.
Because I think last quarter.
You had sort of higher incremental freight costs because.
Supply chain issues. So I was wondering if he could get an underlying growth rate excluding that done as possible sort of a breakdown between you know Mick.
If there was any contribution from lower promotions.
From productivity cost cutting and synergies. Thank you.
Okay.
I take a question a number of question maybe about the gross a the gross margin elements. So a strong progress in luxury.
From the quarter, a strong progress in a professional beauty as well for the for the quarter.
Consumer beauty.
Being a mix I'm pretty different from when not get to the other anemia fathers and I mention which is that we have chosen to give the prairie to gross margin and really to be exciting for me 61 cents or we are negative on on that revenues, but we have a strong rebound on your margin.
Europe depends very much market by market overall, frankly, nicotine and so is the case of.
I guess more consumer beauty has a war.
Pretty.
Again very differently.
Thanks, and dynamic market by market I think it's important we try not to.
Managed consumer as a whole bunch, we need to address this specific condition of each market.
On a bread view of the reasoning is very simple a once you really mean, they have hence a substantial part of a of Brazil as well as a mass mass product and the other on C., but you know and therefore, Brazil, India is a very minutes or so with these portfolio with a treaty sitting in a portfolio.
So we thought it was natural.
For Brazil to to go to go with we've profession and hair in these strategic review and not for isn't the fulfillments because the performance of both Brazil and the rest of the Scoop and the review is positive. So I mean, it's treaty. Another question is getting readers.
Businesses, which are not performing.
A question of having the right they're going to focus we invest resources, where we think region, we can generate more and more recently.
And on your question of what's been doing whats on the quarter.
The scope, which is a and their strategy for you as a a positive low single digit under scope kind or a which has nothing to strategy for you with negative mid single digit.
I hope I've been compete.
Our next question comes from.
Comes from line of China, lacking I've lost far now.
Hi, Thanks.
I just wanted to.
Get back the strategic options review that you're doing and I guess first off of my timing of it because its four months ago. You guys presented plans after doing a thorough review of the business. So I'm wondering what's really changed and what's driving that need to accelerate changed given that confidence that you had.
Four months ago.
The turnaround plan and who's really driving that decision.
To do that as a management team into the board primary shareholder.
You said, a little light on that thanks.
Hi, what I mean, you're right on some sandwiches that we go fast a you know care has been in the business for about a year I've been business for about nine months than in a in this period of time, we have so the supply chain issues than we have stabilized the business in 19.
Then we have produced at Thunder on time and a weird.
Taking a strategic review so that's a lot of for a lot of thinking when you're I think that's just made necessary. If we want to reshape coty and to transform it into a performing a beauty company and you can jump in Oh.
I don't think that was in change we I once said that we had to take things one by one and not to try and do everything at same time. So that's really the methodology referral we had to stabilize the company I suppose the supply chain issues that was done we had to stabilize 19 and to deliver 19 Douglas Dawn, we definitely had to a look at a plan to close.
Shows the performance gap of all of our businesses and that's what we've tried to do with a turnaround plan and once we've done that we started looking at the portfolio and thinking is there any way we can improve a faster or we can make trusts faster the transformation of the group and he professor lesser okay financing.
Oh do you see a key element was our ability to free up resources human and financial beyond core categories and this is why we have made this a these decisions so no change.
A a diagnostic from the management, which has been shared with the board.
And fully supported by the boots.
You know, there's not a one company and another one there's only one company with management and board and we have taken does this isn't together.
That's fundamentally it.
And then if you could maybe talk about you know if you have any expectation is for proceeds is there a hurdle level in mind.
You could potentially walk away.
You know from from doing a dealer and hold onto the businesses and and then maybe if you could talk generally I know, it's early but generally about like potential uses of the proceeds.
How do we could potentially be allocated between debt repayment.
And share repurchases and and along those lines.
Would you do a deal that could be dilutive.
In order to hit your leverage target of three times.
Well I won't comment on the last fall on the left a one again, it's too early days intensive expectations. The only thing I can say that these business are incredibly attractive or whether you talk of a professional beauty, which for many many reason.
How business is is one of the leading platform in the word and has been performing well and has been strengthen for the past few years by the management OPI, which is an outstanding brand ghd, we achieve literally flying in terms of a of growth and Brazil, which is a unique.
Pleasure on the Brazilian markets, which is as you would rebound.
Very attractive markets in the in the beauty space.
So we have expectations, we basically much the attractiveness of a deal with it and I wouldn't that comment further on on that on the potential use of proceeds we've been pretty T I thinking or in the press release, saying that.
The potential proceeds would be used to decreased the indebtedness, we the target leverage of about a free time said that we'd be good and any access will be returned to a two shoulder also I've got nothing to nothing to add to that.
Our next question comes from mining Lauren Lieberman of Barclays.
Great. Thanks, Good morning, Iran.
Hi, So I wanted to ask again about consumer beauty margins I know you touched on it already but I.
I was intrigued by thing you're not going to manage.
Holistically, you know, but more thinking about the specific situation in each market so with that in mind and when you said that for me.
Decided to start to prioritize gross margins more dramatically sales were down.
So when they think about the situation in the U.S. and promotional intensity and things that youve talked about trying needing to start to correct.
How does that play out because I think about the trajectory for consumer beauty. The U.S. is there a point in time somewhere in the next I don't know 12 months 18 months, when we see more pressure on cells.
Because that focus which is to be more about gross margin.
Hi, I know and scale how are you.
[laughter] D. I think I come back to that point at the end of the de East. It's self install most all how did he used to lay the most nalgene unrelated to gross margin by combination I know.
Uh huh.
Be linked to the company, even the promotion, but do not be overly company. Keith. So clearly we do understand their users has and he'll promotional intensity that you need to.
You too much stake so we are going to be inline with what we think should be able to from wishing to market, but certainly what we believe it is that we have noticed exempted pricing power on all production, but of course, the last five years and it is time to eat into that all right and so we do know that.
We had all mapping older L., we do clearly understand ideally somebody asked the city and and we are ready to accept several of these volume losses associated with that because we think it is very important that we generated the most nalgene, which enabled us to increase the velocity of homelands standardizing and that I think that modell.
I, we are convinced that this more data we will and.
And and we all need to exited the second thing we'll need to work to improve on gross margin is to really simplify our portfolio simplify orange and and make sure that the D. I ask you use which all penetration diving and also engine yellow line Algenist can you just get.
Shifting to the diesel and to be working on the on the shape of six settlements school elements to it to the mental one element and the and I figure. These days are not affecting unblocking down to be there to be done, but but actually I do believe that we can both for the sometime play by the would have to get into promotional intensity, which was.
Well, you, but not all though and the and that is same time raise all gross margin by balancing the mix of all felt overtime.
Okay. That's great. Thank you.
Thanks, Nick.
Our next question comes from line I, Steph Wissink of Jefferies.
Hi, Good morning, everyone I wanted to just focus on the work on media and make sure I have the statistic for here. So I think you mentioned.
Core brand investment in working media was up about 38% can you help us understand what percentage of the business falls into that priority or core brand Mek and then also tell us a little bit about where some of that media dollars are going I know you mentioned TV, but if there are there any any other areas of emphasis in terms of your media mix.
Helpful.
Oh media mix is establish vial, each based technology and as a consequence, we applied media mix.
That we need to applied base on the gain the specific countries situation you have countries, where you you can use you all you need to add about ends between.
Just as bad as income of online Vlccs figured LTV.
Due to the penetration of for digital and those are completed by the penetration of digitally is a lower.
The consequence, you do more mainstream media. So that's an even in some countries. You can do you would do original balances they call shop. If you look at the if you look at the most grew out of you already to be mushy reinvesting into digital was that I sort of company youre going to innovation TV. So I think we paid all made this media plan market by market and there is nothing.
A one size fits those cuddihy.
So that's one or the fell so the field I know the second thing it at this coal mines at this stage or the school be amused, if we call them by market.
Injection well present on the which while focusing this media if will play until about 60% of all of the news and they tend to be also although he goes global minds over time, we do want to continue to exposed to two to increase that because we still have gaps to close in term of media investment.
Certain number of bucket and dishes why the jump that there was relating to failure.
On the on gross margin is absolutely important as well as the balance between working media Nonworking media, we still can be cool.
Equity.
Our next question comes online and Mark Ashton Stifel.
Thanks, Good morning, everybody.
To football or.
Morning.
One on the the pricing commentary. So is this something that it's more of a onetime repositioning of product pricing is it something that you want to use as a lever on more ongoing basis kind of and inflation plus so kind of curious on that and then.
Secondly back on.
The potential asset sales I realize it's obviously early in this is kind of a second.
If you will bite.
The implication of what you said about.
Leverage would imply.
Redeploying proceeds assuming.
Multiples are value that we all kind of believes this is reasonable for the business. So maybe holistically. If you could talk a bit about what you would do with cash were you on encumbered by the current debt levels that would be kind of helpful. In new just hearing your thoughts there.
Yeah.
Hi, Mark I think the pricing decision this year, while they're pushing question slightly.
I think both from deal both.
And we'd be nine sale, yes, we have a catch a plan to do and we all executing a catch a plan we have not taken place. She for many years and it takes depleted Abili T. <unk> test depleted eligible smelting and as a consequence has weekend Albion as a consequence as unfortunately led us to increase promotional intensity.
So we need to get out of these a vicious effort to get back into have yet to yourself good and at this stage. We this is why we do think that we need to have you don't really set.
And.
And the and then going for a while the.
Indeed, youre absolutely right, we need to make sure that we might as inflation could likely and we do not like we do not fully back into release you stopped we have put into.
And until the here I think he treating their of its a matter of tradeoffs and financial flexibility.
Tradeoff, we have that level, a which given the oh. The recent division of the business has led us to make it a favor tradeoffs in severance cash as opposed to consider if a brand investment and.
And and profits by the way so I think by coming back to a leverage there which carries more at a T to the industry and category, we are putting ourselves in that position to make a better tradeoffs overall, which sometimes we'll still be in favor of cash, but sometimes we'll be in favor of a growth.
And then we'll together, that's giving us more financial flexibility and more financial flexibility that means that we to get degrees, which offers load of possibilities of group, we'd have the ability to invest.
If and when a informed of the writes a in front of right possibilities. So.
Yeah, I would say overall, that's definitely an improvement.
To grow the business, we have chosen to where we're choosing to keep.
Our next.
Turning line Wendy Nicholson [laughter].
Hi, good morning.
First question has to do with the comments you made about selling on Amazon and the great growth that you're seeing there and you're one of the few beauty companies, who talks about that so I was curious.
You know why do you think that is are you doing extra promotion on Amazon on can you talk about what your margins look like on Amazon falling to Amazon versus selling to traditional retail.
And then my second question just on the divestitures I mean, I was starting to see the price. The proceeds you got for unique I mean, 110th of what you paid is kind of stunning.
And I'm, a little bit worry that that sends a signal to potential buyers for professional hair care the Brazilian business.
That you're in kind of fire sale mode, and you'll sell these assets or anything so was unique like a one off situation. You just wanted out or was that I'm really that bad business. I mean, maybe you could just comment on how much disciplined you're going to show in terms of the procedural gets released does not that thanks.
I think the fell stuff for the question Alipay only answer on the second one why are we looking pulling on Amazon, mostly because we are playing on Amazon and just how does she that we aim to play into life suitable silly retail or the mass market.
We clearly no no now what I'll call HK use all we know what all what all high velocity items, which are penetration building items.
Well, making sure that they get their fair share on Amazon as a consequence to business is going so do you have an absolute collaboration between the job that we had been doing this.
Not case that we have identified U.K.U.S., Germany, and Brazil, and what we are doing on Amazon.
And at the benefit it definitely was on line I mean, the implementation of the situation of data of that's how did he works festival.
And and the ability to.
Expand your assortment of the ability to adapt you also mentioned just small high Pete and as a consequence, we get that we get we can be season, and also with put resources behind it we try to possibly we haven't been necessary putting before.
And our mile Genies, Oh, Algenist, often limitation me, though.
So we're not absolutely nothing if I said on modes.
I think unique you will understand wasn't very.
Specific case not to use a unique where the schools.
The business, which was a far away from or competencies, which we have been a strengthening to manage a for the past few quarters now.
We.
Very difficult performance and at some stage, we just choose to to move on.
And we choose to move on and to a and today the seats in conditions, which I.
I agree on that or not.
Very good booking but at the same time. So just was very important for the rest of quality that we could move on and as we did this problem on on the side.
Knowing that Derek will be managing us much better than we have done together. So that's a choice we made a again nuts being offensive mode, which we are doing now with the strategy for you is completely different of course, we are talking of Enas said, which is notes, which has not been losing grow them footing. We are talking of innocence, which is.
For me well.
You see these costs are dissinger cases professional beauty. This is a case of happens in case of for.
Oh, PPI Ghd Brasil, we're thinking of brands, which are a recognized by many many people professionals the sector, but also by many investors we try to attract a lot of interest which was not the case of a of unique.
These are brands, which have a you know fairly good level of profitability, improving TV was a 12% Lester lie and Thats a good proxy for the overall the group's wish you a if you take into account or the common cause which are going to remain for about that.
Could you were talking of a scope, which has a mid mid teens accreting com. So you know given what I said about the profitability of other growth given the obvious appetites, which we see an which I'm sure you can see.
We expect these transaction to be creating a lot of how do you actually just creating relative value and we are going to make sure the disease I've been in this dissuade it's it's really about.
Extenuating venue for the group.
Reshipping pretty much more substantial way, then unique which was a very different smooth case.
And thank you. Our final question will come from the line up and you have to share of JP Morgan.
Hi, Thank you so just as a final question I'm, sorry on a couple of clarifications.
One is.
Well the Q2 guide when you make the first half did you mean first half of putting profit would be up mid single or were you referring just to Q2 was specifically.
The second one was on the expectation of the plus it's fun to see out the assets I mean, I think the Eightninety Lin song what S.T. you talked about implies about 20 to 21 time TV dot so as a follow up you know just to see from you know you think that could be feasible from what do you just mentioned about not being on a fire sale.
And then on the marketing spanning side the third one it would be you started working meet it was up 11, but can you comment about the Holy P., because I understand you were taking down couponing so into couponing.
Oh, the total PMPM spanning the civil down relative and I think is still down. So I went to just double check that in and also how at a like for like I understand that you do one on that basis, how it like for like would have been we've evolved reduction complaining. Thank you.
Okay.
Showing the take these thing I think this question on a and C piece for us.
It's up 70 needs altogether, so a 11% isn't because they're working media the total entities.
77 basis point.
Okay, and he will continue going up and we are we.
We believe it's important that we keep reinvesting all together and therefore, we didn't vis a vis we will increasingly investments in TV.
On the guidance so.
Cute on the guidance for a for the operating income so.
I said, a mid single digits for each one.
And therefore that includes a Q1, which has been specifically strong weve something.
As I said, but altogether H, one he's going to be up we expected to be up.
Mid single digits or within the range, we have given from the you're into that facility, you're not talking to the range and then for the proceeds.
We didn't say two $9 billion that was I think any for mission and and in the press seem to sanction time system that you send that mistaken no clearly that's going to.
That's going to be a sizable transaction.
You know how much we're talking about in terms of owning a I've given you some analysts about that.
You know how strategy transaction can price on the market what kind of multiple he can attract and therefore you can make the math is going to be a sizable transaction and we don't want to speculate on on the ammonia as far too, but it's far too early between video screens to be a sizable and.
I think thats it.
I will conclude the call no. Thank you very much for your attention. It's exciting time at cookie exciting to see the progress we are making and we look forward to sharing more progress with you next quarter in a in February . Thank you bye.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.