Q2 2020 Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your line well, they're going be placed on music hold thank you for your patience.
[music].
This time I would like to welcome everyone to CODI second quarter fiscal 2000, and plenty of results conference call.
As a reminder, this conference call is being recorded today February 5th 2020.
On today's call appeared to be yes, Chief Executive Officer.
The pair under that city Chief Financial Officer.
I would like to remind you that many other comments today may contain forward looking statements.
Please refer to Cadiz earnings release, and the reports filed with the FCC, where the company list factors that could cause actual results to differ materially from these forward looking statements.
All commentary on like for like net revenues reflect the comparison of the business at 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 our 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.
Ill now turn the call over to Mr. Libya.
Thank you Maria and welcome everybody to go cheese second quarter fiscal 20 compelling score.
I was stopped by reviewing the progress we have made on Altona on plan in the last few months.
Yeah, all the way will then discuss all financial results outlook, Oh annuity and what used to assist anybody to target.
And so it will do maintenance touching developments.
Exactly one year ago, I wish sharing with you and old TD denials myself to push himself cookie.
I felt impression of the time well is that we had to these are also performance and look in the way we ran all company.
Not to buy to building a big it'll be is nice would have to go through building a bit to one.
I will tell them on plan has been underway now for two quarters and well beginning to see clear evidence of pulled rise into peep out of the business.
Like we did about six months ago.
Okay part you would use over these last two quarters have been.
Well the buttons working media and Nonworking media.
Global penetration by advertising old ones at scale, we do like media mix.
Improve all go smile genes by managing but they're all make supplies and publish on live.
Good to get through an organization more adequate was all size.
Fine the balance between disappearing and creativity in everything we do.
Did he very consistent financial performance in according to wait.
Hi, I'm very happy to do we pulled that all teams across all business units.
<unk> and corporate center had been doing just that.
We all have cool Wow I'm, having sold all the challenges that we face and sees all the opportunities ahead of us.
Yet we can see that we all know I'd talk that topline stuff starting to work.
No is the time for wants to be consistent.
He's done.
You said, Louis tweak Anselmo fiscal 20 targets.
At the same time, well, beginning Oh, well do we shape up would you do both provides financial flexibility and raise all growth potential where you go back to that.
Are we thinking though the opportunity to going quickly you. Despite the old poached by sharing some details in a fault on element plan activation.
We continue to wall with media spend which was up 8% into call to.
As we focused on investing behind all priority blank on three combination.
Media spend behind these probably always do businesses in consumer beauty grew over 15% into first half will do you.
We also continued to be find the mix between condition that ended it didn't media.
Acuity in digital campaigns, you know a younger orientated, one well wrapping up TV media behind all more mainstream brands.
Oh organization is very intentional in diving <unk> gross margin improvement.
Actually making to leave it at the center of false cottage cheese.
We have implemented leased price increase in a handful of countries with a ball deployment on product for the second half.
Each of all divisions had been actively managing to mix of the assays.
All right sizing higher value products and China's.
We are continuing to many tool that we had the best we'll see but alignment between 15 and set out thus avoiding value destructive sitting tactics.
Finally, we are advancing although directive to beat the leaner and more aligned organization supported by on enabling culture, we though I'd bet as of CATV D N D shipping.
The new organization has caught your I've been deployed effective generally through.
And the teams on the working until the new original refocus framework.
We have stepped up all see obviously both to our customers Weiss for the same time, increasing Norfolk ethic, you'll see.
And we have begun to execute Oh, no fixed cost for switching pulled off.
Oh, it's supposed to be to healthier business will they didn't really still into pricing architecture will fall mine and Premiumizing all pulled for do you.
Well, making strong pull guys within both consumable UTI and luxury.
In consumer beauty the average net revenue per unit into bus six month has increased by approximately 2%.
Even high yield Wolfie Newell.
You said, it's been achieved through a combination of.
Implementing net price management in a few companies, although the bulk of youthful we'd be deploying new seeking huh.
I keep revenue management as we have probably always dies and simple through the higher value products.
And mold discipline publishing Directv, while remaining company TV in the marketplace.
Intellectually.
Why do we all starting from a stronger position. We are also kept doing premiumization opportunities.
Yeah, but sitting prices increased by approximately 4% with improvement in each of auto pretty markets.
The Dalai therefore this expansion includes.
But did useful much in activity.
In cool mix management, including video on facies on what the buffer.
And if it use gifts that activity.
And the city's price management.
Last quarter, we shared with you already pulled I've seen some of <unk> complete combinations.
With that that's continuing to build across a number a whole bunch and market.
I'm pleased to have failed to global view and all in market performance.
As you can see on this slide the global must go Dropless mystic market quite by Neeson has decelerated moderately over the past you you know Q2 domestic would've cosmetics market declined by pushing 93%.
Compared to a decline of 2% <unk>.
At the same time I'll focus on phase one bucketing fundamentals.
Has enabled us to improve all global said I would buy pushing about 350 basis point.
Evan you know slowing bucket by gold.
The important set out kinda you know cosmetics finally fixed some progression to UK, we've determined in Mexico in Germany with Mexico, I, just thought you always Sally Hansen remain.
He is well highlighting.
That the action plans, we have activated in the UK behind that even.
Including substantial increase in working media.
Support on the heels sublime and a couple of phone launches as it will be made two boys penetration and its market she'll do you get cosmetics market by liquid team light and medium she'll Bill.
Exactly in line with all such as you can done.
Oh set out performance in the U.S., it's been more mixed.
The went up a woman's gap relative to the kept you'll be has been muddy writing until June.
Very positive on all called franchises.
Some of these I visit from their performance all due to external factors like competitive promo pressure, we can only live with those.
So oh, so we know component and we are taking the necessary steps.
To collect the necessarily going to be action. So.
It is important to highlight.
Due to respond momentum, we all driving on them as good a U.S. cosmetic set out he's over 100 basis points better than what he's got killed.
In the Nielsen data.
Complementing the gone you an improvement of all performance can still is the continuing symbol you know equal Mercedes.
In the first half of office Brltwenty luxury eco mask revenues.
All by approximately 20% year on year.
Equal mill, no console low double digit percentage of all actually business.
Which is relatively consistent with the looks really phygen socket.
This momentum was achieved despite the current lead me to present, some t. Boone.
Oh, we though all conversations with all leading licenses about launching on T. mode or guessing what do we.
We are optimistic about the long term opportunity for luxury business, we this leading E retailers.
In consumer beauty.
Why is equal mail penetration is still relatively low.
We continue to make great strides globally.
Oh, well have equal Mexico menu.
Grew by approximately 20% fueled by stand on Amazon.
I will say bail weekend say, it's one that mezzanine the U.S. and in the UK nearly doubled yes, he's the probably all yeah.
In fact, you know coal markets, including the U.S., UK and Germany, well getting markets you on that Mezzaluna speaking to this time, all Caracas meetings, one when combined with disciplined focus on equal mill fundamentals.
While we continue to spend spend all base business I'm pleased to announce the expansion of some of our leading brands into the clean beauty segment.
It is have you done that consumers are increasingly focus on when those.
Both <unk> and of the world on them.
This is driving lobbied group for products and brands, that's well just do it needs.
And we see opportunity.
After an initial moving all publishing business, we do we do launch and as we have chosen to focus on all categories Phygen sees cosmetics and skin care.
In the last couple of months, we have launched clean label product line in each of these categories.
He does the fees nature in a job.
Sally Hansen's good time fuel Calvin Klein CK, everyone and feel good clean five Oh, each began realty free base I'm not sure what did you I didn't get a young and free of many contested ingredient.
Nature, having a job and seeking everyone. I'll also package in recyclable packaging composed of post consumer recycled materials.
We are very positive the teams, while driving you say falls and capitalizing on the going time, while building cookies reputation as a company that aims to do the right by doing good.
With that that'd be turned out to be able to.
Thank you and a good morning, everyone, though.
<unk> about sustainability to stability is about a piano just mentioned consumer on innovation, but equal to about more than that.
For the past few years Coty teams have been working in a number of area to try and catch up with the industry.
And right now things remain to be done the many progress each of which we have made through fall a I've made it possible for us to elaborate the first cookies sustainability platform and to making funny today.
I would not go into the many details president on that show a that I would just say that's we ever present Cody you tease that left.
And that's it encompasses initiative in the area of further.
Environment protection and people and diversity and for each of them, we have defined priority initiatives and said sagas phone, so which we will monitor transit authority. So for instance, we will be 2022. So how did this month of Indian Mika from resonant people. So.
<unk>.
Well, we will by 2030 reduce or Kevin emissions across our entire value chain by 30% more.
<unk>.
[laughter].
But for me so the deals or credibility as we deliver against these targets <unk> also increasingly give us the ability to take you should see you know market segment, which will be one of the group driver growth driver of do seem to come in years and therefore.
Imager that for it.
But no what it's doing the game to a short term and let you sense with young since the the brokers I said, though I'd tell you sort of the growth are in line to be the [laughter].
And he's a few fighting the rule.
Okay.
I have started to thinks its size more than a year ago. If you didn't see I believe and improve <unk> over <unk> business.
Revenue was most specifically through two wasn't that this be don't that's one thing for persons we noticeable sequential improvements in your consumer beauty.
Beyond that person to change your version of a plane as being on quality restrain improvements on that phone evidenced by a decrease of all gross margin.
Returning to the divisions and to start squeeze a luxury.
In Q2, we launched the second piece, though under all Tiffany Fragrances School, Tiffany I know, which you have on the left side of the trial you performed incredibly well in market. These phones confirmed yet the Tiffany brand for both male and female.
And as written buckets are getting four year for would be funny grants.
You bet, the UK, Germany, Canada anybody.
Oh continues you both in that condition beyond Marc Jacobs, Yeah. No 70 plays the I couldn't fragrance going out into the top four pregnancies in the U.S. UK and Canada.
And we continue to drive growth across all focus brands Burberry and Hugo.
Moving to slide 11 on that from inside luxury delivered solid growth that's 1.3% on the high companies and they are I remind you that the same property Lester was just 10%.
This was helped by the previously mentioned you know they shut ins, but also by the strong performance of or Gucci makeup.
Right good traction of our brands remain strong we are all eyes, we have been doing in consumer beauty working to improve the quality of the topline.
This has already led us to reduce delivered a from a sense on these calls we read into free take advantage of on you go to market by region come into consumer and victory to accelerate or work and Cook Logan sales decreased video distribution better control the gray market among other amongst our.
<unk> initiative.
These squeeze temporarily driver selling into low single digits <unk> in Q3, specifically.
At the same time, all set out to be supported by strong inhibition by we see good everyone. I mean, you frequently today I believe as well as you go both ally both fragrance for a woman and litter into your the extension of the Gucci makeup range.
Other innovations, including Burberry, Marc Jacobs or you're going to for luxury different you remains a key growth engine for a company.
Let's move down to consider merger seepage pitch trial.
Then also remain lifting made foundation that Oh, great. So oh.
On the left.
In core markets like the UK or we have been supporting just philosophically the strong at least in mid yacht and Starkey vision, we try to driven growth for the entire email that seems that Brian and contributed to Reno and I can try again.
Over the last five mall.
Okay sounds good I'll focus on high value business, we have been activating seaborne iron ore premiums Sally Hansen Martinko jail line, including major investments and universities try on features in Citic resented these driven mid single digits revenue grew from a miracle gel in U.S. in Q2.
She booking <unk> overall right.
Finally on the rights from X factor, we're continuing to strengthen the for the Crane, who the micro touched sickens keen hybrid foundation, which contains free and proved by your teeth to see both skin renewal and he's capitalizing on the growing consumer demand for skincare like Christmas Eve right.
Their phones Y grade inside 13, consumer beauty continued showing purpose. He's a illustrated by cure a few minutes ago.
Well North America continued to show a mix the former we've been studied that every from second Hudson goods continued weakness of the kind of ago Europe kids strengthening with remaining UK on Mexico in Germany.
Any not anywhere we can be instead of keeping already falls in an attempt to continue improving the quality of also.
Our priority combo grants country evidence that there are a big saw delivering and why did you ever we took nine of the division remains below where we would like to be you clearly showing sequential progress. These at minus 6.8% more than one point. This is that's about or under this performance for the past 18 months.
This is obviously to be continued.
I'm turning to professional beauty slide 14 or.
Ghd continues to grow it varies from base driven in part by the launch of the glide Hi brush.
No. We you know leading bad right. We have strengthened arranged with the launch of good omission blows the hair care regimen that improves kind of have quality.
And lastly, <unk> continues in <unk> LIBOR rates are easier. So it's not really places Mexico Secreto connection we should see on the right.
And so moving Dean for efficient continued growing in Q2.
2.2 person a phone call center, which means a first time for 3.5% all regions growing Europe and the rest that he brings a steady performance while ghd continue delivering strong group have by continued innovation.
Just in time to margins remain high in the seventies.
In the 17, sorry, [laughter]. These undertone for the health of the business and the quality of the PV teams at the professional beauty team. So yeah. The thing we are working from Steven in Baghdad on this strategy review I come back to it.
So I will know get back to put the overall slide 16, though.
Looking at the profitability for the entire group, we all know well anchor in all the issues. The question gross margin was up 830 basis point to 63.4%, reflecting progress. He is coming from mix price that also channel management.
At the same time, we kept increasing the coupon valuable brands with working media high single digits and key brands being advertised at sufficiency in front of that we continue the most city.
On promos.
Together with a tight control of our fixed cost. These that's huge strong improvement of are pretty much into 13.9%.
Hundred 10 basis points, Andy's flowed down to leap, yet, which is up three cents to 27 cents hyper V driven by a one time.
Benefit.
So we showed good progress evaluating side with even more so on the free cash flow side.
Slide 17, Weve, a 364 million done on Swedish grew for the second quarter Lewin almost double that of Lester.
This was driven by type central in online with a specific contribution of receivable, we have been reducing yoga Jews.
And the inventories thanks to a better a supply chain working a better salaries that move and events or as an appeal process.
Oh, that's grew that 7.2 billion <unk> down from 7.4 billion <unk>, the previous quarters, sorry, and freakish rubfourteen use of calls to be very high on our agenda.
So to sum up a slide 18, east where the cost to very much United expectations on online you dilutive to reaffirm on target for the your we the delivery expectations.
Q4 like for like net revenue stable to slightly down you're on your adjusted wide green, 5% to 10% like for like we this strong working media reinvestment.
And that just Tdps degree mid single digit and improvements or for freakish fruit.
I move to slide 19, no and we'd like to give you. Some last comments regarding the change of school. We are currently driving to compliment will turn on San and build a stronger cookie.
On the strategic review first we are very happy with the way things are green first and foremost do you have seen the business keep delivering well disclosing the kids in Q1 and he's very much the kids in Q2 in professional beauty and across the business is under review and we expect these to continue going forward. It's.
Kleanthis team many of the quality of the business under review as well as the quality and commitments of the teams running.
We continue running the process and I've no moved into a more complete phase the information number on the hadn't been distributed to the interested parties. We continue see many strong amounts of interest and keep working with an unchanged timeframe. We the decision to be made by summer 2020.
Moving to slide 20, Kylie is the second part because you have seen we have closed the deal on the seeks to generally and soon appointees free stuff on Felder I've <unk>.
<unk>.
The businesses continue delivering well in the that's more than 2019 actually ahead of expectation.
Strong skin scanned stop and a strong black Friday overall.
We will consolidate slightly globally as of the acquisition date early Jerry 20 Forever, We reported sales and margin as this could change. This is a instead of as part of the like for like performance for the first 12 months.
We will use these tied to define the rights sequence of initiative to accelerate the brand starting from can end up 21.
Our first interactions and foods confirmed the potential we were seeing in a brand at the time of signing and we will take the time to get things right before machine and delivering our objective, which is I remind you to bring an additional one point of topline who the group.
Sinus why financed why three we would therefore just make sure in 20 that these that this transaction as a neutral for the calendar year.
Moving to slide 21, and you gave me the rest when a few words of recap on [laughter].
Well you Monday.
I didn't talk here I'll turn around is progressing well a winner on the topline effects on the cost side, we saw.
I mean.
Out of the benefits to get penalized on showing strong purposes and important gross margin on one hand, which strokes of liquidity give up nine and business and the free cash flow, which is a proxy for the comprehensive business did you read we will continue focusing very much on these shipyard.
As a result, we have confidence in our ability to reach our targets for the euro and we have to three of them. Then we are also happy with the progress is made on the reshaping of our portfolio and with each of the strategic review and the partnership we can be generally.
As you may sense, we are dealing with a very intense value creation and transformation agenda. If we managed to drive Ethan show. So many progressive disease. Thanks to the Cookie teams, who has been and keeps your intent and energy courage and resilience and will be Oh, yeah on myself the two of us.
We'd like to conclude by thinking each and all of the Cookie associates for these performance and now we'll be happy to take your questions.
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 and you wish to remove yourself from the Q press the pound key.
Our first question comes for wine and Olivia Tong of Bank of America.
Great. Thanks, good morning.
Okay.
A little bit more on the strategic review.
Because I wasn't a 10 more information despite pretty much later, so just wondering if you could give a little bit more detail and that's.
Is this is.
It's the planned move professionals harem personnel and anyway influencing the timing of any projects you might embark on my perspective, posh and efficiency improvements free cash flow improvements.
Thank you.
Hi, This is pure on hey, I'm not sure I'm going to be able to give more elements about the timing for me just to.
Yeah, just to repeat we have started the process back in October.
We took the time to prepare the information into everything we need to be able to run. This process. We are running to some process as from now with took the time to make sure that we we find the best placebo solution for a the business, but also for could you showed is obviously, a we're very comfortable with the timing.
We gave us in addition to begin with cheese by either by December by Summer 20, Oh in terms of decision though.
But of course, a as you can imagine a to run. This means process. We we've just has to do it look like in a manner. So we'll come back to you in due course, we meulemans, but probably not a I just can tell you that thinks I'm a proceeding really as we expected, though on the impact on restructuring cost.
Well, there's two elements, we don't foresee I don't foresee any.
Change to what we've said too far because on one hand, we will have I mean professional beauty and Brazil, we're carrying pattern because they are going to leaves to discuss I'm not being incurred by by us but on the other one we see we have to make some further out.
And then to the business to reach the same level of profitability. We are working on that and therefore group together I think the sensing central millions a figure a to remain a envelope of a restructuring cost that was announced before.
That's helpful I.
I can follow up on the price contribution 4%, that's that's pretty healthy.
Presumably it's primarily in consumer beauty like can you talk about your process, the deciding what pricing levers to pull and how much more easy theories tick over there.
Well I don't think the history of speaking all the contribution actually is pretty bad ends between between consumables duty on the and the and intellectually alternative is very clear I mean, we do have a gross margin gap.
The two issue we won't do we want to close.
And Tyson I mean in that case actually talked mostly about net hi. This is one of the key the idea to enable us to do that so all the key these very clearly on the case, yes, we do want to participate into promotion, but at an acceptable level and not necessarily a nobel intense Steven.
Why because again, if he needs to come back to we need to die fundamentally the penetration of all blindfold, that's been hit the margin to invest than that and and therefore, we need to block the cycle and so they are more to come we will continue to be fine all of Dodd. There is multiple I mean, the short tail Nichols.
We are deploying these fatigue in more markets than we have been doing so far so so far we've been focusing on 456 key market now going for wildly expanding the study and again. This requires a degree of granularity we cheese very fundamental taking a blanket deployed.
She is not very had full initiation because you have local competitive situation you have mix, which values by market point of departure is different to beat the market. So you'd expect you need to reality of the market analyses and so yes that would be multiples.
And I do not desire to disclose what it is but but clearly we will continue in this agenda and once we have stopped a distressed homes, we will make sure we state or need for the next years and don't have pulled back.
Our next question comes from like Robert Ottenstein Evercore ISI.
Great. Thank you very much twoq two questions.
Two questions on the U.S. business.
First can you talk a little bit about.
You know your exposure to Macy's and it was obviously some announcements as some closures there 125 stores.
And then you know tied to that you units you spoke a lot about your progress in E Commerce.
Maybe a little bit in terms of what you're doing with the specialty stores.
And then and then thirdly, we're going to the resets now in terms of the mass market. Some of that date is going to start showing up how do you or how does your shelf space look.
Going forward. Thank you.
Okay. So on the on Macy's, we do expect the exposure to be very limited.
And foresee luxury so we don't we don't feel they are deemed back is going to be big.
The question the second question was <unk>.
On the specialty channel with you know alternative before.
Yes, well I think we all.
Well shale on the attention at 400 should we be isn't issues is on the is doing what is underway all doing better than the.
We keep going as we keep going on equal Neptune and also we know that Oh, we have some good result was colonial so again, while taking off the shelf that market for the balance of the business that we have so we see that she is really a channel that we want to continue to push and we want to continue to develop.
And maybe on the study for Canpotex over on the shelf.
As I was saying clearly has been doing specifically well at the end of 19 basis than we expected and that's been for advanced.
With Oh.
Both by the wind cuts that you can you can get and your next question was about the expectation on the reset of the shelf.
Well I think we are well be working very hard and on the managing the policy, we can't increasing the productivity the productivity of all fall shades and I think all customers are happy with all these are good.
And Julie said, we have nothing to add to what we already city in August of though we anticipate this is exactly in line with ways.
Well, we are today was slight decline on occasion or slight decline, but basically speaking.
We should stop exit we should stop at the end of Q3 exiting the only Cody major impact from distribution losses that we have experimented a little difficult to this year.
Your next question comes from one Lauren Lieberman of Barclays.
Great. Thanks, good morning.
Owning Lorraine thing I was hoping to talk a little bit about luxury and that you'd specifically talk about the route to market changes. So if you could just elaborate on that'd be very interesting and then more specifically why the exit of the lower value sales would only be an issue.
Three Q because I would it just the way they might have just thinking about it would be something that would trigger linger for eight years. If you can explain a little bit more about that it would be great. Thanks.
Sure I take it Okay. You won't tell you I can think the luxury and go to market changes and yet so maybe I think he's on the on your specific question on the on the on the timing.
Hi.
Fundamentally we understand go.
The company and rugs digital business, we are we're going to retain reach our luxury and consumer beauty, we've been starting very much in consumer beauty to be most active adult.
About some sales and cutting some some sales.
We've made mention of that's in a alone.
You know and by doing so we've been able to reduce the grain markets and we believe that's that's very important Oh to drive ups you won a to reducing that on a on a on the on on main markets tend to make sure that we focus on the rights or on the rights pretty careful thing.
We've done already something on the on on luxury as a as shouldn't don't care.
But now we're going we're going in Q3 two to go deeper in luxury for one reason, which is that we we hasn't come and go to market. As you know it's talking from a giuffre between luxury on a a consumer VTM definitely makes sense for us to do we go to do is now and do it no means just a cutting.
Low value distribution sales promotion going a bit deeper because we know that we have the D. A type of innovation coming on when we want to be able to to focus on innovation.
Good.
So in Q3, we will accept that besides a an impact on the sitting on each driving actually youre selling into negative territory.
But because the because we believe this is what we need to do to continue strengthening luxury and continue making eat a strong engine of growth for for the company and NPL you from that will then I will add another point on the looks really able to market changes all contributed to market change actually well not touching the constitute the.
The customer facing passionate and while still having dedicated marketing team. We are de having dedicated sales team at every market, leaving the thing that we are doing he that we are taking advantage of fall well. That's really all we are facing the five that we are in some markets that.
We need an east Hatim scale, and we need support scale and that's what we all doing fundamentally from the will to market chat well combining all back office infrastructure builds will not changing the customer facing personnel and the potential for marketing teams at the local living.
Okay. Okay. Thanks, and then on just on the U.S. and shelf space conversation I.
I understand that when we get the industry can we start to cycles of losses. So just the comparisons will start to benefit, but do you visibility into incremental shelf space or is this really more about just better productivity of what you do you have currently.
I.
I think we've we've Holly hopefully gains from incremental shelf space as we are working hard on all productivity, but I just can't come into that at this stage all right.
And I think at the end of the D. as you see LG Tiv, we use was to clearly they gained confidence or for customers, who all studies and I'll focus and the and that's what we all doing at this stage.
And and so that's a jump them, we need to complete the job number one it's very mission critical for us that we again, Oh, we gained confidence focus to melt and after that we can start about expanding.
I think we look if we want to expand we need to expand meaningfully for combination of innovation portfolio built up and not on need just could you just touched on business that we have.
Our next question comes from minus Nik Modi RBC.
Yeah. Good morning, everyone, Hi, or I guess it just two quick questions for me just wanted to get an update on you know any progress that you've made in China I know you I know that's.
An area that has been of high interest in terms of generating better business there.
Second question really is on on the makeup side I mean, it's been several quarters now things seem to be getting worse. I mean do you have a better handle on exactly what is driving.
Adam.
Okay. So.
I mean on China, well very happy with the momentum in literally right and the I'm sure you'll see the Oneq. So and so you know view, we keep a we keep pushing on the we are happy and possibly the expansion into cosmetics have really driven incremental assays, which is I think.
Very good indication of the type of studies that we want to do sufficient coverage always a sand mine and I think met many of all lines have the right to bleed into marketing at least and they do play today and we will we have demonstrated that which cosmetics in a in a good cheap so that's a big learning that we either.
Capitalize on Oh makeup of being debated the combination of makeup, but I assume that you are you all of it.
Hobby diving talking about the U.S. market maker and the reasons Gotta decline.
Yes.
The uptick it is a day omni comedy driving forces for that and I would say that Oh, the structural forces I would say has been.
An explosion of availability of new lines in a market, which is really important nobody ti as possibly do rely on a level of.
I'd because at the consumer level. So that's one probably dive, though the second diarrhea is that.
I think that.
Many retailers have de Leon.
And we have some data, which demonstrated that has given poppy mosquito the view under a lot of shave stage, two new lines, which do not paved industry productivity.
And therefore, unfortunately, it and they have been subsidizing that space by taking away from big buyers, so that as Paul the diving the penetration of the mass or the match a cosmetic market.
And free up Pinedale, he's supposed to be there is most likely a bit over shift from a make of consumer shift from make up to a skin care and we'll see up double on the world I would say you saw in my view the free fundamental divers some of it we kept the sold these times me to capitalize on and sold these times, we need to have come to fish.
And with all customers about.
Excellent. Thank you.
Thank you.
Our next question comes Carolina chat lacking Wells Fargo Securities.
Hi, Thanks, So couple of follow ups I guess first on luxury.
Given the negative gross and in Q3, I understand you're pulling back on lower value products, probably lower margin products.
But how will that impact operating income grows in the third quarter and then more broadly what do you think about the flow between the quarters in the back half right. So you know overall expecting pretty significant improvement in E. P. S growth, but you know Q3's couldn't be pressured by the luxury and not fully lapping distribution losses in consumer.
Beauty, so should we expect.
Operating income EPS growth will be weighted more towards Q4, and the second half.
Yeah, it's beyond the that's correct.
So about two we you've seen that we reiterate our guidance. Obviously, we are we see themselves.
Sure.
Are you seeing that we have.
Yeah. It would be to ahead of what we thought a wet so where we expected to be at the end of the at the end of Q2.
For Q free I would say, that's a EPA you're going to be broadly in line with as of last year.
And therefore, you're right to say that Oh, the NPS progress are going to be Q2 out of the Q4.
Which is not okay great.
Even though you're going to season into the business and the thing that's.
Regularly Q2 in Q4 or bigger and bigger.
Okay and then just.
One quick follow up on under strategic review. So do you guys are going through the deeper view of the businesses you have any more visibility on potential stranded overhead and then also if.
You had any additional details on on the tax basis of the assets and how much tax leakage, we could expect to see in a sale. Thanks.
Yeah, I mean, a limited answers a that you will understand that I can go in a I cannot.
Grew much more I'm not sure head of decide on the on this trend goes maybe just to it I can repeat.
A.
Taking into account strategy, because you have richman gene Oh, the boot acknowledgment of the of the divested business using the meetings.
So that's one in understanding the demand. He said we are in the initial announcements reiterated on margin guidance Richie spoken to see [laughter] by 23 free and everything we see today confirms that we working actually on a strengthening furthered the plan.
To make sure that we have enough enough room to to go read and difficulty principally to go to go further, but but we definitely confirmed the 14% to 16% and then for the rest.
I will get back to you when we have more at most which which defense or do you see on on the progress season for only progress use of the person a.
The second thing about tax rates, we've said that the tax rate would be the corporate tax rate, which is a have a cookie which is in the low which is in the low Harry we said that it would be below.
And in fact meaningfully below the corporate tax rate of Cookie, which is the in the low twentys.
Okay.
Our next question comes from like a Stephanie Wissink of Jefferies.
Okay ends on for stuff was saying thanks for taking your question.
Do you have any update on the travel retail channel quarter to date with the virus impacting travel action right and then also if you could just get a little color on the softening of the Croaky margins.
Sorry, only to put on there.
So turning of the provision beauty margins well on on that one frankly speaking a I wouldn't see this does material margins remained at high level in the in the 17%, which is a which is not bad that's that's a with the performance of the supply and which is.
Good gross margin good.
So I would know treat anything especially into in the business keeps a keeps delivering and he's going to be on track with a its its target actually delivered against you start getting done that.
Oh, so size than we expected to continue for the second huh.
On the triggered a return on and the virus or one thing on the virus first is that obviously, we care about people. So oh, we have organized process internally a with a view to make sure. That's what people are protected at all time, an indispensable conditions at all time. So we are extremely.
If he does it vigilance on that point I emerging as a as everyone.
Secondly on the on the impact themselves, yes. The reason they would be a impact on the travel retail because the amount of traveling these are decreasing I think it's far too early to quantify any and that's.
The only two things we are sure rugby the they would be an impact first and second either the impact for could he is going to be a pretty small relative to competition since China represents only 3% of ourselves a an Asia generally speaking we are underway.
So the sign these the bad for a for a good in the UK, which we'll get back to you. Once we have no visibility again for me today, So it's far too much early days.
Our next question comes from like Asia, All life of Deutsche Bank.
Hi, good morning.
Couple of questions from me Firstly I just wanted to talk about Kylie. Thank you for giving does that calendar 19 number that's really helpful. But you talked about you know preparing the company for rapid expansion and a I was hoping to get a little bit more color around that is that you know I know you've talked about.
Out expansion previously, but sort of how should we think about the timing that expansion.
Well again, Vito, let's talk about that are today, we are the fees for February so we closed less than a month ago.
[noise] nudging these on the <unk> you.
A rush so the first thing we wanted to do with instead of the rights of a backlog of being a an increase stuff appointees christos connecting with the teams locally and then we need to understand a within which we define how do we operation removed from the current set up to broadening the number of my.
Kids to accelerating the penetration of Oh skin care in the U.S. and square to understand the way we are going to lead a meaningful innovation process with them Oh cookies going to be an asset a to a two KDB. He is very important.
We don't want to integrate a globally, we really want to a two geese, Ken <unk> ability to develop into grew for the benefit of the show those and the primary shoulder. Let me see globally, how do we want to sequence things. So you know a I think we need to be the phone to make that and to come back to a to come back.
Are you. The focus is your is really on preparing to plan. We have high ambition mission, we won bunch of roof Coty overall between 21, and a and 23 so KBR.
This is only issuance, we maybe able to do move a bit for that we need to get a we need to get bigger than video and he sees what he's going to be the priority over the coming 60 program.
Okay. Thanks.
Well I mean, Oh, sorry, I'm determined that as you rightly pointed to is that destruction.
Hi, good traction in a in responding to your was even better than when we expected.
Our next question comes from liners, and that's a share of JP Morgan.
Hi, Thank you. Good morning enough then on there [laughter]. So I have one question and a follow up a first hoping to you can talk more.
<unk>, how should we model travel retail and if you can we might as the percentage of total sales coming from China and the contribution of travel retail globally, even excluding especially now excluding professional going forward. If you have that number and my follow up is on the life, both professional beauty and Brazil divestiture.
Can you. Please go from you just have reaffirmed the 14% to 16% EBIT margin goal I fiscal 2023, I know, it's its its small it's a longer term guidance, but even considering stranded cost suppose divestitures in how should we think he enjoys.
Any 21 I'm, assuming that there is a timing should lead to rightsize the company to the new arch then you'll see us profile. So how long should we think about margins coming going down into fresh momentum 2022, and 2021 side and then getting back to that goal by 2020 2020 gentlemen, thank you.
Okay I think the second question, maybe in a OLED so to answer the first one on the second one.
Where do the best funding. Okay. So today said, it's about 15% to fluctuate I saw that gives you would give you a bit of the of the modeling. So that's a that's about a therefore, 5% also I would say 7% to the company building.
Okay.
Oh and travel retail I'm, sorry travel retail a it globally how much is it currently.
As I said, 15% of Directionally business that's mobile.
Because yacht Asia is about one third of that.
I wanted to China, and China already 3% of the company.
Okay perfect. Thank you.
Uh huh.
Yeah, the talking to 16% again I repeat we returned I reiterate eat.
We are definitely a very confident in our ability to that he agreed that was part of the their own plan.
We have given the part of those should be before which which are which even the remaining at very mr.. India difficulty is we have a the pace of delivery of the plan, a 14% to 15% worse and remain or objective for remain co founder machine by 2020 <unk> know the real question is what he's the best.
To a tweet and that's where I need to be to find to be able to a two that's where you are we working on it we have two questions, which is a what's a little of margin can we expect for 21 and what level of Oh, Yes can we expect for 21, there are lot of ER or moving parts and moving pieces, a including Uh huh.
In the price, including a as well he the use of proceeds and the return to a to show good including the structure.
And so we working on that and when we have you know you on all these elements would get back to you. We the reason that's true.
May I add that we already anticipating defeat he now staffing, possibly at corporate headquarter level that possibility and they are for taking all the Lady preventive action to avoid those two or three years of each of public.
By high sizing of future organization right now yeah.
Our next question comes from 1 billion right.
Bank of America.
Good morning.
I have to the first is you didn't talk about leverage at the end of the asset sale do you still expect to be at three times I'm. Once that's completed and then you also talked about accelerating the growth of Kylie in calendar year 21, do you expect it kinda it'll be growing in calendar year 20, as well that's all thanks.
Well uncanny hopefully that's not the that's not the peak either.
Given the grain trains a b to b legitimacy to expect growth, but at the same thing the parity, we he's not going to <unk> in the group from Twinkies really going to be on sitting at the group for 20 421, So we won't be too much looking at that but today.
Yes, it's easy to use Disney growing.
On a the leverage yeah, we said to be accuray and precise that we move together, there's rage post deal of approximately three times and the reason for no reason for us at this stage to to get away from diabetes or do you got targets and expectation.
Your next question comes from the line as Mark Ashton Stifel.
Yeah, Thanks, and good morning, everybody I'm only I wanted to ask about pricing just just sort of broadly. So is this something that it is now implemented strategically it's just simply we should be thinking about contributing.
On a yearly basis going forward, obviously not specific to what brand or categories. But is this now kind of part of the the from the fabric of the company going forward and maybe if you could talk a bit about.
Any thoughts on.
How you think about it just maybe across the categories or what will be left at the company assuming a the strategic review is complete between luxury and consumer beauty in any sort of early learnings so far from key price threshold. Thank you.
Yes, I think Oh, the oil MOPCO in the clearly.
Oh, you can coated hi, seeing I tend to lead value too I mean, I D out of a day there are many ways to take pushing no say off of a multiple business on deal too.
The depth of the deal free bonds between mainstream portfolio premium portfolio. Typically for instance, we do see do you live freight to give a video flavor for instance that industrially, we often essentially doubling in not 28 and underplaying with buffer Daddy's base.
It is speaking one of the way, we will manage pies, all publishing and you get equity polishing equity value creation, and so yes definitely it is possible strategic agenda to continue to push the value of all public. So no I. The you know there is one systemic time and I would Cody.
Like the long lasting and in consumable food engine oil at in beauty, even more it's always markets a paid systematically and we haven't read of catch a jump to do but it is definitely one of our vision of innovation going full of innovation for its going full all as to.
Fundamental oil to play why that it continues to enable us to premiumize the portfolio of the company and two it's another is to increase the penetration of all lines and sometimes we can do both sometime we do one sometime we do with user but basically speaking that's the way willing to look at all innovation.
Pipeline going forward it does it contribute to improve the value of what we said or does it give us more consumer Odyssey doable right and so it is a big chief and I believe it is one of the substantial shift all systemic shift which at the end of the day transformed enables you to do at the same time, but doing bigger.
And we have time for one more question.
Your final question will come from the line of Wendy Nicholson City.
Hi, Thanks for squeezing me and I guess my question is on your comments on Amazon, which I thought were really interesting in terms on the strength of your business. They are.
Do you sense for.
That is I'm curious about your brands would be doing so much better online then they are in mass retail I know you talked a lot, but absolutely execution issues in mass retail are you doing anything different on line are you paying for more.
Thanks.
Well and also do you have a sense for your market share trends on Amazon I'm wondering if your sell out any Amazon is that are just because the category showing really well thought or whether you yourself are outperforming your parents in a more notable way. Thanks.
On a luxury we all and on consumables for T., we are getting shale in both categories right. So so we are happy with all development on nearly 10. The main reason why well getting shale honestly speaking a on a on Amazon and we are not getting shale on the.
On consumer beauty mass season will not losing distribution utilization and I think fundamentally speaking are all behind how often they have delight to play and delight to wean, India, China and what do we have done that we have clearly proficient at I still say.
Now we have taken a online as a very serious China, which it he up to last and and our capabilities have been in case, I know defaulted, beating keys and well shedding all business plan with Amazon and I've seen day. All the are you happy with these plans because they see opportunity for them.
To go they own penetration Bice, why so same time going own presentation and going back to one of the early question of sneak they'll do you have all the time, though for the kind of a nice consumables UTI. They are you just one any mountain the decline of consumer beauty that <unk> some of that business shifting to Amazon and that's not <unk> and that's not to buy New center.
Okay. So thank you for following the cool and for your questions a and we'll be seeing you on a on the road a thing you unhappy with the bye-bye so much.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
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