Q2 2021 Coty Inc Earnings Call
Is our savings Target?
For the to approximately three hundred million dollars compared to the previous Target of over two hundred million at the same time the successful closing of the transaction and strong free cash flow drove our financial Dept down to 4.8 billion dollars with an economic net depth of 3.6 billion When taking into account the value of our retained real estate at the same time, despite the Resurgence of covered and related lockdowns in multiple parts of the world. We delivered to revenues in line with expectations, including one percentage Point Improvement in like-for-like Trends 2 - 18%
most importantly we make tangible progress on our strategic priorities which has recall include one moving our e-commerce business from a captured month to a momentum mode second building out our presence in China three strengthening our foothold in whitespace Opportunities including Prestige cosmetics and skin-care for building market-leading Innovation and as a result strengthening our core Prestige fragrance business and stabilizing market share in a beauty business building on the progress last quarter we continue to strengthen our executive leadership team in recent monsters including Stephen new kurti joining as Chief brand officer for Consumer Beauty Alex he began a promoter Chief commercial officer for Consumer Beauty Lomax elevated to Cote CFO dead
And stiffened elbows promoted to Chief procurement officer. The new Kodi team is now in place bringing strong Beauty and business experience deep knowledge of God and relevant knowledge of new areas like skincare the same time. We are supported by a strong and she male majority board of directors including the recent addition of two thousand directors and and Maria soon legi. So let me now spend some time reviewing our recent Revenue Trends as well as provide more details on our strategic progress. Our second quarter sales came in line with expectations, even as the environment was disrupted in many parts of the world by the Resurgence of COVID-19 this Resurgence and the lockdowns announced that in early November had been a key reason why we had suggested that yep.
Trans would improve moderately in the second quarter and this played out as expected with like-for-like sales down minus 18% compared to minus 19% in the first quarter within this framework. We saw diverging Trends across our child's our Prestige business which accounts for approximately sixty percent of our overall sales decline -16 like-for-like in Q2, which was a meaningful sequential Improvement of nine percentage points versus quarter one.
Excuse me.
In trouble retail which remains heavily impacted by curving our Prestige business decline at 9% - 9% during Q2. We continue to see the trend of emerging Prestige fragrance demand in several markets particularly in the US were luxury fragrances. Once again, outperformed luxury skincare and luxury Cosmetics Thursday. Well as many parts of Asia, including China Australia Singapore and Thailand this Improvement in the prestige fragrance category coupled with the growing contribution from our Gucci and Burberry Cosmetics line, which are becoming the second leg of our Prestige portfolio hyperdrive the sequential improvement in our Prestige business at the same time or must business decorated in Q2 2 - 22% light for light with the optic of covet cases and shut off.
coinciding with the holiday season and usual social occasions there was a pronounced deceleration in Mass Cosmetics category Trends in most markets this month coupled with some trade restocking benefit in q1 drove the deceleration in our business from a regional perspective now the Americas which account for 40% of our revenues continue at their relative outperformance I'm excited to share that our us Prestige business returned to growth and this helped at partially upset wage must Beauty weakness resulting in a 7% like from like decline in the overall America's emea which account for nearly half of our business remains heavily pressured by covered and multiple lockdowns driving a mid-20s decline in our like-for-like sales in asia-pacific half of the minus 17% life for life
Mine was driven by the pressure in travel-retail. And while I was selling for the region was negatively impacted by our continuous Cuts in low-quality dead ocean the sale out of our Prestige Brands across the asia-pacific region was very strong in many cases outperforming the market. So well the headline number showed some improvement in sales Trends and pleased to say that we have continued to make very tangible progress on the Strategic priorities. We shared with you on the path to Faith in schools, one of these priorities Sentra Don accelerating our digital and e-commerce capabilities with a strategic focus on direct-to-consumer.
Building on the momentum in q1 our second quarter e-commerce sales grew 40% year of a year with the Eco Mass penetration reaching 19% off and helping overall margins. This growth was broad-based with over 50% online Revenue growth in the Americas 30% growth in Europe off 45% growth in Prestige and 20% growth in Mass us was the fastest growing Market with over 60% eCommerce Revenue growth wage year to date emea is our largest e-commerce region and the number one contributor to growth while in a pack. We continue to reduce low-quality sales and distribution and finally travel-retail e-com is beginning to accelerate.
the Brand level
Our e-commerce powerhouses include Hugo Boss in luxury Andre mail in Mass with booming econ businesses from Sally Hansen and Chloe fragrances under pigs. This is momentum where multiple initiatives and of course digital activations as one of only fifteen companies globally to be admitted to a massage Global vendor Management program. We have been working very closely with Amazon to shared-data improved service levels and trial new programs. One of these initiatives vendor Flex warehousing. We're Amazon set up a fulfillment operation inside a Cody Warehouse in the UK this drove down the delivery time from seven days to 3 days, which is a critical driver for Consumer purchases in the US. We have also initiated our first spanish-language Amazon media campaign.
Resulting in an object in consumers in this critical demographic with 70% of them new to Our Brands. This initiatives amongst many others have a double our market share of Amazon's must Beauty business with brand like Covergirl consistently outperforming its peers at this critical customer also work closely with Snapchat on best-in-class activations including snap ads for Covergirl clean fresh makeup line, Marc Jacobs perfect fragrance as well. I study Hansen nail polish. Try on lens the efforts resulted in sales across this product lines significantly over-indexing to Genji consumers final our creative Tik-Tok campaigns for Marc Jacobs, perfect fragrance and Covergirl clean fresh make-up have each garnered close to ten billion views further cementing both log.
Issues with younger consumers, in fact the Marc Jacobs campaign. So pays Tik-Tok Beauty averages in video views engagements and engagement rates for the entire first house calendar twenty now our second strategic priority, which is expanding our footprint in China. We have continued to drive this effort with two months powerful and beautiful brands in our Prestige portfolio Gucci and Burberry both of which are highly desired by Chinese consumers. We are laser focused on building out the gas prices of both Brands by expanding the Cosmetic assortment engaging key opinion leaders and building excitement through in-store and of course digital stations and in Q2 and entering three, we saw their momentum accelerate even a sell-out for our overall Prestige business in China grew strongly dead.
Sail Out for good she Beauty and Beauty grew strong double-digit.
order Prestige Brands driving strong set out in China include Calvin Klein on g.com Chloe as well as a year-to-date performance in Tiffany as we discussed it on Thursday last call at the end of Q2 we launched at Gucci's first liquid foundation formulated specifically for Chinese consumers the excitement is also evident on social media song with Gucci makeup rented number three amongst all Beauty Brands and number two amongst Mega brands in Social bells and this week we are adding a key pillar in Gucci's China strategies with the opening of the Gucci Beauty flagship store on Timo overnight bringing Gucci Beauty to over seven hundred million Chinese consumers while this is happening with the with the grand opening and full support planet from March April we see tremendous potential for Gucci on T-Mobile in the coming years at the same time yep
Been moving quickly to capitalize on the moving tourist activity and luxury purchases in Hainan Sanya Island. We've opened three doors in high 9 with three month plans in the second house of this fiscal year a sales had continued to build up in these doors Gucci makeup is already accounting for over 50% of our setup or third strategic priority is expanding into white space opportunities, including Prestige cosmetics. And of course skin care of already discussed the strong momentum. We have seen black Gucci makeup in China. However, this success is mirrored in many parts of the world in the second quarter Gucci makeup retail sales grew by five times in China. I am in the US and triple Thailand and Singapore in the first month of launch the Good Ship liquid foundation sold over 35,000 units globally birth.
Makeup set out likewise grew by close to plus 50% in China.
On the skin care side our eccentric philosophy brand grew grew in Q2. Thanks to strong momentum in particular on an e-commerce as for Kylie Beauty off the business continues to perform consistently with revenues in line with q1. It's evident that consumer engagement with Katie and her products remains very very strong the Advent calendar and skin-care figures each price at over $100 both sold out in roughly five minutes how nothing happening the social listening capabilities on Katie's DTC side and tapping into the current consumer desire for self-care. We launched at Kylie's rose-scented bad connection during the quarter of which Richard over 1 million dollars in sales in one day the incredibly fast sell out on this launches confirm that we continue to strengthen the drop mod.
Which is critical.
To a personality-driven brand like I D Beauty at the same time. We are strengthening the fundamentals and building the brand for long-term growth evident in skin care where we continue to see good momentum with the KD skin care of direct-to-consumer website with revenues up versus first quarter and versus the prior-year and that's related lockdowns begins to lift. We are optimistic about the potential of crazy scheme in retailers across the US Europe and Australia supported by our unique brand in a nation's looking forward. It's important to note that Kylie's prior manufacturing arrangement for its color Cosmetics line with a third-party manufacturer recently expired. We are working with Katie on the new Cosmetics line to be launched this coming summer 2021, which will also be a great opportunity to significantly improve the consumer.
With one website portal developed and supported by Coty offering the full collection of KDs beauty products across cosmetics and skin-care. In the meantime, we continue to focus on building the Qaeda skincare business with new launches and activations plans for the coming month. He's all together. We have continued to make progress in expanding into the white spaces opportunities of prestige cosmetics and skin-care with these two categories already accounting for 8% of our revenues in the first half of 21 month from 6% in fiscal 20, hour for strategic priority and the key in making quality products entry company is to continue building market-leading innovating that builds on the University and dip Equity of our brand portfolio with the conclusion of calendar twenty. I'm thrilled that Marc Jacobs perfect frame.
Has ended the year at the number one fragrance launch across the US UK Canada and Australia. In fact perfect is tracking to be the largest box fragrance launching the US for the past fifteen years.
This speaks not only to the appeal of its messaging celebrating self-expression authenticity individuality. But also to the quality of its Jews packaging and very often unique media activation. Another fragrant is this year has been Hugo Boss allies launched at the start of the calendar year. This has been the number one fragrance loans in Germany and has also underpin 30% growth for Hugo Boss female fragrance business in the UK on the math side. Now we have continued to build on the success of the first to mass Beauty lines. We introduced under the Cover Girl brand with the recent launch of Covergirl lashblast clean mascara part of our effort to concentrate on the two leading categories of girls size and face makeup building on the iconoclast does franchise this new volumizing mascara has a clean vegans formula free from contested. Yep.
yes it's
So certified cruelty-free keep it off or Covergirl while still in early stages of the launch this new mascara is seeing strong success a radio top three Covergirl you are the key retailers and providing a halo effect on Amazon with a 10% lift to the total lashblast franchise. The launch is also over-indexing with Gen Z Hispanic consumers it keep out of the market. We were missing previously in conjunction with the launch of lash mascara in the coming days. We will begin airing the first part of the new Covergirl image and positioning that has been fine-tuned during YouTube the new campaign reinforces our strategic work over the past year to steadily build Covergirl screen dealer package, which began with clean fresh Foundation last spring followed by clean fresh pressed powder. And now the last blast green mascara finally on remail we recently revamped a call log
The last thing finished 25 hour foundation both in Full full coverage a long-lasting and of course mask friendly transfer Pro formula with hydrating ingredients off. This revamped has helped a dream regain its spot as the number one foundation in the UK Market. It also nearly doubled sales for the franchise in Australia. I will find a strategic priority is accelerating our call Prestige fragrance portfolio and stabilizing market share in our Master Beauty portfolio wage being on the recovery emerging in the first quarter. We're happy to report that Prestige fragrance category is back to growth in several markets including in the US China Australia with Thailand in many cases outperforming Prestige skincare and Prestige makeup. This outperformance appears to be driven by consumers redirecting their disposal.
Spending to Moose to mood-boosting categories with a higher emotional appeal while also indulging in self-gifting and against this backdrop Kody Brown's g g Burberry and Marc Jacobs has seen strong set of growth ranging from high single-digits to double-digits depending on the market and nothing the strong momentum behind Artesian and fragrances in many parts of the world. This is an area where we intend to expand quite quickly with several projects underway for several of our brands on the map decide. Now when much work remains to be done, we're making progress tower towers our objective of stabilizing our market share broadly the North America and Europe must Beauty. Particularly Cosmetics remain pressured by Resurgence of David and this is driving weakness in our Mass Beauty portfolio at the same time though. We are progressing birth.
Rocketship side while Curtis portfolio globally lost an average of 100 basis points
Market share in the first nine months of calendar 20 in the last quarter the market share decline narrow to approximately 80 basis points Central Station is the tremendous growth that our Mass brands are seeing online particularly on Amazon, even as performance in brick-and-mortar is more pressure off. What's underpinning the Improvement are multiple brand country combinations Sally Hansen continuous being strong in the US Canada, Australia and Italy drink franchises such as Miracle gel or the clean Goodkind Pure Line and nail treatment products Rimmel continues to strengthen its position in the UK's number as the UK's number one make a brand seeing no less than eighteen months as of market share growth while also winning in Italy and Poland Bruno banani fragrances continue to win in its core birth.
And market and in Brazil set out of our portfolio of local brands has been growing in the double digits in recent months has two times the level of the market led by brand name is Manoj in deodorants and risque email broadly on a brand strategy level. We have finalized our brand equity and Geographic mapping for each of off-color cosmetic brands as well as Adidas which we intend to share in the coming month has and the progress in stabilizing our Mass market share confirms that we are starting to see results from our strategy of making each and every brand position and cut this key drivers of self-expression on the one side and healthy alternatives on the other side.
Let me now turn it over to to comment on our financial results. And of course Outlook.
Thank you. Sue having been with Scotty for those three years in different capacities and I had the pleasure to work closely with. Ray for the past two years. I am excited to continue building on what we started together and lead a CFO this next phase of growth and transformation.
Before I going to profit delivery for the quarter, let me first touch on how we will be measuring And discussing performance going forward.
First we we no use just either be done as our main k. For profits with a B. Based on adjusted operating income plus depreciation and non-cash stock compensation in order to more directly drive and highlight our focus on cash flow and delivery Gene which remain key priorities.
Second we have decided to recognize a returned forty percent stake on the fair value basis going forward regarding only the changes in Fair Value in the p.m. A month with this in mind. Let's turn to the shape of the piano computer.
A few too gross margin of 58.7% vegetable with Q 121 and in line with 50 or 20 average.
Yeah, just seat operating income of $188 million dollar for continuing operations was well ahead of consensus expectations of approximately $160,000.
These translated to adjusted ebitda of 284 million dollar for continued operations with the margin of 20.1% but four hundred basis point your life.
Including your Villa cost reimbursement total 294 million or a 20.8% margin.
Your achievement or 6% profit growth despite double-digit sales declined and Stranded cost was supported by the combination or a very focused Market investment at approximately 20% of net revenues and in line with q1 as we continued our pay as we go marketing deployment strategy and be trunk fixed cost reduction as part of a broader cost Reduction Program.
Looking at Cost reduction progress in more detail in Q2 are fixed costs decreased by 12% year-over-year.
Which Eve the proximity of savings in Q2 a level consistent with q1?
As a result, we have achieved 160 million dollars of savings you have to date.
The biggest component of the savings delivered the next 121 has been headcount reduction accounting for close to thirty percent beyond that the biggest contributor to the significant Cuts business services, including Consultants recruiters it real estate and facility management cost. Ye photo by direct and indirect procurement savings across cost of goods and the NCP.
And why not impacting physically or 21 savings delivery. We recently announced the consolidation of a fragrance manufacturing footprint with the closing of a German plant off to be completed by summer 2022.
This was a difficult decision to take but a necessary one to address the overcapacity in also play Network.
This consolidates or fragrance manufacturing into two remaining plants in Spain and France.
Just from David Niche 121 coupled with the acceleration of certain projects into a driving an increase to the savings Target for fiscal. You're Twenty-One. Now, he's going to be approximately three hundred million dollar compared to the previous Target of over two hundred million dollars and we remain on track for saving targets off of six hundred million dollar by end of his career 23.
Don't need a note to PS with adjusted ebitda for the quarter of $284 less $96 million in depreciation and non-cash compensation close to sixty million dollar of interest expense and 8.5% adjusted effective tax rate and 2 months of net income commission for Villa.
GPS for total and deduct $0.17
It's 121 based on $450 of adjusted ebitda 100/100 $80 of depreciation and stock compensation
roughly one of the twenty million dollar of interest expense and and adjust the effective tax rate of 12.5% to dilute it adjusted EPS for total loss and did that 28 months?
Interesting. D p s came in at 10 cents impacted by the transaction cost and restructuring rules and cost Reduction Program.
Help rains various boots and takes in ETS going forward. There are a few things to keep in mind.
It's worth noting that where depreciation is likely to stay fairly steady. The stock compensation component will step up beginning in history.
Account on the tax 9 we had a few positive discrete items in h-121, but for the year, we continue to expect an adjusted effective tax rate in Zulu twenties.
Field as stated earlier beginning in Q3 will not show the earnings of the European it but we'd instead record any changes in various fair market value.
And finally on the table preferred stock so far. We have been opted into a cruise a coupon resulting in incremental dilution. However, I look forward we intend to pay the coupon in cash following the diluted share count to stabilize.
Looking now at free cash flow for the quarter which came in very strong at approximately 390 million dollar twenty six million dollar vs. Rupee.
And opinions is solid performance was strong operating income and a big for the water couple with two months of contribution from their home. We're so continued our strong working capital and capex management in Gibraltar including material reduction in no videos.
I just think it's important to point out that the completion of the Villa transaction within the quarter and the finalized working capital transfers resulted in two hundred million dollar project working capital benefits in Q2, which will reverse next quarter.
Don't even know capital structure. I'm happy to report that with the successful completion of the transaction with gross proceeds of two point nine billion dollar and our strong free cash flow of 389 million dollar or net debt at the end of Q2 stood at 4.8 billion dollar.
This in fact included over three hundred million dollar of negative impact on our depth from foreign exchange and factoring in our retail and staging valued at quarter end at approximately 1.2 billion dollar or economic need depth failed to approximately three point six billion dollar.
We are still maintain control table Headroom and our financial debt Covenants.
Okay, Pete old structure remains very attractive whiskey majorities in twenty twenty-three and twenty twenty-five and of cost of that below 4% off. It is important to highlight that with our net debt closing below five billion dollar. This is a true milestone for quality and sets up for continued Improvement in dog years.
El Nino 1221
Despite continued description to sales channels and short-term orders related to the party nineteen pandemic. We remain focused on our strategic priorities.
East Coast savings expected to reach approximately $300 for this fiscal year and having in mind Revenue Trends and Our intention to step up replacement. We know expect adjusted ebitda of $750 for fiscal year 21.
We just hang on showing that dip that has now crossed below five billion dollar. We will continue to drive our leverage ratio towards five times by the end of calendar year 2018 one in line with our prior guidance.
Let me know turn it over to sue for some concluding remarks. Thank you very much with the nuclear team. Now in place. It's clear to me that the stronger quality is continuing to emerge in the current volatile contacts. I will focus is on optimizing short-term revenues. And of course Salem's yet as we continue to control our costs and depth we all shifting our Focus now to accelerating our top-line Guided by our strategic Peters one digital and e-commerce acceleration second building out our presence in childbirth, three expanding into whitespace opportunities, including Prestige cosmetics and skin-care and of course strengthening our core fragrance and cosmetics businesses month. So do you think Innovation and improve it execution the additional fiscal 21 cost savings will enable the prophet delivery. We have a guided to while at the same time increase
our commercial investment in the second half of this crap 21 in fact we are like a boat
Setting sail now and letting go all of excess weight the lighter we emerged from the crisis the faster we will go knowing how desirable many of our brains as we have finalized our strategic review including new growth opportunities brand Equity mapping and repositioning plan for our Core math Brands. We place our strategic priorities around accelerating growth in mid-april with a full invested a planet for fall 2021.
I'm really excited by the tremendous opportunities and exciting journey ahead for quality and look forward to sharing this Vision in the coming month. He's thank you very much for your time, and we are pleased to take any questions.
Thank you at this time. I would like to remind everyone. If you would like to ask a question, please press star. Then the number one on your telephone keypad wage remove yourself from the queue, press the pound key. Our first question comes from the line of Olivia Tom of Bank of America. Good morning. First one to ask about cashing them on the ground trying to first time cost. Can you just talk about what drove the incremental savings? Is it additional headcount reductions more manufacturing solidation advertising media efficiencies, and and then can you talk about the redeployment of that investment, uh towards investment to drive growth and key markets or channels like e-commerce, and now that you have four months left in the year, what's your view in terms of getting back to margin more in line with 2019, and then I have a follow-up. Thank you.
Okay, hello, and so on on car so incremental savings as explains is really across all initiatives. So we really continued wage you can see if I am headcount reductions but also on all non people cost so we continue the journey and we really accelerate or the actions. We initiate faith in each one. So it's not one specific bucket or on the other is really all across all across the board. So now to answer your question on on magazines definitely what we are aiming at so is the high single-digit and you see the result in in each one which confirm this this trajectory.
And then wanted to talk a little bit about the expansion of Beauty on to T-Mobile and your view on the opportunity there. If there are other brands in your portfolio that you think could resonate particularly law in China and how much investment you think that would necessitate in your view. And then just also what about the social media Brands I Kylie and kkw how do you think about their potential in China and then overarching lie, how do you think about the opportunity for profitability long-term China? Thank you.
Hello.
This is Sue speaking. So to answer the first question about China and the T-Mobile opening that we are doing at the moment. The great news is that we have now arranging under Gucci Beauty brand that same thing on the Burberry banned by the way, but on the Gucci brand we have now a comprehensive Ranch we were operating on areas such as lipsticks powders pencils mascara, which are I would say a tiny part of the market and now with the launch of the New Foundation 3D booty that's arrived in January. We are suddenly suck operating on the biggest chunk of the market and the results that we have had on during January, which is the first month outstanding. We saw 35000 units in the very very often the number of locations globally and especially in a pack and in China and the feedbacks are absolutely great about the product and we of course are super super excited by birth.
New door that's opening because suddenly Gucci Beauty super desirable image and and and Line is now plugged into a huge huge. I would say machine that's called T-Mobile version that will give us the rich of seven hundred plus million users in China. So you can imagine when the super desirable brand that's putting on the mark the best quality products on the right areas of the market means the power of T-Mobile there is clearly big potential for Gucci but also Burberry and am all for our luxury business in general and clearly the next steps we are thinking about is how can we operate skincare in this area of the world but also on T-Mobile to answer those questions about Kim and Kylie when it comes to Kylie Jenner line, you know, the line is delivering consistently with the first quarter skincare is accelerating between the first and the second quarter. Yep.
Globally and versus last year and we are at the moment adapting the products of crazy line to the Asian Chinese market so that when we go, there we go with the right off precisely for the I would say customers of this area of the world that has very very specific needs and when it comes to Kim Kardashian line, which is scheduled for Thursday 22 skin care line. It's going to be a line. Hopefully that going to have everything that's needed to compete on the Chinese and Asian market.
For next question comes from the line of Wendy Nicholson of City.
Hi, good morning. My first question was to maybe just has to do with the level of internal controls at the company because I think historically one thing that made the story so frustrating was that often there was guidance given or there were targets for certain launches or expectations that then the company failed to deliver upon and there were things like massive, you know SKU assortment that the company just didn't have any ability to manage. So I'm wondering just as you come in, you know with your New York team. Do you think you need to make investments in it or infrastructure? Just so that you know, when you're putting a lot of money behind something like Covergirl you have an accurate speed on how that launches doing, um, you know, just so that that that you can adapt and pivot and shift as need be
Hi, when do you think you for this question? So?
You know, we've been saying that since this I would say pandemic started we've been really revisiting everything we are doing at could see starting from the way we create products and nothing came out if it's not as I usually love to say knew better and different which is really something that was not the case in the past and the good and the good way to avoid as you said over something to do projects that sell this is I would say basic but it was not probably not always respected in the past. The second thing we have been doing and we are doing on a monthly basis today. I called pay as we go sessions. This is probably the first time I don't know what's happening in other companies, but from my past experiences, it's the first time that this goes up to the edge of the sea you with the top down button up way of working to make sure we are putting our money on bets that are really bad. We all believe in but nam-ki
He believed in beds that have tests and studies and anything that needs to be done to confirm that we are putting money behind products and launches that are going to deliver an ideal life over-deliver. And this is one of the main reason I have been sometimes postponing some of the launches because I felt they were not ready either in terms of formulation in terms of cleanliness sustainability or in terms simply of non efficient advertising. So this is really something that we are putting in place at the company level at different levels of the company and this goes back to the sea level, which is I think unseen anywhere else. That's all fair. And that sounds great, you know and and and hopefully hopefully that works better than it has in the past. But my second question is, you know, kind of the biggest bear thesis on the stock right now is that you are cutting advertising name.
To sort of make the numbers and show higher ebitda growth in the short term, but that that's not actually going to be good for the business. So can you talk about kind of a Target level of advertising? I know you said to increase that but but but in terms of your overall spending do you think you have the right approach to investing in the business while at the same time, you know map to show ebitda growth and that it's not going to be, you know, a trade-off between the two. Thanks so much.
Thank you Wendy. So as you know, as we said it's earlier during the presentation of the results the main areas where the spendings the main areas story of my life things where headcount reduction on one side and business services on the other side. We are doing everything to protect what we call the A and C P and specifically the working media. So as low mentioned the working media for the second quarter, we're in line with the ones from the first quarter around 20% and CP in general and working media. We try to preserve as much as possible. The good news is that during Q3, we are targeting is being at the level in absolute value of what we have been spending in terms of working media during the year 2019, which is pre pandemic and this is not really something that it's super super important as you redeem as you have mentioned it and this is going to allow us to invest I would say, uh work in media on fewer.
figure initiatives
Since we are going to be using amounts of money that are what we used to spend in normal years. So it's a big change and this is again in a way correcting the feeling that you mentioned at the beginning of the question. We are not getting on working Media or non-working media. We are doing a lot of recognition renegotiation and what we call other a n c p which usually our age, you know about Bas anything we do in stores. We adapting to the situation of the different regions as you can imagine. We've been super flexible to lower this bucket when it comes to travel retail jobs, and we're happy we've been able to do it because today stores are closed and we doing exactly the same thing and other areas in the world where other ancp can very very flexibly. They usually be reset it up or down.
For next question Holmes Milano's Andrea Teixeira of JPMorgan. Hi, thank you and good morning. So I so appreciate your comments about Kylie. But can you please elaborate more about the plans ahead and also to the Kim Kardashian skincare embedded in your outlook and the timing of those laws and and just as a second just a clarification of fragrances. What is the typical percentage of sales or trigger to the month of December? I understand on a normalized basis about 50% So you seem obvious that beat with the momentum and Gucci and how confident are you are you are with keep as you keep growing this area of setting the math makeup decline in the next few quarters inspired the season be weaker performance and potentially do sake. Thank you.
So to answer the first question, I'll do I do question after question. So the first question is about Kylie and Kim Kardashian West Beauty businesses. So when it comes to Kylie as a you know, we have recently, uh, there was a manufacturing agreement that has recently expired. So we intend to launch a new Cosmetics lines under the package and a beauty around next summer and this is clearly I would say the next step for this line we continue to do our very successful drop off. This is really something that the Kardashians in general and Kylie Jenner specifically invented some years ago, which is a key driver of traffic and therefore sales on our website. So we are continuing in this area and cosmetics Line new Cosmetics line arriving in in next summer when it comes to Kim Kardashian. And again, we are clearly positioning these two Brands very well.
Differently Kylie becoming a key destination for any beauty need when it comes to gen Z and Millennials clearly. This is the way we're going to expand Kylie in the future wage. And it's going to be across several categories and not drink it to specific categories when it comes to Kim. We are progressing very well hand-in-hand with Kim in creating hopeful a skincare line that's going to be again the new better and different and bringing to her hundreds and hundreds of millions of followers around the world the ability to access the latest that methodological or ingredient or I would say health skin Health trends that her her followers are looking for so this is what's going to happen on Friday on one side and on the other side when it comes to the fragrance business this size of the business. We think that the prestige fragrance category strength. Yep.
Boston Market should continue
Seeing that the US and China through January are doing still very well. And the other reason that gives me confidence again. We've been watching one key launch that we have done at cootie. It's purchased by Marc Jacobs as we said it during the the call earlier. This launch is probably coty's biggest fragrance launch in the last fifteen years and you have to think that the biggest fragrance launch happened in the middle of a pandemic. So what what made it the biggest launch in the history of good it's simply because we've been Shifting the way we do lunches totally to a new mindset a new way of doing things first. The advertising has nothing to do with the classical one spokesperson advertising that is usually I would say the common standard in the industry. We've been using forty people from all ethnicities ages genders, whatever you want and these people per month.
to promote the the fragrance online and for me this has been a powerful way to replace the lack of store visits to test and smell the fragrance if you'll listen and hear these people and their audiences sharing you know for those who bought online the products they were sharing to each other why they love the scent Etc in a wage there are virtually inventing fragrance testing so for me it's going to last I strongly believe it's going to last this campaign had on Tik-Tok more than 10,000 views ten billion billion views of it and it's clearly surpassing all tick tock standard so it shows us a new way to sell fragrances wage you know in a way not being uh stopped by the lack of testing that usually is the case when you launch a fragrance so I'm quite confident for the future on this on this on this table
Our next question comes from the line of stuff listing of Jeffries.
Thank you. Good morning everyone. Our question is twofold its first on Gross margins were wondering if you can spend a little time. Just sharing with us. We're gross margins landed relative to your expectations wage. They came in a bit below where we were expecting and I just wanted to reconcile if that's partly related to the cost restructuring and where that's located within the p&l and then secondly on your guidance for the year. I mentioned in your press release that the current quarter is pacing on Trend in terms of where your sales expectations are, but could you help us think through again the body of the p&l and where we should expect some puts and takes between gross margin and effects as we look at the back half versus the first half. Thank you.
Okay, so Hello Steph. Thanks for your question. So gross margin. Definitely. I mean the big impact is related to the liquid. So it definitely that of course lower volume is impacting fixed cost absorption. So and this is something that we had anticipated in our Q2 equation Thursday. It's creating your Source intention on gross-to-net and also to some extent on on mix of course, as you mentioned Europe is facing the lock down and you know big markets and bigger and so these are really related to to the COVID-19 and we we anticipate it definitely in our in our equation month. So now definitely to to answer your point on productivity in in our gross. Margin, we have some positive productivity off.
supply chain and procurement and this is helping to
Need to gate of the negative could be the head winds. So now building on what's next definitely step-by-step this negative effect wins will disappear while at the same time the productivity and part of this 300 million savings would start to reflect in the in the gross margin Improvement. So, this is just to give you some flavor on on gross margin, but as you can see we are in nine weeks. Q one so young. So definitely the equation is really as we as we mentioned is definitely we are delivering the three hundred million savings. So this is really dead we are doing and we delivered eighteen Q 1:18 to 2. Now what we are working together with Sue and the executive committee is of course as you mentioned with a pay as we go dead.
We are relocating some of these savings very targeted way to the actions which are working on the working media and where we have a very good at like and this is really the triangle. We are not busy. So say these don't get investment and then delivering the leader that we are sharing with you today.
For next question home smelling of robot.
Great. Thank you very much. You identified and it digital initiatives I think is is your number one strategic priority package, which obviously makes a tremendous amount of sense. Can you talk about in a where you are where you think you are in terms of your investment curve? Obviously. This is an area of cross technology a lot of upscaling of the workforce, you know, kind of a general change of how you do business in general. So, you know, perhaps if you can tell us kind of where you are in that progression how much more you need to invest to get where you need to be. Thank you.
Hello, good morning. Grab. This is Sue speaking. So you're right to say again that the e-com net revenues are growing super fast 50 plus 40% again. The penetration is today reaching age of nineteen percent clearly driven by our luxury business, but our much business is also doing very well, especially at a retailer such as Amazon and we have areas like America's that are you know, having plus 50% of growth emea plus 30% Prestige as I said, it before is driving the growth has plus forty five and mass is also plus 20% off terms of what needs to go what needs what is needed to go to the next step. As you know, we've been for the first time announcing the arrival of the first Chief digital officer, who joined the company in November John the knee is doing huge progress with his teams worldwide to put in place what needs to be put in place in terms first of month.
having all the
Said that this area of the business is requiring some call. It cars. It's about content and the right investment on the right, you know, the right assets et cetera. So this is something that we are going to walk accelerate in the next month has and think about the best way to organize this in-house here at at good so this is how I see it. It's clearly an area where there's wind behind us. We have the brands. Most of our Brands had huge followings on Instagram. I was calculating the other days that if you add our own Brands plus the the fashion houses that we are working with and if you add also our I would say personalities. We have the reach of seven hundred million people. So if you add this $700 million people which wage and you said next to it the new Team all opening that we have just done for Cote in in in the last I would say two to three years suddenly. There is a direct way to address khong
Rumors that are as numerous as one point four billion people around the world. So it's a super super super strong opportunity and you are right we'll need to to to finance this. This is clearly a part of our key priorities and pay as we go that low mentioned several times. It's not only about where do we put our money in terms of advertising and clearly we've been shifting strongly me down towards digital. It's also in terms of you know Copaxone an investment for the future that we are doing exactly at this time of the moment.
Our next question comes from the line of Lauren Lieberman of Barclays.
Thanks very much. Good morning. I was curious if you could talk a little bit about the single day shopping holiday to what degree do you think that that off, you know contributed to some of the outsides performance in the quarter, but also, I'm curious about activations, and maybe it was too soon right with the the team all launched more coming this quarter for Gucci then Thursday, and then also plans looking ahead to Lunar New Year and the degree to which it may be the business isn't quite there yet, but I was curious to learn a bit about that. Thanks.
Honey, Lorenzo, you're right. We we are doing a soft launch at the moment that we are putting in place, you know, the different assets the products et cetera. So we are not yet into this super high. I would say promotional moments that are happening in in in China in the Asian world. So we'll see this hopefully happening. We see hopefully how we are going to bring its full potential from this launch at T-Mobile probably around the end of the third quarter beginning of the fourth quarter. This is one second. We will need to find our way to be part of this highly promotional moment because we are operating highly desirable and highly with a luxurious and prestigious Brands. So this is something that we are working hard to make sure we are still having the same level of excitement Etc without compromising the image of Our Brands and we can of course we are starting to think about some wage.
other brands that are already into that game such as Adidas or carving
Klein which are doing very very big but they are not at the moment big drivers of the growth in in in in China.
Our next question comes from the line. I'll save your bank.
Yes. Hi. Good morning. So a couple of related questions for you to for instance. How are you thinking about the evolution of the makeup gory as we exit COVID-19.
Thank you very much for your question. So again, thank you for asking me about R&D because this is really a topic that's dear to my heart. I'm an engineer. So I love to spend time with our young people and scientists. And also with people who are operating our different factories. And and what I've been seeing is really fabulous i p s owned by m e r and d. I've been mentioning this probably in the previous call but Cote owns Ki ipas in terms of long where if you take if you if you speak about makeup the successful Brands such as outlined by cutting lasting finish twenty five hours at at 3 mail or many others are clearly based on this uniqueness in terms of Ip that we do own that could see we also own not of ideas when it comes to what I call Protection Environmental Protection from the Sun from blue light or from pollution and this is clearly something that the company has been dead.
continuing to progress on thanks to Lancaster brand and we intend to expand this know how to numerous number of Brands skin care but also make a brand that are being more and more skinny ticket office in other words and we have also IPS in the areas of food I'm sorry ingredients inspired by Dermatology to make it simple and this is area is an area where again Lancaster and kutiya Randi has been operating for years and years people are all talking about retinal since since a few years now and it's going to be higher and higher wage and Lancaster for your information was the inventor of victimization not original in a skincare product something like twenty or twenty-five years ago so this is really an area that the company has know how in has expertise in and has intellectual property so we are going to build the skin education of make-up and the skin is equation of good business base wage
This key IPS that we own at at at 3 today when it comes to the skin ification of the makeup cattle.
Yuri again, what we are seeing is that what's doing well in our business are what we call clean healthy and sustainable Alternatives Covergirl is leading the way in the back in this area clean fresh makeup number one Foundation launched in 2020 and then the clean fresh powder that we launched in September was the number one powder and I'm just launching right now lashblast clean the first mascara with Bean vegan cruelty-free formulation adapted for sensitive eyes et cetera. So this area uh business is clear and area that's not only attracting I would say all consumers but also strongly and over-indexing I would say the consumers and Hispanic Zoomers, so this is an area that we intend to accelerate in the future thinking about skin care, of course not only on our I would say Colour Cosmetics Brands, but also we can think about
He does which is another brand of got a portfolio where we see a huge potential in terms of self-care body and anything around, you know Fitness beauty related. So this is the way I see the future of the company confident on the ability to build on this and you said it on this secrecy ingredient LED science-led Catholic priests in several areas of our businesses must Beauty Adidas, but also in our Prestige concur with brand such as Lancaster and philosophy, but also be developing the future in skin care.
Thank you. We have reached the lot of time for questions and answers for today. We thank you for participating and Cody's earnings conference call and webcast. You may now disconnect your lines off of a wonderful day off.