Q3 2022 Coty Inc Earnings Call - Live Question & Answer Session
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Star Zero.
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Hello, My name is Katie and I'll be your conference operator today at this time I would like to welcome everyone to the Coty third quarter. The school 2022 question and answer conference call. As a reminder, this conference call is being recorded today May nine 2022. Please note that earlier this morning.
Coty issue, a press release and prepared remarks, which can be found on our Investor Relations website on today's call is do Nabi, Chief Executive Officer, and Laura Mercier, Chief Financial Officer.
I would like to remind you that many of the comments today may contain forward looking statements. Please refer to <unk> earnings release, and our reports filed with the S. E C where the company's lists factors that could cause actual results to differ materially from those forward looking statements and <unk>.
Except where noted.
The discussion of <unk> financial results and co. These expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the Companys release with that we will now open the line for questions.
Yeah.
Yeah.
Thank you.
Our first question today.
Will come from Andrea Teixeira with J P. Morgan.
Please go ahead good morning.
Hi, good morning, everyone.
I just wanted to sure if you can kind of elaborate a little bit more.
What is implied in your assumptions for the fourth quarter fiscal.
I would guess with Eli toys.
The commentary that you made on on the press release and prepared remarks, and how do you see that evolving in particular your prestige or your prestige side, how you feel comfortable that and your exits for the quarter for the Q2, how are you feeling comfortable on that and then.
Related to them that the for the first quarter.
Top line also in consumer beauty, how do you see your stocking in terms of innovation and market share trends as you exited the quarter. Thank you.
Yeah.
So no one's realistically speaking thank you for your question so again.
And you are right you had mentioned that you know the Q3 results in fact, a very strong growth in our precision division and a very good growth also on the consumer beauty Division.
The sense on prestige.
In consumer beauty.
For the fourth quarter.
We do believe that the momentum we are seeing behind our prestige brands and going to continue.
To conclude that we are going to have a much more balanced I would say the investment behind the two decisions during Q4.
While Q3 was heavily behind consumer beauty in Q2 was heavily behind you. So you can imagine the momentum we are seeing for the future.
Hopefully this is going to be hopefully actually debated as possible specifically if the lockdowns are.
Starting in China, which is one of the key countries for the person division. So this is the we are seeing.
The Guy that's a habit we have didn't you exclude as you know a progression.
Assuming of course limited maybe not a total recovery in China, but we may have some upsides potentially China is doing better.
Again.
The trend for the month, but just finished which is the accurate one is in line with our outlook.
Okay.
Okay.
Helpful.
We're just about to finish on the second part, which is consumer beauty and again, there you've seen that specifically in the U S and specifically behind cover girl. We had this issue in terms of supply behind our best selling Mascara line and hopefully we see that this could be getting better in a couple of months.
See if this can help us, but we do believe that we will be back to where I would say.
Almost normal supply behind Corona del around June July .
Okay.
Thank you and then on the exit of the quarter right you had an impact in China in March and I'm, assuming travel retail as well are you assuming that in the fourth quarter are the Lockdowns will obviously, there is still going on and in particular in Shanghai and Beijing getting are getting worse.
I would say what are you expecting what is are you embedding that there is no recovery and then you are embedding all the pact of Oh, why do you saw and in the third quarter. Some of the other companies. Some of your peers have quoted how how much impact they had in China in March So if you can.
Let us know how much it was down and how much of your the rest of the world performs in Dod and physical.
Fiscal third quarter X X China.
So again the way we've built the to the fourth quarter is having in mind that we will have a very very limited.
Which would show, which I would say cautious in terms of we are seeing things from that this in turn could do so.
This is the way we've been doing this again the good news during the third.
Third quarter, if I may say is that even with the slowdown in mainland China, we have seen our treasury chicken Hainan.
It includes everything and we look forward the constraint you know compensating for the losses, we had in <unk>.
In terms of metrics because of the Lockdowns in the biggest cities of Shanghai, China mainland. So we will see that.
This is going to help us to mitigate financially.
This impact on our sales in mainland China and again, what we saw during Q3.
We are slightly positive, but it didn't affect during the Q3, thanks to high land sales that made up 40 LASA.
China ones.
He said he's doing the job of compensating you finish it.
Okay.
Okay.
Thank you our next question.
Comes from Steph Wissink with Jefferies.
Hi, good morning, everyone, we'd like to focus in on gross margins. If we could if you could talk a little bit about where some of that upside came from whether it was mix or some of your internal strategies to unlock value and then related as you reinvested into a N C. P. Any areas that were particularly productive in the quarter that you'll be emphasizing further going forward.
Thank you.
Yeah.
Hello.
So on gross margin that you didn't view, you'll note eastern and the outstanding performance this quarter.
240 basis points better than last year to.
To date, what people under a 50 basis point higher.
Judy do you.
In terms of all the world cumulative.
We're only to lean initiatives, we shared several times.
Any combination of on the one hand this increase we are putting really on cost reduction.
We supply chain with procurement, we gave several times. The example of <unk> that we are reducing drastically.
Forecast accuracy and we continue this journey with <unk> keeps us focused on the <unk>.
Reducing the cost.
This is a focus number one and then just been done differently. What we are amplifying what I'm quoting you lose the value part of the gross margin. So this is really.
Number one the mix.
What's sort of shifts at good times I know you explained again is that all.
All of the strategic initiatives, we are gross margin accretion so you're just really equal amounts.
China Pres.
Prestige makeup the premium amortization of the portfolio and say you need so within consumer beauty, you'll remember we shipped so in terms of the new initiatives. We are doing in consumer beauty, but in some cases, you know gross margin, even if we win them to completion. So it means that you reduce leaks wounds that we are doing is continuing.
So it will continue.
Sure.
The gross margin second.
On top of these we are doing in pricing.
T R 22.
P eight cost inflation, but can certainly cause no we are getting pricing power.
Again, thanks to the premium amortization utilization.
Cushing is pricing and of course, it's like Crazy for the gross margin and one each in the context of logo New management, where we have very very tight control on our trade terms.
<unk> all been good jumps recast and value really to keep fueling them to keep building.
The gross margin so this uniquely so.
Thanks to all <unk> gross.
Gross margin was a confirmation in Q3, what we can do 200 million Cpus or were these from Houston and Nederland.
And she can give you some concrete examples of Sanofi. Thank you Alonso NCP clearly we are going to continue to.
Investors in the cost of a Q4 as you've seen has been very very predictive for Q2 in Q3. So we continue with the same story and again, it's always the same story of the flywheel net revenue growing gross margin better. This our lowest too at the same time the leverage the company and we invest behind the brand while continuing our cost.
Savings programs in terms of.
He could not be predictive items, we have seen of the we're either going to exit their bridge the renal brand he's going to have some generation behind planned entry that's doing fantastically, well and you've seen the results. This is representing high single digits of the network news of most of the countries sometimes much more than this.
We're going to continue to invest behind these brands because we have seen strong momentum everywhere, where you put money behind it.
<unk> is doing fantastically, well and be a signature.
But really as the Gen Z phase for the brand is by definition going to help us again to regain the momentum during the Q4.
Our leading fragrances as you can imagine we cheat.
Fantastic success delivery hero Fantastic success Hugo boss, the scent same thing unless with Nazis behind prestige makeup you've seen the momentum we're having behind Gucci makeup and this is something that we intend to exit rates.
Very helpful as always thank you.
Thank you Sir.
Yeah.
Once again as a reminder, if you'd like to ask a question. Please press star one our next question will come from Robert <unk> with Evercore.
Great. Thank you very much I'm, just wondering if you could drill down a little bit more into the U S makeup market.
How that's developing into April .
You know obviously you know there's increased mobility, but any any new trends and then you know taking it further into cover girl, specifically and I know theres a lots of give and takes there are puts and takes on uncovered girl with supply issues et cetera, but maybe kind of tell us.
The signs that you're seeing that.
That gives you the most confidence that that brand is on a path of positive path. Thank you.
Hi, Robert Thank you so much for your question. So again, what we are seeing in the U S market is clear to me.
No.
For two years, if I may say of mainly I.
I category being the key categories. During the pandemic, we are seeing categories, such as space on one side and on the other side back to the visibility if I may say on people and therefore on the figures. It started already some quarters in the past in a specific leader. So so clearly we are.
I would say back to what I could call it a magnitude and therefore because of apparel.
Good news because again the brand has been very strongly investing behind our makeup.
And again, you've seen the momentum we had last year behind the lush blast.
Clean and the overall the lush thus franchise, we have simply age list that we have reactivated last spring that is continuing to gain share and we have new news arising behind this line very very soon and we have also now we are reaching I would say the second level of the Copa <unk>.
Remember when I told you the story of cargo there one year in how to do it towards about <unk>.
Bringing back the brand to its heritage and to its.
Equity, which was around the makeup in clean beauty in general. This I would say is continuing of course, and we're launching a lot of good things behind clean beauty, but to level two of Cologuard rebirth is what we call <unk> or E. D brand in beauty and there we are very confident that with this new faces we are adding recent.
Especially because he built the reasoning behind the exhibition is.
And mascara.
Exhibition Colo, we do have the second leg of second muscle to really boost.
The category overall, because I do believe that the two growth drivers are the makeup category in America on one side clean healthy beauty.
<unk> beauty and these are the two areas that we are pushing behind because they'll Daryl I can't give you just a hint of something we just saw recently, we just launched <unk>, which probably could be in the two categories of new lip balm clean freshly born behind.
And if we can very quickly the number one we bought I think are in the U S. Thanks to between on one side and probably a category. The Gen Z are looking for today.
As a good compromise between Colo and cat. So this kind of product gives you an idea to the areas where the brand is doing to invest continuing the clean story, while pushing strongly on this.
It could be a disaster.
We just made the announcement that we have the new.
A new phase that's not when you say that the first that was part of covergirl years ago Queen Latifah. She was one of the most iconic Colorado spaces for years at the same way and you can tell the wars and she's back and cause all girl than this is clearly.
Going to help us to continue to.
Different types of targets, but it made us today.
Thank you. Our next question will come from Nik Modi with RBC capitals.
Yes. Thank you good morning, everyone. Two questions just one big picture on you know how do you see some of the changes in the consumer behavior, just with inflation with mobility. It I'm just curious on your kind of global landscape. It is Europe getting impacted by the amount of inflation because I certainly worse than it is here in the U S.
So that was just the first question and then it's more specifically any clarity on the Kim launched a number of products you can assume that the launch timing initial geographies any perspective would be helpful.
Yes. Thank you for your question, Nick So again on the first part which is around the consumer behaviors.
We do see today that the there is quite some resilience and consumers continuing to spend when it comes to prestige categories, specifically on the fragrance category again, the momentum we've seen in the U S. Since now several quarters is continuing through Q3.
This is quite clear that momentum is starting to happen also during the quarter being Q3 have happened also in Europe and this is very new and again remember Europe was far under 2019 levels now it's above 2019 levels. So this is I would say and this is the biggest category as you know it.
Fragrance prestige fragrance is the biggest category of all fragrance business.
Our prestige business in Europe and in China of course. This was one of the fastest growing category until the end of said, let's see what's going to happen once the lockdowns will be lifted. So clearly we do see good resilience of consumers who are shopping at the highest and and we feel that these consumers are going to <unk>.
To stand behind these categories.
Again, I think it's important to keep in mind that for a lot of consumers. Despite what is happening today in terms of inflation it took off.
Of course, the rules and therefore is a second step of anything that's sold in the market.
This is the first summer first lockdowns since two years on the house almost today, it's the first summer where there is no restrictions except in China, and therefore, I do believe that consumers are going to be in a very positive mood. They are going to come back to life. We've seen a lot of articles published about the fact that people.
Adapting festivals travel et cetera, et cetera. So there is a hunger for life that probably is going to continue to be a hunger for.
I think the beauty consumption.
Some categories that may slow down and if there are some consumers that may be pressurized because this because of this inflation of the pricing. The good news is cookies that we do have a decision but stronger than ever which is our consumer beauty division our brands our cooler than ever they are doing the right things they are launching the right product.
A much more profitable than versus the past some of them have deputies levels equivalent to those from prestige. So I would say that whatever is going to happen, we will be able in a way to adapt with our both both divisions. So any clarity on the key launch again as we said it several times that this is going to have.
Open during Q4, and you would see fantastic things some very exciting things coming during this launch.
Great. Thank you.
Thank you.
Our next question comes from Wendy Nicholson with Citi.
Hi, My first question just has to do with the target of the $900 million and adjusted EBITDA I know you talked that down just a little bit in the prepared comments I think you made the point that that was primarily a function of exiting Russia, but can you talk about any other moving pieces in terms of the revision.
To that target and I know, it's early obviously to talk about fiscal 'twenty three but just in terms of your confidence of continuing gross margin progression EBITA margin progression.
Given the headwinds that everyone is facing thanks.
Hello, Hello, Wendy.
So first of all I mean, we made very clear that the.
The two Russia and mid teens guide does GMO very limited impact in Q4.
From a net revenue and EBITDA standpoint, so that's why we are close to them and those are.
The 900 million adjusted EBITDA.
<unk>.
<unk> and <unk>.
There are some headwinds.
He remains an unmet need.
E <unk>.
Computation of inflation, which again, we are very clear that the inflation is not something new and some senior notes that started more than a year ago, we have a pricing a piece.
Which has been working constantly on again price increase implementation.
Low single digits.
<unk> continues as a price increase and again combined with all the ingredients I shared before on the mix and so on so it really gives US you know the fuel bill.
You can see that we keep investing in Q4.
He was exactly explain boost on prestige consumer beauty so continues.
Amplification.
Pension of the gross margin.
Million CP.
During this.
It would be done so so this is this uniquely.
One we are confirming no.
Moving smart wearable.
Indeed.
The Russia impact of the more impact from each one next year, but from an algorithm standpoint.
Is that from the baseline ex excluding Russia the algorithm doesn't change.
So in terms of top line or EBITDA.
When we just to add on the <unk> comment we are reinvesting to various niche with aluminum and again, what's happening in terms of momentum behind our brands and seen the and it's Super Super important that we continue to fight like crazy to reinvest behind our brands. So this gives us I would say are the ability to.
To continue to invest behind the brands in terms of AMC.
Fantastic and then if I can I just had a second question with regard to China, given some of the comments from some of the other beauty players and the group.
Obviously, the lockdowns are having huge pressures on the China marketplace, but can you just take a step back and comment on your take on the China beauty market generally is the pressure, we're seeing really just a function of the lockdowns and supply chain challenges do you think theres anything changing underlying with the Chi.
Many consumer in terms of their preference for western brands versus local brands anything that makes you nervous about the long term growth potential for the China market. Thank you so much.
Thank you and again this I think is clearly a question that we are focusing on the database is how is this a market reacting to anything we do there and I can tell you that.
Despite the Lockdowns single you've seen that Gucci has continued to have outstanding figures are there. Our business is very very quickly evolving superpremium rising if I may say, we were fragrance company in just one year in the hospital today brands like Gucci or Burberry do have half of their business isn't it.
Between fragrances and prestige makeup, which is really new growth engine, both in China, but also in APAC travel retail in travel retail we are having more than 10% of these brands.
Fragrance sales coming from our premium fragrances and this is totally changing not only our I would say P&L equation getting much more profitable over there, but also it's a very strong confirmation that Chinese consumers are all about an obsession upstream realizations shopping highly desirable grants and then.
Most expensive items from this highly desirable and so for me I don't see any change.
In terms of confidence for this market to become probably the biggest prestige luxury markets in the world in the coming years, and I would say more confident than ever than when you look at the portfolio of grants, we do have and Thats, probably what explains the fact that we've been skewed until Q3.
The fastest growing beauty company in China, among the top 10 beauty companies over there with a sell out that's been 14% during the last quarter, which is the power of those the last thing I would say market. All these elements not only gives me confidence in <unk> ability to continue to grow in this market, but I would say in the <unk>.
The Chinese are going to continue to be the most passionate been most experts and the most obsessed with trading of their cells in terms of beauty in this market.
Terrific sounds great. Thank you so much.
Thank you Wendy.
Yeah.
Thank you. Our next question will come from Steve powers with Deutsche Bank.
Yes, Hey, good morning, Thank you.
So maybe you can pick up on that discussion with Wendy and with previously with Nick.
It seems like the story. This morning is is really one of continuity.
As you look forward.
The strategy seems.
Pretty much.
An unchanged the algorithm adjusted for the for for the Russia exit.
It seems essentially unchanged I guess I just wanted to.
Just play that back a little bit in <unk>.
Think about it in terms of the the six priorities that you unveiled essentially a year ago and what you described those priorities back in November to the extent that the.
Yeah, the consumer does get weaker in the U S and in Europe , and we see continued volatility.
In the emerging markets.
The way you employ those six strategic priorities changed at all.
To get to that algorithm or is it is it is the strategy meant to be sort of economic cycle independent.
Thank you Steve for the question and again I think the what.
What's nice and I would say the beauty of the six pillars of strategy is that it's a balanced strategy and it's a trend.
Strategy that in a way is not betting on one division more than the other but betting on one region of the world more than the other or betting on any specific kind of pricing or price categories. It's really a strategy that was the lowest whatever is going to happen to have means to take the I would say the.
Tail winds.
Blow here and there or to mitigate the.
You think that could be that could prevent us from executing the strategy. So I would say that in fact consumer beauty stabilization now we're talking about growing consumer beauty. We have seen that we had now five months of market share growth globally for consumer beauty same thing for color cosmetics consumer color cosmetics.
Worldwide and this is clearly a very good I would say element in case some consumers that.
That would be on the masstige side of the businesses in prestige with maybe we'd love to come back to these kind of grants and therefore, we do have not only the clean beauty, but could beauty that these consumers who might be looking for when it comes to prestige.
Clearly the fragrance momentum we have seen we do believe is going to continue.
And even if there is some I would say no.
In China that are preventing this market from growing in the coming I would say month or two you can see that Europe and travel retail are back to very very strong growth and that people are shopping fragrances globally today more than ever before all levels are both 2000 22019 three hour sizing.
Prestige makeup is quite small so whatever is the slowdown or the acceleration in this category. We do believe that just by adding new skus and new doors, we have the ability to continue to grow and last but not least on skincare clearly on skincare number one primary focus of the company needs to be.
Prestige skincare brands. These are going to be few failures and as you can imagine it's much easier to two to hit high target with pure carriers in skincare and former example, then we made the comment about Colorado, which is a makeup brand launching skincare in the middle of the makeup.
Et cetera. So there is going to take time, we are fine tuning each and everything like we have always done since one year on the house today.
Learn implement correct et cetera.
The consumer on the prestige side, we have big ambitions that our pure play a skincare brands are going to help us to accelerate the agenda. So overall I don't see anything that would change the aggregate and that we have shared with you in November .
And again these idled in beauty is made of kind of balance between divisions categories price tiers, which will hopefully allow us to mitigate any headwinds we had.
Thank you. Our next question will come from Olivia Tong with Raymond James.
Okay.
Olivia Your line is open please make sure your phone is not on mute.
Great. Thank you good morning.
I was wondering if you could first quantify how much of an impact of supply chain issues had on consumer beauty and whether the constraint in supply makes you potentially reconsider how much inventory you should be holding because.
Unlike others your inventory balance Hasnt increased versus recent quarters, but my my my real question is more around.
You know the environment and Youre hearing a lot of different views on how the environment is evolving and in the consumer may or may not be responding to inflation and other market dynamics I'm curious how you think about your ability to continue to drive growth in prestige versus consumer beauty and in your ability to continue to drive price.
Price mix.
So I will take the first part so definitely I mean, an unusual and yours millions a whole industry that can be done.
We are facing some global supply constraints.
<unk> supply chain procurement navigate quite win in this environment as we see them.
The $1 19, which is.
Among them is the best performance toy leaders, we flagged them can create.
We will skew the issues the different teams that are implementing all the actions.
Actions are really put in place that we are solving in unit terms.
These semi stable we remain very agile, we keep giving what we explained several times. We have this dual sourcing approach. So that we can absorb some potential issues. We have weekly reviews between commercial and supply chain, we need to adapt to the way on the whole we allocate to the pro.
So definitely we keep this focus.
And keeping in view.
Good.
Monitoring and controlling overblown.
All supply chain inventory, yes, you're absolutely right and this is what we are doing so only on the one managing the cash but at the same time. These two corporate matic, Andrew joins that where we needed to build some inventory on some some leaky jewel the resources, we do so differently.
This is what we are managing but always in a frame that and doesn't change our cash trajectory.
And that's why we are moving towards these four times leverage end of calendar year 'twenty two.
And I'll leave you to complement the answer on the second part of that before moving to the second part which is around the trends that we're seeing et cetera.
Keep in mind that on Covergirl, which is a brand that everyone is looking at.
Supply chain issues, we had had nothing to do with what's happening in terms of shortage you asking for components, but this was in link with some decisions.
We are not made prior to the pandemic. So decisions that should have been done somewhere around 2019, but we're not done that delayed the ability availability of some some key things that were part of the mosquitoes of Cadogan. So it's something that we are mastering it's not something that we are hoping we can go into to improve so that's point number one.
Initiatives of the inventory and supply.
I was commenting when it comes through the second half how do we do we sit in terms of consumer I do believe that consumers who are shopping prestige products, specifically knowing that we have done the job of doing price increases until people that are very very.
There is specific to each and every brand on key items, where we said there was room I think the difference between the former pricing the new pricing is not going to be big enough for someone who is spending over 30% to $40. So I do believe that the impact at least for Coty prestige because of the way we have done things because of the granularity.
And because of the desirability and therefore ability to price up for prestige, we won't see any kind of impact when it comes to.
When it comes to consumer beauty, if you take the example of cutoff, there and again that everyone knows in the U S because of that.
One of the best selling foundation under $8 and it has some of the best selling new foundations between 15 and $20. So there we have the ability to directly somebody say like this consumers either for a foundation, that's under $8 or something thats between 15 to $20.
Which is still very very affordable compared to I would say other categories are coming from Brazil. So that's what gives me at least feel good team good.
Sedans that whatever are going to be the behaviors, depending on the different tiers of consumers will be able to adapt and therefore to invest where people are going to shut.
Thank you. Our next question will come from Chris Carey with Wells Fargo.
Hi, good morning, So I just wanted to have.
Follow up on a couple items that have been discussed. This morning. So first just on consumer beauty I. Appreciate there was investing in the quarter and you're anticipating a more balanced Q4 between the two divisions from a profit standpoint, but can you unpack, perhaps some of the drivers of that.
Of the margin in the quarter between the spending.
<unk> chain inflation anything else that might be able to give us a bit of context on the underlying here and then just secondly, as it pertains to China.
Clearly there is a strategy in place to take this market to a certain size by fiscal 'twenty five that's a long time out is there anything going on in the market right now going to delay the <unk>.
Achieving those targets or would you view the business is on track with the initiatives that you laid out thanks so much.
Hi, Chris So I will take that.
So what I can tell you the drivers of the margin of consumer beauty.
It's the same as a global Coty equation I will start with gross margin.
You know what im explaining on the gross margin expansion in Germany that we have.
<unk>. This is absolutely valid for consumer beauty soon with Nike, we are working on improving the mix and we gave the local examples again all the new innovation that we're launching in consumer beauty. I think example of tendency all these initiatives are very accretive.
The equation. So this is giving.
You were giving us some neighbors of headroom in terms of gross margin expansion. So this is costing and pricing we are absorbing a pricing team working up the very granular level.
<unk>, how are you able to drive pricing in consumer beauty and spill demand, whether new management tight control on trade promotion and all this in the context of value creation, mostly.
So this is again you know this flywheel.
We will get to a cycle. We are building is absolutely.
<unk>.
What we continue increasing the gross margin keeping discipline on supply chain on peaks costs and shooting ANC piece of what she likes explain unit.
We made significant investments in Q3, because we have great initiatives and this is really too.
Or is the machine and of course in Q4 will be more balanced.
And on the second part, which is around China, which is there anything thats going to jeopardize our fiscal 'twenty five targets again, what we're trying to do in China is to do what we Havent done you know one year on the Hudson grew when we were in the middle of the pandemic.
We're.
Trying to fix everything that was easy.
King.
You needed to be 60 centers.
Waiting for the rebound post pandemic, we're doing more or less the same thing in China, which is to make sure. We are continuing to up the ante in terms of expense.
In terms of capabilities in terms of the brands that we are intending to do so at the moment I don't see any.
I think from the cookies I would say point of view and could see ability to implement the things we are working behind that with <unk>.
<unk>, our Unbilled Hickman fiscal 'twenty five targets.
Okay.
Thank you our last question comes from Mark Aster Chan with stifle.
Yes, Thanks, and Hello, everyone I guess I wanted to start with fragrances in China thinking about a bit more longer term could you remind us what the category share is today as a percent of total <unk>.
Beauty spend.
How does that compare to some other markets it would seem like you've talked before about it being.
Lower at this point, but obviously growing faster.
And then maybe more importantly, how do you think about competition step.
Stepping up given that they presumably I think directionally talk about seeing kind of similar trends of development that would be.
Fragrances category and how do you think about your relative positioning in anticipation of them, they're kind of going out you're a bit more there. Thank you.
Okay.
Yes, Hi, Mark So let me try to answer the different pieces of the question. So first.
China, China today in the country, you have only 2% of people using fragrances on a daily basis. So as you can imagine moving just this 2% to 10% on the number of people who are able to buy and use fragrances.
Huge I would say.
He jumped in terms of fragrance consumption, specifically with the Gen Z who are going to drive this I would say new union. So the fragrance category in a country like China is around 15% to 20% if I'm not wrong, which is far under the 70% of.
Yeah.
70% of skincare and the remainder is prestige makeup. So clearly it's the lion's share of skincare and makeup and fragrance, but fragrances is the fastest growing category in China, and again, 2% only use fragrances on a daily basis. So this to be compared to Europe , where fragrances is the biggest category.
And the U S West fragrances in the thing the smallest category of the country. So this gives us I would say an upside potential.
Probably very very very strong.
What else is how is competition stepping stepping up in China honestly.
Okay.
We are not seeing anything in the competition today, that's telling us that there are things that we are missing and put this portfolio, which I may say and again you know how we'd like to think we'd love to think in terms of what are the trends what are the criterias people are shopping but other categories people are looking for clearly we do see.
That with our Gucci Burberry and Hugo boss to name a few fragrance Brown, our chief financial and another one we do have brands that have the ability to respond for the mainstream consumption now again, I said that 10% of the sales of these brands is originated by E car premium fragrances. So we are present in this category.
While just one year and a half ago. This was almost nothing in our turnover. So we are clearly feeling that we do have the right brands.
Right price tiers to clearly answer the surge in consumption that we are seeing behind Gen Z on the Chinese market.
So at the end of the day if competition is investing.
Thats fine because at the end of the day, we need to be altogether investing on this very very promising market to grow the market and this will benefit all of us.
So that's what I would say so this was my conclusion. Thank you very much for your questions and thank you very much for this.
I'm going to say, thank you to the whole team that could keep this severance cost of very very good results and we hope to continue to do the same thing in the near future. Thank you very much.
Okay.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect.
Yeah.
Okay.
Yeah.
Sure.
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