Q4 2023 Coty Inc Q&A Earnings Call

the combination of three. So once we are out of this really high inflation period with high pricing, we enter more normalized model in terms of growth. And the second part of your question.

Our algorithm, our methodology doesn't change. So it is really definitely, and as I share now, we continue to use this all-in-two-win program so we know that next year we will deliver 100 million savings and in fiscal 25, 75 million.

So the objective of this productivity plan is we need to continue to improve our gross margin, to optimize our GNA and then to reinvest to support all our strategic initiatives. So concretely what does it mean? It means that in terms of ANCP, we are, you know, now we are at a level of high 20s and this is really a level that we are going to keep.

Speaker 1: Please stand by your program is about to begin if you need assistance on today's call, please press star 0

and we allocate in a very perfect manner, always focusing on ROI, so on both divisions and on all the new initiatives that we are launching.

Speaker 1: Good morning and good afternoon everyone. My name is Leo and I'll be your conference operator today. At this time, I would like to welcome everyone to CODI's fourth quarter fiscal 2023 question and answer conference call. As a reminder, this conference call is being recorded today, August 22nd, 2023.

Your next question is from Ashley Helgens of Jefferies.

Hey, good morning. Thanks for taking our questions. So, just first on the pricing action, I'm just curious of you to talk a little bit about the key indicators you're using to gauge consumers' willingness to spend more on clean beauty, and then maybe you can just give us a little bit more color on plan investments in the first half that's offsetting some of the pricing benefits. Thanks. During a while, the Coca-Cola

Please note that earlier this morning, CODI issued a press release and prepared remarks webcast, which can be found on its investor relations website. On today's call are Sue Nabi, Chief Executive Officer, and Laurent Mercier, Chief Financial Officer. I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to CODI's earnings release and the reports filed with the SEC with a company list factors that could cause actual results to differ materially from these forward-looking statements. In addition, except where noted, the discussion of CODI's financial results and CODI's expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. With that, we will now open the lines for questions. If you would like to ask a question today, please press star 1 now on your telephone keypad, again to ask a question that is star 1 on your telephone keypad. One moment while we queue. We'll take our first question.

So definitely on the key indicators, I mean, what I can, I mean, you know, we have a strong, powerful team, you know, CMI team. So and again, when we say that over the last three years, we rebuilt, you know, strong capabilities, of course, we talked about the NCP, we just talked also about R&D.

from Filippo Folloni of Citi. Your line is open. Hey, good morning, everyone, and congrats on a strong Cisco 23 results. First question on kind of the assumptions embedded in your initial guidance for Cisco 24. I know, Sue, you mentioned the category at the prestige level, particularly in fragrances remain strong. Just what have you assumed in your guidance? Are you assuming a continuation of the momentum? Are you assuming a little bit of a slow down with the...

more uncertainty in the macro environment, just any color on that will be helpful. Good morning, Filippo. Let me give the mic to Laurent for the spot and I can compliment. Yeah, absolutely. Hello Filippo. I mean, first of all, indeed as you highlighted, what's important is really that we are positioning the fiscal 24 guidance. I mean, as you stop.

of the midterm guidance and following as you highlighted, I mean a very good landing of fiscal year 23. So to make it short, I mean really our assumption is that the momentum is here to stay. Definitely we are seeing in the beauty categories are very resilient.

Here I'm talking about both categories, prestige and consumer beauty. So definitely, and this is what is confirmed also by retailers, that beauty is definitely the darling category of the retailers. So definitely both on...

precision consumer beauty, we keep this great momentum for fiscal 24. And this is amplified also by the strong initiatives that COTI is putting in place again on both divisions.

Great, and just a quick conversation you're having. Thank you. Yeah, so I mean pricing, as you know, we implemented successfully pricing across fiscal 23. So I mean this went very smoothly with retailers, but also with consumers as there was definitely no elasticity impact.

So we share that we continue in Q1 fiscal 24. We are implementing mid-single digit pricing and this is on both divisions. This is really important. It's the case on prestige division and also on consumer beauty.

So we are doing this, number one, because, yes, inflation is here to stay in H1 fiscal 24. So this is really part of our plans. Number two is also because we are seeing, as I said, very resilient.

And also we are making sure, as usual, and we keep the methodology that this price increase is done in a very granular manner, in a very disciplined manner. We have a pricing office and we have a lot of data based on the last two years. So we know exactly where we can...

increased price again without having any elasticity. Last element I want to highlight is also that we are making sure that this price increase is combined with value creation for retailers and also for consumers.

and definitely we are investing money in sustainability agenda.

really well received by retailers and consumers and also, you know, is here also to, is helping to accept a price increase for this Q1 fiscal 24.

Your next question is from Javier Escalante of Evercore ISI.

Good morning everyone and also congrats on terrific results. I have a couple of questions, one on the consumer side and the other on prestige. On the consumer side, to

You may comment on CoverGirl, and it feels as if in your view it's an issue of tapping digital marketing through TikTok. So if you can comment on the situation more on the stores.

whether your shelf space going into the fall. And also, in Consumer Beauty, your plans in Brazil is a massive mass programs market. So I would love to hear your views on that. And lastly,

on any update on the skincare launches in Asia would be awesome. Thank you. Of course. Good morning, Javier. Thank you for the questions. Indeed, you're right to mention these two elements, which I believe are the two next white space opportunities for our consumer beauty business.

The first one is indeed makeup opportunity. We believe we have done 70% of the job, if I may say. If you look at CoverGirl, we've fixed the lip category. Our lip category under CoverGirl is among the fastest-growing on the market.

We've done the same thing with the eye category. The two most recent launches from CoverGirl, which are Yummy Gloss, which is this viral product that is today going to sell something like six or seven times higher than what we had expected. The two most recent launches from CoverGirl, which are Yummy Gloss, which are this viral

and the upcoming launch which started in July which is Clean Toki on the mascara that you saw the advertising during the earnings presentations. These are in a way going to consolidate this two-thirds of the work that we have done. Of course we are doing all the necessary effort.

to really use the 70 to 75% of ANCP we are spending on this brand that are mainly digital ANCP, towards Gen Z, towards advocacy, towards creating viral moments as we've been able to achieve it with Umicross to take one example.

So the next phase is to fix the face category, which I believe is a category that has been driving the growth of one of our competitors to be very direct. It's really the face category and this is inside the cooking right now. So hopefully go?

Once we have the face category joining lip and eyes, the 90%, 95% of CoverGirl will be positioned for the future the way I want this brand to be positioned using modern marketing, of course, mastering advocacy, mastering marketing on TikTok.

and all this kind of digital ecosystem that was missing until recently, and that we started to master, I have to say. So to answer your path around the shelves, which is an important one, we can confirm that the shared space of CoverGirl has been stable post Spring 2023 reset, and is confirmed to be stable for the fall.

23 resets. So any net space that other brands may be discussing is coming from other brands and not from CoverGirl. This is number one. Number two, and this is a fundamental information that I shared with you already and it's important to share it again and again, is that there are two brands gaining penetration in the US. It's CoverGirl and else. And CoverGirl frequency I have to say is I would say two and a half times.

higher in terms of purchase frequency versus the category and versus key competitors. And this for me confirms that this brand's positioning, the new communication, the new innovations are strongly resonating with today's consumers. Last but not least, it's very important to say that in fact,

we are doing two things while most of our competitors are focusing on one target. Cogorgirl is not a Gen Z brand. It's a Gen Z, Millennials, Gen X, and Boomers brand. And we are going to play with these two key targets, you know, the right way, adapting the right marketing per target. So it's very important for us to also continue to remain...

as relevant as ever with GenX who are more loyal and who are more spending on this category. So that's what I will give you in terms of answer when it comes to how we see CoverGirl brand reconfers that started.

Now I move to the second part of your question which is around Brazil if I'm not wrong. This indeed is something we started to discuss during our investor's day back in July . You know we have strong capabilities. We have great capabilities in fragrances.

I'll say a word about this probably later, given the super strong start of some of the new innovation in our prestige, that we are applying the playbook of creating winning fragrances on both divisions. And we are also applying this in Brazil. We have also a top notch fragrance portfolio in mass market.

and you are right to mention that Brazil is a big market, it's a 4 billion dollar opportunity. So we started the journey over there in April . We are entering in retailers where traditionally we used to sell our prestige portfolio, but at the same time we are also opening opportunities in drugstores, putting our fragrances in the shelves of this kind of channel, which is very new for the Brazilian market I have to say.

rollout but you can imagine that we are super excited about how much this opportunity represents for the consumer beauty portfolio especially given our mass fragrances are highly reductive to our mass portfolio. The last part is very quickly probably on skincare and in Asia.

Again, you know the launch that happened in Asia was the Lancaster L'Inprancer that started in March as presented during the earnings presentation. You know this launch is achieving every milestone we are looking for, be it in terms of ability to create buzz on social media.

its ability to meet consumers' highly demanding tastes in terms of efficacy, in terms of textures, in terms of scenting, in terms of look and feel. All of these we have, you know, advocacy ratings that are very, very high. And as we said during the speech on the script of the earnings call, we have a very high

Now our job is really to increase the traffic towards the brand. And this has a lot to do with mastering the ecosystem between red, doying, which shots, and all this ecosystem with, of course, creating content and creating the fantastic story behind the brand on red.

taking people to do live streaming on the in and of course creating community management into which at so everything is on track when it comes to our skin care agenda and we are entering a new phase today mastering much better than in the past our

our Chinese digital ecosystem. And I have to say that the fact that this is a skincare brand and that's a skincare brand that we own in a way help us also to have the possibility to play with 360 degrees of the Chinese ecosystem, which has never been the case up to now because makeup and fragrances are not as sophisticated categories

as Kinker is in this market. So that's also a fantastic school for Koti China, but also for Koti overall globally.

We'll take your next question from Anna Lesul of Bank of America.

Hi, good morning, and thank you for the question.

Yesterday you announced the expansion of the Marc Jacobs license with the build-out of the beauty side. I was wondering how should we think about that build-out versus your initiatives with own brands in your portfolio like Infiniment Cody and Fragrance and Lancaster and SkinCare. Thanks.

Yeah, good morning, Anna. So in fact, this announcement we have made yesterday is, first of all, a continuity of a 20 years long-standing relation with Mach-Chekup fragrances. We've been together, married together since 20 years. And the outcome of this collaboration is I have to say fantastic. During fiscal 23,

The second fastest growing brand of prestige at Cotty was indeed Marc Jacobs, you know, high-degit growth, and this is really something that is, you know, the result of this long-standing collaboration. We've decided to extend this collaboration in the coming decades, but also we've decided to bring back

the highly coveted and cult Marc Jacobs makeup. You know, if you've seen some of the titles of people who have already published around this new collaboration around makeup, there is a lot of cult following for this brand. And this brand is fantastically positioned to do makeup.

in the area of you know, Indy meets Couture, which is really where the market is heading to and where you can really find the biggest part of the growth of the market. If you talk about our own brands, it's you know, a parallel story. You know, this company...

is the go-to destination for licenses, very long-term licenses. In this case, we are adding a new category which will strengthen our portfolio of color cosmetics, specifically in Prestige. But all our other color cosmetic brands, especially in mass market, own brands, again think of Crescendo, Max Factor.

Bourgeois or email to name the four most important ones. So this is really, it's an end, you know, you know how I love to work. I love to do and rather than either or rather. It's really this and this at the same time. So, an Fini Moncote is on track. The launch, the PR launch is going to be in October .

and we'll hit the first stores, including a global DTC in in in in in gen 2024. And Lancaster again, I've met the comments around Lancaster. Last but not least, we are opening today the sales of what we do believe in skincare is probably one of the most potent serum of all time behind the of a dark skincare line.

This serum is called omnipotent concentrate and it's open to be sold to a long queue of consumers waiting for this since May. Today at the end of the day.

Great, thank you.

Your next question comes from Corrin Willsmeyer, the Piper Sandler.

Hey, good morning, team. Thanks for answering the question and congrats on a great quarter. So first, I'd like to touch a little bit more on the guidance for next fiscal year and really the quarterly cadence that you alluded to. And it looks like there is a bit of a slowdown that's maybe implied in the back half of the year. And I know you're coming up against some more challenging comps in the back half, but I was wondering if you could touch on if there's anything else that you're factoring into guidance for the year.

So what we share is that H1, we are positioning H1 from 8 to 10%. So indeed, this is definitely based on the strong start on fiscal year 24 that we are currently contemplating. So this is really giving us full confidence and again, as I shared before, because both categories are risks.

are really growing fast. And then Coty really brings some very successful initiatives on both divisions. So on top of what Sue has just explained, which are really the momentum of the initiatives that we picked up last year, such as skin care, consumer beauty restart.

We have also some great initiatives in prestige. Prestige Fragrance, I want to name and you saw during the presentation on Burberry goddess, which currently what the data we receive from retailers and consumers are really stellar. Again, this is really.

giving a very strong start of the year. Consumer beauty also we are seeing a very good momentum. Humic loss that we launched recently, sales are eight times higher than our initial forecast. So you really need to see as a combination of very dynamic.

market growth again on prestige and consumer beauty and amplified by definitely all the initiatives and you know the work that that COTI has implemented and has built over the last few years. So there is nothing you know structural implies slowing down in H2.

and we have good visibility to the strong momentum in H1 at this stage. This is really what I can tell you.

Very helpful. Thanks for all the color. And then if I could just touch a little bit on the segment margins, I believe there was a bit of a contraction in consumer beauty. Can you just touch on as we think about going forward over the next couple quarters and years how to think about the proper run rate for margins for each of the segments and where will we really.

the EBIT margin fiscal year for consumer beauty. I mean the EBIT grew 21% by 70 by this point. So it's growing and definitely all the work that we kicked off three years ago is a revamp of the brands and schools.

reason is really that gross margin expansion and 8-bit margin expansion is on both segments, consumer beauty and prestige. What I can add to your question is that I would say consumer beauty is not a

was more impacted by COGS inflation during fiscal 23. And then that's why we implemented some price increase and we continue, as I said, in Q1 fiscal 24. We are continuing definitely on our innovations.

I can definitely tell you that the innovations that we are currently launching and we launched even in the second half of last year have a gross margin in some cases which is equivalent to prestige. So we have really all the elements in our hands really to build sustainable profitable andID poll

for prices and also consumer beauty. And we have also some productivity actions on consumer beauty. One big one is we shared a few times with concrete example is about platforming. So it's really to have, you know, standard platform on all our brands.

and definitely this is going to create really some optimization. And of course we will see some expansion in both businesses consumer duty in the coming years.

Your next question is from Olivia Tong of Raymond James.

Great, thanks. Good morning and congrats on a very strong year. My first question is around the pricing actions in Consumer Beauty. If you could just elaborate a little bit on the range of price plans that you have, key categories where you see the biggest gaps, and then whether it's coming with new product plans along the way.

Usually repeat is very granular. There is not the simple answer is really that we are reviewing brand by brand, segment by segment, market by market and making sure that our pricing is matching.

consumer needs and also what retailers are working on. What's very important as you know is that the price partition is quite extended on consumer beauty. We are starting from $4, $5 and we can go up to above $20 so this is also what we are reviewing in detail.

So this is on the existing portfolio. What I want to add on top is of course is about innovation. We have a great pipeline of innovations and we shared already some example, as Umicloss, Mascara, Klinetopia, Lashpro, and we are making sure that

All these initiatives are really launched at premium and definitely so we are taking opportunity of these innovations to increase price. So this is definitely a lever but again because these are high quality products and this is amplified by Gen Z and there is really strong appetite from this product.

our streams on strategic revenue management. And definitely, these are programs that we are going to amplify in all the key markets. And it's really a way, of course, to increase value of our products and always to make sure that we share these value with retailers and consumer beauty. So we have really a very detailed plan, very granular. And this is going to enable, of course, the

of the growth margin of consumer beauty in the coming years.

the licenses, given that you renewed a number of fragrances of late. And in some cases, are you renewing earlier or are they all just kind of coming up for expiration or renewing around the same time? And if you are renewing earlier, could you talk about terms, whether anything has changed?

in terms of length of partnership or terms around it, and if so, what's driving that? Thank you.

Let me take this part, Odileia. So indeed, fragrance licenses, some of them are renewed before the renewal period, as I may say, and some of them are renewed earlier, which is a great sign of confidence towards a comorality as it is now and is generals.

leading destination for this, you know, fashion brands that are willing to go into beauty, not just fragrances, but also makeup. We've seen this recently also with Marc Jacobs. So that's very important in terms of, you know, mood. And again, let me remind the audience that

to create beauty businesses together. And again, it's very important that we have this ability to make new brands, new territories, new visions of beauty part of the COTI portfolio. That's something that's very important. There have not been any material changes in licensing terms. This is something I can confirm to you. And again, it's a really great occasion for me to say how much COTI is seen today as a partner of choice. And again, I welcome any fashion brand willing to enter the beauty industry to partner with COTI because the ecosystem we're proposing is unparalleled in fact in terms of reach, in terms of R&D, in terms of ability to operate multiple categories.

and in terms of marketing. And this gives me the occasion to say a few words about one of the launches of the company that are all important for me, but one is very dear to my heart, which is the one of Burberry Godess. Burberry Godess for me, have a look at this launch. This is the best of COTI know-how in terms of creating winning juices. I've been talking about this since many many quarters. We are there finally.

You know, it takes time to put in place this kind of methodologies to craft a launch that is a five-star launch at this level, to execute it. We started to do this in travel retail in July and now we are expanding globally. And what we are seeing is in a way giving a direction or flavor of what could be the upcoming innovations from Coty in this area and therefore for our partners when it comes to fashion houses. And that is the core models for satisfied payment of 2020 and for 2022 rather. So, with that I ask you to think of another way to unpack your work. If you could talk to New York seventy-seven million dollar by Happy Tbec or any other Che's report. Again, our goal to get him down into the redefining process.

So this is really something I wanted to stress during this earnings call. Your next question is from Chris Carey of Wells Fargo Securities.

So this is really something I wanted to stress during this earnings call. Your next question is from Chris Carey of Wells Fargo Securities.

I'm going to say, so I realize it's been asked several times, but just a couple quick follow-ups on pricing and impact.

Number one, you know with the high end of the 68% sales outlook, is it reasonable to assume that your full year sales expectations are exclusively price driven and can you comment on what you would expect for volumes this year? And the second question, is it reasonable to assume that your full year sales expectations are exclusively price driven and can you comment on what you would expect for volumes this year?

is with the pricing round in Q3 and Q1, I guess I'm a little surprised that gross margins would be down in the front half of the year, even with the inflation, which doesn't sound like it's getting worse, it's just lingering. And so can you perhaps expand a bit more on what's driving the gross margin.

down near veer despite the incremental pricing and inflation which doesn't seem to be building. So, you know, thanks for those two just on Yeah, you know price was falling I guess for the full year and and the gross margin question for the front half

Let me take these two elements. I want to make it very clear that volume is absolutely key. This is what we are seeing already in the second half of fiscal 2023 that the growth is driven by pricing, by mix, but also by volumes. So is the...

And definitely the model we are building for fiscal 24 and beyond is really a balanced growth algorithm, which is really a combination of pricing, mix and volume. So I'm really insisting on this. And we gave a very concrete example.

what we are doing in consumer beauty, Umicross, all the launches. So these are definitely additional volumes in our equation. And volumes are also very important because it's really showing penetration, increasing of market share and of course for our factories, our footprint.

First of all, I really want to highlight the great lending that we are doing on gross margin. We shared several times that there will be a modest gross margin expansion fiscal year 23 and you know, this is exactly where we are lending.

and even with a very good result in Q4. So you see that all the work we are doing on gross margin despite inflation has delivered strong results. So we confirm also that for fiscal 24 there will be also modest gross margin expansion. So gross margin will keep growing and we also confirm to be

in the mid-60s by fiscal 25 exactly as per our midterm algorithm that we shared more than two years ago. Now to tell you, we highlighted that there will be some phasing, H1 from H2. Definitely H1, the big few elements. The one is that...

are capitalized during four months. So between the moment that we have inflation and the moment it's released in the P&L, there is a lag effect of four months. So that's why we still see this inflation in H1. But there will be some easing in H2. So that's it.

That's number one. Number two also, which is important for you to know, is that last year, due to service level challenges and also component shortage, we had to make decisions really to reduce gift sets in prestige. And as you know, and so this year, in each one, know that we are.

we have solved all the side chain issues and component shortage. Now we are really back to the normal share of the gift sets in Q1 and Q2. And as you know, gift sets across margin is a few points lower than the standard SKUs. So this is also something which is explaining the phase. But it's absolute control.

It's also supported by business decision and fully embedded in our fiscal year 24 algorithm and mid-term algorithm.

Your next question is from Andrea Tochera of JP Morgan.

Thank you everyone and good morning. I wanted to just take this opportunity, Lorraine, you mentioned the phasing for gross margin. Can you talk about it, because you gave us a sense of the basis point, the margin expansion, how we should be thinking of your long-term algorithm.

It seems to me that now would be the year where the inflation, you just closed inflation of 2%, you had pricing mix up then. Isn't that like now, I understand all the schools can take on the facing of gross margin, but as we go into 2020, fiscal 2024, especially the second half, wouldn't you…

be able to trickle down more or you're just having the cost phase and all this gas between pricing and inflation be reinvested into greater S and A or greater marketing investment of summation to cost and all the other influencers that you became more of a avant garde of that. Is that the way or it's mostly the...

in the process and especially in care in China. Okay. So, I mean, all your points, remarks, I mean, this is definitely the constant focus and work that we've been doing over the last three years. So it is really...

focusing on productivity, focusing on gross margin expansion, and then definitely allocating these resources, this money, to support all the strategic initiatives. And you are currently seeing that this model works with 17% growth in Q4.

improving our margin and improving our profit. And again, as you see, we are improving our EBIT margins this year by 170 basis points, and we're improving our EBITDA margin by 40 basis points. So the model is in place. Now looking forward, as I shared, I mean definitely the midterm algorithm is fully in place, so it's really reaching.

the mid-60s, the gross margin by fiscal 25. And this is supported by all the actions I shared before and productivity. On SG&A, definitely we have a strong focus and it's fully included in our All in 2 Win program. So definitely here we continue some productivity initiatives.

But also we are making sure that when we are talking about resource allocation, indeed we are allocating in ANCP to support the strategic initiatives, to support also all the white space opportunities that we are seeing. And Sue shared a few. Of course, we continue. China, you know, program plan is really, you know, mid-term strategic, very, very important plan. We are not defined by yet if the platform isogie to run won't remember, that will happen once the platformtaping is here. I think itoster we could see,

footprint on R&D but we keep investing. So we continue really to improve productivity, to allocate the resources which create profitable growth and at the same time we continue to improve our margin and we just, you know, our mid-term algorithm which is a 6-8% net revenue growth and a big improvement 9-11% doesn't change.

So your question is, you know, definitely the daily work that we are operating.

Your next question is from Linda Bolton of Davidson. Yes, hello. I was wondering if the pressures in the Hainan region with still waiting to see if the pressure of the radiation is the gravity of the fires, but also the shock inclined fire

more travelers return to that area. If that impacted your ability to get shelf space for the Lancaster launch, could you have gotten more shelf space but for the pressures in that region, did that affect things? And also is that affecting Gucci and Burberry growth at all in the region? Thank you.

Good morning, Linda. Let me take this question. So in fact, what we are seeing in Hainan is that our shelf space for Lancaster has not at all been affected by all the pressures we are seeing. We are just doing the job step by step. In fact, we don't want to open a massive number of doors and while at the same time creating the business model of success of this.

making the productivity of the doors that we have opened so far as high as possible before starting to expand the number of doors and the expansion of the shelf space. When it comes to the other brands that you have mentioned which are Gucci and Burberry, there was no impact from what's happening in Hainan. Today these two brands...

that were doing great on makeup are recovering thanks to the back of makeup consumption in the country. They were growing very fast on the makeup area. This has been in a way limited during the lockdowns and the fact that since the opening of the country beginning of calendar 23.