Q1 2024 Coty Inc Earnings Call
[music].
Okay.
Good morning, and good afternoon, everyone. My name is Todd and I'll be your conference operator today.
At this time I would like to welcome everyone to Kellys first quarter fiscal 2020 for question and answer conference call.
As a reminder, this conference call is being recorded today November eight 2023.
730, a M eastern time or 130 P M Central European time.
Please note that on November seven at approximately 430 P. M. Eastern time, or 10, 30 P. M Central European time, Cody issued a press release and prepared remarks webcast, which can be found on its investor relations website.
On today's call are a tsunami chief.
Decorative officer and Lorence Mircea.
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 reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward looking statements.
In addition, except where noted.
The discussion of <unk> financial results and Cody expectations reflect certain adjustments as spec.
As defined in the non-GAAP financial measures section of the Companys release.
With that we will now open the line for questions.
If you would like to ask a question today. Please press star one on your telephone keypad.
You may remove yourself at any time by pressing star two.
Once again that is star one to ask a question.
Our first question will come from Nik Modi with RBC capital markets. Please go ahead. Your line is open.
Thank you good morning, and good afternoon, everyone.
I actually had a big bigger picture question Sue when we recently met in person a few weeks ago. You were very excited about the innovation program at Cody and I wanted to ask a more broader question about skincare and how you think about skincare holistically in the sense that topical is one thing, but what about <unk>.
<unk> and Injectables.
Curious on philosophically, how you think about the category going forward.
Hi, Nick.
Q4. Your question in this that's as you say the bigger broader picture.
I think what we have shared with you guys several times.
Given current market and by the way the beauty markets in generically speaking.
Going in the direction.
I don't know dedicated beauty. This is something that we see very very strongly.
The reason why we have decided to reposition some of our brands quite strongly in this area. If you allow me.
Remind everyone that we just did.
Launched behind albeit that skin care of the first serum that uses technology is inspired by the medical world that we've called <unk>, which is the first time a skincare brand is due within these kind of technologies in a topical cream as you say it.
On lung cancer.
So that is really resonating very well.
Using this vectors leave Brazil penetrate deep inside the scheme.
So really what is making the brand resonates with the Chinese consumers.
Also on philosophy in the U S. We've decided that the brand will stand for the brand thats going to bring a bit of wisdom in the craze around dermatology ingredients. So as you hear it from my words, it's all about kind of mitigated view.
In the beauty World, we are using ingredients and obligations.
Acting on the layer of the skin and we are not allowed to go.
Lower so if you think about injectables.
Do you see this booming with other companies selling you know.
Products that are going to reveal the less cells without putting any brand.
Ducts that are all about injecting.
Inside the scheme vital means.
Or sometimes you don't know.
<unk>.
Medical devices are lowing faster penetration of the active so you are right.
Is the direction that the overall market is going into that we have some limitations when it comes to selling skin care from a beauty brand that does not require any kind of.
Long time testing like a mitigation or a direct would require but thats more or less the direction. We are seeing in gift ingested those.
And just it was just like <unk> it has been a kind of.
Everyone stays as this is the year I think just the Bose.
And nothing has happened so again there might get TV is that this category needs to beat us strong R&D because a lot of people believe that what you are going to ingest is going to be digested by your stomach enzymes.
End of the day, what's the difference between eating good food.
Having ingestible. So that's also something we a year.
Some consumers that in just to both need to demonstrate their ability to bring to the right place right ingredient knowing that they come into your digestive system. So.
Thats the whole the big picture I could share with you I hope I'm, saying thoughtful question.
Yes, Thank you very much I'll pass it on.
Thank you.
Thank you. Our next question will come from Oliver Chen with TV Cowen. Please go ahead. Your line is open.
<unk> and Laura you made a lot of great progress with your digital marketing and the studio we toward was remarkable whats ahead in terms of how youre thinking about a digital center of excellence in key principles and platform Acacia in Nashville.
Continue to build this capability across your portfolio.
Also as we look forward.
What are your thoughts on.
On pricing in the environment, we're seeing a lot of cross currents in the consumer and many regions however, you'd banana.
Really good good pace with all the fragrance momentum thanks a lot.
Hi, Eric Thank you for your question so again.
On the digital centers of excellence you are totally right. We started since 2020 to really create a center of excellence. That's based in Paris. That's the global center of excellence really in the kind of catch up phase on because the company was a bit behind the competitors in this area three.
Years ago, and this we made it happen.
In Paris, and now it's exactly the right time to have these centers of excellence benefiting from the global Knowhow being created in key regions around the world, namely the U S or China to take two examples where the.
Digitization of the beauty World is quite advanced and fast paced. So this is exactly why we are spending now on consumer beauty. You know that we are also accelerating our ability to create <unk>.
Locally in the different countries because this can only be load count because you need to sit with the culture you need to fit with the language you need to fit with the local trends. So we are creating studios, let's call them like this in the U S and U K and elsewhere I think we created something like 15 studios, which are kicked off or you.
To call them. The way you want studios, where we are creating together or co creating with influencers content and we are also be seeing the machine.
Just to give you an idea until recently, we were working with a few dozens of influencers behind the key assumptions that the consumer Gucci makeup brands and then recently, we moved to hundreds and we saw the results immediately.
The example of U K, where we moved from nowhere in terms of <unk> to top five top six brands. Sometimes ahead of best in class brands that have been doing this for years and years and now the objective is to multiply this number by three to.
Get.
Above the threshold.
Influencers reached by our brands. So this is exactly what's happening in terms of centers of excellence first deals globally in failures and now doing in the different countries.
In New York, and London, and in Shanghai, where we are today talking to you from.
Maybe you can take the second customer price yeah, absolutely.
On pricing so I.
I mean first of all just to remind you that indeed, we we implemented several price increase although over the last two years.
It is all of the mid single digit on these price increases went very smoothly and we are very successful. There's a clear demonstration is what you are seeing thats all volumes keep growing.
And definitely that youre seeing that in Q1.
Volumes are growing so this was really a very important chemo.
Our strategy.
To make sure that there is no elasticity on volumes and this is and this was the case. So now looking ahead of course, we are very conscious that.
Is there a reason, especially on Cogs inflation is starting to softening. So what the difficulty we are really focusing on mix management.
This is definitely a number one driver to continue to improve our gross margin and <unk>.
Management.
In some concrete examples of innovation that we're launching.
All of these innovations are reading weeks equities, so really driving.
The average price.
Number two.
We are opening and we share those saw less tongue.
The extreme of the SRM, which is strategic revenue management.
Really an approach where now we have dedicated teams is really two opens a value and that is either of also product and really making sure where we can we can extract some value. So concretely is really to redoing that also is a promotion policy.
In some cases it can be also about the formats and again this is really a way for us to.
The average unit price.
We will continue the affinity to implement some very targeted price increase.
And more to a level of a low single digit but definitely we have these pricing.
Tina pricing Youll see very expert.
We are very granular.
Every time, so we will continue in a very very targeted money.
Thanks to the innovation from quite exciting best regards.
So innovation of course is part of as part of the game. So it definitely keep part of the mix management and of course, we are making sure again.
We have a very concrete example in this Q1.
Uh huh.
High quality of innovation.
Also as you know there is a shift to higher concentration on prestige fragrance unless the MVC is again, a way for us to drive the average unit price so absolutely and on consumer beauty. Oliver you have also the same thing what is really driving the market is premium innovation not entry.
Pricing and Thats very important for everyone to see here and this is the area, where we are going to accelerate the pace of innovation.
<unk>.
High single digit levels required in terms of innovation, we are more today targeting high.
High teens level of innovation in terms of percentage of the metrics.
It's accelerating the premium innovation and driving the market.
Thank you. Our next question will come from Rob Hottenstein with Evercore. Please go ahead.
Great. Thank you much. Thank you very much and congratulations on the continued great work.
So given that you were in China.
I'd be remiss to not ask you.
What youre seeing on the ground in China, and then add on if you are there.
Both in terms of how the consumer ends and the beauty market is recovering if it is recovering and then maybe additional details on your execution.
Whats going particularly well thank you.
Hi, Robert Thank you very much for your kind words, so again youre right we are in Shanghai.
Enhanced since a few days and would be here until the end of the weeks.
And indeed, it's very interesting to see how the market is evolving quite fast I have to say.
Specifically on the fragrance category again.
We've shared with you that a few months ago, maybe a year ago. We shared with you that we start to see Chinese getting very very interested in this category and this is accelerating at an incredible pace even the case.
Accelerating to give U su su issue ideas, we launched.
They're very good in this country a little bit after the rest of the countries.
Because we thought that the center of this innovation was really bold Santa et cetera, and the reception has been outstanding. The line is already a number six line at Sephora, which is a ranking that we never achieved in this country with any of our fragrances.
It's really this fragrance category thats by the way of growing is growing by 6% and could see in the country. This is the beauty research Natus results is growing more than two times faster than this level of the market.
Very good. This is just starting in this country and we believe is going to be a game changer. The other elements. We are seeing is the.
<unk> and utilization of the market and I would even say.
The bigger faster niche fragrances. These fragrances represent almost a quarter of the market today in China. This is.
Two and half times bigger than what you see in the rest of the world. So this premium position going in the direction of more niche brands really setting in freestanding stores and when you answered. The boutique you don't have the impression you are in a store that is selling fragrances, you'll have the impression that you are.
Visiting a concept store are sometimes a museum. So this is something that is growing very very quickly and thats. The reason why I've been sharing with you how much we are eager to develop this kind of expertise inside the company to understand of course, how to create winning.
Winning.
Niche brands, but also to understand the world of retail when you are operating a freestanding store we also need.
EE integration two days ago, It was a fantastic moment, especially for as immuno oncology Perez.
Was not fully disclosed to the Chinese audience, we did a teaser and what was incredible to see all of these young men and young women entering this booth, where they had the giant sours that they could put their nose and smell the fragrances and try to get the name of the <unk>.
<unk>, how would that look like et cetera.
Andy Andy underway. They welcome this was absolutely outstanding. So we're very very confident about this line that is going to meet the Chinese consumers. The other market that's doing very well in China. Today is makeup makeup is growing by 10% and that we are growing faster than the makeup market.
Mainly thanks to Gucci makeup and Burberry makeup there it's all about face makeup.
Again, the makeup category is kidney siding and anything that's a good mix between picking.
Pigment and skin.
Benefits is clearly what people are looking for on top of the fact that everything has to be long were last but not least skincare market, which is the immense majority of the sales. This market is slightly negative and the recent most recent period.
It's not that Chinese are using less skincare theyre, probably shifting from some brands to other brands maybe the level of promotional it is that this market Richard in the last quarters and years is a kind of maximum and then there is a kind of they are looking for what are the new brands that can speak to that need.
Without being too promotional or would that be.
Being too much into this world, where you buy on the there is a promotion and where our brands are doing well specifically non cash debt, which is the main brand that we have in this country specifically online the brand is continuing to see momentum because it's growing month after month.
We have started as you remember with anything you can share and now we are.
Adding next two in concept, but focus on <unk> because these brands is really seen as the epitome of what is high and Sun care protection.
And we are also adding new innovations that are about to land in the markets in Gen 2024, so thats bit wrong, but thats what resources, we can out in Shanghai.
Hainan, we did not draw there I have to say that's.
Not this time, but our progression of <unk> heard it and you've seen it during the script in the earning release is very very strong in fact that is specifically behind long cast there, but also behind brands like clearly.
Thank you. Our next question will come from the LIFO Bologna with Citi. Please go ahead.
Hey, good morning, everyone.
So clearly very strong start of the fiscal year with 18% like for like sales growth. So maybe sue can you could you comment on like what drove the upside relative to the guidance you've provided September.
Mentioned a lot of drivers in your prepared remarks, but maybe you can rank them in terms of category growth innovation contribution.
And then thinking ahead.
<unk> for the first half it does imply a bit of a slowdown in fiscal Q2 to 4% to 8% like for like sales growth. So maybe what is the driver was there any pull forward of shipments in Q1 versus Q2.
Any color that would be helpful. Thank you.
Yeah. Good morning, Sandeep also.
So in fact, what drove this.
The upgrade of the guidance during the quarter is the fact that the.
Number one the market continues to be very very strong 10% of growth of the fragrance market. This is really.
Fantastic figure on top of 10% in Q1 fiscal 'twenty three so again when we discussed it several times since the beginning of this fragrance index phenomenon, we really tried to explain as much as we could that this is everything but.
Something thats.
A one time event and everything has to do with a very profound shift in terms of who are the people who are buying what they are buying how theyre premium rising and they are and how social media in a way is holding this consumption globally in the different regions around the world. So the market continues to be very good very strong and very dynamic.
And the best way to see it is also in the performance of the company. So on the market that was 10% could be fragrances prestige fragrances grew by 25% to two times.
The growth of the market of course, there is a lot of pipe in as new innovations, but these innovations they're all delivering very strong of course, there is everything we told you about the goodness that has become a toxic fragrance in the U S. Senate recently taxes for our China in many markets.
It's inside the top 10 and this is for sure the number one innovation in all the key markets around the world, but it's not the only one in fact you have to know that we don't have one brands growing in the high $22. Three last fall we have seven brands inside that are growing in the high <unk> some of them with.
Asian, and some of them without innovation. So this is also.
I'm, sorry to say it but are necessary I'm proud to say this is the good work we are doing at Gucci at creating incredible exciting the highly performing innovations in this area of the fragrance fragrance growth. So that's what really explains the upgrade of the guidance.
We knew that this would be big but the jury was debating is it going to be big very big are extraordinary. So this is what we are seeing is that this is going to be quite big if I have to say so second element is the question around how Q2 will land. So you have to know that Q1 is typically.
Right.
While we typed they are very good as we've been piping also.
Good she and manually via innovation and also bus.
Innovation Q2 is really a cost of sales as you know it.
The picture that is implied means that we are going to continue to have a very good performance probably in line with the market or slightly above the market. So thats more or less what we believe is going to be hopefully we'd had a good surprise, but so far it does not mean there is a deceleration just means that we.
All about sell out versus sell in sell out in the first quarter.
Our next question will come from Karin Wolf Meyer with Piper Sandler. Please go ahead.
Hey, good morning, and thanks for taking the question congrats on the quarter I'd like to take you back office.
Hainan question I'd like to better understand what are you seeing with selling prices fell out for about China and.
As I travel and retail.
And if it's not normalized.
We think that should normalize and also any early read.
11, 11 pre sales and then lastly, I would like to see if there's any commentary you can share on any potential pressure with some of the middle East.
Thank you.
So when it comes to Hainan.
Today, our inventory levels. Okay. There is not any kind of.
Flex to be done in terms of having inventories going up.
Of course, we are in front of you.
As a comparison, if I may say, but still.
The growth of the fragrance business, we're having there in our skincare business is very high it's a triple digit growth.
It's quite.
That's good in a way when it comes to China.
Inventory levels there has to be also on the prestige side, the only parks, where we definitely started by the way during the script.
Even if this is very very small portion of our business is around a CD, it's not to do with our.
With the market or anything like this has to do with.
Moving from one line to another line at retailers, we revamped the Adidas sugarcane lines.
So and we changed it from one factory to another so we had to build a bit of stock that was pushed to the trade and then because of the slowdown of the market. This trend went up and this delayed the arrival of the renovation of the Chevron just so this is the only thing we flagged in all the communications, we have done regarding an increase of inventory.
But again this is a very very small part of our business given that.
Yes.
Key China business is what 90% of the prestige and 10% seem to be more or less. So this is number one what do we see on 11 11, the dynamism of the fragrance category is concerned this is really something that is.
Confirming months after months, specifically as I said it before on the high end box and more than ever.
People exploring.
Central juices that are unexpected for a market like China, which is a great great I would say news because this means that the ability to create full lines for the Chinese consumers is crystallizing now versus what it used to be the case, just two or three years ago, which is that you could.
Launched only two of three flour iterations.
We're done with the Chinese market. So there there is the diversity that you see everywhere else around the world in terms of states case that starting in the country and on the last part of your question regarding what is happening.
In the Middle East. This business is mid single digit business expertise. So far we are not seeing any negative impact on our business but.
Thats the situation, but honestly I have to say that an approximate level as you know it I'm very saddened by the violence and we continue to hope for the piece and then end of the suffering that was an important point to make here. After your question. Thank you.
Our next question will come from Anna <unk> with Bank of America. Please go ahead.
Hi, good morning. Thanks, so much for the question I wanted to ask on the quarter you had a good deal of operational leverage to help drive the adjusted EBITDA would be and I was wondering if you could elaborate on the drivers of that.
Progressing through the year.
Yes.
Thank you Anna.
Indeed, I mean, we continue the Phoenix.
And our strategy is really making sure this flywheel.
Top line growth focus on productivity and then making sure that we are allocating resources to support our strategic initiatives.
And we keep growing our EBITDA. So this is definitely what what is the equation. You saw you saw it in Q1, and indeed is driving us to to deliver an EBITDA, which is a higher then.
Expectations. So now when looking ahead.
What types of components number one.
We continue these topline agenda. So this is a as you saw we are raising the top line guidance number two gross margin definitely we are seeing I mean, Q2, where our gross margin should be flattish and then.
Expansion gross margin expansion in our H two.
Which will be the combination of the mix management as I just shared.
Productivity is that we continue.
Getting pricing and also we are starting to see some softening on cost of goods inflation and also transportation inflation. So then we will continue of course to inject.
Some of this gross margin expansion into the strategic initiatives.
Innovations investment into capability, as we say, but digital.
R&D and definitely.
Keeping improving our EBITDA margin as we confirm our EBITDA margins full year growing from 10 to 30 basis point. So as the flywheel is fully in motion and.
And of course with.
Hi, DCP on on the cost and really making sure that it's a fleet fully consistent with our strategic imperatives.
Our next question will come from Olivia Tong with Raymond James. Please go ahead.
Great. Thanks, Good morning, good afternoon.
My first question is around.
Your view on margin contribution by segment this year and whether you think one division is expected to sell more extension any other are you expecting both divisions to grow margin in light of.
Q1 trends.
Prestige market, obviously, increasing consumer beauty still.
Go down on a year over year basis, and then just finally in terms of their plans to raise price.
In early calendar 2004, and if you could just talk about elasticity.
And your view on the volume trajectory for this year as you implement that next round of pricing. Thanks.
Yeah. Thanks, <unk>. So just to give you a few element as you as you shared indeed, so prestige and is showing a strong strong improvement on profit.
Profitability.
Starting at a lower pace, what's driving this is that we have in the 10% top line growth.
<unk> beauty.
Strong performance in beauty care.
Which is a waiting down the gross margin so again.
<unk>.
Very positive absolute value, but definitely there is some.
Impact on gross margin, but at the same time.
Can tell us that there is a very strong work in huge work to improve the gross margin in consumer beauty.
I know, what you're referring to Boogie care is different Brazil is driving this growth and we have significant gross margin expansion in this category.
In this market. So definitely you will see that gross margin in consumer beauty we.
Improved quarter after quarter and this is again with combined with a strong productivity plans that we're putting in place in consumer beauty.
One is being platforming, we're really making sure that no innovation that we're launching across the different brands and fight the same same technology and it brings a significant savings so it's going to contribute significantly.
In the coming quarters, we keep working as I shared before on the strategy for the New management. So we are really a deep review detailed review on all the value analysis of consumer beauty and we are reading the anticline significant a significant value. So definitive strong focus on there is a clear trajectory.
To improve our consumer beauty of profitability in the coming quarters and in the coming years.
So then your second your second question was definitely on on pricing as I said at the beginning.
We are.
Strong pricing youre working on on the streams. So they are very precise very granular and it went very smoothly.
Last quarters. So now we will do very targeted price increase so when I'm, saying very targeted price increase that's exactly the answer to your question is really them. When we have all the elements all the analysis that we do this and it has no impact on the volumes. So what other drivers is really when we know that it's about <unk>.
Products, where there is high demand high success and definitely we know that we can there is a gap between the channels are between competition and definitely we have room to increase price and again without impacting volumes and we made very clear and I repeat and you saw it in Q1, we are making sure.
Our growth is well balanced between volume mix and price.
Thank you. Our next question will come from Andrea Teixeira with J P. Morgan. Please go ahead.
Thank you for taking my question and benign dairy in China.
So just on the I mean.
Congrats on the top line delivery, but on the consumer beauty Aloha and you're just mentioning some of the they ask for it.
And we saw some improvement in market share should we expect some velocity and so I think you mentioned when we saw each other recently in terms of like how youre seeing.
The shelf space looking ahead in the spring resets and particularly in the U S and UK.
So how should we be thinking.
As we see consumer beauty.
Let me covering their NDA seemed particularly in key countries.
Are we seeing more like velocity, and then as retailers see that improvement.
We will decide on shelf space seem to probably calendar 'twenty five.
And then on the investment side, if you can help us like of course theres. So much investment that I think investors appreciate.
The overhead and SG&A total dollars in the shoulder months has been around 740 million per quarter, and then obviously the ramp up to around 800 is that the way in the level of dollars that we should be working with.
And silent on the clarification on deciding to sell.
To postpone the well.
Sale. It seems that you have not reached an agreement on the pricing I think and I understand that but just to think about how we should be thinking that that comes up for KKR in calendar 'twenty five and how that negotiation is that SaaS valuation that youre looking to do or.
Is that something that could be negotiated by the time, we cross that bridge. Thank you.
I'm, sorry, I'm going to let Laura answer on the two last questions, which have some sensors and then I'll take the question on CD, which is a little bit longer in terms of.
Hello, Andre so indeed on the envelope, it's important I gave you.
Could be true. So what are the elements number one is definitely that we are seeing in a very strong cash flow trajectory.
First half fiscal 'twenty, four and the full fiscal 2004, so differently.
Is this a filter demand is giving us full confidence.
To reach our leverage ratio number two.
So we implemented a dual listing end of September and we made we made an offering which was very successful.
And again this is a second element.
She is accelerating our deleveraging so definitely.
<unk> just to be very clear.
The point is not about pricing I mean, I can tell you.
The due diligence, which was made on data fully confirm and there was a great value of the company and undo pricing. There was just I mean, if I may Keith.
Some.
Small misalignments on.
Indeed on minority rights.
And these things happen, but again based on the first two elements. We came to the decision that took it was it was better to stubs transaction, but be very clear that it doesn't change our agenda that we are targeting a full divestiture of vela.
By end of calendar 'twenty five.
Value of data is absolutely confirm and you saw it in our books and the relation we take care of his excellent tons.
Very good business.
So quick.
Question.
On its own as Jamie.
The key element is the is definitely that we are we are investing.
But still it still growing your SG&A. So we are growing our SG&A below sales growth, but it's important also that you keep in mind that in SG&A. We are making sure that we are investing on the digital capability. We are investing in our R&D capability. So we are making sure also that with India G&A, we have project.
TVT.
On the cost, where we don't see value for the business, but we are also investing on.
G&A capabilities, which are creating value for the business. So thats. The way we are driving you saw SG&A.
SG&A question.
So now on the consumer beauty question.
Guarding what's the trajectory of the division in terms of growth.
Two things the first one is that we are.
<unk> of our sources of growth in consumer beauty. The majority of our sales are coming today from color cosmetics and I will say a few words about this in a few minutes, but we are also.
Building the.
Machine to make consumer beauty, a maker of mass fragrances.
China, we just hadn't missing and what we see is that there is potential all around the world and every country.
Paul are creating for fragrances from the lowest price possible to the highest price possible. So this is an area that is very important for the division is to diversify the sources of growth and to diversify ideally in categories that are highly relative and fragrances are hydro.
So the gross margin of the consumer Beauty Division makeup is quite high.
In the <unk>, if not higher and this area. What we are doing as I've said. This several times is that we are accelerating the pace of innovation.
Basically what I call premium mice innovation, so you've seen recently some innovation coming under Colorado now platform quite instantly I have to say because this is coming six months. After eight months as ups are now under arena. We are platforming this premium innovations.
And this is going to help us a lot to drive the.
Of course, the profitability higher but also to attract this younger generation. So what we have done so far if I take the example of Covergirl is that we have solidified the foundation of the company.
The brand story towards I would say millennials and Gen X and boomers. This is something that is not seen in other indie brands they have mainly adjacent business.
One we have is big and now we are going to build on top of these are more younger Gen Z, namely digital Influencer and advocacy driven business behind this innovation so.
The things I can share with you and which will take me to the shelf space is that Cologuard is closing the gap versus the market. We are closing the gap while growing quite strongly it happens that someone is growing much stronger but the reality is that we are part of those who are.
Still growing but closing the gap versus the market in recon Master the gap was of eight points in the last nine months.
Six points in the last three months.
And now it's less than three points.
The brand is driving the growth of the category.
The gap was one four coverage above the category at Amazon in the last nine months as in the last three months as co got girl is 20 points above the category at Amazon.
And in the last month, it's still 2018 19 points above the category. So it's clearly that it's happening it's really that the advocacy influencer marketing plan.
So signs and we hope to see this translating also under <unk> and mass spec side of the market.
<unk>.
Regarding the shelf space, we believe that this shelf place, which sets up spring.
First of all our brands will be stable hopefully it will grow in 2025 as you are suggesting it thanks to our very very strong plan of innovation more innovation quicker lift by a strong influencer and advocacy teams around the world, which hopefully will give us the ability.
It is to start to increase our shelf space again.
In mind that is expected to be stable.
Our next question will come from Charles <unk> with Kepler. Please go ahead.
Hello. Good evening. Thank you for taking my questions I have three actually the first one I was pretty impressed by your performance in Asia Pacific.
What was behind the strength of your business that unlike most of your competitors and more specific into China retail channel.
Yes, there is true everywhere for you.
And also if you could give us some idea of the breakdown of the travel retail business by geography.
Second question on the inventories.
One of your competitors said that to retain US has now reduced their inventory.
With the supply chain constraints easing.
Do you have any view on the level of inventories and to trade in Europe and in the U S and.
Okay.
And of course in Q2, and really Q2 potential destocking impact and <unk>.
Finally.
Just a follow up question on the question of one of my path.
Your <unk> guidance suggest 5% to 8%.
And this is mostly Q2.
I guess you may have been cautious again why wouldn't growth decelerate so much doing falloff and do you have already some indication on the C&I, which notably in early November pointing to.
Thank you very much.
Yes.
This is Joe speaking so again regarding the.
Performance that you're referring to in APAC and indeed, the travel retail has been very very strong to answer in small.
Specifically in travel retail.
This company was mainly an entry.
Prestige fragrance center, two or three years ago.
We decided that we're going to play on the full scope of what's fragrance market is about entry prestige fragrances, where the company has always been very strong and this is continuing to grow very very fast one hour one of our fastest growing brand in this channel is Calvin Klein, which is an entry prestige brand that's doing.
Very very well we've added on top of these premium brands like <unk>.
Recently built very good days.
And we added also niche offering on top of this next to this I would say fuller lineup of lot of <unk>.
Brands occupying all the different price tiers of the fragrance market. We have also three makeup brands we have the Kylie cosmetics.
Jamaica Burberry makeup and these are doing very very well. So this is a second leg of our growth engine. We have added to this channel and number three last but not least it.
Also about skincare and there we have a staff that is quite doing very well in this area said to you that the brand is having double digit growth for example in Hainan, but we are also starting in mainly in domestic markets.
The southeast part of the Asian continent, with philosophy skincare that is a brand that is present in a safe environment, which we believe has a role to play in this in the skincare market. So thats more or less what explains this over performance. We did a year fiscal 'twenty three at plus 30% in travel retail.
So we are continuing to grow at plus 20% in this channel and this again. Despite the fact that we are still far under the level of travelers in Europe, specifically Chinese traveler, we believe that only 30% of the levels of Chinese traveler pre pandemic back outside of China. So there is still some room.
But there is this happens one day now when it comes to the questions around <unk>.
Q2, but also inventory in Q2, so maybe to start on <unk>.
Positive on data. So we are not seeing any slowdown in categories are set out in October.
Differently.
And this is what we are we are focusing on and then number two on <unk>.
Trade inventories as the inventory is very healthy.
What I can tell you the only element that will add on which will answer. These phase in Q1 Q2 is of course as Sue mentioned at the beginning.
Q1 was very strong on innovation and there is a natural fit.
From our retailers on the great innovation that we are launching and very very strong results, which is very good at.
Hugo both sitting here and we are also Gucci manual yet. So there is really a mechanical effect of bi till four retailer, but which will translate into very strong sell out in Q2. So this is really the way you need to model into the equation.
Instead in Brazil in Q2 is always a quarter, although strong sell out especially for prestige.
Our next question will come from Chris Carey with Wells Fargo. Please go ahead.
Hi, everyone.
Just a few quick follow ups hopefully.
Just on the mix line relative to pricing.
I was under the impression pricing would be something like mid single digit incremental in February and March I think you said low single digit earlier in the call I may have misheard, you, but is there.
Expectation for loss pricing, because youre getting such strong performance on.
Mix and.
And also that inflation is decelerating, so maybe youre seeing with the needs of price or is possible.
Just misheard you and then army small question, but just on the Apple I think was that just.
You had you had built up so much inventory because you wanted to be ready for the sell in and it was just a little bit of luck with you were expecting.
You have to take that.
Gross margin in the quarter and so maybe just any perspective on that.
Of course in the context with strong delivery in Q1.
Yes of course, so let me clarify the first point.
We never and we never say that we will do mid single digit in February so I want to make it.
Very clear so now indeed, we are seeing a low single digit. But then you made you made the point is that we are really monitoring very targeted manner and granular manner, Indeed because until February.
February ball effect from the mix and the favorable policy.
If you reflect on the mix is also driven by our creative innovations we are putting in place. So in a way is really where you put the frontier between pricing Amit.
Of course, we are putting in those.
Accretion from the innovation and the mix part but of course at the end of the day. The objective is that all these initiatives mix targeted pricing and also strategic revenue management here, we need to increase the average unit price. Okay. So and this is really what we put in dose is umbrella all of those.
<unk> the new management.
Second element, yes, we are seeing inflation.
Starting to ease.
Especially in Cogs and transportation. So we are making sure that we are adapting.
Our growth equation in the spot market.
I want to be very clear that we keep focusing on value creation.
Implementing all the labor.
We are in.
So.
Your second question was on the on the IMU.
Just so to be very clear I mean is there.
The demand the demand is here there is just some pure meet any corner that will say accounting effect that in the last year due to service level issues.
Inventory was pretty low we rebuilt inventory. This is a strategic decision we are making really to have a service level, which is a good service level. Now we are 96% plus service level, which is a great achievement and also to make sure that we set out which is strongest.
Is really successful and we observe as a product so is again Mickey.
Can call accounting treatment.
No concern at all in terms of inventory and that's why.
I'm, telling you that we are seeing a.
Flattish gross margin in Q2.
There will be some acceleration of gross margin in next two fiscal 'twenty four.
Our next question will come from Ashley <unk> with Jefferies. Please go ahead.
Hi, This is Anthony on for Ashley.
I was just wondering if you could give kind of any color until.
Expecting that that promotional environment heading into holiday. Thank you.
The home you want to take these questions.
That's kind of a guess.
Overall, I mean, I can confirm you and what to you you see that the sell out is very strong and we sell out is very strong with premium innovation. This is what we are seeing both.
Prestige in consumer beauty.
There is a clear demonstration that the innovation that we're launching.
Which are higher value higher price.
We are seeing very high demand. So no we are not seeing.
Increasing promotional maybe too.
More specific items I mean last year due to the semi stable issues shortage of components, we reduced drastically.
This sets the stage is usually in the mid teens.
Ratio last year was much lower so this year, we are bringing back to a normal level of just said, but this is a normal way of any maintains a category is very type C. But it leaves the.
A question that we are not seeing it overall promotional no increase of promotional activity in our categories and in our activities.
So as this was the last question. Please allow me for some closing remarks. So first of all thank you everyone for joining us to sum up I would say a few things few important things.
Number one we're very pleased with our strong Q1 results, which resets as a great trajectory for the fiscal 'twenty four and we are very excited by the many opportunities that are still ahead for the company. We are also I have to say extremely grateful for the continued its consistent and support from all our analysts.
Investors.
The recently established institutional Investor results again position Coty as number one amongst mid cap companies in our sector. So thank you very much. Thank you again for your trust and we look forward to speaking with you all soon.
Thank you. This does conclude today's call. We appreciate your participation you may disconnect at anytime.
Hmm.
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