Q2 2025 Coty Inc Earnings Call - Q&A
Kyrie Irving, Lemoni Fofansi, E. Pederson, J. Probst
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Margo: Good morning, and afternoon, everyone. My name is Margo and I'll be your conference operator today at this time I'd like to welcome everyone to <unk> second quarter fiscal 2025 question and answer conference call. As a reminder, this conference call is being recorded today February 11th 2024 at eight a M eastern time or two P M Central European time.
Margo: Please note that on February 10th at approximately 405 P. M. Eastern time, or 10 O five P M Central European time, Cody issued a press release and prepared remarks webcast, which can be found on its investor relations website on.
Speaker Change: On today's call are Sue Nabi, Chief Executive Officer, and launched myself, 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 SEC, where the company lists factors that could cause actual results to differ materially from these forward looking.
Speaker Change: In addition, except where noted the discussion of <unk> financial results in Kodak's expectations reflect certain adjustments are specified in the non-GAAP financial measures section of the Companys release with that we will now open the line for questions.
Speaker Change: I'd like to ask a question for a question. Please press Star then one on your telephone keypad. If you would like to withdraw your question. Please press Star then two on your telephone keypad and again that is star one for a question.
Speaker Change: We will take our first question from Oliver Chen with TD Cowen. Please go ahead.
Oliver Chen: I assume all right. Thank you on your commentary about the sell in relative to sell out what are your thoughts about when retailers my undergo replenishment is that.
Speaker Change: Unless you're you're seeing them also on your comments on China travel retail Asia, Australia in consumer beauty I mean, how would you characterize the magnitude of the issues relative to what you mentioned, China is not a large percentage of total but it sounds like things are more cautious there.
Oliver Chen: Thank you.
Speaker Change: Yeah. Thank you. Thank you what are you guys. Thanks for the question. So just to give you a I would say some as you say some magnitude. He does we as we flagged indeed during the last quarter. We discussed that we were seeing some pockets of the business to keep whereas they were some.
Speaker Change: Some challenges and we were expecting that to east boot camps, I mean, we'll see.
Speaker Change: And in fact, we see a worsening Xu.
Speaker Change: So Q2 in fact, we are talking about a 20.
Speaker Change: 20% of our business, so which is.
Speaker Change: Is China, but took so troubled retailers Jacques.
Speaker Change: Australia.
Speaker Change: Z.
Speaker Change: So consumer beauty. So so this is really the scope.
Speaker Change: We are talking about.
Speaker Change: Indeed.
Speaker Change: Combination of China travel retail Asia and Australia.
Speaker Change: The impact of Signor prestige business in terms of the setting by roughly three points as he says.
Speaker Change: But he went through you need to have in mind.
Speaker Change: We look at consumer beauty, sorry, either in D. C is really on the U S consumer beauty.
Speaker Change: The challenge is it which which is also impacting by you by three points. So as soon as he is already there.
Speaker Change: The two areas.
Speaker Change: Oh disruption if I can call MZ. These weight at the same time I'm. So.
Speaker Change: So indeed, but retailers are indeed do I mean, we had good you know, especially in prestige, especially in fragrance I mean, we we had good set out.
Speaker Change: During the holiday season, but we are seeing.
Speaker Change: No replenishment from retailers. So we are seeing is that there is a global pet to them that they are very cautious on.
Speaker Change: On the inventory management.
Speaker Change: And indeed managing their disease.
Speaker Change: Their inventories very very cautiously and in D C and D, creating or Susan gap between them.
Speaker Change: And as we set out and just sitting and east like just a concrete example on fragrance, where indeed, we have I mean, the fragrance as a whole is performing well I mean, we see a sell out team have been between the mid to high single digit, but indeed, we have seen sitting below due to these very quick.
Speaker Change: She was behavior by major retailers as I said, which is very high.
Speaker Change: And have you probably see suite just to complement on the honest answer.
Speaker Change: We don't see this replenishment happening in each student that's what explains our put in the guidance and we hope that this would happen at the moment on that especially given what you just described which are the very strong set out. We so don't even go ahead of the season and we continue to see behind our fragrance sales in both divisions.
Speaker Change: Our next question comes from Rob Owens Stein from Evercore. Please go ahead.
Speaker Change: Great. Thank you very much.
Speaker Change: You you, obviously touched on it and yet.
Speaker Change: And then in the release I was wondering if you could go into a little bit more detail on both the structural challenges that you're seeing in U S color cosmetics.
Speaker Change: And the competitive challenges.
Speaker Change: And you know how how you look to to.
Speaker Change: To combat those going forward. Thank you.
Speaker Change: Yeah.
Speaker Change: So speaking so youre right. We mentioned some some structural challenges some of them are also I would say challenges at the moment, especially when it comes to our closures. We are seeing in the south not drugstore environment. So it's not just structural but a bit of these challenges is indeed structural.
Speaker Change: I believe and this is one thing that I addressed in the earnings call. During the earnings script, sorry, that's what makes the Codell cosmetics category. Because this is a category we are referring to much higher CRE and prestige is the combination of both the heritage Cuccio brands if I may.
Speaker Change: Like these and indie brands, which is not what we are seeing today in the consumer beauty codell cosmetic space, where only new brands, all savers and decent grandson, not able to make up for the decline of the market. So I think it takes two to dance and this is what they believe is the strength.
Speaker Change: The Indian market and the heritage brands by the way are still doing the biggest chunk of the sales. So I believe that the Caracas mythics market specifically in the U S. But also elsewhere with highly benefit from a same exposure between heritage brands that are doing an exceptional job I'm thinking about cards out and go.
Speaker Change: That is the among legacy brands the ones that the reason is the best among heavy such brands I'm thinking about the email outside of the U S. Together with of course entering new brands, new indie brands, which are going to give you know what kind of excitement.
Speaker Change: Friendliness et cetera, So it's really takes the boat.
Speaker Change: Grow the market. So if this and this is part of our discussions with our partner retailers. If this is you know what is going to happen I believe that there is no reason for the color cosmetics market not to be back to eats a traditional low single digit growth.
Yeah.
Speaker Change: Okay. Thank you.
Filippo <unk>: Our next question comes from Filippo <unk> with Citi. Please go ahead.
Good morning, and good afternoon, everyone.
Filippo <unk>: Can you talk about the some of the weakness coming out of fiscal 'twenty, five persist and potentially in the first part of fiscal 'twenty six but at the same time, you're expecting an improvement in sales since she's got 26. So can you comment on kind of the levers that you have in fiscal 'twenty six and you entered fiscal 'twenty six to 10.
Filippo <unk>: To accelerate organic sales growth and in terms of like how should we think about the relative to your medium term outlook of 6% to 8%. Thank you.
Speaker Change: Thank you very much for the poor. So first let me just remind everyone. Because I think this is an important element that this first half and the second highest baidu with too is in front of our best year ever. Okay. She's got 24 was a year, where the company has grown with the highest growth potentially in prestige, 18% and the highest gross.
Speaker Change: In the consumer beauty division, which was around 7% if I recall right. So this is really what explains in a way.
Speaker Change: You know how much the comparative it hasn't been a you know a high for us when it comes to fiscal 'twenty five.
Speaker Change: Fiscal 'twenty six we believe that one.
Speaker Change: Hopefully the good news would be that retailers will come back to more I would say classic or a normal inventory levels because they cannot forever stay at this level of inventories I think this was an overreaction following the stocking plus supply chain crisis, a year and half ago. So hopefully there will be a kind of stabilization.
Speaker Change: Second thing you know our market is a market. That's driven by offers you know some competitors speak about stimulus we speak about an offer driven market and you've thought about this so we will contemplate for fiscal 'twenty six two very big blockbuster long shows me I remind people that.
She has been putting on the market and still today some of the best launches of the industry thinking about it.
Speaker Change: That is continuing to grow by double digit growth between 20, and 30% year on year, which is really unprecedented KD cosmic number one volume launch in the U S and U K.
Speaker Change: Marc Jacobs Daisy wide Hugo boss, which has become the number one brands at the division of the company by the way. So it's really an offer driven business. So we'd have the big innovation in the first house same thing in the second half. We are also accelerating our distribution gains when it comes to some of our key brands in.
Speaker Change: The prestige decision some brands and for example, slow it was really not the brand we were playing with in the U S market, we decided to do so in the first half and with the very strong results. So we will expand these so the conjunction of big launches together with our you know the distribution expansion.
Speaker Change: Some of our key prestige brands in the U S. But also in other emerging markets will help us to you know be back to growth in fiscal 'twenty. Six these together with anything that is not in our control such as back to more classical retailer inventory levels and hopefully hopefully travel retail.
Speaker Change: Asia and China, even if these are low single digits percentages of our mix. They are still heavily disrupted in the moments we're in right now.
Speaker Change: Our next.
Speaker Change: Comes from Corinne Wolf Meyer with Piper Sandler. Please go ahead.
Speaker Change: Hey, good morning, good afternoon. Thanks for the question.
Speaker Change: I can understand some of the puts and takes the margin outlook a little bit better can.
Speaker Change: Can you just describe a little bit on the fixed versus variable cost structure and we're dealing with for the back half how much deleverage you're baking in with the guidance and how much reinvestment in A&P and innovation and things like that and then also I believe in the prepared remarks, you discussed some softer promotional activity.
Speaker Change: Quarter is that something that you might decide to pull line a little bit more here in the back half to help drive volume performance or are you committed to other forums.
Speaker Change: Following that Jason Thank you.
Speaker Change: Yeah. Thank you with morning, Corey So first of all what I want to highlight is really that we are showing in this fiscal 'twenty, you're going to need H ones that we have a very hazy P&L and a very healthy balance sheet. So you. So as a result is really use that to resume I mean gross margin expansion.
Speaker Change: In each one I mean, which is a.
Speaker Change: Close to a you know close to 400 basis points and we are close to 67%.
Speaker Change: Gross margin in the end of Q2, so it shows really that all the work we are doing really managing the food equation. We do we can have a very disciplined manner and we keep focusing on the gross margin expansion, which for US is really just <unk> because of course. It is really then what's fueling our.
Speaker Change: Behind the brands and really we keep these very very strong discipline. So now looking at looking ahead.
Speaker Change: Talking again about gross margin as you remember industrial we had also I mean very strong gross margin expansion in <unk>.
Speaker Change: Which was around 150 basis point, so no we aren't going to rebalance because you read the seasonality effect. So that each two gross margin will be slightly lower vis vis last year due to these high base.
Speaker Change: But it will remain 100 basis point boom fiscal 'twenty three gross margin. So it means that our full year gross margin, we learn that to about 100 basis point improvement.
Speaker Change: Improvement.
Speaker Change: Now of course base, starting from the gross margin expansion and I can detail later, but he really is a combination of productivity, we teed up some pricing effects stemming stronger in each one because we have some carryover from the previous year, but we will have still some positive impact in <unk>.
Speaker Change: So benefiting from the mix then we make sure that we keep our eye in CPE in the high Twenty's as you saw in each one and we continue engage too to support the initiatives that Suez just described and Judy to continue to to Shuja setup than we.
Speaker Change: As you know we are putting in place a very strong year.
Speaker Change: Savings of initiatives, but we confirm though one of the 20 million.
As each year. So it's a combination of short term actions, but also more medium long term actions, which will keep shooting.
Speaker Change: So it was a mild gene for for next year. So is that really all these that we are we are showing that we have the discipline, but also of GTT.
Speaker Change: Managing to continue.
Speaker Change: EBITDA margin improvement.
Speaker Change: Even in the context, which is more uncertain and volatile Zen Zen Beach walk. So is that is <unk> and that's why we confirmed rudi's at all we see our EBITDA margin growing your nose from 70 to 90 basis point fiscal 'twenty, five which means that our EBITDA margin will be close to 19%.
Speaker Change: At the end of this fiscal year.
Speaker Change: Our next question comes from Olivia Tong with Raymond James. Please go ahead.
Olivia Tong: Great. Thanks, Good morning, good afternoon.
Olivia Tong: I was wondering if you could talk about why you think prestige fragrances has been able to hold on better.
Olivia Tong: With respect to growth versus other categories and in terms of the other categories, particularly match what you can do to with respect to innovation to help offset the externals. Thank you.
Speaker Change: Yeah. Thank you for your question. This is <unk> speaking so indeed, it's a very interesting question. If I may say because this is really a it is a key element of.
Speaker Change: The growth of the market I believe that prestige fragrances are holding much better because they are not easy to replace it but you know when you like ascend youre going to buy a descent and anything closer is not exactly the same that you like white on other categories. Specifically for example in color cosmetics, if you like.
Speaker Change: I don't know the latest color are a primary or whatever there's always find something that's very close any sign to buy something close so I believe that the entry barriers of prestige fragrances.
Speaker Change: Higher because of the uniqueness of the creation because of the quality of the juices and also because of putting inside this but those things that have been crafted for two or three years that are really creations together with science Knowhow I'm thinking about what we've been doing recently by adding mortgage queues.
Speaker Change: That act on the longevity of our fragrance. So these are barrier to entry to the category that explain why fragrances, specifically prestige fragrances of fragrances with the cool I would say are really resisting better than other categories. So what can we do in terms of innovation and other categories to fuel the growth.
Speaker Change: Well the answer is in the first start in fact, it's about creating entry barriers I believe that the color cosmetics word have given up on innovation. It has become a word F. G. P. M where everyone is buying from the same T. P. M. The same kind of innovation and you end up buying the cheapest option. So it's really this.
Speaker Change: That is missing today in this market and that we are fighting against that Theyre working on through agile innovation that we put in place recently, it's to be able of course to be on trend and to launch the latest beds at the moment, but also to be able to put on the market high entry barrier innovation something difficult to copy something Thats worth.
Speaker Change: The price that you're putting in it and something that will grow back to the market by re attracting consumers who decided that its worth it only if it's the cheapest option.
Ashley: Our next question comes from Ashley <unk> with Jefferies. Please go ahead.
Ashley: Hey, Thanks for taking our question.
Speaker Change: Last quarter.
Speaker Change: You mentioned some upcoming product introductions just curious.
Speaker Change: Maybe you held off on some of those given the environment or maybe if they didn't perform as expected and then just following up a little bit on Olivia's question on the fragrance, you know being such a strong driver.
Speaker Change: What's embedded in your underlying assumptions for the second half about the fragrance industry and then anything you can tell us on fragrance quarter to date that would be helpful. Thank you.
Speaker Change: Okay. So let me take the question bypass so last quarter, we mentioned some upcoming launches. Indeed, we released them one of the biggest highlights was indeed.
Speaker Change: She will Oh, skid, which is really one of the biggest successes of the fall.
Speaker Change: Q1, and Q2. This is really something that was part of the agenda, yes to a lesser extent than what we did with bell doing good. This two years ago. It's still it's something that is really part of the best selling innovations in the U S. And we started that's why probably you did not see we didn't see any effect that was so high we started with <unk>.
Speaker Change: Exclusivity at one key retailer globally, which in a way didn't allow us to take our benefits from all of the impact of discounts now its the case, it's rolled out everywhere and we can really see that this.
Speaker Change: Innovation is doing very very well. So that's number one number two we are continuing to do key innovations on bus specifically on boss the scent in the theaters and the odor Pascal we have long said. This is what explains that bus has become the number one brand at the company with a stellar growth, which is close to high single.
Speaker Change: Digits. So this is really also something that explains the two key launches that we have done in the first half. So what are we assuming on fragrance category growth in the second half. We are also going to continue to have long shares without revealing what are going to be these launches. We will continue with some of the key.
Speaker Change: We started in fiscal 'twenty four in the second half by uneven setting. These initiatives last year, we don't show, the cosmic and Marc Jacobs, Daisy, while which by the way for Disney World has become the number one SKU in terms of innovation in the UK market. So these two innovations will be under a size that's definitely.
Speaker Change: As you've heard the during the earnings script, we are backward so to our key innovations behind the entry prestige brands. So I'm thinking about W. Does who we would see for the first time, a very strong innovation represented by a Gen Z favorite child Melton.
Speaker Change: Which you will see during the second half of the year.
Patti <unk>: Our next question comes from Patti <unk> with Goldman Sachs. Please go ahead.
Patti <unk>: Thank you Laurel and good morning. Good afternoon. Thanks for taking my question I just had one on Asia travel retail and just travel retail in general so we've been dealing with pressures there for a while now so I'm wondering if you could talk about.
Patti <unk>: Retail outside of Asia, and how you're performing there and.
Patti <unk>: All related to that are there opportunities to perhaps re size or reshape your strategy by rebalancing towards non Asian regions, where maybe there is less volatility and more growth opportunity I would love your thoughts there. Thank you.
Sue Nabi: Yeah. Good morning, Patrick this is sue.
Sue Nabi: This is a good question you know we started to do this and factor in the second half of the first.
Sue Nabi: Half of this year, meaning October November and December we shifted significant resources from you know Asia markets, specifically, China, but also the agents have been returned to the U S and two European market, but mainly to the U S. That's the reason why even if we do not communicate on this that we show our sellout.
Sue Nabi: Reaching some weeks at 50, 60% of growth in terms I've set out prior to the holiday season. So this was really the result of shifting resources from these regions to regions, specifically the U S where there is growth where the momentum behind the fragrance category continues the prestige fragrance category is still growing.
Sue Nabi: In the high single digits, and it's still continuing to premium eyes, and the I would say the AR and the adjacent categories are fragrances, such as body. Mr. Also booming there. So it's something that we've done and that we will continue to do to answer the second part of your question now regarding the first part which is around Asia travel retail you're totally right.
Sue Nabi: To say that the Asian travel retail is the one that is really lagging behind the other regions Americas and Europe are doing very very well, which is something that is better than what we saw in Asia. The travel retail in Asia I can tell you that it's really behind one key category, which is prestige color cosmetics.
Sue Nabi: It's really the restrictions that happened between Korea, and China with our regulations on both sides that really sucks literally a key stream of the sales between these two regions that was mainly focused when it comes to <unk> in our color cosmetics prestige category.
Sue Nabi: So the rest of the categories Beach fragrances or even skincare.
Sue Nabi: <unk> to grow much better than what we saw on this color cosmetics. So it's really the color cosmetics category that is hurting us which is I think a difference versus what our competitors are seeing in this region, where it's a lot behind skincare.
Anna: Our next question comes from Anna <unk> with Bank of America. Please go ahead.
Anna: Hi, Good morning, good afternoon, and thank you so much for the question.
Speaker Change: And I was wondering if you could discuss the retailer channels. Jeff you mentioned in your prepared remarks, particularly in the U S. It seems like some online platforms like Amazon are our gain in market share here and just wondering how you're adjusting to this environment and then also if you can comment on the different parts of your business consumer beauty versus proceeds.
Anna: Just how they are performing on this channel. Thank you.
Speaker Change: Yeah. Thank you very much and good morning. So indeed, you are totally right and this is one of the regions why I believe this fierce competition between online players offline players of course E retailers, who are usually offline players too. It's this fierce competition that is probable.
Speaker Change: He also explaining why all these retailers are really really pressuring the cashman regimen through inventory management. So that is one of the key explanation and which also explains a lot of door closures. We are seeing in the country beats behind department stores, but also behind some of our direct channel when it comes to consumer beauty. So indeed euro.
Speaker Change: Tim mentioned Amazon they are gaining market share in the beauty industry, you've seen a lot of players, including some of our brands going to to Amazon I have to remind everyone that we were the first to be partnering with Amazon, maybe six seven years ago with brands, such as bus or such as Calvin Klein and this has created a very special relationship.
Speaker Change: Between us and Amazon and the other element I can't tell you. When you asked me about CB and prestige performing on E com and Amazon Indeed, the growth of our E. Com is a stellar in both divisions and if you think about a brand like cocoa, Gary if I take the U S market on consumer beauty brands.
Speaker Change: <unk> is growing faster than the E comm market onkelos cosmetics in the U S and therefore, gaining market share, which omnichannel wise gives us this possibility to say that there is almost stable in the U S. Since we are growing very very fast on this channel I can say the same thing about our prestige brands. They are really doing wonders.
Speaker Change: And Amazon growing very fast much faster than in the brick and mortar which is also a very good indicator of the health of the brands because you know when you look at the health of our brand online you really have the pure equity of the brand in front of consumers. While when you think about brick and mortar. There is a lot of there is a lot to do with.
Speaker Change: How the store looks like how do your your shadow looks like et cetera. So for us it's a strategic channel that we've been outperforming in that we are continuing to outperform in both divisions.
Speaker Change: Our next question comes from Susan Anderson with Canaccord Genuity. Please go ahead.
Susan Anderson: Hi, good morning, Thanks for taking my question.
Wondering if maybe you could talk about your plans around pricing given the higher FX impact for fiscal 25 now.
Susan Anderson: We are expecting pricing to land out versus units for fiscal 'twenty five.
Speaker Change: Yes, good morning, Susan So indeed as you know I mean, we shared many times last year that <unk> with the high inflation, we put in place.
Speaker Change: Price increase which was mid single digits and even you know at some moment.
Speaker Change: We've been pushing on pricing.
Speaker Change: Price increase during our Germany. So now of course looking ahead, we are now seeing your inflation slowing us down.
Speaker Change: And so of course that we will continue price increase more moderate so it's going to be low single digits.
Speaker Change: Because again with <unk>.
Innovations and all what we are bringing to the market we have a pricing power and again, that's really all the power of our technologies innovation. So we will continue and we keep you know monitoring you know very precise manner, managing or Sylvia elasticity. So is that its not going against two volume.
Speaker Change: In fragrance is a clear demonstration.
Speaker Change: Demonstrations that were really when you control.
Speaker Change: Keep we keep working on pricing and fragrance on both segments on both divisions major wave prestige, but also mess, we keep improving as our mix and volumes keep growing so it shows really that we were really when we're in control of these are obviously has a question.
Speaker Change: Our next question comes from Andrea Teixeira with Jpmorgan. Please go ahead.
Speaker Change: Hi, This is giovanna choudhury on behalf of Andrea Thanks for taking our question can you comment on the inventory levels at wholesalers and retailers I'm just trying to decompose the sell in versus sell out just trying to understand if you're still seeing positive sell in for fragrances under outlaw cash.
Speaker Change: Flattish to negative even in fiscal 'twenty Saks, so are entering rather wouldn't retailers ran out of inventory in like six months or so.
Speaker Change: And also more near term can you. Please comment on the most recent trends from exiting the quarter and if February Hudson proved thank you.
Speaker Change: Yes, Hello, good morning, so indeed inventory at wholesalers and retailers is really went through what we flagged up and indeed, we are still seeing some some adjustments and.
Speaker Change: And again as we just shared is our resorts. So he's a fierce competition between brick and mortar and E Commerce, which is also.
Speaker Change: In a way, creating some some additional attention now when you were raising the question about fragrance against fragrances is really by far where we are seeing really good sell out in this category keeps keeps growing.
Speaker Change: He's a casing prestige fragrance and it is also the casings in mass fragrance category is growing we are growing you're all set out we are bringing some new initiatives. So indeed, we are expecting some some improvement being offset in fragrance and this is also a.
Speaker Change: Yeah.
Speaker Change: <unk> scrubbed, so no big launches next year and we have also some pockets of opportunities.
Speaker Change: Of course, we will name in the U S. We are absolutely we have some potential but also we have still some upside in the e-commerce, whereas there is also a greater upside and last but not the sort of swings our growth engine markets, where we have also some promising plans.
Chris Carey: Our next question comes from Chris Carey with Wells Fargo. Please go ahead.
Chris Carey: Hi, everyone.
Chris Carey: Two questions so number one.
Chris Carey: What is your thought process around long term algorithm.
Chris Carey: I think this has been a discussion in this forum.
Chris Carey: For the past few quarters, there was clearly some commentary.
Chris Carey: In prepared remarks about adjustments I think you had talked about.
Speaker Change: Your best in class.
Speaker Change: Total shareholder returns, but have had avoided the prior targets that you put out there clearly which makes sense given the evolution of the category I think we could hear more next week, but.
Speaker Change: It feels like an important shift to recalibrate expectations more appropriately for the longer term side I'd love your thoughts on.
Speaker Change: What the business is effectively trying to accomplish.
Speaker Change: Coming years with a with a longer term perspective.
Speaker Change: It's the only second one which I'll add on is can you explain what's going on with the swaps and the prepayments that you have to make in Q3, but mostly I'm curious on the on the first question, but yes.
Speaker Change: I'd love a little bit on the second question as well thanks.
Speaker Change: It has not increased so speaking so yes. Indeed this is a very important question. So.
Speaker Change: So let me start sharing with you our coats first.
Speaker Change: This year, the beauty market growth as we've seen it all these normalizing to a steadier growth level, but I have to say that this low to mid single digit growth is broadly consistent with what we have estimated several years ago and even if the market was much higher but this is the assumption we made years ago and the <unk>.
Speaker Change: Both aggregate and was based on the market that was growing between plus three and plus 4%.
Speaker Change: Before our goal is to outperform the beauty market. This is very very important. However in this you know various macro environment retailer environment regional uncertainties now there are potentially tariff wars that could happen here and there which honestly at the level that has not been seen.
<unk> many many disruptions I think and we think that it is no longer prudent to put specific sales growth targets and we are therefore committed like some of our peers to outperforming the market whatever the level of growth, we see in our core markets and specifically in our core categories. So how we see.
Speaker Change: This outperformance of the market.
Speaker Change: Believe that we have several drivers in our hands first a robust fragrance category with still penetration and usage that are still increasing structurally and across many markets around the world second the company is expanding its offering in fragrances now to mass. So we are really.
Speaker Change: Leading and we are the global leader worldwide when it comes to premium fragrances.
Speaker Change: Two mass fragrances number three we are expanding our businesses in categories, where we are currently under indexed I'm thinking about prestige color cosmetics category, including the launch of the new market Jacobs Caracas may decline, but also I'm thinking about skincare and this gives me the occasion to really.
Speaker Change: Say that one brand at Gucci is doing wonders in China, our fastest growing skin care brand of the market is indeed Lancaster. During this quarter is growing on the market that is minus stand at almost 200% and some key skus has become part of the top 20 of the Chinese market. So this is really the start of our first.
Speaker Change: Green shoots when it comes to skincare and the most difficult market at the moment, but the biggest market. When it comes to skincare number four we will continue to grow our penetration and market share online. Hence the question I've been answering a few minutes ago. This is really an area, where we are growing faster than the rest of the market and we reached the billion dollar three.
Speaker Change: <unk> holds a year ago when it comes to online sales and number five will continue to strongly grow our business in growth engine markets I'm thinking about you know a.
South Africa to take one example of where the company has become the number one prestige fragrance maker I'm thinking about Saudi Arabia, I'm thinking about southeast Asia growing by 15% I'm thinking about Mexico, where the company is doing also wonder. So clearly. The addition of this fleet growth. This five salary growth drivers is real.
Speaker Change: What will allow us to grow our sales above the market and at the same time, our target remains to continue to grow our gross margin you've seen how about gross margin, reaching a record level. This quarter up almost you know them as almost 70% 68% to be precise and of course this will allow us to continue.
Speaker Change: To grow our EPS and free cash flow.
Speaker Change: No. All you can do this last question, yes, absolutely.
Speaker Change: Non increases so indeed on those reps first of all I mean.
Speaker Change: If you want to remind you that as you noticed I mean, what was the first time ever over the last eight years I mean, we are reaching no leverage ratio below three times.
Speaker Change: And we made very clear that at some moment I mean, we will resume retuned to shareholders either through share buyback was oh.
Speaker Change: Dividend. So so it's what is really a mechanism we put in place in the two to reserve some share buyback. So each unit 48 million shares. So now is the mechanics guarantee that this is happening as we are seeing some pullback in our stock price since our recent quarters. So there is a mechanism that we need to have.
Speaker Change: Give it to a cash payment to the banks.
Speaker Change: According to the current stock price so in a way this is really an anticipation.
Speaker Change: As a confirmation that had some momentum did we will operate zetia buyback.
Speaker Change: Our next question comes from Mark Astra Chen with Stifel. Please go ahead.
Speaker Change: Yeah, Thanks, Hi.
Speaker Change: Hi, everyone. So I guess first one.
Speaker Change: Retailer stock levels.
Speaker Change: What gives you confidence that they return back to levels over the last couple of years maybe.
Speaker Change: Comment on whether it be inventory levels prior to the recent slowdown, especially in prestige fragrance, which had accelerated coming out of the pandemic.
Speaker Change: <unk> was elevated or not relative to historical levels for fragrances, just from a retailer perspective.
Speaker Change: And then.
Speaker Change: Secondly.
Speaker Change: In the press release, you talked about.
Speaker Change: <unk> the operations.
Speaker Change: Fuel long term success, Youre, obviously talking about an increasing focus on reducing leverage I guess, what what are you thinking in terms of the business footprint today versus maybe three years ago. It does seem like consumer beauty more chat.
Allen if you talk about.
Speaker Change:
Speaker Change: More heritage brands not being the focus of customers at this point in the portfolio have the data right. One would you consider divesting that business would you consider M&A to increase exposure to fast rerouting category, just any sort of color there would be helpful. Thank you.
Mark: Yes, so hello, Hello, Mark.
Mark: On retailer stock labels I think this is what we we have explained and indeed that we are in a transition year. So I think it's important to step back a little and we need to understand that indeed over the last two three years.
Mark: There were a lot of disruptions on the market. So of course it started with corvid and then there was also supply crises and at that moment indeed some.
Mark: There were some shortage of products component then retailers are so we've built some inventory and now indeed, we are seeing that they are going the other way around so difficult to tell you how long, it's going to take but there will be a moment where.
Mark: I think I mean, Xu zoos the behaviors of retailers, we'd be back to suite to help see inventory and then we can really be back to normal a combination in more closer connection between the.
The sell in and sellout again, assuming a duplicate of the disruptions that.
Mark: We are we are seeing again in in Asia and also as we are explaining the consumer beauty business into the U S of course are getting stabilized at eastern which is not the case today. So that's really what I can tell you on the inventory for retailers.
Sue Nabi: This is sue on the second part of the question, which is around evaluating operations to <unk> long term success.
Sue Nabi: So you are referring to our consumer beauty Codell cosmetics brands.
Sue Nabi: Again.
Sue Nabi: In this area. Its first let me start by saying that it's very encouraging to see that our cosmetics brands specifically in the U S, but not only in Europe too. They continue to outperform most legacy players and this is very important because it means that despite having much less means then some legacy players.
Sue Nabi: We're doing a very good job by putting in place are the right innovation powered by the REIT advocacy strategy in the different markets and we are activating even more and more agile beauty innovations.
Sue Nabi: As opposed to put on the market innovations in as quickly as every six months. So this is on one side and we continue I have to say to see the benefit of operating across multiple beauty categories now.
Sue Nabi: <unk> markets and of course in multiple channels at the same time like I guess most of the corporations.
Sue Nabi: We're always evaluating our portfolio and this is very important we're looking very very closely to the profitability of the company and two of course, where are the long term opportunities and return on investment presented by each category by each brand in the different divisions.
Sue Nabi: The different categories in the different markets. So it's really both options that are in our minds continuing the site while at the same time looking at what could be done better in the future and what could be people talked about it.
Sue Nabi: Yeah.
And our next question comes from Carla Casella with Jpmorgan. Please go ahead.
Speaker Change: Hi, just two quick ones on when you've got a couple of bonds maturing in 2020 and I'm wondering if that's something that you want to get ahead of a year before maturity. So they don't go current or does that matter.
Sue Nabi: Yes, Hello, good morning.
Keller: Keller of Carlson.
Sue Nabi: Really.
Sue Nabi: Great improvement now with these deleveraging that we constantly.
Sue Nabi: Work on our debt maturities, so that we can really be in a hurry.
Sue Nabi: C place. So of course I mean, these are always a bond maturities always the options that we are looking at.
Sue Nabi: Okay, Great and then on the well, let's take decline of about 3% sequentially is that can you give us any update on the performance of that business or maybe the timing of a potential sale of it.
Sue Nabi: So as the business is performing its performing well also.
Sue Nabi: Use that you can see in the books is just some I would say accounting methodology.
Sue Nabi: It was strongly driven by use of work or interest rate, which need to be used so it's really not.
Sue Nabi: Reflecting the performance of the of the company than not in second part of your question as we reminded in our last earnings call.
Sue Nabi: End of November was the end of the standstill period. So.
Sue Nabi: In this context, we remain opportunistic and pragmatic.
Sue Nabi: To monetize these assets, which is a great asset in our books.
Sue Nabi: Okay.
Sue Nabi: Alright, that's super helpful. Thank you.
Sue Nabi: Thank you.
Sue Nabi: Yeah.
Speaker Change: I would now like to turn the call back to our speakers for any closing and final remarks.
Speaker Change: Thank you very much. So again, thank you everyone everyone for attending this earnings call again to conclude of course as we said during the earnings call. We are not satisfied by the current sales trend, but at the same time, we continue to believe that this beauty category.
Speaker Change: Both historically and even now in the future specifically behind the fragrances whatever is the price of the fragrances will continue to be a key driver of growth of this market. We are very happy with the improvement of our fundamentals throughout the last four years, specifically this year, you've seen our gross margin our epic.
Speaker Change: That growth, our EPS double digit growth and Don just mentioned, our deleveraging, which is the lowest since eight years under three times and last but not least we continue to outperform the market categories. We are playing games set out is the ultimate indicator of the health of our brands and this one continues to be very good. Thank you very much.
Speaker Change: Thank you and ladies and gentlemen that does conclude today's conference. We appreciate your participation have a wonderful day.
Speaker Change: [music].
Speaker Change: Yeah.