Charles-Louis Scotti

Charles-Louis Scotti asked for granularity on the expected mid-single-digit sales decline in Q3, specifically why there's a sequential deterioration despite easier prestige beauty comps and healthier inventories, and what drives the gap between market growth and Coty's top-line growth (destocking or market share losses). He also asked for a breakdown of the 200-300 basis points gross margin contraction drivers (input cost, mix, tariff, promotions) and the full-year gross margin assumption.

Answer

Laurent Mercier (Chief Financial Officer) explained that the Q3 decline is mainly due to Consumer Beauty, still in a phase of implementing actions, with too many innovations leading to returns and deprioritization of some areas. For Prestige, retailer inventory headwinds are fading, but Q3 still faces challenges, particularly in U.S. prestige sell-out due to insufficient focus on the core. He attributed the Q2 gross margin contraction to high promotionality in the Prestige market, tariffs ($8M in Q2, <$40M full year), and Forex impact (Euro/Dollar). For Consumer Beauty, lower volumes caused fixed cost under-absorption and a negative mix effect (strong Brazil, weak U.S. core brands). He expects similar patterns in Q3 with recovery in Q4 and fiscal 2027.

Charles-Louis Scotti requested granularity on the expected mid-single-digit sales decline in Q3, particularly regarding Consumer Beauty as the main driver despite easier Prestige Beauty comps, and asked what explains the gap between market growth and Coty's top-line growth. He also asked for a breakdown of the 200-300 basis points gross margin contraction drivers and the full-year gross margin assumption.

Answer

Laurent Mercier, Chief Financial Officer, confirmed that Consumer Beauty is the primary headwind for Q3 sales, attributing it to ongoing action implementation, managing past innovation issues, and strategic deprioritization. He noted 'green shoots' in COVERGIRL. For Prestige, he stated that retail inventory headwinds are fading, but Q3 still faces challenges, particularly in U.S. Prestige, due to insufficient focus on the core. He expects sequential recovery in both divisions. Regarding gross margin, he cited high promotionality in Prestige (especially late Q2), tariffs ($8M in Q2, <$40M full year), and Forex impacts. For Consumer Beauty, lower volumes leading to fixed cost under-absorption and a negative mix effect (strong Brazil, weak high-profit U.S. brands) were key drivers. He anticipates this pattern to continue in Q3, with sequential recovery in Q4 and Fiscal 2027.

Charles-Louis Scotti asked about the expected ramp-up speed of Sabato De Sarno's new collections at Gucci. He also sought details on the Valentino deal structure, including the nature of the option and interest in other Mayhoola assets, and questioned the valuation multiple paid for the stake.

Answer

Chairman and CEO François-Henri Pinault explained that the impact from Gucci's new aesthetic will be felt immediately after the September show through a major amplification strategy, ahead of products arriving in stores. CFO Jean-Marc Duplaix clarified the Valentino deal includes options through 2028, does not include other assets like Beymen, and that the valuation was based on an EBITDA of nearly €350 million, which he deemed a more appropriate metric than EBIT for this type of transaction.

Charles-Louis Scotti questioned the risk of underinvestment from Gucci's beauty license partner due to Kering's new strategy and asked if there was upside to the midterm margin targets for Saint Laurent and Kering Eyewear.

Answer

Jean-Francois Palus (Group Managing Director) expressed confidence in their relationship with existing license partners, noting the new beauty venture will initially focus on other brands. Jean-Marc Duplaix (CFO) reaffirmed Saint Laurent's targets, expecting continued but modest margin growth. For Kering Eyewear, he noted that while 2023 profitability might dip due to investments in new brands, the long-term target remains valid.