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    Coty Inc (COTY)

    Q1 2025 Earnings Summary

    Reported on Feb 7, 2025 (After Market Close)
    Pre-Earnings Price$7.25Last close (Nov 7, 2024)
    Post-Earnings Price$7.13Open (Nov 8, 2024)
    Price Change
    $-0.12(-1.66%)
    • Coty's e-commerce business is growing rapidly, now accounting for about 20% of total sales, driven by strong market share gains online and successful partnerships with retailers and platforms like Amazon, positioning Coty well to capitalize on the shift towards online shopping.
    • Coty is consistently expanding its EBITDA margin, with an expected improvement of close to 100 basis points this year, bringing EBITDA margin close to 19%, supported by strategic cost-saving initiatives and productivity enhancements, demonstrating strong profitability growth.
    • Coty's strategic initiatives are delivering results, including the stabilization and growth of the Consumer Beauty division with brands like CoverGirl and Rimmel showing strong performance, successful launches in Prestige fragrances driving overperformance in the beauty market, and continued progress in new growth drivers such as skin care and new licenses, setting the foundation for sustained growth.
    • The company has reduced its long-term growth target from 6%-8% to mid-single-digit growth, citing uncertainty in the beauty market and potential challenges in key regions like China. This indicates the company may face difficulties in sustaining its previous high growth rates.
    • Coty's reliance on the overall beauty market growth of 3%-5% to achieve its targets means that any further slowdown in the market could adversely impact its performance. Their ability to outperform is dependent on market conditions beyond their control.
    • Retailer inventory adjustments and tight cash management may negatively impact Coty's revenue recognition and indicate potential demand weaknesses. The company noted that some retailers are destocking and being very tight on their inventory, which could affect sell-in versus sell-out figures.
    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Revenue Growth

    FY 2025

    no prior guidance

    3% to 4%

    no prior guidance

    Adjusted EBITDA Year-on-year

    FY 2025

    no prior guidance

    near the lower end of 9% to 11% y-o-y

    no prior guidance

    Adjusted EBITDA Margin Expansion

    FY 2025

    no prior guidance

    ~100 bps

    no prior guidance

    Adjusted EPS

    FY 2025

    no prior guidance

    $0.54 to $0.57

    no prior guidance

    Free Cash Flow

    FY 2025

    no prior guidance

    low to mid $400M

    no prior guidance

    Leverage

    end of Calendar 2024 (impacting FY 2025)

    below 3x & close to 2.5x by end of 2024

    below 3x & close to 2.5x by end of 2024

    no change

    Gross Margin

    2H FY 2025

    no prior guidance

    flattish y-o-y in 2H FY 2025

    no prior guidance

    Second Half LFL Sales Growth

    2H FY 2025

    no prior guidance

    3% to 4%

    no prior guidance

    Second Half Adjusted EPS

    2H FY 2025

    no prior guidance

    $0.14 to $0.16

    no prior guidance

    Savings

    FY 2025

    no prior guidance

    $120M

    no prior guidance

    Marketing (A&CP)

    FY 2025

    no prior guidance

    high 20s % of sales

    no prior guidance

    MetricPeriodGuidanceActualPerformance
    Revenue
    Q1 2025
    ~6% year-over-year
    1,671.5(≈1.8% growth from 1,641.4)
    Missed
    TopicPrevious MentionsCurrent PeriodTrend

    Rapid e-commerce growth and online sales penetration

    Q2 2024: Contributed 40% of like-for-like growth and rose 20% overall. Q3 2024: ~One-fifth of total business, half of Consumer Beauty growth. Q4 2024: Grew at least 2x the overall company rate.

    Now at ~20% of business, with above 20% in Prestige and high single digits in Consumer Beauty. Strong acceleration driven by Amazon and advocacy marketing.

    Consistent topic, growing importance and share in overall revenue

    Prestige fragrance segment as a key revenue driver

    Q2 2024: A major growth driver, highlighted by launches like Burberry Goddess. Q3 2024: Double-digit growth, driven by Marc Jacobs and Kylie fragrances. Q4 2024: Continued robust momentum, seen as less discretionary and structurally larger since pre-COVID.

    Up 7% in Q1 (on top of +22% previous year), fueled by multiple blockbuster launches and continued retailer/consumer momentum.

    Remains central to growth, sustaining gains with new innovations

    Consumer Beauty performance and color cosmetics

    Q2 2024: Focus on mix management, premium innovations like Simply Ageless Essence. Q3 2024: E-commerce drove half of growth, but U.S. mass color showed some slowdown. Q4 2024: Market challenges in U.S. due to retailer caution; brand investments continued.

    Stabilizing and growing, with color cosmetics performing well (e.g., CoverGirl). Tight retailer inventory management remains a headwind.

    Improving but still constrained by retailer caution

    EBITDA and margin expansion through cost savings

    Q2 2024: Aiming for +10-30 bps EBITDA margin expansion in H2. Q3 2024: Focus on cost-saving initiatives and gross margin improvements. Q4 2024: Continued productivity, reached mid-60s gross margin and targeted further expansion.

    Targeting ~100 bps of EBITDA margin improvement (to ~19%), aided by >$120M in cost savings and gross margin now above 65%.

    Continued incremental improvement via productivity and pricing

    Inventory management & retailer caution

    Q2 2024: Inventory levels balanced, no major caution cited. Q3 2024: Some headwind from prior-year shipment base effects. Q4 2024: U.S. retailers cautious on orders, though a small part of net revenue.

    Tight retailer inventory persisting, with fragrance orders phased in Q1 vs. Q2. Despite caution, Coty remains on track for deleveraging.

    Ongoing caution impacting short-term sell-in

    Strategic skincare expansion & intentional slowdown

    Q2 2024: Skincare as biggest growth opportunity but deliberately slowed new openings, focusing on brand equity. Q3 2024: Emphasis on double-digit skincare growth, no explicit slowdown mention. Q4 2024: No mention.

    Skincare still seen as a “marathon,” with China no longer the major growth driver. Continued disciplined expansion.

    Sustained cautious approach (China headwinds)

    Emerging markets expansion, particularly in Brazil

    Q2 2024: Discussed growth opportunities and white space. Q3 2024: No mention. Q4 2024: ~20% growth in Brazil, strong fragrance gains, leading positions in nails and body oils.

    No mention of Brazil or other emerging market progress in Q1 2025.

    Not mentioned this period, previously highlighted for strong potential

    Accelerated innovation & reduced dev timelines

    Q2 2024: Not explicitly discussed. Q3 2024: No mention. Q4 2024: Launches cut from ~18 months to 6-9 months (e.g., Yummy Gloss).

    Adopting a new “speed-to-market” model, generating savings and faster product rollouts.

    Continuing push for faster, more frequent product launches

    Normalization or uncertainty in overall beauty growth

    Q2 2024: Market “normalizing” to mid- to high single-digit growth, with reliance on mix vs. pricing. Q3 2024: Fragrance still accelerating, though some mass slowdown. Q4 2024: Growth trends remain mid-single digits, with retailers taking a cautious approach.

    Outlook suggests 3-5% medium-term market growth, with uncertainty in regions like Asia. Coty aims to outperform despite lower visibility.

    Consistent concern about unpredictable market growth

    Digital marketing & social media activation

    Q2 2024: Strong ROI on disruptive products, pivot to Gen Z and millennials. Q3 2024: Major driver of e-commerce growth, with influencer advocacy boosting EMV. Q4 2024: Advocacy marketing yields 400% EMV jump for Rimmel, CoverGirl.

    Integral to e-commerce success, influencing younger consumers and fueling high online conversions (e.g., Rimmel +40%, CoverGirl +80%).

    Continuously emphasized as a high-impact growth lever

    Reduced long-term growth targets & reliance on market

    Q2 2024: Cited 6-8% midterm growth, no mention of reduction. Q3 2024 & Q4 2024: No mention.

    Now lowered to mid-single digits; depends more on overall beauty market’s 3-5% trajectory and macro headwinds, especially in Asia.

    New cautious stance replacing prior higher-growth outlook

    1. Medium-Term Outlook
      Q: Has your medium-term outlook changed or the rhythm altered?
      A: No, we continue to expect the beauty market to grow at 3–5%, and we aim to outperform this growth. We see steady growth in our gross margin, EBITDA margin, and EPS. FY24 is a transition year due to channel shifts, but we're confident in our FY25 profit delivery, free cash flow, continued deleveraging, and delivering on our commitments.

    2. Adjustment of Long-Term Growth Target
      Q: Why has the long-term growth target been adjusted from 6–8% to mid-single digits?
      A: The adjustment depends on where the beauty market growth lands within the 3–5% range. Given uncertainties, especially in regions like Asia with low visibility, our growth will reflect market conditions. We will continue to outperform the market, but exact growth rates may vary.

    3. Margin Improvement and Cost Savings
      Q: What are your incremental cost-saving initiatives contributing to margin improvement?
      A: We delivered about 200 basis points gross margin improvement in Q1, reaching above 65% gross margin from below 60% three years ago. We've raised our cost savings target to over $120 million. Initiatives include pricing, reducing excess inventory through planning hub implementation, supply chain productivity, and leveraging technology. We have a strong pipeline to continue improving our EBITDA margin into fiscal '26.

    4. Deleveraging Goals
      Q: Are your deleveraging goals on track?
      A: Yes, we are on track. We're targeting leverage below 3x by the end of the calendar year, 2.5x by end of calendar '24, and moving towards 2x in calendar '25, all organically.

    5. China and Travel Retail Impact
      Q: How is the decline in China and Travel Retail Asia affecting you?
      A: Travel Retail Asia and China declined in Q1, but China represents only 3% of our net revenue, so the impact is limited. Despite current tensions, we see strong potential in China, especially in high-end fragrances where we have strong positions.

    6. Exposure to U.S. Import Tariffs
      Q: What is the impact of potential 10–20% customs tax on imports to the U.S.?
      A: We've anticipated this and have limited exposure. We have factories in Europe and the U.S. and can localize production. While tariffs may impact our peers more, we may need small price increases but aim to mitigate impacts.

    7. Holiday Outlook and Demand Planning
      Q: What are your expectations for the holiday season and the new demand planning program?
      A: We're confident for the holiday season; the prestige category remains healthy, growing by 10%, with Burberry fragrances up 17% in Q1. Our new demand planning program consolidates planning hubs and leverages AI to improve forecasts, bringing significant cost savings and optimizing net revenue and gross margin.

    8. Second Half Growth Confidence
      Q: How much of your H2 growth is underlying vs. easier comps, and how confident are you?
      A: In H1, about 2 points of growth came from pricing effects which will fade in H2. We had higher comps last year due to big prestige launches. Considering these factors and our strong innovation pipeline, we have full confidence in our H2 growth outlook.

    9. Confidence in EBITDA Growth
      Q: Is the 9–11% EBITDA growth target firm despite market changes?
      A: We have consistently overdelivered on 9–11% EBITDA growth over the last 3 years and are ahead of our plan. We will continue to grow EBITDA faster than net revenue and expand our EBITDA margin, expecting to reach close to 19% EBITDA margin this year.

    10. Online Channel Growth
      Q: How is your market share online vs. offline affected by the channel shift?
      A: We're gaining market share online, which is now about 20% of our business, above 20% in prestige. We have a strong omnichannel approach, and e-commerce acceleration is complementing our overall growth.