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    Coty Inc (COTY)

    Q4 2024 Earnings Summary

    Reported on Feb 4, 2025 (After Market Close)
    Pre-Earnings Price$10.13Last close (Aug 21, 2024)
    Post-Earnings Price$10.15Open (Aug 22, 2024)
    Price Change
    $0.02(+0.20%)
    • Strong momentum in the Prestige fragrance category, with the U.S. fragrance market growing by 10% in July and being 70% bigger versus pre-COVID levels. Coty is capitalizing on this trend with successful launches like Burberry Goddess, which almost doubled the size of the brand, and plans to continue this momentum with Burberry Goddess Intense and other major launches in fiscal '25. This sustained growth in Prestige fragrances is expected to drive Coty's revenues and margins.
    • Significant growth and profitability in growth engine markets, particularly in Brazil, where Coty achieved over 20% revenue growth and improved gross margins by 400 basis points. After launching mass fragrance brands in Brazil, Coty became the #6 fragrance player with over 4% market share within just one year. This demonstrates Coty's ability to successfully expand in high-growth markets, contributing positively to overall performance.
    • Accelerated innovation and product launch capabilities, reducing product development timelines from 18-24 months to 6-9 months, allowing Coty to respond swiftly to market trends. Examples include the Wonder'Bond Mascara, which took 9 months to develop, and Yummy Gloss from CoverGirl, developed in 6 months. This agility in innovation is expected to drive growth across both Prestige and Consumer Beauty segments.
    • U.S. retailers are managing inventory with caution, particularly in the color cosmetics segment of Consumer Beauty, leading to sell-out tracking ahead of sell-in and potential pressure on revenues.
    • The U.S. color cosmetics market is challenged, with Consumer Beauty growth expected to be only moderately positive in Q1, indicating potential headwinds in this key market segment.
    • Retailers' focus on cash management is impacting Coty's working capital, resulting in higher receivables and anticipated cash flow headwinds in fiscal '25 due to closely managed inventory levels and payment terms.
    1. Global Expansion of Orveda
      Q: What's the timeline for Orveda's global distribution expansion?
      A: Coty plans to accelerate the expansion of Orveda, its ultra-premium brand, starting in the first half of fiscal '25. The brand will open in high-end, niche locations like Harrods in London and Saks Fifth Avenue in New York, targeting consumers willing to purchase a $400 serum or a $300 moisturizer. This follows 1.5 years of preparation and numerous awards for its OmniPotent serum, which uses senolytic technologies inspired by pharmaceutical advancements.

    2. Fiscal '25 Innovation Pipeline
      Q: Any new launches to expect in fiscal '25?
      A: Coty has a robust innovation pipeline for fiscal '25. They are launching Burberry Goddess Intense, building on the success that nearly doubled the brand's size. Other carryover launches include Marc Jacobs Daisy Wild, the #1 innovation in spring in the U.S., and Kylie Cosmic, which achieved #1 volume in the U.S. Additionally, Coty is introducing Chloé Intense, its biggest launch ever for Chloé. In color cosmetics, new products are arriving from brands like Burberry and Kylie Cosmetics. In Consumer Beauty, they are launching a 3D Mascara from CoverGirl and Thrill Seeker Extreme from Rimmel. Notably, Coty is entering mass fragrances in a big way with the global launch of adidas Vibes, aiming to ignite a new growth category within the division.

    3. Pricing vs. Volume Mix
      Q: How will pricing and volume contribute to growth in fiscal '25?
      A: In fiscal '24, pricing contributed high single-digit growth due to carryover price increases amid peak inflation. For fiscal '25, Coty anticipates a more balanced growth equation of 6% to 8%, with volume playing a crucial role. They will implement targeted price increases where data supports it and focus on improving mix by upgrading the portfolio and driving innovation. These initiatives aim to unlock value across all SKUs, contributing to both net revenue and gross margin.

    4. Retailers Managing Inventory
      Q: How are cautious retailer orders impacting you?
      A: Some U.S. retailers are managing their inventory with caution, particularly impacting the color cosmetics market within Consumer Beauty. However, this represents only a small portion of Coty's net revenue. In other regions and categories, retailers remain dynamic, especially in Prestige beauty and growth markets. Coty expects Consumer Beauty to be moderately positive in Q1, taking these dynamics into account in their projections.

    5. Regional Consumer Trends
      Q: How are consumers behaving in different regions?
      A: In the U.S., both high-end and entry Prestige fragrances are performing well, with consumers showing willingness to purchase products across various price points, including smaller formats and body sprays popular among younger generations. There's a notable trend of consumers trading up from mass market to entry Prestige color cosmetics. In Europe, the beauty market remains strong, with fragrances as a bright spot and color cosmetics doing better than in the U.S. In Asia, outside of China, there's strong dynamism in fragrances across all price ranges, driven by consumers' desire for products that make them feel and look good.

    6. Fiscal '25 Investment Focus
      Q: What are the key investment highlights for fiscal '25?
      A: Coty aims to continue its best practices in creating blockbuster Prestige fragrances, positioning itself as a trendsetter. They plan to enhance the agility of their innovation process, bringing products to market in 6 to 9 months instead of over a year. This will be supported by establishing a start-up organization within the company. Additionally, they are amplifying their advocacy marketing efforts, having grown the EMV of both Rimmel and CoverGirl by 400%. These strategies are expected to double the level of innovation in color cosmetics and fragrances. Coty is also applying these best practices to the mass market with the launch of adidas Vibes, a significant mass fragrance initiative.