Coty Inc. (NYSE:COTY) Q2 2024 Earnings Call Transcript

In Q2, we saw double-digit percentage growth like-for-like in Prestige makeup with all brands growing in the second quarter and first half of fiscal 2024. For Kylie Cosmetics, we launched the Kylie Power Plush concealer last quarter, actively expanding the assortment of the brand into complexion. We alsdelivered double-digit percentage growth in Burberry makeup. And as you may have seen, we launched SKKN by Kim makeup on January 26th in direct-to-consumer only. SKKN by Kim’s makeup day one sales significantly exceeded our expectations, with some SKUs, like the eyeshadow palette, already selling out. Shifting to our third strategic pillar, building our skincare business. Having kicked off our skincare acceleration strategy last spring, we are continuing to learn, to adjust, and reinforce our marketing and commercial strategies behind our key skincare brands: philosophy, Lancaster, and Orveda.

Skincare remains one of the biggest whitespace opportunities for Coty, and we are fortunate to take on this immense market with outstanding skincare technology and patents, and a portfolio of iconic brands with distinct positionings and views of the world. At the same time, the beauty, and especially the skincare market, remains very dynamic and we are tweaking to accommodate the changes, be it in consumer preferences for strong scientific claims, a more tempered consumer environment in China, and the growing dominance of certain social media platforms. In Q2, Lancaster had strong double-digit percentage revenue growth. At the same time, our data confirms that consumers across Europe and China see Lancaster’s credentials and reputation in UV and full light protection as best in class, even as they discover the efficacious formulas of Lancaster’s base skincare line and the new Ligne Princiere.

The strength of Lancaster’s newly introduced Ligne Princiere line is underscored by the five leading skincare awards that Lancaster has garnered in China over the past few months. At the same time, from a market activation and marketing mix perspective, we see the best ROI coming when we communicate on the UV protection and photaging repair benefits of each of Lancaster’s hero pillars, which will help accelerate the growth of the brand in China Similarly on philosophy, the brand’s turnaround continues, with the third consecutive quarter of year-over-year revenue growth, after years of more sluggish results. And importantly, this growth is being driven by outperformance in the brand’s hero skincare lines. Finally, on Orveda, while the distribution still remains very limited on purpose, the strong buzz we have been generating around the brand whether through our fashion show partnerships, exclusive events, and the many awards we have received, is translating into growing momentum at our points of sale.

The productivity of Orveda’s leading doors in the top luxury retailers in Switzerland, New York and Paris have more than doubled year over year. And, at the end of December we marked a major milestone for Orveda as we opened the brand’s first ever maison boutique, in Shanghai. This marks a major step for Orveda and Coty’s overall entry into retailing, and we look forward to sharing our learnings as we build from here. Moving tour fourth strategic pillar, digital and e-commerce. In Q2, both divisions delivered very strong e-commerce sales momentum, with overall e-commerce revenue growth of over 20% like-for-like. In fact, in the second quarter, e-commerce sales drove approximately 40% of our like-for-like sales growth. As a result, our e-comm penetration expanded by approximately 180 basis points, resulting in total e-commerce penetration in the low 20s percentage.

It’s worth highlighting that our e-commerce market share grew in both Prestige and Consumer Beauty and that our e-comm growth was once again ahead of the underlying e-commerce trends. We’ve achieved this momentum through best-in-class online launches, the success of our accelerating digital advocacy strategy and active participation in key online shopping events, while at the same time premiumizing the portfolio, and increasing digital media competitiveness. Moving tour fifth strategic pillar, building our presence in China. Our Q2 China like-for-like revenues, including Hainan, grew at a double-digit percentage, led by our Prestige business. In the quarter, our like-for-like Prestige sales grew strongly in mainland China driven by Burberry, Gucci and Chloe, while our sales in Hainan quadrupled year-on-year from a low base.

From a sell-out standpoint, our Prestige business significantly outpaced the market, growing 27%, while the prestige beauty market declined 3%. On the Consumer Beauty side, which accounts for a fraction of our China sales, revenues declined due to elevated trade inventory. We have continued to see the prestige fragrance category outperform the overall prestige beauty market in China, as Chinese consumers move up the fragrance adoption curve and continue to premiumize at the same time. This reinforces our conviction that with our leading fragrance portfoliand small but growing prestige makeup and skincare portfolio, China remains one of several significant opportunities for us in both the short and long term Finally, we are continuing to see outstanding momentum in our Travel Retail sales.

In Q2 and the first half of 2024, our Travel Retail sales grew over 20% like-for-like, coming on top of over 30% growth in fiscal 2023. Importantly, we are seeing this momentum across all regions, with double-digit percentage Travel Retail sales growth in Europe, the Americas, and Asia Pacific. We have continued to gain share in the high-growth and highly-profitable Travel Retail channel in all three regions, fueled by distribution expansion, Travel Retail launch exclusivities, successful innovations and of course, our growing multi-category presence. And looking forward, we aren’t seeing a slowdown in consumer travel. In sum, we see Travel Retail as a key opportunity for us both short and long term, fueled by the desire to travel amongst consumers around the globe, coupled with our category expansion strategy.

Turning to our sixth and final strategic pillar, becoming a leader in sustainability. On November 28th, we issued our fiscal 2023 sustainability report. I’d like to highlight a few of our accomplishments this past year: First, we committed to setting emissions reduction targets inline with science-based net zero. And, we exceeded our goals set for 2030 on emissions from our own operations, energy reduction and recycling rate. We also continued to make progress towards gender balanced leadership. In fact, 47% of our leaders and a majority of the board and our Executive Committee are women. And we were incredibly proud to announce that as part of our dedication to our People pillar, we expanded our gender-neutral parental leave policy, to set a global minimum of 14 fully paid weeks for all employees, regardless of gender or location.