Coty Reports Solid Q1 Growth Fueled by Prestige Fragrances, Outperforming Beauty Market

Q1 Sales Inline with Pre-Announcement, With 2% Reported and 4.5% LFL Growth

Strong Gross Margin Expansion And Sustained Brand Investments

Reiterated FY25 EBITDA Underpinned by Accelerating Actions to Adapt Coty for Future Success

NEW YORK–(BUSINESS WIRE)–Regulatory News:

Coty Inc. (NYSE: COTY) (Paris: COTY) (“Coty” or “the Company”) today announced its results for the first quarter of fiscal year 2025, ended September 30, 2024. The Company delivered continued sales and gross margin expansion in the first quarter, while continuing to invest behind its brands for the long term and execute across its strategic growth pillars.

In 1Q25, Coty’s net revenues grew 2% on a reported basis and included a 1% headwind from FX and a 1% headwind from the divestiture of the Lacoste license. Coty’s Q1 net revenues grew 4.5% on a LFL basis, despite the very elevated comparison of the prior year, when Coty’s LFL revenues grew 18%. The Q1 reported sales growth was supported by strong growth in fragrances across all price points, including prestige, ultra premium and mass fragrances, while some slowing in the mass cosmetics market and active order management by retailers pressured sales for both mass and prestige cosmetics. LFL revenue growth on a company-wide basis and in the Americas region includes a contribution of 1% and 2%, respectively, from Argentina, which experienced hyperinflation.

Prestige Q1 net revenues increased 5% on a reported basis, including a 2% negative impact from the divestiture of the Lacoste license, with net revenues growing at a strong 7% pace on a LFL basis, including very strong growth in prestige fragrances, which grew 6% as reported and 9% LFL. Prestige reported net revenue growth in Q1 was driven by solid growth in the underlying fragrance category and Coty’s brand performance, with double-digit LFL growth in the majority of Coty’s leading fragrance brands, despite lapping the very robust double-digit percentage growth Coty’s Prestige fragrance business in the prior year quarter.

Consumer Beauty Q1 net revenues declined 3% on a reported basis, reflecting a 3% headwind from FX, with LFL net revenues flat year-over-year off of elevated prior year comparisons when Consumer Beauty grew 10% LFL. In 1Q25, Consumer Beauty reported net revenues grew strongly in mass fragrance and mass skincare, partially offsetting declines in body care and mass cosmetics reported net revenues. For cosmetics, the weakness was concentrated in the U.S. mass color cosmetics market which was further exacerbated by significant channel shifts, resulting in Coty’s U.S. Consumer Beauty sell-in tracking well below sell-out.

By geography, EMEA net revenues increased 8% on both a reported basis and LFL basis. The reported net revenue growth in EMEA was driven by continued growth across nearly all markets and the Travel Retail channel in combination with a 2% FX benefit partially offset by a 2% headwind from the divestiture of the Lacoste license. Q1 Americas net revenues declined 2% on a reported basis, but grew solidly by 4% on a LFL basis in 1Q25. The decline in reported net revenue in Americas reflected growth in Mexico and South America, and the regional Travel Retail channel, offset by lower U.S. Consumer Beauty sales, a 5% negative impact from FX and a 1% headwind from the divestiture of the Lacoste license. In Q1, Asia Pacific net revenues declined 5% on both a reported and LFL basis, primarily driven by the ongoing difficulty in the Chinese mainland market and the Asia Travel Retail channel coupled with a 1% headwind from the divestiture of the Lacoste license, partially offset by a 1% benefit from FX.

Coty delivered continued very strong gross margin expansion in the quarter. 1Q25 reported and adjusted gross margin of 65.5% increased 200 basis points year-over-year. Coty’s Q1 reported gross margin improvement was mainly driven by the benefit from premiumization, pricing actions, easing inflation, excess & obsolescence reduction and supply chain savings.

Coty generated reported operating income of $237.8 million, up 20% year-over-year, supported by growth in sales and gross profit, resulting in 220 basis points of reported operating margin expansion to 14.2%. Coty’s Q1 adjusted operating income of $303.6 million was roughly flat year-over-year resulting in an adjusted operating margin of 18.2%, which was slightly lower year-over-year as Coty continued to invest behind its brands as well as the timing of certain operating expenses.

Q1 reported net income of $79.6 million increased from a net loss of $1.7 million in the prior year, which drove a reported net income margin of 4.8%, up 490 basis points year-over-year. Adjusted net income of $128.1 million increased from $74.1 million with a margin of 7.7%, up 320 basis points year-over-year. The increase in both reported and adjusted net income reflects the $24 million discrete one-time non-cash tax impact to the prior year quarter, as well as a lower impact from the equity swap mark-to-market than in the prior year.

Q1 adjusted EBITDA of $360.1 million was flat year-over-year, with an adjusted EBITDA margin of 21.5%.

In Q1, cash flow from operating activities was $67.4 million and free cash outflows totaled $7.9 million. Q1 cash from operating activities and free cash flow was pressured by the phasing of order placement made by retailers, which took place at the end of the quarter and resulted in higher receivables at quarter end, as well as the phasing of payables. Total debt at the end of the first quarter totaled $4,002.2 million, while financial net debt totaled $3,718.6 million. This drove the total debt to net income ratio to 21.1x and the financial leverage ratio (net debt to adjusted EBITDA) to 3.4x, a reduction of 0.4x versus a year ago. Coty’s retained 25.8% Wella stake was valued at $1,085.0 million at quarter-end, supporting economic net debt of $2,633.6 million.

Updates on Strategic Pillars

• The prestige fragrance market remains an outperforming category in beauty, even as growth has moderated by a couple of percentage points exiting Q1 from the low double digit percentage growth in FY24 and the early part of Q1. Coty’s prestige fragrance portfolio performed strongly, particularly in the EMEA and Americas regions, and the Company’s very strong growth in prestige fragrances, which grew 6% as reported and 9% LFL. In the United States, Coty’s sell-out and sell-in growth was impacted by the very elevated comparisons of the prior year, which included the blockbuster launch of Burberry Goddess, Coty’s biggest launch ever. In Q1, reported net revenue for the majority of Coty’s leading prestige fragrance brands grew by a double-digit percentage. Coty continued to grow the Burberry Goddess franchise, which contributed to the to the Burberry brand’s strong double-digit percentage reported net revenue growth. Marc Jacobs Daisy Wild and Cosmic Kylie Jenner remained top ranked fragrance innovation in their launch markets, reinforcing Coty’s position as a leader in fragrance. In prestige cosmetics, Coty brands Burberry and Kylie Cosmetics each grew strongly in the quarter, while Gucci makeup declined due to weakness in the Chinese mainland and Asia Travel Retail.

• The global mass beauty market continues to grow at a low-single-digit pace, with outperformance by the mass fragrance category which is growing at a high-single-digit percentage, confirming that consumers continue to prioritize the fragrance category across price points. In Q1, Coty’s mass fragrances outperformed the category, growing reported net revenues by a strong double-digit percentage fueled by adidas, Nautica, Beckham and Mexx, and Coty will continue to focus on amplifying its mass fragrance offerings to capture market share in this attractive category. At the same time, the global mass cosmetics category has decelerated to flattish performance, with moderate unit growth, and was further exacerbated by significant channel shifts, resulting in Coty’s U.S. Consumer Beauty sell-in tracking well below sell-out. Coty’s Consumer Beauty e-commerce sales grew at a mid-single-digit percentage, ahead of the overall beauty market, as Coty continued to gain share in this critical channel. Coty social media advocacy strategy maintained momentum, with strong earned media value results for viral Consumer Beauty innovations including CoverGirl Simply Ageless Skin Perfector Essence, CoverGirl Eye Enhancer 3D mascara and Rimmel Thrill Seeker Extreme mascara.

• Coty continued to fuel its skincare strategy. Lancaster delivered mid-single-digit percentage net revenue growth as it kicked off the brand’s revamp in Europe, supported by its unique positioning as the photo-aging prevention and repair expert, the launch of its Golden Lift skincare range, and the expansion of Ligne Princiere into the European market. For Philosophy, active engagement with dermatologists and influencers, aided by its newly opened influencer studio in New York, resulted in over 70% growth in the brand’s earned media value. Orveda continued to expand its footprint with the opening of the La Maison Orveda in New York City, the next step in its brand building and distribution expansion.

• The e-commerce channel remains a strong growth channel for both Prestige and Consumer Beauty, and across all major regions. Coty e-commerce reported net revenues grew by a mid-single-digit percentage in Q1. As a result, e-commerce penetration increased approximately 40 basis points year-over-year to nearly 20% in Q1, with e-commerce penetration growth in both divisions. Coty’s Prestige and Consumer Beauty brands continued to gain strong market share in the e-commerce channels in which the brands are present.

• The Company maintained strong momentum in growth engine markets and channels. Results in Coty’s growth engine markets, which account for approximately 21% of total sales in Q1, continued grow strongly with low-single-digit percentage reported net revenue growth and double-digit percentage LFL net revenue growth, led by strength in LATAM, Africa, Southeast Asia, including India and North Asia. LFL growth in Q1 in Coty’s growth engine markets includes a 5% contribution from Argentina, which experienced hyperinflation. Coty’s global Travel Retail channel, which accounts for 9% of the Company’s sales in Q1, continued to expand led by the Americas and EMEA, despite pressure in the Asia Travel Retail corridor.

• Coty continued to make progress on its sustainability agenda. Earlier this week, the Company published its FY24 Sustainability Report, which included key milestones, such as achieving a significant 65% reduction in Scope 3 air freight emissions versus the 2019 baseline, establishing ambitious new targets for sustainable packaging and water withdrawal, rejoining the Ellen MacArthur Foundation as a Network Member and achieving gender balance in leadership target ahead of its 2025 commitment.

Commenting on the operating results, Sue Nabi, Coty’s CEO, said:

“As we enter FY25, the macroeconomic environment remains as complex as ever and the outsized growth of the last few years is now entering the normalization phase. Nevertheless, one thing is very clear: consumers continue to prioritize beauty in their spending routines, even as they pull back on many other consumer segments. And within the broader beauty backdrop, fragrances remain a top performing category. As a beauty leader, and increasingly as a beauty trendsetter, Coty remains at the forefront of fueling consumer desire and driving category growth through disruptive launches, new and improved formulations, and engaging activations and campaigns.

First, we continue to deliver sustained LFL sales growth. In fact, we are further building on our multi-year track record of outperformance. We have delivered LFL growth which is ahead of the leading global beauty players in 9 out of the last 13 quarters. This confirms that our growth is a result of our clear strategic vision, strong execution and our ability to seize on and develop beauty trends in each of our core categories. This strong operational and financial execution has been recognized by stakeholders, as we have achieved 11 consecutive financial upgrades from rating agencies since 2021.

Second, the fragrance market remains robust and remains a top performing category in beauty, with more consumers entering the category, using fragrances more often, and exploring with a variety of concentrations and formats. This reinforces our view that the structural drivers for the category will allow it to continue to grow inline to ahead of the underlying beauty market in the coming quarters and years. At Coty, as we continue to leverage our best-in-class end-to-end fragrance expertise and to set the trends in the industry, we are reinforcing our leadership in prestige fragrances while simultaneously unlocking more opportunities across the full price spectrum ranging from mass and masstige fragrances, all the way up to ultra premium and niche fragrances. In Q1, we delivered robust sales growth in each of these fragrance price tiers.

Third, we are step-changing our efforts to adapt Coty for future success in the ever more dynamic market environment. We are accelerating existing plans and adding new initiatives across all parts of the organization, whether its establishing centers of excellence for various operations, accelerating our speed to market, adapting our organizations for the increasingly omnichannel world, and maximizing the benefits of emerging technologies and artificial intelligence. Not only will these efforts enable Coty to lead in the beauty market of tomorrow, but they are also bringing additional savings in FY25 and beyond, supporting our ability to deliver our FY25 adjusted EBITDA target of close to double-digit growth.

Fourth, we will continue to play the full range of our brands and categories to capture growth opportunities and support sustained outperformance. We continue to grow our footprint across growth engine markets, expand our product range and distribution across skincare, prestige cosmetics, mass fragrances and ultra premium fragrances, and capture share in growth channels like e-commerce and travel retail.

And finally, as we continue to deliver strong profitability and free cash flow in FY25 and beyond, we will deploy this cash toward shareholder returns, further deleveraging, and amplifying Coty’s growth trajectory.

As we strengthen our position as a global beauty powerhouse, acting with the agility of smaller brands but also creating the beauty trends of today and tomorrow, Coty remains one of the most compelling investment opportunity in our industry.”

RESULTS AT A GLANCE

Outlook

Over the last several months, the beauty market has maintained solid momentum, though growth has moderated from the outsized double-digit growth of the last few years. Prestige fragrances remain an outperforming category, though growth has moderated by a couple of points exiting Q1. Mass beauty is now growing in the low single digits, with flattish performance in the mass cosmetics category. Within this backdrop, slower end demand and significant channel shifts in U.S. mass beauty and in Asia, are continuing to weigh on order levels into Q2, with sell-in tracking well below sell-out. As a result of these factors, Coty expect LFL sales growth in the first half of 3-4%.

The pace of category growth and consumer demand during the critical holiday period remains the central factor influencing the outlook for the second half, including retailer inventory levels and pace of re-orders. At present, Coty anticipates LFL growth in the second half to be relatively consistent with the first half, reflecting easier prior year comparisons and solid prestige fragrance performance on the one hand, and continued pressure in the Chinese mainland, Asia Travel Retail and U.S. mass cosmetics on the other hand.

In this very dynamic beauty market environment, Coty is future proofing its organization and processes to better capture new opportunities, respond to changes in the market with more agility, and solidify Coty’s position as a beauty leader over the long term. Many of the workstreams are already under way, with an acceleration now in the timing of delivery, while others are newly initiated. Through the combination of these efforts, Coty now anticipates FY25 savings of over $120 million, an increase of over $45 million versus its initial target. And importantly, these projects should continue to deliver savings in FY26 and beyond.

Through the combination of continued sales growth, continuous gross margin expansion and increased cost savings for FY25 and beyond, while maintaining A&CP in the high 20s percentage, Coty expects FY25 adjusted EBITDA to grow near the lower end of its prior guidance of +9-11% YoY. This outlook includes resumed adjusted EBITDA growth in Q2 in the mid single digit percentage, with steady EBITDA growth acceleration in Q3 and Q4. This adjusted EBITDA growth target, in conjunction with continued though more moderate revenue growth, reflects an even stronger adjusted EBITDA margin expansion in FY25 of close to 100 bps, following the 30 bps adjusted EBITDA margin expansion in FY24. Coty expects FY25 adjusted EPS at the low end of its prior guidance range of $0.54-0.57, reflecting mid teens percentage growth.

Finally, Coty continues to expect FY25 free cash flow to grow by a double-digit percentage YoY to the low to mid $400M range. With the tight inventory management by retailers adding some variability on cash inflow timing, Coty remains on track to exit CY24 with leverage below 3x and continues to target leverage close to 2.5x exiting CY24.

Financial Results*

Refer to “Non-GAAP Financial Measures” for discussion of the non-GAAP financial measures used in this release; reconciliations from reported to adjusted results can be found at the end of this release.

Revenues:

• 1Q25 reported net revenues of $1,671.5 increased 2% year-over-year, which reflected a 5% increase in Prestige reported net revenues as well as a 3% decrease in Consumer Beauty reported net revenues, a 1% headwind from FX and a 1% headwind from the divestiture of the Lacoste license. On a LFL basis, net revenues increased 5% driven by a 7% increase in Prestige, while Consumer Beauty revenues were flat.

Gross Margin:

• 1Q25 reported gross margin of 65.5% increased 200 basis points year-over-year. The improvement in reported gross margin was mainly driven by the benefit from premiumization, pricing actions, easing inflation, excess & obsolescence reduction and supply chain savings. 1Q25 adjusted gross margin of 65.5% increased by 200 basis points from 63.5% in the prior year.

Reported Profit:

• 1Q25 reported operating income of $237.8 million increased by 20% from $197.5 million the prior year driven by higher sales and gross profit. 1Q25 reported operating margin was 14.2% reflecting 220 basis points of margin expansion year-over-year. The improvement in reported operating margin was driven by strong gross margin expansion in the quarter.

• 1Q25 reported net income of $79.6 million increased from net loss of $1.7 million in the prior year. Reported net income reflected $24 million discrete one-time non-cash tax impact to the prior year quarter from a change in the Swiss statutory rate as well as an $32 million negative impact from the mark-to market on the equity swap compared with a negative impact of $58 million in the prior year. 1Q25 reported net income margin of 4.8% increased 490 basis points year-over-year.

• 1Q25 reported EPS of $0.09 increased from $0.00. The increase in reported EPS was primarily due to the higher reported net income as well as the discrete one-time non-cash tax impact of $0.03 to the prior year quarter from a change in the Swiss statutory rate and a lower negative impact from the equity swap mark-to-market of $0.03, compared with a $0.06 negative impact from the equity swap mark-to-market in the prior year.

Adjusted Profit:

• 1Q25 adjusted operating income of $303.6 million increased slightly from $302.2 million in the prior year. 1Q25 adjusted operating margin of 18.2% was 20 basis points lower year-over-year compared with 18.4% driven by stronger investments behind our strategic priorities.
• 1Q25 adjusted EBITDA of $360.1 million was flat year-over-year. Adjusted EBITDA margin of 21.5% decreased by 50 basis points driven by stronger investments behind our strategic priorities.
• 1Q25 adjusted net income of $128.1 million increased from $74.1 million in the prior year reflecting the discrete one-time non-cash tax impact to the prior year quarter from a change in the Swiss statutory rate and a lower negative impact from the equity swap mark-to-market than in the prior year. 1Q25 adjusted net income margin of 7.7% increased from 4.5% in the prior year.
• 1Q25 adjusted EPS of $0.15 increased from adjusted EPS of $0.09 in the prior year. 1Q25 adjusted EPS was higher year-over-year due to the discrete one-time non-cash tax impact of $0.03 to the prior year quarter from a change in the Swiss statutory rate and a negative impact from the equity swap mark-to-market of $0.03, compared with a $0.06 negative impact from equity swap mark-to-market in the prior year.

Operating Cash Flow:

• 1Q25 cash from operations totaling $67.4 million decreased from $186.2 million during the same period in the prior year.
• 1Q25 free cash outflow of $7.9 million decreased from free cash flow of $124.0 million in the prior year driven by the $118.8 million decrease in operating cash flow and a $13.1 million increase in capex.
• The lower Q1 cash from operating activities and free cash flow was further pressured by the phasing of order placement made by retailers, which took place at the end of the quarter and resulted in higher receivables at quarter end, as well as the phasing of payables.

Financial Net Debt:

• Total debt of $4,002.2 million on September 30, 2024 increased from $3,913.7 million on June 30, 2024.

Contacts

For more information:
Investor Relations
Olga Levinzon, +1 212 389-7733

olga_levinzon@cotyinc.com

Media
Antonia Werther, +31 621 394495

antonia_werther@cotyinc.com

Read full story here