Coty(COTY)2024-11-07 01:50Financial Data and Key Metrics Changes - The first quarter net revenue grew 4.5% like-for-like, supported by solid growth in prestige fragrance, mass fragrance, and mass skin care, following an 18% like-for-like growth in the same quarter last year [20][36] - Adjusted gross margin increased by 200 basis points to 65.5%, driven by premiumization, pricing actions, and supply chain productivity [20][41] - Adjusted EBITDA was roughly flat year-over-year at $360 million, impacted by lower order patterns and strategic investments [22][41] - Adjusted diluted EPS excluding the equity swap was $0.18, reflecting a 20% year-over-year growth [22][41] - Free cash flow was slightly negative compared to over $100 million generated in Q1 of the previous year, due to tight order and inventory management [25][41] - Net debt at the end of Q1 was approximately $3.7 billion, with leverage at 3.4 times, down significantly from a year ago [26][41] Business Line Data and Key Metrics Changes - Prestige fragrances reported 7% like-for-like growth, with strong performance in the category [17][19] - Consumer beauty growth was flat, impacted by slightly negative volumes and inventory reductions in the U.S. mass channel [17][19] - Mass fragrances grew by over 20% in the quarter, contributing positively to the consumer beauty operating margin [51][59] - The mass color cosmetics segment showed flattish to slightly negative performance, particularly in the U.S. [12][19] Market Data and Key Metrics Changes - EMEA region saw high single-digit growth, while the Americas experienced mid-single-digit growth, and APAC faced a single-digit decline due to pressures in China [18][19] - Growth engine markets, accounting for approximately 21% of Q1 sales, grew strongly at 15% like-for-like [18][19] - Travel retail channel, which accounts for roughly 9% of Q1 sales, grew 4% like-for-like, driven by growth in the Americas and EMEA [19][59] Company Strategy and Development Direction - The company aims to adapt for future success in a dynamic market environment, with a focus on cost savings and operational efficiency [8][27] - Strategic initiatives include establishing centers of excellence, adapting the commercial organization for omnichannel, and maximizing benefits from emerging technologies and AI [29][32] - The company is committed to reducing share count and deleveraging towards targeted levels, with plans for active share buyback activity post-divestiture of Wella [24][41] Management's Comments on Operating Environment and Future Outlook - The beauty market is normalizing to a steadier growth level, with expectations of 3% to 4% like-for-like growth in the first half of fiscal 2025 [36][65] - The company anticipates continued gross margin expansion and EBITDA growth in the low to mid-single digits for the first half [36][41] - Management remains confident in the beauty industry's growth and Coty's ability to outperform, driven by robust fragrance category performance and expansion in under-indexed categories [66][68] Other Important Information - The company achieved significant ESG milestones, including a 65% reduction in Scope 3 air freight emissions compared to 2019 and a commitment to reduce water withdrawal by 25% by 2030 [61][62] - The company has met or surpassed its financial goals set three years ago, with significant improvements in gross margin and EBITDA margins [63][64] Q&A Session Summary Question: What is the outlook for the beauty market and Coty's performance? - The beauty market is expected to grow in the 3% to 4% range, with Coty anticipated to perform in line with this level despite disruptions in several markets [65][66] Question: How is Coty addressing the challenges in the U.S. market? - The company is adapting its strategies to manage inventory levels and respond to changes in consumer demand, particularly in the mass beauty segment [12][19][36]