Coty(COTY) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company anticipates a sharp sales deceleration in Q4, primarily due to a strategic cleanup in the Prestige division rather than worsening market conditions [5][6] - The Consumer Beauty division is expected to continue experiencing a mid-single-digit decline in the cosmetics category globally [6][7] - The company reported a high single-digit decline in sales, which could have been a low single-digit decline without the cleanup efforts [7] Business Line Data and Key Metrics Changes - The Prestige fragrance category continues to grow at a mid-single-digit rate, particularly strong in the U.S. and most European markets [10][12] - The Consumer Beauty division shows diverging trends, with color cosmetics under pressure while mass fragrances are growing at high single digits [16][19] - The company is reallocating resources to focus on more profitable mass fragrances while still supporting color cosmetics [19][20] Market Data and Key Metrics Changes - The U.S. market is experiencing significant pressure in color cosmetics, while mass fragrances are performing well [19][92] - Retailers are tightening inventory management, impacting both the Consumer Beauty and Prestige divisions [42][70] - The company sees a normalization in the Prestige division, with growth in fragrances but continued pressure in color cosmetics [88][90] Company Strategy and Development Direction - The company is focusing on cleaning up the baseline in the Prestige division to stimulate demand and prepare for a strong pipeline of innovation in fiscal 2026 [6][7] - There is a strategic shift towards prioritizing mass fragrances due to their higher profitability compared to color cosmetics [19][20] - The company is implementing organizational changes to enhance agility and responsiveness to local market conditions [45][46] Management's Comments on Operating Environment and Future Outlook - Management remains cautious about the operating environment, expecting some sales decline in the first half of fiscal 2026 but gradual improvement later in the year [25][26] - The company is confident in its ability to manage tariff impacts and is taking proactive measures to mitigate risks [34][36] - Management emphasizes the resilience of the beauty industry and the company's strong fundamentals despite current challenges [98] Other Important Information - The company is implementing mid-single-digit price increases in the Prestige category to offset costs, with expectations of inelastic demand [36][72] - The company is actively evaluating its brand portfolio and may exit underperforming brands [63][64] Q&A Session Summary Question: Q4 sales outlook and consumer demand - Management clarified that the anticipated sales deceleration is not due to worsening market conditions but rather a strategic cleanup in the Prestige division [5][6] Question: Growth sustainability in the prestige fragrance category - Management believes mid-single-digit growth in the U.S. is sustainable, driven by increased penetration among new consumer segments [10][12] Question: Consumer Beauty business profitability and potential brand exits - Management is focused on increasing profitability in the Consumer Beauty division and is evaluating the future of brands like CoverGirl [15][19] Question: Impact of tariffs and pricing strategies - Management indicated that tariff impacts are expected to be more significant in fiscal 2026, with proactive measures already in place [34][36] Question: Retailer inventory management trends - Management noted that retailers are tightening inventory, which is affecting both divisions, and they are working to reconcile sell-in and sell-out trends [42][70] Question: Organizational changes and agility - Management discussed the restructuring aimed at enhancing local decision-making and agility in response to market dynamics [45][46] Question: Cost savings initiatives and their impact on the bottom line - Management confirmed that the cost savings initiatives are structural and aimed at creating headroom for investment in brand growth [81][84] Question: Current market conditions for prestige versus consumer beauty - Management observed that the prestige fragrance market continues to grow, while the Consumer Beauty segment is facing challenges, particularly in color cosmetics [88][92]