Coty(US:COTY)2022-11-08 16:27Financial Data and Key Metrics Changes - Q1 like-for-like revenues grew 9%, with a 200 basis point negative impact from the exit of the Russia business; adjusting for Russia, core business grew 11% like-for-like [7] - Q1 adjusted gross margins increased 70 basis points year-on-year to 64.1%, with adjusted operating income growing 24% year-on-year [7][15] - Net debt declined to $4.2 billion, with net leverage below 4.5x, on track to reach 4x by the end of calendar 2022 [7][29] Business Line Data and Key Metrics Changes - Prestige revenues grew 7% like-for-like, while Consumer Beauty revenues grew 12% like-for-like, surpassing sell-out performance [11][12] - The Prestige business sell-out grew in the low teens, while Consumer Beauty sell-out remained solid with mid-to-high single-digit growth [11] - Body care like-for-like sales grew over 25% due to successful brand launches [39] Market Data and Key Metrics Changes - Like-for-like revenues grew in all regions: Americas up 5%, EMEA up 11%, and Asia Pacific up 12% [13] - The U.S. prestige fragrance market is over 40% higher than pre-COVID levels, with continued growth in the high single digits [41] - Travel Retail sales grew over 30% year-on-year, with significant growth in Hainan [62] Company Strategy and Development Direction - The company aims to grow sales ahead of the beauty market and profit ahead of sales while steadily deleveraging its balance sheet [6] - Continued focus on premiumizing the portfolio and driving balanced growth across key brands and capabilities [10] - The company is committed to sustainability, with recent recognition for its ESG efforts and a new gender-neutral parental leave policy [63][64] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the fiscal 2023 guidance, expecting like-for-like sales growth of 6% to 8% for the core business [9][66] - The main constraints to sales growth are global component shortages and COVID-related restrictions in China [66] - Despite macroeconomic challenges, demand in key markets remains robust, particularly for prestige fragrances [65] Other Important Information - The company generated $88 million of free cash flow in the quarter, with expectations for strong free cash flow generation for the full year [27][28] - Adjusted EPS for Q1 was $0.11, an improvement of $0.03 year-on-year, despite a negative impact from an equity swap [24] Q&A Session Summary Question: Drivers of growth in China and expectations for recovery - Management noted that China is slightly positive, with significant potential upside despite ongoing lockdowns; the fragrance business has only 3% penetration in the market [77][78] Question: Trade down trends in the consumer division - Management stated there is no evidence of trade down; both prestige and consumer beauty divisions are performing well, with strong demand for premium products [81][82] Question: Distribution and shelf-space for brands like CoverGirl - Management expects to maintain stable shelf-space for consumer beauty brands and anticipates incremental gains for brands like Rimmel and Sally Hansen [85][86] Question: Supply shortages related to glass and the shift in fragrance consumption - Management explained that supply shortages are due to a reduced number of quality glass suppliers; the shift towards self-consumption in fragrances is seen as beneficial for the business [90][91]