Coty Announces Preliminary First Quarter Results and Reiterates FY25 Adjusted EBITDA Outlook for +9-11% YoY Growth, Supporting Stronger EBITDA Margin Expansion

Rhea-AI Summary

Coty, a leading global beauty company, has announced preliminary Q1 results and reiterated its FY25 adjusted EBITDA outlook. Key points include:

- Q1 sales grew approximately 4-5% LFL, slightly below the prior estimate of 6% LFL
- Q2 LFL sales expected to grow moderately, with acceleration in the second half
- Q1 adjusted EBITDA expected to be roughly flat to moderately lower YoY
- FY25 adjusted EBITDA still projected to grow +9-11% YoY
- Cost reduction efforts re-accelerated to deliver savings above the initial FY25 target of $75M
- Targeting leverage close to 2.5x exiting CY24

The company noted slower growth in the U.S. market and tight inventory management by retailers, impacting sell-in versus sell-out performance in some markets.

Positive

• Q1 sales grew 4-5% LFL despite elevated prior year comparison
• Strong gross margin expansion in Q1
• FY25 adjusted EBITDA growth target of +9-11% YoY maintained
• Re-accelerated cost reduction efforts to exceed initial $75M savings target
• Anticipated sales growth acceleration in second half of FY25

Negative

• Q1 sales growth below prior estimate of 6% LFL
• Q1 adjusted EBITDA expected to be flat to moderately lower YoY
• Slower growth in U.S. market during second half of Q1
• Tight retailer inventory management impacting sell-in performance
• Potential variability in cash inflow timing due to retailer inventory management

Insights

Financial Analyst

Coty's preliminary Q1 results reveal a 4-5% LFL sales growth, falling short of the initial 6% estimate. This underperformance is primarily due to tight inventory management by retailers, particularly in the U.S., Australia, China and Travel Retail Asia. Despite this, Coty's revenue growth remains robust in other key markets.

The company anticipates moderate growth in Q2, with acceleration expected in the second half. However, Coty is re-accelerating cost reduction efforts to deliver savings above the initial $75 million FY25 target, responding to uncertain demand and cautious retailer behavior.

Notably, Coty maintains its FY25 adjusted EBITDA growth target of 9-11% YoY, indicating confidence in its ability to manage costs and expand margins. The company also reaffirms its goal of reaching leverage close to 2.5x by the end of CY24, though cash inflow timing may vary due to retailer inventory management.

While Q1 adjusted EBITDA is expected to be flat to moderately lower YoY, Coty projects resumed growth in Q2. This, combined with the maintained FY25 outlook, suggests the company is adapting its strategy to navigate current market challenges while positioning for long-term profitability.

Market Research Analyst

The global beauty market is showing signs of a slight slowdown, with the U.S. market experiencing decelerated growth in Q2. However, the prestige fragrance category continues to outperform, driven by both volume and price/mix expansion. This trend aligns with Coty's portfolio strengths, potentially offering a buffer against broader market headwinds.

Coty's exposure in China is proving advantageous, as it remains relatively less impacted by challenges in that market. This geographic diversification strategy may help mitigate risks associated with regional economic fluctuations.

The company's focus on maintaining A&CP (Advertising & Consumer Promotion) spending in the high 20s percentage demonstrates a commitment to brand investment, which could support market share retention and growth in a competitive landscape. This balanced approach of cost management and strategic investment may position Coty well for when market conditions improve.

The anticipated alignment between sell-in and sell-out in the latter half of the year, coupled with planned launch initiatives and distribution expansion, suggests potential for improved performance. However, investor sentiment may remain cautious until there's clear evidence of this turnaround in subsequent quarterly results.

NEW YORK--(BUSINESS WIRE)-- Regulatory News:

Coty (NYSE: COTY) (Paris: COTY), one of the world’s largest beauty companies with a portfolio of iconic brands across fragrance, color cosmetics, and skin and body care, today announced preliminary Q1 results while reiterating its full year profit target.

The global beauty market has maintained solid but slightly lower global growth. Within this backdrop, the prestige fragrance category continues to outperform, supported by expansion in both volumes and price/mix, while mass beauty continues to experience slower growth trends fueled entirely by unit demand. While beauty growth remains resilient in many parts of the world, the U.S. market growth has slowed in the second half of Q1. For Coty, very tight order and inventory management by retailers has resulted in Coty’s sell-in tracking well below sell-out in a number of markets, including in the U.S., as well as in Australia, China and Travel Retail Asia, each of which account for only a low single digit percentage of the Company’s business. Coty’s revenue growth across other key markets has remained robust, growing by a mid single digit to double digit percentage. In addition, due to its limited exposure in China, Coty continues to be relatively less impacted by the market there.

In total, Coty’s Q1 sales grew approximately 4-5% LFL, despite the very elevated comparison of the prior year, though moderately below its prior Q1 estimated growth of 6% LFL. Factoring in the ongoing retailer caution and incrementally slower U.S. market, Coty now anticipates Q2 LFL sales to grow moderately, with some growth acceleration expected in the second half supported by easier prior year comparisons, resumed alignment between sell-in and sell-out, several strong launch initiatives in both divisions, and select distribution expansion.

The combination of lower than anticipated order patterns in the second half of Q1, the investments behind strong ROI sell-out initiatives, the timing of certain fixed costs, and the profit impact from the divestiture of the Lacoste license, are resulting in Q1 adjusted EBITDA which is expected to be roughly flat to moderately lower YoY despite strong gross margin expansion.

However, in anticipation of a more uncertain demand backdrop, including cautious retailer behavior and a complex macroeconomic environment, Coty is re-accelerating its cost reduction efforts across all parts of the P&L to deliver savings well above the initial FY25 target of approximately $75M. 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 continues to expect FY25 adjusted EBITDA to grow +9-11% YoY, consistent with prior guidance, including resumed adjusted EBITDA growth in Q2. This adjusted EBITDA growth target, in conjunction with continued though more moderate revenue growth, reflects an even stronger adjusted EBITDA margin expansion in FY25, following the 30 bps adjusted EBITDA margin expansion in FY24. Coty continues to target leverage close to 2.5x exiting CY24, though the tight inventory management by retailers is adding some variability on cash inflow timing.

Coty will publish its full set of Q1 results and its prepared remarks webcast on November 6, 2024, with a live Q&A call for financial analysts and investors on November 7, 2024.

About Coty Inc.'s Preliminary First Quarter Results

The above information includes the Company’s preliminary estimates of results for the three months ended September 30, 2024, based on currently available information. Neither Deloitte & Touche LLP, the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the preliminary estimates contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the preliminary estimates. The Company has not completed its internal closing procedures and related controls with respect to the financial information for the three months ended September 30, 2024 presented above. In connection with its quarterly closing and review, the Company may identify items that would require it to make adjustments to the preliminary estimates set forth above and such adjustments may be significant. As a result, the Company’s final results for the period may vary from the preliminary estimates presented above. The Company’s actual results will not be finalized until around November 6, 2024 and may differ materially from the above estimates. Accordingly, you should not place undue reliance upon these preliminary estimates. See “Forward-Looking Statements.”

In addition, the Company’s expected LFL Sales growth adjusted EBITDA are forward-looking non-GAAP financial measures. The Company does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for the charges reflected in our reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

About Coty Inc.

Founded in Paris in 1904, Coty is one of the world’s largest beauty companies with a portfolio of iconic brands across fragrance, color cosmetics, and skin and body care. We serve consumers around the world, selling prestige and mass market products in more than 125 countries and territories. Coty and our brands empower people to express themselves freely, creating their own visions of beauty; and we are committed to protecting the planet. Learn more at coty.com or on LinkedIn and Instagram.

Forward Looking Statements

This press release includes certain statements that may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provisions thereof. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, are forward-looking statements. Forward-looking statements are not guarantees of future performance and actual results or developments may differ materially, and we caution you not to place undue reliance on such statements. Forward-looking statements are generally identifiable by words or phrases, such as “anticipate”, “are going to”, “estimate”, “plan”, “project”, “expect”, “believe”, “intend”, “foresee”, “forecast”, “will”, “may”, “should”, “outlook”, “continue”, “temporary”, “target”, “aim”, “potential”, “goal” and similar words or phrases.

Forward-looking statements contained in this press release are based on certain assumptions and estimates that we consider reasonable, but are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual events or results (including our financial condition, results of operations, cash flows and prospects) to differ materially from such statements. Factors and risks to our business that could cause actual results to differ from those contained in the forward-looking statements include the risks and uncertainties described in our filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date of this release, and Coty does not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241014939691/en/

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

Source: Coty

FAQ

What was Coty's (COTY) Q1 sales growth for FY25?

Coty's Q1 sales grew approximately 4-5% LFL (like-for-like) in FY25, which was slightly below their prior estimate of 6% LFL growth.

How does Coty (COTY) expect its Q2 FY25 performance to be?

Coty anticipates Q2 LFL sales to grow moderately, with some growth acceleration expected in the second half of FY25.

What is Coty's (COTY) adjusted EBITDA growth target for FY25?

Coty continues to expect FY25 adjusted EBITDA to grow +9-11% year-over-year, consistent with their prior guidance.

How is Coty (COTY) addressing the uncertain demand backdrop?

Coty is re-accelerating its cost reduction efforts across all parts of the P&L to deliver savings well above the initial FY25 target of approximately $75M.

When will Coty (COTY) release its full Q1 FY25 results?

Coty will publish its full set of Q1 results and prepared remarks webcast on November 6, 2024, with a live Q&A call for financial analysts and investors on November 7, 2024.