科蒂集團 (COTY) 2024 Q4 法說會逐字稿

Good morning and good afternoon, everyone.

My name is Ashley, and I'll be your conference operator today.

At this time, I would like to welcome everyone to Coty's Fourth Quarter Fiscal 2024 Question-and-Answer Conference Call.

As a reminder, this conference call is being recorded today, August 21, 2024, at 8:15 a.m. Eastern Time or 2:15 p.m. Central European Time.

Please note that on August 20, at approximately 4:30 p.m. Eastern Time or 10:30 p.m. Central European Time, Coty issued a press release and prepared remark webcast, which can be found on our Investor Relations website.

On today's call are Sue Nabi, Chief Executive Officer; and Laurent Mercier, Chief Financial Officer.

I would like to remind you that many of the comments today may contain forward-looking statements.

Please refer to Coty's earnings release and the reports filed with the SEC, where the company lists facts that could cause actual results to differ materially from the forward-looking statements.

In addition, except where noted, the discussion of Coty financial results and Coty expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release.

With that, we will now open the line for questions.

(Operator Instructions)

Oliver Chen, TD Cowen.

Oliver, your line is open.

Please check your mute function.

Susan Anderson, Canaccord Genuity.

Hi, good morning.

Thanks for taking my question.

Nice job on the quarter a year ago to start out.

I'm curious about the global distribution expansion for beta, I guess, in the year.

I'm curious -- is the time line what countries you expect to expand into for them is going to roll out pretty quickly or to be kind of expect a slow rollout throughout the year and Internet?

And then also, I'm curious if you already have retail distribution i place.

Thanks.

Morning, Susan, and thank you for your question.

This is Sue speaking.

So regarding our skincare ambition and indeed the sub-premium brand of the data, the ideas that we've been readying the brand with the a year and a half whisper strategy.

And this brand got, I think the highest -- probably one of the highest number of awards, specifically behind each of omnipotent serum, which is the first of these kind of the serums using senolytic technologies inspired by, I would say, pharmaceutical technologies.

And this allowed the brand to have the highest number of awards.

And we've also been having the brand presence in some department stores such as Harrods in London, such as Saks Fifth Avenue in New York, several such locations in the US and an owned store in China, which is the measure of EBITDA in Shanghai now is the right moment to accelerate the expansion of the brand.

The brand is going to open, you know, a lot of doors in the coming fiscal starting in the first half.

This is, of course, no high end doors new doors.

We are not talking about especially the stores.

We are not even talking about classical department stores.

We are talking about high end doors where we believe the consumers who are able and ready and willing to shop a $400 serum and $300 moisturizer are shopping more and more.

And this is really what is going to happen behind the brands.

So we are talking about an acceleration of the expansion of the brand in this fiscal '25, which was really something that was long awaited.

Okay, great.

That sounds exciting.

And if I can maybe just add one more on the innovation pipeline.

You mentioned a number of launches for fiscal '25 and presentation.

I'm curious, are there any that haven't been announced yet that we should expect as we go throughout the year, either in fragrance or in prestige cosmetics.

And then also maybe if you could touch on pricing versus volume mix for fiscal '25?

Yes.

Let me start with the first part and then maybe Laurent can take the pricing versus volume mix.

But so in terms of innovation, pipeline.

As a reminder, you know, we've been very active since Q1 of last fiscal as fiscal '24, indeed started very, very big.

Remember the company, the growth was 18% in the Q1 of fiscal '24 and prestige was even bigger.

It was above 20% of growth.

And this was chapter one of the Burberry Goddess.

So we are adding a Burberry Goddess intense that's arising now, which is clearly something on the huge success of the good US launch that by the way, allowed us to almost double the size of the brand, this is number one.

Number two, we are also having the carryover of the launches that happened in the second half of fiscal '24.

So Mark Jacob's devile, while the number one innovation in spring in the US will continue its carryover during H1 Kylie Cosmetics is also going to continue its carryover during this H1 a moment number one volume in the US for this one.

And we are also you may have read it in in WWE, I think a few days ago, QA is doing its biggest launch ever, clearly an intense, which is also reading in fall.

So the pipeline of fragrances, the chapter two of previous successes adding on top of these innovations or the carryover from H2 or fiscal 24 plus new launches such as Korea and the US are really giving us the confidence that we are going to continue the momentum behind our track record of blockbusters in prestige fragrances.

Now we are also active on other categories were active.

Of course, on color cosmetics, we had a few launches arising without revealing these we have issued onto the writing specifically behind our, I would say, most successful color cosmetics brand.

I'm thinking about Burberry.

I'm thinking about Kylie Cosmetics.

We have also skincare.

There is a big thing eroding behind Lancaster in Europe.

So noncash, there has been doing fantastically well in China, almost doubling year on year in terms of size.

Now it's the turn of Europe for these brands so that we have really both sides of the picture activated behind this brand.

And last but not least, we have also Consumer Beauty, we've announced the launch of a 3D mascara from CoverGirl, which we believe is going to be a big innovation.

There is a three sector extreme from renal and many, many other launches last, but not least, Consumer Beauty is also going into fragrances in big with the first global launch of a fragrance line called adidas of age, which we believe is clearly going to ignite the second leg of categories inside this division.

Next to color cosmetics.

We now have a big fragrance launches happening in this division now on pricing and volume.

Yes, absolutely.

So on I mean, Susan, just to step back a little and we remind you that from in fiscal 24, definitely and price was a big component of the growth was high single digit because it was definitely a year where we had the carryover from fiscal '23 pricing and E&O was the peak of inflation will be material on price increase.

So we had reasons carryover positive impact in fiscal '24.

And we continued also to implement price increase in fiscal '24 at the beginning of the year, which was mid-single digit.

But also in second half, which was more low single digit in fiscal '24.

So indeed, in fiscal '24, pricing was really a high single digit.

Now moving forward to fiscal 25, definitely.

I mean our accretion of 6% to 8%, of course, and the reason is more balanced between volume, price and mix.

And so it means that indeed, the volume is absolutely key.

And also the innovation that we have shared, of course, are really driving additional volumes.

Pricing.

We will continue definitely in a very targeted manner because we know we have the data.

We definitely know where we are.

We can implement price increase engine.

So this is very, very granular.

And the last piece, the mix is very important.

All the work we are doing is really to drive mix up and either in your current portfolio because we can really have a great portfolio.

But also innovation definitely is a strong way to improve your mix.

And all these initiatives are captured under a stream, which is strategic revenue management that now we are leading and is really to unlock value on all SKUs or placebo, and of course, is contributing.

It doesn't include any, but also to the gross margin.

Oliver Chen, TD Cowen.

Hi Sue and Laurent.

Ver helpful.

Thank you.

You mentioned retailers are placing some order with caution in the near term.

Can you elaborate on that, that would be helpful in terms of what retailers you're seeing and how you're planning inventory as a result?

And second, would love your thoughts on comparing or contrasting how consumers and our customers are feeling regionally, just given those lots of cross currents and environment at fragrance clearly remains very attractive.

And finally, as we think more generally about investments this year, any highlights, especially in terms of the continued innovation and digital and best practices as well as R&D.

Thank you.

Laurent, maybe you can start with the first.

Yes, absolutely.

So either I think your question indeed is very important that your opportunities questioning their yield in a way that is really depending on the regions and underserved categories because indeed, the dynamics can be very different.

As you know, energy is really what we flagged is that we are seeing that the beauty of all and it keeps growing keeps very dynamic and we been in the mid-single digits and definitely and we are seeing in these first two big ones are not around and Consumer Beauty being more in Zillow around the lower end.

And we are seeing I mean, metro markets serving also in zoom in on mid-single digit.

And we are seeing I mean, our growth engine in V. being in the double digits now when we go more in-depth.

So which is your question indeed on the Consumer Beauty in US, yes, we have seen that indeed, the color cosmetic market indeed is a is a is challenged.

And we have seen indeed that some US retailers are managing their inventory indeed with.

So with caution, definitely the Caesar what are what we are seeing.

But at the same time, I want to highlight that, and this is only a fraction of our net revenue now.

So it's really a small part.

And we are seeing at the same time that took on the other regions.

I mean we are seeing retailers keeping very dynamic retail prestige, but also on consumer beauty is in the growth engines are in the course engines or market.

So that's why the fee, I mean, it is driving our expectation for Consumer Beauty to be moderately positive in Q1.

So indeed, we are taking this into consideration in our algorithm.

And I was wondering this is taking.

So your second part of the question was about how consumers are saving in the different regions.

So of course, the big region for us and for first big region for us in the US where we clearly see that fragrances, specifically prestige fragrances, but also mass-market fragrances, by the way, remain bright spots.

It's really a story of twofold.

I would say people shopping high and fragrances are continuing to shop high and fragrances, mainly presumes of the buffer is it C. has or that kind of highly concentrated with a strong trails fragrances.

But at the same time.

You also see in the same channel entry prestige fragrances doing very, very well.

So it's not either it's not one or the other.

It's both at the same time and these entry prestige, I would say users are, of course, towards, I would say, smaller formats.

Trials are much that also, you know, including body sprays that we saw so heavily used by a lot of younger generation.

So this is clearly what we see on the fragrance part on color cosmetics, clearly, and interestingly, we see still some dynamism in this market and a lot of the consumers now that the prices US mass market has been increasing quite strongly in the last two years.

You see some trade-up, which is really a first in this kind of environment, you see a portion of consumers from mass market trading up to entry, prestige color cosmetics.

So that's very interesting.

So we are not at all seeing trade downs.

We are seeing trade-up and we are seeing consumers operating in a different price bracket.

So still very, very active in Europe.

The dynamism of the beauty market is still intact.

And fragrances, are there also a bright spot color cosmetics in Europe doing better than what they are doing in the US.

And the reason the pressure we see in the US on mainly drugstore chains where this is really where we see the pressure.

The rest of the distribution in the US is for us less pressure.

And last but not least, in Asia.

So it's just a twofold story here.

Again, if you look at the outside of China, there is dynamism specifically behind fragrances.

Fragrance indexes at play penetration is very low and there.

It's also a story from less than $10 to above $10.

We see it in what we call growth engine markets.

We got recently the news that's one of our agile beauty initiatives is called change.

Sandoz, a French Spanish brand that was active 20 years ago that we reignited a year ago, we launched it in many countries, including in South Africa under $10 needs to become the number one fragrance in this country recently.

So you clearly see that whatever is the price there is still this huge demand for a few goods and look good, I would say element highlights and investment in fiscal '25 best practices.

I think the two best practices that I and two highlights of investment in fiscal '25 is to continue our best practices in a blood vessel creation.

When it comes to prestige fragrances, you know we are not anymore in a catch-up phase like we used to be two years ago now, we are becoming a trendsetting company in this area, and we've been really driving a big legal, more slash vanilla slash.

You know, banana.

We are some of our fragrances which are resonating today from mass market to punish.

So this is really something that we intend continued.

Second thing, we are also bringing up our advocacy model that we have put in place.

You may have noticed during the prepared remarks that we've grown the EMD on both the reman and cost of debt by 400%.

That's really a huge progress.

Now what we need to do is to increase the agility of our innovation, putting on the market innovation as quickly as in six to nine months, there's versus more than a year in the previous years.

And this we are going to put in place a startup organization inside the company so that this huge progress on advocacy marketing on one side, coupled with an agile innovation start-up machine inside Gucci will allow us to multiply by two the level of innovation in color cosmetics, but also in fragrances in this division, knowing that we have already multiplied this level by three.

So we are really in a high-speed base.

That's but not least, we are also applying these regs Best Practices sorry, beat advocacy marketing first to beauty or on the other side, fragrance momentum to mass market with the launch of adidas, right that we believe is a huge mass presence at Dotomi.

Filippo Falorni, Citigroup.

Hi.

Hi everyone.

Thanks for taking the questions.

So I wanted to go back to the Consumer Beauty business, what level of promotional environment have you seen in the US market?

Clearly, we've seen the category being more under pressure, particularly with low-income consumers.

So are you planning more promo as a certain part of the portfolio or how are you planning to respond to kind of customers?

Good morning, Filippo.

This is Sue, speaking.

We're some low-income customers, you know, I think one actually for this is because we've done a lot of firm studies recently to really understand what are the levers to in a way is to support our growth in Consumer Beauty which is mainly a color cosmetics for Gucci in the US to take this example.

And what we are seeing is that really for a brand like Caragele, which is really talking to people from 18 years or even younger at to above 50, 60, 70 years old.

It's really a kind of very specific mix of Steve TV advertising.

Still a lot of advocacy, marketing, influencer marketing and a little bit of coupon, it's really a little bit of coupon.

So from Monash promotionality and prices, pressure on prices is not what is driving the consumption.

Remember what I just said a few minutes ago, we are seeing some consumers trading up from Consumer Beauty, color cosmetics category to entry prestige category.

So it's really this that we are seeing.

So it's really the job of us and the job of all the players of this industry to put on the market.

And I would say at Prestige light innovation, if I may call it like this, but at the prices of mass market, this is the recipe that works.

It's not about cheaper brands, cheaper brands are not taking the I would say the volumes, it's really about this part that is shared between upper mass and frequency.

Yes.

Javier Escalante, Evercore.

Hi, good morning, everyone.

My question is on in Brazil -- of Brazil, if I understood well, in your prepared remarks, you mentioned that it could do very high double digit.

Gross margins increased 400 basis points or so how do you accomplish so much in just one year?

What is the role of Brazil in Europe to driving consumer profit margins?

And I have a follow-up.

Yes, let me start with the first part and thank you very much for giving me and giving us the opportunity to highlight the fantastic.

I would say, growth trajectory of the Brazilian market and the Brazilian coated teams.

So let me maybe update you on this on this market.

So the Brazilian business has been growing very rapidly.

It's more or less 20% of growth that we have seen on this market in fiscal '24, we are already a leader in many categories.

We are the leader of the nail category with a brand called rescale and 30 has very strong positions in body care as we are the number one in centered body oils, which are becoming a global phenomenon by the way.

And number two in body lotions with a brand called Manon Jay.

We are now unlocking the substantial fragrance opportunity in this country.

A little bit of context.

The Brazilian market is a very big market, as you said it, it's over $2 billion market and the penetration of fragrance usage or centering items usage is close to 70%.

So you can imagine this is Paradise for a company like Gucci.

So while direct selling particularly data, though, has been historically a big in this country, the retail channel has been growing very strongly and very quickly in both mass and prestige recently.

And here, as you can imagine, our company is very well positioned to win as we are leveraging our global portfolio of mass, but also prestige fragrance brands.

We are leveraging our leading fragrance capabilities, our extensive distribution in this country as well as the fact that we have a big factory where we can manufacture locally.

So only one year after launching a few of our mass fragrance brands in the Brazilian retail channel.

We reached already the number six ranked in this country with over 4% of market share.

Of course, we will continue to drive this through additional brand introduction.

It move in productivity, and we are doing to accelerate the expansion as a step to, but it's also the story of prestige fragrances where we took over the business from distributors a few years ago, and we are now reaching almost 10% market share, up almost 200 basis points versus fiscal '21.

And this is led by brands such as Calvin Klein, Hugo Boss.

So you can imagine that for us, this is really a blend of opportunities and is just the beginning of this story.

Laurent, maybe you can complement on the profitability plus expected profit.

Yes, absolutely.

So indeed, yes, definitely the agenda from Brazil was, of course, a key knowledge, a strong growth engine that was really to make it in a very profitable manner.

And so this was definitely a mandate.

And indeed, you will see from the numbers that, you know, even over the over deliver.

So starting with gross margin, a lot of initiatives.

I will start first with pricing.

And if nuclear, we implemented a significant price increase because there was inflation number one, but also because really the lighting power were there.

And again, the innovations are strengths of the brands was really low into disease.

And there was really a deep review of the portfolio.

Our continuing strategic revenue management is really a fantastic case.

When you open your nose or the whiskey brands, a mono-brand only runs, I mean and you apply that playbook, then we were really able to unlock a lot of opportunity.

So indeed, this was really pricing and keep in mind also that in Brazil we are also, you know, our own R&D, we have our own factory.

So we were really born with these additional volumes really to gain fixed cost absorption and also to gain significant improvement on them enough on procurement.

So this was really a boosting the gross margin.

And then that's really the virtuous circle that we explained many times.

We're able really to invest in your new your new opportunities.

So it means that for fiscal '24, in fact, Brazil is accretive for the question because of the additional basis points that they are gaining in fact, is moving even faster than the components.

So it shows that chemo is our growth engine markets and they bring growth the green profit.

And because we have the right platform.

Ana Goshko, Bank of America.

Hi, good morning.

Thank you so much for the question.

I wanted to go back to on the Consumer Beauty topic.

You mentioned you're diving into innovation doubling in the next couple of years, just given the strength of certain competitors in the space, do you now view the mass beauty side as expanding and therefore, more of a growth opportunity.

And you mentioned trading up, which is very interesting from the mass space to entry-level prestige.

Are you seeing any benefit here in Consumer Beauty, though, from trade down into more challenging consumer environment.

Thanks.

Good morning, Ana Goshko.

So if I understand well, the question it's about and just to repeat again, because someone is typing at the same time we see mass beauty has more of a growth opportunity.

Yes, of course, we see this as a growth opportunity.

Mass Beauty is not just the US market where we are doing, I would say, a fantastic job that we have been doing for the last three or four years.

You've seen probably in the US and recently in the most recent as scanners plus, you know, omnichannel vision that CoverGirl is one of the heritage brand that is resisting the best to not only to slow down on one side, but also for the front of some very, very nimble competitors.

But we are learning quickly.

We are putting in place what needs to be put in place quickly.

As you heard it, we have been doubling down on advocacy marketing and this full marketing that goes with it.

And this is really changing the destiny of our brands that are certainly visible in with the right client with the right innovation towers, the rights of consumers who are making the growth of this market.

But now we are adding a second leg, which is these are a giant beauty startup inside equity, it already was up to now.

It's becoming something very, I would say are specialized.

It came a multi competencies to sorry, that's the way the word I was looking for.

So you can imagine that when you couple these two together, even in a market that is pressure, namely mainly in drugstore chains because in e-com, the brands that we are having are booming, in fact.

So it's not about mass beauty that is pressured.

It's mass beauty in certain channels that explains the slowdown that we are seeing some, I would say, retailer orders, et cetera.

So I believe that mass beauty, it continues to have a future assuming that we are as nimble innovative with and you can see that prestige.

So this is number one.

Number two, this US market is one market among others in our equation, and we are really growing this division worldwide.

Renal has been gaining market share for the last two quarters globally, and we are accelerating the same playbook behind reman.

And on top of this, when they move away from this color cosmetics category, we are also accelerating in mass fragrances.

This is expected to be the fastest growing category of the division in the fiscal '25.

We are accelerating in nails and specifically in that position now.

And we are accelerating in what we call elevated and body care because there is a huge increase of penetration in body care all around the world.

So in one way or another.

We will continue to grow the decision because we are doing what is the right things to be done on the market that is highly competitive and the pressure like the US one that we also have massive other areas of oxygen in the coming year.

And should I say, in the coming years.

Korinne Wolfmeyer, Piper Sandler.

Hey, good morning, and thanks for taking the question I'd like to touch on the guidance for the year and the cadence you've alluded to.

It seems like the back half is going to be fairly strong and I would love to understand the level of visibility you believe you have into the back half of this fiscal year and what gives you confidence in those targets?

And then additionally on the Wella stake, if there's any color you can provide on progress on their based on conversations you had with potential suitors to sell it off to.

And then I believe you talked a little bit about on share repurchases in the prepared remarks.

So any commentary on updated thinking around share repurchases and capital allocation would be great.

Thank you.

Korinne, thank you, recurring.

So first one on the guidance.

So I mean, first of all, indeed, so we are confirming our new mid-term algorithm for fiscal '25, which is the 6% to 8%.

We are indicating, as we flagged during the last earnings call that we've seen a sequential improvement in Q1, which is around 6%.

And then indeed, you know, moving to the 6% to 8% February than in H1 than in H2 and the key reason.

But these sequences also, but comps, as you remember for last year, it was very strong phasing out.

Q1 was plus 18% of Q2 was 11% and then 2,3, 10.

And then you know, lending, the UIT.

11%.

So of course, we have a high comps and we are taking this into account in our algorithm.

So comps are easier in the H2.

And then definitely, we are modeling that our sellout should be aligned with our personnel in the H2.

And of course, I mean, this is supported by all the innovations that, you know, we are piping in starting now, but we will continue in H2, both on prestige and on Consumer Beauty.

So these are all these elements drivers, which are really captured in the sequencing of these of the growth algorithm and then on your second part on the capital allocation.

I mean, first of all, I just want to remind again and again, that deleveraging is the number one imperative for the Company.

And of course, that we keep targeting, you know, towards the two times end of calendar '25.

And I want really to see at least two times is really without any divestiture.

So it's really built by pure organic EBITDA expansion and cash-flow generation case.

So that's very important.

So now definitely on their stake.

So it's really Okay.

We keep targeting NOCs divestiture end of calendar '25.

Now, as you know, and this is definitely in the hands of the main shareholder, which is KKR.

So no specific news on the on this.

And on again on share repurchase, as I indicated, definitely, we confirm our plan really to move towards 800 million share count for free by year end of fiscal '27.

So this agenda is unchanged.

Basically the thing divestiture will be an opportunity even need to do it faster.

And this is really what we are taking into account in January.

So algorithm is unchanged and our agenda remains the same.

Andrea Teixeira, JPMorgan.

Hi, good morning.

Thank you for taking my question on.

So I wanted to show you.

You sounded very confident of the launches that you have been accounting.

What you're going to call first, Burberry call this and done a lot of the launches that we have some for the strong holiday season and obviously, understandably, you have some visibility right now of the quarter.

But can you help us like look through on channel and more what do you have gained in terms of like distribution to give us confidence that you can call that very strong comparison into holidays last year?

And given that how cyclical on fragrances have been.

I understand all the body oils and fragrances have been and a wellness category for pretty much the last four years.

But understandably, thinking about how the consumer is making tough choices as we go in particular in the key markets that you're in, and understandably how this is going to unfold and what gives you confidence that then you're going to reaccelerate in the second half on given despite the comps, I mean, the comps are the comps are, but I think it's important to see how you're planning the cadence of do some of the launches to offset another tough comp.

Also like a clarification as we build into your guidance, I believe you mentioned hearing our EBITDA margin of 18% and giving your guidance for EBITDA when you back it out, it actually would give you a higher revenue number than what you're implying in your guidance.

I understand that perhaps you know that number is FX neutral.

That would give you on close to a mid-single-digit increase in sales as opposed to, let's say, a 4% increase in sales for fiscal '25.

I guess that's a question for Laurent.

Thank you very much for both.

Okay.

So I mean, let me start indeed on the Fiscal year '24 launches and that's really a key question.

And we explained several times that strategy we put in place is exactly that we are not winning these drugs that we launch a big innovation in year one and year three is dropping, no, not at all.

So this is exactly very good.

This is a perfect example.

So indeed, it's a great success which really contributed to fiscal '24 both top line significantly, but we are going to continue in fiscal '25.

So it means at Burberry birthdays, we continue to grow and we are adding are so very good as intense.

So which is going to come and talk.

So it's really that your point about the comp, in fact, we managed this way and then on top is really we are doing this on the other franchise and we are launching in the middle.

Gucci is know-how of Qinnan and is really, you know, it's part of the cohort, Ranjit and here again, it's really adding the growth in the four range and it's starting in Uruguay because this is already the number one or two for her worldwide because this is the same on both as you see the same, of course and in unmanned vehicles.

And because Marc Jacobs in terms of phasing Daisy wide, we launched in March.

In fact, we have a small impact now in Q1 and Q2.

So that's why now we are also facing the launches.

That is not only you know, on the one window.

During the year, we opened two or three windows so that we can really save and avoid, you know, this count it in.

And so that's definitely part of our of our strategy needs to continue.

Really these are these expansion.

That's the same on definitely on consumer beauty that we are we are doing this so on.

I will I will answer you on your question on them on the unit guidance.

So definitely what we are, we are monitoring.

So it is really, I mean and getting the like-for-like growth.

So you see the 6% to 8%.

What's very important is also that our guidance on EBITDA is reason to now or is the dollar value.

And this is really this is really the guidance that we are giving and this is underpinned by you and by margin expansion.

So and I know this is a modeling you're trying to do.

Of course, it's hard to see, you know, the full-year ForEx impact.

So I think this is definitely, some fine-tuning indications that we will give you as the year as a year is growing but to help you answer is definitely yes, the margin or you have the margin growth being the higher.

The ASPs is indeed what we are indicating here.

Yes.

Normally Let me maybe just to conclude on the second part on the middle part of your question about what gives us the confidence, as you know, of our launches sustaining another time and continuing to grow one or the other.

I think this is really the main difference between the equity of five years ago and the equity of today we have put in place a way to select what is going to stand the test of time and to grow over time.

That's very important.

And every launch we are doing specifically the big launches behind the big brands are really done.

Eastern on is we have a full confidence, high level of confidence that this is not going to be something that's going to be high for the first here and then go down.

So we three about addiction, it's about positive addictions, I may say.

So the news, of course, to the concept that make sure that this concept fits with the trends that are not the trends at the moment, but that are structural brands that are here to stay for the next decade.

And the second thing is that while we are doing this big blockbuster juices that are now setting trends for the long term instead of catching up, we are also very tactical in a way you're positively tactical playing with the format playing with dissenting.

That large percentage is becoming a much larger general channel with much more pictures than the traditional audience, whether to all or the pass-on and we are also activating other brands that we have not activated recently in the beauty of the cookie portfolio that we have a lower brands and some of these brands are going to be accelerated quite strongly, specifically the brands that are positioned on entry prestige.

So altogether, together with the fact that penetration is still not at the level of Brazil that I was quoting just a few minutes ago.

We believe we have room not only in the US, but also as we have to continue to grow the fragrance business.

Olivia Tong, Raymond James.

Great.

Good morning.

Thank you so much.

And one sort of build on what you what you just said around fragrances and why you think fragrances seem to be transitioning from -- what historically has been more of a discretionary category within beauty to one that is clearly less discretionary, but also see more willingness by consumers at the low end to trade trading, even though they haven't historically participated in the category.

It's pretty low price discovery at Ultra prestige.

And so clearly it sounds like there is significant momentum in prestige fragrances.

Are you assuming a similar level of contribution in fiscal '25 as in fiscal '24?

And what are you incorporating insofar as concerns about more volatile macros?

Thanks.

Good morning, Olivia.

Thank you for the questions.

And then I tried to answer again, you know, I hear some people saying fragrances in discretionary categories.

Some other people are saying that this is a cyclical category.

First, it was not a significant category.

It has always been a category that was growing more or less at the low-single digits prior to COVID.

And then something happened on the COVID moment where suddenly a food industry that has been reinventing itself for the decade before was put in front of a younger generation of consumers who are both genders younger from diverse backgrounds from diverse ethnicities, especially the Hispanic community in the US.

And suddenly you have really the encounter of two destinies the lung cancer, a category that reinvented itself with more quality, more creativity multiple layers.

It was not just about entry prestige.

It was or premium club premium, exclusive collections, et cetera, concentration technology, you know, the latest launch of Gucci Oxinium on good uses for the first time a patented molecule that extend the longevity of a fragrance.

So, you know, at the end of the day, when an offer becomes much more competitive, much more performance.

It's not anymore discretionary buying or a cyclical buying, it becomes part of your life.

And we believe that fragrances are becoming structurally part of the life of nearly billions of people around the world, specifically the youngest as connection builders, people ask each other, what do you wear, et cetera?

And that's a fantastic advertising campaigns.

I may say that people are also using fragrances as mood boosters as escape these tools, et cetera.

So we moved from something that was seen as a gift.

If you think about the US gift item into something I'd buy for myself because it makes me feel better.

It makes me connect with others.

And the quality and the intensity of choice is ever bigger than it used to be in the past.

So that's the reason why I believe it's not a discretionary category.

It's another silicon cyclical category and beauty is not a consumer reviews.

Goods industry neither.

So it's very, very important Irish tenders at the occasion of your question.

Linda Bolton-Weiser, D.A. Davidson.

Yes, thank you.

I was just curious about when you talk about innovation in Consumer Beauty.

Usually when there's a big technology innovation in the Neon category, that's a big driver of category growth.

It's been quite a few years, I think since a big innovation can you talk if there's anything being worked on there?

And then my second question has to do with cash flow.

I was curious what if you could quantify the cash flow benefits in FY24 that won't recur in FY25.

You give a number behind that?

And then what is going on with cash flow in in early 2025, you said the retailers are managing something about cash and inventory and then also why your receivables seem very, very high.

It seems to be kind of a drain on cash flow?

Thank you.

Yes, so let me -- hello, Linda.

Let me start with the with the cash flow.

So indeed, as I shared, we are lending our free cash flow since call it '24 to a level of stranded $17 million, but the committee that there were some elements that do not repeat them indefinitely.

This is really a year where we are starting to and staying in a significant cash tax.

So this was around

[$19 million].

So I would say it's really driven by unit type that we are increasing and improving the leftover jurisdiction.

And second, as I explained, indeed, we had also this year some investments and inventory buildup related to S/4 implementation, which, as I explained is we went live in mid-July and very successfully.

So it's a very strong asset for the Company.

So of course, these are headwinds that will not repeat in fiscal '25.

Now fiscal '25 indeed we are guiding, you know, low to middle one drug.

Definitely we are really taking into account some volatility with the retailers.

Indeed, we are seeing, you know, retailers know strongly focusing on cash and really either on their inventory management or payment terms management.

So this is embedded in our equation.

And definitely, that's really where we are monitoring as tightly so it definitely seems like working on the further opportunities for fiscal '25 are really optimizing all the levers that we have in our in our working capital and definitely we are building new vehicle cycle.

So we are absolutely confident that our cash cycle.

So indeed, we are really in a phase where we are and I will say, cleaning some elements for fiscal '24, as I explained.

And also there were some positive one-offs which happened in fiscal '24 that will not recur in fiscal '24.

But again, we are very confident until a starting wage and early in that.

Linda, to answer your question around nails, which I believe is indeed a very, very interesting category where we hold a fantastic position.

You know, Sally Hansen is the undisputed leader net in a bottle in the US with more than 40% of share risk in Brazil, which we may globalize at the moment is also doing fantastically well, number one in the country, above 40% US market share or our color cosmetics brand, except CoverGirl, are also having a fantastic name offers benefiting from the technologies of Sally Hansen.

You're right, you know, this is a category where innovation is key.

So you haven't seen innovation as big as the one that happened a few years ago or maybe a decade ago with gel technology, be it in professional or in consumer.

But still this is an area that we are actively working on to increase the wear because it's about the where using non-EUV activated solutions.

We are also putting a lot of firm energy and intelligence into how to skinny sites this category.

You know what's happening in health care should happen also in mail.

And last but not least, we are also going to be super innovative in terms of what I call special effects.

Special effects are also going to bring excitement the same way to bringing excitement on the lip category.

For instance, last but not least, we are also moving into artificial nails, which is also a big focus for the Company.

We believe that there are really two kinds of consumers and we need to talk to both of them.

And this is an area where we are working very hard to bring innovation, but this is the rule of the game.

Chris Carey, Wells Fargo Securities.

Hey, good morning.

I wanted to ask about gross margins and one question on category growth regarding gross margin your year ahead of plan.

Fantastic.

Going into fiscal '25, can you just talk about some of the drivers of gross margin expansion?

It sounds like you have some wraparound pricing, but I'm also conscious you had some favorability from manufacturing, I think brace as well for filings.

And so can you just talk about what's going to be driving the expansion and maybe dimensionalize that for fiscal '25 and how much and on and whether you think this mid 60s target was just a starting point and now you're running ahead of it.

Maybe you have confidence in going farther specifically as you look to use pricing or preimmunize more over time.

And then just connected, if I could do you have an outlook for category growth for fiscal '25, maybe globally.

Certainly, we've heard from some of your beauty peers that there's been some deceleration of category growth in Q4.

Still solid, but some sequential deceleration.

I wonder if you're seeing that, too, are you expecting stabilization or would you just expect to outperform category at a higher clip next year?

So really there's two questions there.

One on gross margin and one on category growth.

Thank you.

Yes, thank you, Chris.

So let me start with the gross margin.

Yes, you're absolutely right.

We are ahead of the year ahead of plan.

So it means that all the actions we put in place, I mean, so delivered or even over-deliver.

So I'm going to keep the same recipe into fiscal '25.

So as I said, I mean, we will keep, you know, doing some targeted price increase.

And definitely in a context where we see more moderate inflation on our cost of goods.

But still, again, we will keep using pricing as a lever to improve our gross margin.

So then, of course, mix is a big driver.

And I think we gave and we keep giving a lot of examples of premiumization and we do it across all divisions, all markets, all categories.

So this is key for us and productivity.

We continue, of course, of productivity initiatives.

I mean, I shared that we continue to roll into a program.

Of course, we have plans next year, for $75 million additional productivity.

So it's part of productivity in our factories.

And volume, of course, is helping really to accelerate this protein synthesis, but it's also with the procurement we are definitely scaling up.

The volumes indeed is giving us really some scale and power to negotiate a better price.

And also we have a specific program to continue to simplify and really to rationalize our portfolio of components.

And again, fragrances are either is a good example when you heard from Susan, that we are also accelerating.

Muskrat runs here, of course, we are benefiting here from the scale of the prestige fragrance.

So it means that we can launch initiatives which are already at a high gross margin.

So we have the playbook, we continue.

And definitely I mean, so mid-60s is not the end game.

And so we will continue definitely to go beyond the mid-60s with the same recipe and mix will be, of course, a video of a big driver of causes for this acceleration.

And let me take the second data hall, which is around category growth and in what we are seeing.

So entering fiscal '25, we have seen that the demand trends are remaining broadly consistent with what we saw in fiscal 24 at the same time of course, we all have seen that prestige retailers.

It's also direct to retailers closely manage orders and inventory levels, which is resulting in a sell-out that is tracking ahead of sell-in.

So we anticipate muted demand in mature markets to expand in the mid-single digits, including prestige fragrance growth above this range and mass beauty growth below this range.

All of this supported by very, very strong e-comm, which is growing between two times and more faster than the company.

So within this backdrop, for the mature markets, we are targeting to perform in line we we're ahead of the market and at the same time, we target to do double digit percentage revenue growth in what we call growth engine markets.

I'm thinking about Brazil.

The rest of LatAm, Mexico, Africa, Saudi Arabia, to name a few and high growth channels such as travel retail, which altogether accounts for approximately a third of Coty business.

So all of these will disappear.

So we'll support sorry, our fiscal '25 innovation pipeline.

Steve Powers, Deutsche Bank.

Thank you very much.

Good morning, Sue.

Good morning, Laurent.

So picking up a little bit, I guess up on the idea of the growth engine markets.

I wanted to ask about China specifically.

You know, obviously not your largest market, which is an advantage right now, but it has been a growth engine market for you in part of your long-term strategy.

And just couple of questions on that.

One is what is your outlook for China this year.

How are you planning for it?

Two is we have given what I assume is a softer outlook on China.

Are there specific growth engine markets you just mentioned a few, but are there specific ones that you're reallocating investment dollars to where you hope to make up some of the some of the gap there is anything you're seeing now in China altering your medium to long term, our views on what that what that market represents in terms of a future opportunity.

Thank you so much.

Thank you, Steve.

Good morning.

So first, to answer the question around China, clearly we believe that fundamentally China is or will be one of the biggest, if not the biggest beauty market in the mid to the long term.

So this is really something structural and this is really has to do a lot with prestige market.

I would say that is going to continue to grow because this is certainly limited in this country.

Now what we are seeing now at the moment is that the negative growth trends, specifically in skincare in China will continue probably in the coming quarters.

Prestige fragrances is really the bright spot in this country.

And I'll tell you a few words about the performance of the company.

But let me just remember remind everyone that the business of Coty in China is still small in or around 3% of the revenues in fiscal '24.

And at the same time, we are playing with two legs.

So we are playing with a leg of prestige fragrances, which are really doing better than any other category.

And the at the adoption curve of Chinese consumers in terms of premium entry premium or niche fragrances is continuing to be at play.

And we have the right brands recently, the orderly closure of Calvin Klein has been doing great on this market.

And at the same time, we are also pushing preparing for the skincare.

I would say a growth that will inevitably be back in this country, starting with Lancaster.

Lancaster has been doing a fantastic relaunch in China.

We have seen great results.

Lancaster is the fastest growing skin care brand in both the June quarter with almost doubling the size of the brand and also in calendar '24 with a growth that is a triple digit growth, gaining four points of market share in year to date, calendar year '24.

June was a very strong month, non-cash seven ranked number four brand at Sephora, right after brands such as drink in a sense and touch our non-cash debt ranks number eight and do you.

So the very unique positioning of lung cancer there that is not a traditional skin care brand.

That's not the usual DNA and stem cells and module.

And you can see the data.

It's all about for protection and for to aging, it's clearly strongly resonating in China.

And you may see that this is becoming also a global phenomenon.

So to really summarize on what we are seeing in China is that we are going to continue to overdrive our fragrances because this is where growth is coming from.

And we are readying our brands, Lancaster and also our EBITDA.

But when the skin care market will be back on track and believe this will happen at the moment or another.

Now are we shifting resources from one market to the other.

We are constantly putting resources and A&CP and money where there is growth, you know, and so of course, there is growth behind the prestige fragrances in China.

So we are investing over there, but there is also growth behind prestige fragrances in the US And we are also investing heavily in this area in the Middle East in other regions where the company is seeing, I would say momentum.

Ashley Higgins, Jefferies.

Hey, good morning.

Thanks for taking my question.

So you mentioned your innovation center and being able to get products out more quickly.

Can you remind us how fast you can get ideas onto shelf today and then what the goal is in the future?

And then anything you can tell us about the promotional environment and kind of expectations on the promotional environment as a heading to holiday?

Thanks.

Yes, good morning, Ashley.

Thanks for the question.

Three years ago, maybe four years ago when I joined the company, launches could take up to 18 to 18 months to two years, which is very, really too long for, you know, the world we are living we were already living four years ago today, and we started to do with the ready.

So it's something that could take between six to nine months.

I wonder, Dan mascara, the latest success from renal to Cas nine Munters, the launch of the uniqueness from CoverGirl.

It took us as quickly as six months as if I'm not wrong, including the platforming of this innovation and other brands.

So the question is not to go faster because six months is already super because we need to sit also with retailers resetting their shelves.

And this is really something that is a kind of imperative that we need to fit in that six months is very, very fast they are used to do more launches in six months.

So we already know how to do it.

Now we are going to industrialize, if I may call it like this, our ability to put on the market launches in six months.

And usually we are going to focus on areas that are not the traditional 30 R&D areas, you know, Co-Chair and is doing a lot in color cosmetics, but there are areas that are very, very technologically specific.

And these are the areas that we intend to overdrive in the coming months and quarters so that we can have both a, you know, a speed, but also the quantity.

It's a war of attention.

So you need to win this war of attention with the right surprising exciting, innovative and efficient projects.

Mark Astrachan, Stifel.

Yes, thanks, and morning, afternoon, everyone.

And a couple of clarification questions.

So the retailer reordering commentary, it sounds more like fluid on the color cosmetics is that correct?

And I guess if it is, how do you think about our channel inventories are from a fragrance standpoint, thinking more of the prestige side and how you think about the puts and takes of what the end demand looks like and how does that factor into the high end and low end of your guidance for fiscal '25 and then just also clarification and what's baked in from an Argentina hyperinflation standpoint for the revenue growth for fiscal '25?

So definitely to answer you on retailer order management here I mean, the point is mainly cosmetics.

I mean, there was a prestige category.

Fragrance category remains very dynamic.

I mean, you saw the last numbers, I mean, prestige fragrance category in the US is growing by 10% in July.

So definitely, and you know that US fragrance category is 70% bigger versus pre-COVID.

So definitely is very healthy, very dynamic and we are bringing again and with strong innovations and which resonate very well in the in the US from or on Argentina, indeed, I indicated in fiscal '24 that indeed, due to hyperinflation, we really implemented significant price increases.

Now we are really modeling for fiscal '25 more, some stabilization.

Okay.

So there will be some impact, but not at the same level as we face in fiscal '24.

Thank you.

And there are no further questions at this time.

I'll turn the call back to Sue Nabi for any closing remarks.

Thank you very much.

So looking forward to talking to you at the end of Q1.

Thank you.

This does conclude today's program.

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