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Coty Inc (COTY) Q3 2024 Earnings Call Transcript Highlights: Strategic Growth and Robust ...

GuruFocus Research
·4-min read

Release Date: May 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Coty Inc (NYSE:COTY) reported strong Q3 results with double-digit growth, reinforcing a nearly 4-year track record of meeting or exceeding expectations.

  • The company achieved significant like-for-like revenue growth of 10% in Q3 and 13% year-to-date, outperforming its guidance.

  • Coty Inc (NYSE:COTY) saw robust profit growth and margin expansion in Q3, with adjusted gross margin increasing by 190 basis points and EBITDA margin expanding by 30 basis points.

  • The company raised the midpoint of its fiscal '24 guidance for the third time this year, indicating confidence in continued strong performance.

  • Coty Inc (NYSE:COTY) continues to execute on its strategic growth pillars, including expanding its presence in the prestige and consumer beauty sectors across various global markets.

Negative Points

  • Despite overall strong performance, Coty Inc (NYSE:COTY) noted subdued trends in a few markets and subcategories, such as U.S. mass cosmetics.

  • The company faces headwinds from foreign exchange impacts expected in Q4, which could affect overall financial performance.

  • Coty Inc (NYSE:COTY) is experiencing challenges related to retailer inventory restocking, which is expected to create a significant headwind in Q4.

  • There are ongoing concerns about excess and obsolescence expenses, although these are moderating towards the second half of fiscal '24.

  • While Coty Inc (NYSE:COTY) is managing through a dynamic supply chain environment, there are moderate headwinds to free cash flow expectations due to inventory builds.

Q & A Highlights

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Q: Can you summarize Coty's Q3 financial performance and any updates on guidance? A: Sue Y. Nabi, CEO & Director - Coty Inc. reported strong Q3 results with double-digit growth and robust profit growth and margin expansion. The company raised the midpoint of its guidance for the third time this year, expecting fiscal '24 like-for-like revenues to grow at the upper end of the previously announced plus 9% to plus 11% range. Adjusted EBITDA is expected to be consistent with the previously guided range of $1.80 billion to $1.90 billion, with adjusted EPS excluding the equity swap at the high end of the prior guidance range of $0.44 to $0.47.

Q: What are the key drivers behind the strong growth in Coty's Prestige and Consumer Beauty segments? A: Sue Y. Nabi, CEO & Director - Coty Inc. highlighted that the Prestige business grew 13% like-for-like in Q3, driven by balanced growth across regions and categories, including fragrances, cosmetics, and skincare. The Consumer Beauty segment grew 6% like-for-like in Q3, driven by growth across all categories, with particular strength in mass fragrances, skincare, and body care momentum in Europe, LatAm, and Asia.

Q: How is Coty managing its supply chain and inflation impacts? A: Laurent Mercier, CFO - Coty Inc. mentioned that service levels in both Prestige and Consumer Beauty remained strong at approximately 94%. Inflation has eased significantly, with a negligible impact on COGS in Q3 and expected minimal impact in Q4. The company remains targeted on future price increases due to the significant moderation in inflation.

Q: What strategic initiatives are driving Coty's growth? A: Sue Y. Nabi, CEO & Director - Coty Inc. discussed progress on strategic growth pillars, including growing the Consumer Beauty business, accelerating the luxury fragrance business, establishing Coty in prestige makeup, and building the skincare portfolio. Key initiatives include geographic and category diversification, disruptive innovation, and strong social media advocacy.

Q: Can you provide insights into Coty's financial strategy and capital structure moving forward? A: Laurent Mercier, CFO - Coty Inc. outlined that the company is targeting leverage towards approximately 2.5x exiting calendar '24 and towards approximately 2x exiting calendar '25. This will be achieved through organic free cash flow generation and EBITDA expansion. Coty also continues to target divesting its Wella stake by the end of calendar '25.

Q: What are Coty's expectations for Q4 and the full fiscal year '24? A: Sue Y. Nabi, CEO & Director - Coty Inc. expects low to mid-single-digit percentage like-for-like revenue growth in Q4, with significant easing in COGS inflation driving year-over-year expansion in adjusted gross margin. For the full fiscal '24, revenues are expected to grow at the high end of the 9% to 11% like-for-like range, with modest gross margin expansion year-on-year and adjusted EBITDA consistent with prior guidance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.