Coty Reports Strong Results Ahead of Beauty Market, with Double-Digit Growth FYTD

Q3 Sales Exceed Expectations on Prestige Share Gains and Strength in Beauty Demand

Continuing Expansion in Operating Income and Margin

FY24 Outlook Raised to High End of Guidance Range

NEW YORK–(BUSINESS WIRE)–Coty Inc. (NYSE: COTY) (Paris:COTY) (“Coty” or “the Company”) today announced its results for the third quarter of fiscal year 2024, ended March 31, 2024. The Company’s strong above-market sales growth, reported and adjusted operating income growth, and reported and adjusted gross and operating margin expansion in Q3 solidifies nearly four years of Coty reporting results in-line to ahead of expectations.

In 3Q24, Coty’s net revenues grew 8% on a reported basis and 10% on a LFL basis, with reported and LFL results supported by growth in fragrances, color cosmetics, skin care and body care. These results trended above the Company’s guidance of +6-8% LFL for the second half of FY24. On a year-to-date basis, net revenues grew 13% on both a reported and LFL basis. In 3Q24 and year-to-date, the Company continued to deliver balanced reported net revenue growth, including growth in both Prestige and Consumer Beauty, across all regions and in each of its core categories partially offset by a 2% headwind in Q3 from the divestiture of the Lacoste license. In Q3 and year-to-date, Coty delivered a healthy reported growth mix with low to mid-single-digit percentage volume growth and estimated high-single-digit percentage pricing contribution, with the estimated impact from mix & other slightly negative in Q3, but a positive low-single-digit contribution fiscal year-to-date.

In 3Q24, Prestige net revenues increased 8% on a reported basis and 13% on a LFL basis. On a year-to-date basis, Prestige net revenues grew a strong 17% on both a reported and LFL basis. In 3Q24 and year-to-date, reported net revenue growth in Prestige remained strong in fragrances, cosmetics and skin care, but Q3 included a 4% negative impact from the divestiture of the Lacoste license and a 1% negative impact from FX.

In 3Q24, Consumer Beauty net revenues increased 6% on a reported and LFL basis. On a year-to-date basis, Consumer Beauty revenues increased 8% on a reported basis and 7% on a LFL basis. In 3Q24 and year-to-date, Consumer Beauty’s reported net revenues grew in color cosmetics, mass fragrances and mass skin & body care in most countries, offsetting the market weakness in U.S. mass cosmetics.

Strong reported net sales momentum in 3Q24 was supported by high-single-digit percentage growth in all regions, and on a year-to-date basis, all regions generated double-digit percentage reported net revenue growth. In Prestige, Coty gained market share in all three regions in Q3. Americas net revenues rose 8% on a reported basis and 11% on a LFL basis in Q3. Reported net revenue growth in Americas was driven by strong double-digit percentage growth in Latin America, Canada and the Travel Retail channel partially offset by a 2% negative impact from FX and a 1% headwind from the divestiture of the Lacoste license. In Q3, EMEA’s net revenues increased 7% on a reported basis and 9% on a LFL basis. Reported net revenue growth in EMEA was driven by continued growth across most markets and the Travel Retail channel, coupled with a 2% FX benefit partially offset by a 4% headwind from the divestiture of the Lacoste license. In Q3, Asia Pacific sales grew 7% on a reported basis and 11% on a LFL basis. Reported net revenue growth in Asia Pacific was driven by double-digit percentage growth in Asia excluding China and the Travel Retail channel, and triple-digit percentage growth in Hainan, partially offset by a 3% negative impact from FX.

Coty delivered strong gross margin expansion in the quarter. 3Q24 reported and adjusted gross margin of 64.8% increased 190 basis points year-over-year. Coty’s Q3 reported gross margin improvement was driven by the benefit from premiumization, carryover pricing and easing inflation, as well as supply chain productivity savings. Coty generated reported operating income of $77.8 million, up 79% year-over-year, supported by strong sales and gross profit, resulting in 220 basis points of reported operating margin expansion to 5.6%. Coty’s Q3 adjusted operating income of $143.9 million grew 17% year-over-year resulting in 90 basis points of adjusted operating margin expansion to 10.4%. Q3 reported net income of $0.5 million with a breakeven reported net income margin decreased from net income of $105.1 million in the prior year. Adjusted net income of $43.8 million decreased from $168.1 million. The decline in both reported and adjusted net income was fully driven by mark-to-market gains from forward repurchase contracts in the prior period compared to mark-to-market losses in the current period, partially offset by higher operating income in the current period. Q3 adjusted EBITDA of $199.9 million grew 10% year-over-year, which drove an increase in adjusted EBITDA margin of 30 basis points to 14.4%.

In Q3, cash flow from operating activities was $(170.0) million and free cash flow was $(234.3) million consistent with the Company’s seasonally weaker cash flow period. The seasonally low Q3 cash from operating activities and free cash flow was further pressured by the payment of taxes for prior years and the timing of working capital payments, the latter of which is expected to reverse in the fourth quarter. On a year-to-date basis, cash flow from operating activities was $438.1 million and free cash flow was $252.7 million. Total debt at the end of the third quarter totaled $3,972.3 million, while financial net debt totaled $3,712.1 million. This drove the total debt to net income ratio to 16.5x and the financial leverage ratio (net debt to adjusted EBITDA) to 3.4x. Coty’s retained 25.8% Wella stake was valued at $1,080.0 million at quarter-end, supporting economic net debt of $2,632.1 million.

Updates on Strategic Pillars

• The prestige fragrance market, whose growth accelerated sequentially to a mid-teens percentage in Q3, coupled with Coty’s market share gains, fueled strong prestige fragrances net revenue growth across multiple brands. Coty’s prestige fragrance revenues grew approximately 7% as reported and 12% LFL in Q3, and approximately 18% as reported and LFL on a year-to-date basis, fueled by strength in existing icons coupled with the contribution from new launches. Burberry Goddess, Coty’s biggest launch ever, continues to be a top global female fragrance launch, which coupled with strong growth in other Burberry franchises, drove over 50% expansion in Burberry’s total net revenues in Q3. Building on this launch momentum, Marc Jacobs Daisy Wild and Cosmic Kylie Jenner are ranking as the Top 2 fragrance launches in the U.S. calendar year-to-date, reinforcing Coty’s position as a fragrance leader. Coty’s prestige cosmetics business saw very strong momentum with reported net revenue growth of over 25% in the quarter, led by its three prestige cosmetics brands, Burberry, Kylie and Gucci.
• Coty’s Consumer Beauty growth in the quarter mirrored the mid-single-digit percentage growth of the global mass beauty market. Strong momentum in mass fragrance, skin & body care, and mass color cosmetics in most countries offset softness in the mass color cosmetics category in the United States. Coty’s continues to make strong strides in its social media advocacy strategy to drive improvements in earned media value and propel viral Consumer Beauty launches including CoverGirl Simply Ageless Skin Perfector Essence, CoverGirl Outlast Lipstain and Rimmel Wonder’Bond mascara. As a result, both CoverGirl in the U.S. and Rimmel in the U.K. reached Top 4 rankings for earned media value in their respective core markets.
• Coty’s prestige skincare business grew reported net revenues by a high-single-digit percentage in Q3 led by robust double-digit growth from Lancaster.
• Coty e-commerce channel net revenue growth was nearly 20% in Q3, following over 20% growth in 1H24. As a result, year-to-date e-commerce penetration increased approximately 190 basis points year-over year to approximately 20%. In Prestige, double-digit percentage e-commerce channel growth was driven by new product launches during the quarter, including Cosmic Kylie Jenner and Marc Jacobs Daisy Wild, coupled with strong social media activations and collaboration with e-retail partners. In Consumer Beauty, e-commerce growth of approximately 30% was supported by nearly all regions, led by the U.S., LATAM and Europe. Coty gained e-commerce market share in both segments.
• The Company maintained momentum in high growth markets and channels. Coty’s global Travel Retail trends were robust in all three regions, fueling reported net revenue growth of roughly 20% in Q3. In China, Coty’s Prestige business generated reported net revenue growth in the mid-teens percentage. The Company’s momentum in growth engine markets continued to be robust, with mid-to-high teens reported revenue growth and over 20% LFL growth in Q3 and year-to-date, led by strength in Brazil, the rest of LATAM, Southeast Asia, including India, and Africa.
• Coty continued to make progress on its sustainability pillar during Q3, including improving several of its ESG ratings over the past year and transitioning additional supply chain sites, labs and offices to carbon neutral, bringing the total to eight carbon neutral¹ locations.

Commenting on the operating results, Sue Nabi, Coty’s CEO, said:

“Our Q3 results reinforce Coty’s established track record of delivering results ahead of the beauty market and ahead of expectations, and once again illustrate that we are executing on our imperative to drive balanced portfolio growth. In both Q3 and fiscal year-to-date, we delivered strong growth in both the Prestige and Consumer Beauty businesses, in each of our three regions, and in our core categories of fragrances, color cosmetics, skin care and body care, all supported by a broad range of our leading brands.

Coty’s global and multi-category presence is proving to be a key area of strength and differentiation, as subdued trends in a very few markets and subcategories, such as U.S. mass cosmetics, are more than offset by continued strong momentum in the majority of our core business areas, including global prestige and mass fragrances, where our business grew by a low-double-digit percentage, and prestige cosmetics, where our sales grew over 20%. In fact, in Prestige fragrances, we’ve seen category growth trends accelerate over the course of the quarter, speaking to the continued appeal of fragrances to a broad set of consumers. And in this favorable backdrop, Coty is gaining prestige fragrance market share across regions.

Our execution in our core businesses remains top notch. Building on our track record of leading fragrance launches in FY22 and FY23, we are elevating our leadership further with the blockbuster launch last fall of Burberry Goddess, which continues to grow and exceed all prior Coty benchmarks, and now in the spring the very successful launches of Marc Jacobs Daisy Wild and Cosmic Kylie Jenner, which are the #1 and #2 fragrance launches in the U.S. calendar year-to-date, respectively.

In our color cosmetics business, first-to-market innovations like CoverGirl’s Simply Ageless Skin Perfector Essence and Rimmel’s Wonder’Bond mascara are resonating with consumers, while both brands are making strong strides in accelerating their advocacy across social media platforms. Both CoverGirl and Rimmel now rank in the Top 4 in terms of earned media value in their core markets of U.S. and U.K., respectively, which is a significant improvement from last year.

We are also complementing our core business momentum by unlocking white space opportunities. This quarter marked a major milestone, as we launched our Coty-branded Infiniment Coty Paris fragrance collection, revolutionizing the fragrance category once again through market-leading advances in the formula, packaging, artcycling and merchandising. As we build both Infiniment Coty Paris and our leading ultra premium fragrance collections, we look to capture a bigger slice of the booming ultra premium fragrance market.

Similarly, our skincare momentum also continues to build with acceleration in Lancaster across both Europe and China, top industry awards and growing productivity for Orveda, and strong momentum in philosophy’s social media resonance.

Our growth is further reinforced by our strong e-commerce momentum with our online sales expanding approximately 20% in both Q3 and fiscal year-to-date and now accounting for one fifth of our business. I am particularly proud of our market share expansion in this critical channel, with share gains in both Prestige and Consumer Beauty.

We are unlocking geographic white spaces as well, as our high-single-digit growth in developed markets was complemented by over 20% LFL expansion in growth engine markets, including Brazil, the rest of LATAM, Southeast Asia, including India, and Africa.

We are achieving these strong results and milestones all while delivering robust profit growth and margin expansion. This is enabling us to raise the midpoint of our FY24 guidance for the third time this year. Our focus is to continue to fuel this flywheel, delivering steady margin expansion, cash flow improvement and deleveraging progress.

In sum, we continue to see a strong and dynamic beauty market, with our diversified portfolio and strong execution enabling Coty to once again outperform the underlying market. As we continue to reinforce our position as a beauty powerhouse, in our 120th anniversary year, we remain excited by the many opportunities ahead.”

¹ For Scope 1 and 2 emissions.

*Adjusted financial metrics used in this release are non-GAAP. See reconciliations of GAAP results to Adjusted results in the accompanying tables.

RESULTS AT A GLANCE

Financial Highlights

• 3Q24 net revenues increased 8% on a reported basis and 10% LFL driven by growth in Prestige net revenues of 8% reported and 13% LFL, an increase in Consumer Beauty net revenues of 6% reported and LFL and includes a 2% headwind from the divestiture of the Lacoste license. Year-to-date net revenues increased 13% on a reported basis fueled by a 17% increase in Prestige reported net revenues and an 8% increase in Consumer Beauty reported net revenues. Year-to-date net revenues increased 13% LFL.
• 3Q24 reported operating income grew 79% to $77.8 million with a reported operating margin of 5.6% reflecting 220 basis points of margin expansion. Year-to-date reported operated income increased 23% to $512.0 million with a reported operating margin of 10.8% reflecting 90 basis points of margin expansion.
• 3Q24 reported net income of $0.5 million decreased from net income of $105.1 million in the prior year driven by a large benefit in the prior year from the mark-to-market on the equity swap. In 3Q24, reported net income margin was breakeven. Year-to-date reported net income of $176.4 million decreased from $465.4 million in the prior year and reported net income margin was 3.7%.
• 3Q24 reported EPS was $0.00 and year-to-date reported EPS was $0.20.
• 3Q24 adjusted operating income increased 17% to $143.9 million with an adjusted operating margin of 10.4% reflecting 90 basis points of margin expansion. On a year-to-date basis, adjusted operating income increased 19% to $755.4 million with an adjusted operating margin of 15.9% reflecting 80 basis points of margin expansion.
• 3Q24 adjusted EBITDA grew 10% to $199.9 million with an adjusted EBITDA margin of 14.4% reflecting 30 basis points of margin expansion. Year-to-date adjusted EBITDA grew 15% to $926.6 million driving a year-to-date adjusted EBITDA margin of 19.5%, up 30 basis points year-over-year.
• 3Q24 adjusted EPS totaled $0.05 and included a non-operating negative impact to EPS of $0.01 from the mark-to-market on the equity swap due to the stock price decline in Q3. The year-to-date adjusted EPS of $0.39 included a non-operating negative impact to EPS of $0.02 from the mark-to-market on the equity swap compared with a $0.14 benefit from the mark-to-market on the equity swap in the prior year.
• Savings totaled approximately $25 million in Q3 and over $90 million year-to-date. Coty continues to expect savings of $110-120 million in FY24.
• 3Q24 cash flow from operating activities totaled $(170.0) million and free cash flow totaled $(234.3) million. On a year-to-date basis, cash flow from operating activities was $438.1 million and free cash flow totaled $252.7 million.
• Total debt was $3,972.3 million, while financial net debt totaled $3,712.1 million resulting in total net debt to income ratio of 16.5x and a financial leverage ratio of 3.4x. The value of Coty’s 25.8% Wella stake was stable at $1,080.0 million at quarter-end, supporting Coty’s economic net debt of $2,632.1 million.
• The Company repurchased 27 million shares on February 22, 2024 as part of the first tranche of its previously announced equity swap agreement.

Outlook

The global beauty market remains strong with demand for prestige fragrances continuing to grow at a double-digit percentage pace and above historical levels, while the mass beauty market is performing consistent with historical levels, growing at a mid-single-digit percentage. Coty continues to benefit from this attractive market dynamic with momentum across its core categories, strong launch results and early wins in key white spaces. The Company now expects FY24 LFL revenue growth to be at the high end of its prior guidance range of +9-11%, which includes expectations for low-to-mid single-digit percentage LFL revenue growth in Q4 reflecting an estimated mid-single-digit percentage headwind in its Prestige business from difficult prior year comparisons, when retailers restocked inventory as Coty’s fragrance service levels recovered from earlier shortages. Reported revenues in Q4 are expected to include a 1-2% headwind from FX and an approximately 2% scope headwind from the divestiture of the Lacoste license. At the same time, the strong continued sell-out in Coty’s business supports expected LFL revenue growth acceleration sequentially into first half FY25 from the levels expected in Q4.

Coty also expects FY24 adjusted EBITDA margin expansion to be at the upper of end of its previous guidance range of 10 to 30 basis points. At the same time, FX headwinds in Q4 are contributing to Coty’s expectations for FY24 adjusted EBITDA to remain within its prior guidance range of $1,080 to $1,090 million based on current FX rates. In total, the Company continues to expect modest FY24 gross margin expansion year-over-year. Coty now expects FY24 adjusted EPS to be at the high end of the prior guidance range, excluding the equity swap, of $0.44 to $0.47, implying strong growth at the upper end of the +16-25% guidance range.

Factoring in the timing of certain deferred payments of taxes and working capital phasing, the Company continues to expect FY24 free cash flow of roughly $400 million, with expected free cash flow growth in FY25.

Having reached its leverage target of approximately 3x exiting CY23, Coty remains fully on track to drive its leverage towards approximately 2.5x exiting CY24 and towards approximately 2x exiting CY25 driven by its free cash flow generation and EBITDA expansion. Coty continues to target the divestiture of its Wella stake by end of CY25.

Financial Results*

Refer to “Non-GAAP Financial Measures” for discussion of the non-GAAP financial measures used in this release; reconciliations from reported to adjusted results can be found at the end of this release.

Revenues:

• 3Q24 reported net revenues of $1,385.6 increased 8% year-over-year driven by an 8% increase in Prestige reported net revenues, a 6% increase in Consumer Beauty reported net revenues and includes a 2% headwind from the divestiture of the Lacoste license. On a LFL basis, net revenues increased 10% driven by a 13% LFL increase in Prestige and a 6% LFL increase in Consumer Beauty net revenues.
• Year-to-date reported net revenues of $4,754.6 million increased 13% year-over-year driven by a 17% increase in Prestige reported net revenues and an 8% increase in Consumer Beauty reported net revenue. On a LFL basis, net revenues grew 13% driven by a 17% LFL increase in Prestige net revenues and a 7% LFL increase in Consumer Beauty net revenues.

Gross Margin:

• 3Q24 reported gross margin of 64.8% increased 190 basis points year-over-year. The improvement in reported gross margin was mainly driven by premiumization, carryover pricing, easing inflation, and supply chain productivity savings. 3Q24 adjusted gross margin of 64.8% increased by 190 basis points from 62.9% in the prior year.
• Year-to-date reported gross margin of 64.4% increased 20 basis points year-over-year. The rise in reported gross margin reflected a positive impact from premiumization, pricing and supply chain productivity savings partially offset by a negative impact from higher excess & obsolescence, which continued to improve over the course of the year. Year-to-date adjusted gross margin of 64.4% increased from 64.2% in the prior year.

Reported Profit:

• 3Q24 reported operating income of $77.8 million increased by 79% from $43.5 million the prior year driven by higher sales and gross profit. 3Q24 reported operating margin was 5.6% reflecting 220 basis points of margin expansion year-over-year. The improvement in reported operating margin was driven by the strong gross margin expansion partially offset by higher A&CP and fixed costs as the Company reinvested in its strategic growth capabilities.
• Year-to-date reported operating income of $512.0 million increased by 23% from $414.7 million in the prior year driven by higher sales and gross profit. Year-to-date reported operating margin was 10.8% reflecting 90 basis points of margin expansion year-over-year. The improvement in reported operating margin was driven by the strong gross margin expansion.
• 3Q24 reported net income of $0.5 million decreased from net income of $105.1 million in the prior year as the profit expansion was more than offset by a $133 million reversal in the benefit from the mark-to market on the equity swap. 3Q24 reported net income breakeven margin decreased 820 basis points year-over-year.
• Year-to-date reported net income of $176.4 million decreased from $465.4 million in the prior year resulting in a reported net income margin of 3.

Contacts

Investor Relations
Olga Levinzon, +1 212 389-7733

olga_levinzon@cotyinc.com

Media
Antonia Werther, +31 621 394495

antonia_werther@cotyinc.com

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