Coty Inc. (NYSE:COTY) Q1 2024 Earnings Call Transcript

Coty Inc. (NYSE:COTY) Q1 2024 Earnings Call Transcript November 8, 2023

Operator: Good morning and good afternoon, everyone. My name is Todd, and I will be your conference Operator today. At this time, I would like to welcome everyone to Cody’s First Quarter Fiscal 2024 Question-And-Answer Conference Call. As a reminder, this conference call is being recorded today, November 8th 2023, at 7:30 AM Eastern Time, or 1:30 PM Central European PM time. Please note that on November 7th at approximately 4:30 pm Eastern Time, or 10:30 pm Central European Time, Cody issued a press release and prepared remarks webcast, which can be found on its 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 reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except where noted, the discussion of Coty’s financial results and Coty’s expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company’s release.

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Q&A Session

Operator: With that, we will now open the line for questions. [Operator Instructions] Our first question will come from Nik Modi with RBC Capital Markets. Please go ahead. your line is open.

Nik Modi: I actually had a bigger picture question. Sue, when we recently met in person a few weeks ago, you were very excited about the innovation program at Coty. And I wanted to ask a more broader question about skin care and how you think about skin care holistically in the sense that topicals is one thing, but what about injectables and I’m just curious on philosophically how you think about the category going forward?

Laurent Mercier: Hi Nik thank you for your question. Indeed, as you say, the bigger and the broader picture. I think what we have shared with all you guys several times is that the skincare market, and by the way, the beauty market, generally speaking, going in the direction of the medicated beauty, and this is something that we see very, very strongly. That is the reason why we have decided to reposition some of our brands quite strongly on this area. If you allow me, may I remind everyone that we just did the launch behind Orveda skincare of the first serum that uses technologies inspired by the medical world that we call phenolytics, which is the first time a skin care brand is using this kind technologies in a topical cream as you say it.

On Lancaster the story that is re-reasonating very well is the story of using these vectors, liposomes that penetrate deep inside the skin and this is really what is making the brand resonate with the Chinese consumers. And also on philosophy in the U.S., we have decided that the brand will stand for the brand that is going to bring a bit of wisdom in the craze around dermatologic ingredients. So as you hear it from my words, it is all about a kind of medicated beauty. In the beauty world, we are using ingredients and formulations that are acting on the upper layer of the skin, and we are not allowed to go lower. So if you think about injectables, you clearly see this booming with other companies selling products that are going to release the muscles without quoting any brand, products that are all about injecting galacturonic acid inside the skin, vitamins or sometimes medical devices are lowering a faster penetration of the active.

So you are right, this is the direction that the overall market is going into, but we have some limitations when it comes to selling skincare from a beauty brand that does not require any kind of long time testing like a medication or a drug would require. But that is more or less the direction we are seeing. Ingestibles, I mean, ingestibles is like nail skincare. It has been a kind of everyone says this is the year of ingestibles and the year after, nothing has happened. So again, there, my gut feeling is that this category needs a bit of strong R&D because a lot of people believe that what you are going to ingest is going to be digested by your stomach enzymes. And at the end of the day, what is the difference between eating good food and having ingestibles.

So that is also something we hear from consumers, that ingestibles need to demonstrate their ability to bring to the right place, the right ingredient, knowing that they come into your digestive system. So that is the whole, the big picture I could share with you. I hope I’m answering part of your question.

Operator: Our next question will come from Oliver Chen with TD Cowen. Please go ahead. your line is open.

Oliver Chen: Hi, Sue and Laurent. You made a lot of great progress with your digital marketing and the studio we toured was remarkable. What is ahead in terms of how you are thinking about a digital center of excellence and key principles and platform occasion as you will continue to build this capability across your portfolio? Also as we look forward, what are your thoughts on pricing and the environment? We are seeing a lot of crosscurrents in the consumer in many regions. However, you have been on a really good pace with all the fragrance momentum?

Laurent Mercier: Hi Oliver, thank you for your question. So again, on digital centers of excellence. You are totally right. We started since 2020 to really create a center of excellence that is based in Paris, that is the global center of excellence. Really in a kind of catch up sales because the company was a bit behind its competitors in this area three years ago and this, we made it happen in Paris. And now it is exactly the right time to have these centers of excellence benefiting from the global knowhow being created in key regions around the world, namely the U.S. or China, to take two examples where the digitalization of the beauty world it is quite advanced and fast paced. So this is exactly where we are standing now.

On consumer beauty, you know that we are also accelerating in our ability to create locally in the different countries because this can only be local because you need to fit with the culture, you need to fit with the language, you need to fit with the local trend. So we are creating studios, let’s call them like this. In the U.S, in UK and elsewhere. I think we created something like 15 studios which are TikTok or YouTube, call them the way you want studios where we are creating together or co-creating with influencers’ content, and we are also beeping the machine. Just to give you an idea, until recently, we were working with a few dozens of influencers behind the key launches of the consumer beautymaker brands. And then recently, we moved to 100, and we saw the results immediately.

If I think the example of UK where we moved from nowhere in terms of EMV and EIT to top five, top six brands, sometimes ahead of best-in-class brands that have been doing this for years and years and now the objective is to multiply this number by three to get above the threshold of the 1000 influencers reached by our brands. So this is exactly what is happening in terms of centers of excellence, first build globally in Paris, and now going into different countries in New York, in London, and in Shanghai where we are today talking to you, Frank. Laurent, maybe you can take the second part of the price.

Peter Harf: Yes. Absolutely. On pricing, indeed, I mean, first of all, just to remind that, indeed we implemented several price increase over the last two years at the level of mid single-digit. And this price increase went very smoothly and we are very successful. The clear demonstration is what you are seeing is that, our volumes keep growing and definitely that you are seeing in Q1, our volumes are growing. So this was really a very important in our strategy, to make sure that there is no elasticity on volumes and this was the case. So now looking ahead, of course, we are very conscious that the reason especially on COGS inflation is starting to softening. So what differently, we are really focusing on mix management. This is definitely a number one driver to continue to improve our gross margin and mix management.