Laurent Mercier: So, when it comes to Hainan, today, our inventory levels are okay. There is not any kind of slack to be done in terms of having inventories going up. Of course, we are in front of a easy comparative, if I may say. But still, the growth of the fragrance business we are having there and our skincare also business is very high. It is a triple-digit growth. So that is quite good in a way. When it comes to China inventory levels, there are healthy also on the Prestige side. The only part that is in fact, by the way, during the script and the earning, even if this is very, very small portion of our business is around CB. It is not to do with the market or anything like this. This has to do with moving from one line to another line at retailers.
We revamped the Adidas sugar gear lines and we changed it from one factory to another, so we had to build a bit of stock that was pushed to the trade. And then because of the slowdown of the market, this trade went up and this delayed the arrival of the renovation of the shareholders. So this is the only thing we flagged in all the communications we have done regarding an increase of inventory. But again, this is a very, very small part of our business given that cookie China business is, what, 90% Prestige and 10% CB more or less. So this is number one. What do we see on 11/11? The dynamism of the fragrance category is confirmed. This is really something that is confirming month after month. Specifically, as I said it before, on the high end part.
And more than ever, people exploring scents or juices that are unexpected for a market like China, which is a great, great, I would say, news because this means that the ability to create full lines for the Chinese consumers. It is crystallizing now versus what used to be the case just two or 3 years ago, which means that you could launch only two or 3 flower iterations and you are done with the Chinese market. So there is the diversity that you see everywhere else around the world in terms of taste that is starting in the country. And on the last part of your question regarding what is happening in the Middle East, this business is a mid-single-digit business expertise. So far, we are not seeing any negative impact on our business, but that is the situation.
But honestly, I have to say that on a personal level, as you know it, I’m very saddened by the violence, and we continue to hope for the peace and an end of the suffering. That was an important point to make after your question.
Operator: Our next question will come from Anna Lizzul with Bank of America. Please go ahead. your line is open.
Anna Lizzul: I wanted to ask on the quarter, you had a good deal of operational leverage to help drive the adjusted EBITDA beat. And I was wondering if you could elaborate on the drivers of this and how you see it progressing through the year?
Laurent Mercier: Yes. Absolutely. Indeed, I mean, we continue definitely our strategy is really making sure this flywheel, definitely top-line growth, focus on productivity and then making sure that we are allocating resources to support our strategic initiative and we keep growing our EBITDA. So this is definitely what the equation you saw in Q1 and indeed is driving us to deliver an EBITDA, which is higher than expectation. So now when looking ahead, what are the components? Number one, of course, we continue this top line agenda. So this is, we are raising the top-line guidance. Number two, gross margin. Definitely, we are seeing, I mean, Q2 where our gross margin should be flattish and then expansion gross margin expansion in our H2, which will be the combination of the mix management, as I just shared productivity that we continue targeted pricing.
And also, we are starting to see some softening on cost of goods inflation and also transportation inflation, so then we will continue, of course to inject some of this gross margin expansion into the strategic initiatives, the innovations, investment in the capabilities, as we say about digital also about R&D and definitely keeping improving our EBITDA margin as we confirm our EBITDA margin full year growing from 10 to 30 basis points. So the flywheel is fully in motion. And of course, with high discipline on the cost and really making sure that it is fully, fully consistent with the strategic imperative.
Operator: Our next question will come from Olivia Tong with Raymond James. Please go ahead. your line is open.
Olivia Tong: My first question is around your view on margin contribution by segment this year and whether you think one division is expected to show more and then the other. Are you expecting both divisions to grow margins in light of Q1 trends? Prestige margin, obviously, increasing, but consumer beauty is still down on a year-over-year basis. And then just broadly in terms of your plans to raise price, another around in early calendar 2024. If you could just talk about elasticity and your view on the volume trajectory for this year as you implement that next for enterprise pricing?
Laurent Mercier: Yes. Thank you, Olivia. So just to give you a few elements as you shared indeed. So I mean, prestige is showing strong, strong improvement on profitability and CB starting at lower pace. What is driving this is that we have in the 10% top line growth in consumer beauty, we have strong performance on body care, which is weighing down the gross margin. So again, it is very positive in absolute value, but definitely, there is some impact on gross margin. But at the same time, I can tell you that there is a very strong work and huge work to improve the gross margin in consumer beauty. And when I was referring to body care, it is definitely Brazil is driving this growth and we have significant gross margin expansion in this category and in this market.
