Rob Ottenstein: Great. A little bit of, I think, a follow-up on some of the other questions and that is just — look, to start off, clearly significant demand for fragrances, supply chain issues. Is there any way to guesstimate how much those supply chain issues impacted sales in the quarter?
Sue Nabi: Good morning, Rob. Laurent is going to take the question.
Laurent Mercier: Yes. Hi, Robert. It’s very difficult to estimate. I mean, two major points very clearly that indeed, I mean, we have the component shortage. But definitely, immediately, we have very tight work with supply chain procurement and ready to adjust. So, concretely, what Sue was explaining is that, in fact, we are ending the Q2 with lean inventory. Now, as we are improving service level, combined with great demand and great initiatives, in fact, we are seeing really some rebuilding of the inventory and restocking in Q3.
Rob Ottenstein: That’s a no way. Okay. But clearly, enough to call out a material?
Laurent Mercier: No. Again, so that’s not — I will not call it material, again. So, this was definitely what we did and what we monitored really in a smart way. Again, it was we made sure that we protected our clean innovation and we made sure that we’re protecting (ph). So, that’s really — so that we are protecting the building blocks of the business, and to be consistent in the strategy. So, not material. And again, we are seeing some acceleration beginning of Q3.
Operator: Our next question comes from Steve Powers from Deutsche Bank.
Steve Powers: Yes, thank you. Good morning. Two questions if I could. The first one is just around the price increase that’s planned for the end of 3Q. Just any further commentary you could offer in terms of where that’s targeted? How widespread versus how nuanced the implementation of that pricing will be? Number one. And number two, you mentioned a couple of times this morning just the notion that this year’s launch pipeline, specifically in Prestige fragrances, was primarily composed the brand extensions. And I’m just — I’m curious as we look out to fiscal ’24, an early peak into the innovation pipeline, if that is expected to continue, or if next year will be more of an innovation year that has more kind of Hero products, bigger innovations, that kind of thing? Thank you very much.
Laurent Mercier: Sure. Okay. Hi, Steve. So, on price increase, let me remind that, indeed, when we implemented mid-single digit price increase in summer calendar of ’22, it went down smoothly. As I explained several times, we did — we have a dedicated pricing of this, which started to work, in fact, (ph) years ago. So, we did work in a very granular manner in this (ph) is to really making sure we combined also with media support, also the strategic initiatives. So, it went very smoothly. So, it was — again it confirms the strength of the brand and the professional work we are doing. And this was absolutely needed, as you said, because it was really the way to mitigate inflation in the gross margin and this is definitely a key driver of our gross margin expansion in Q1 and Q2.
Then indeed, we shared and that we are implementing a new price increase in Q3 fiscal ’23. So, this quarter, again, this is what we announced again, because same approach with granular work, and again, making sure that we are also completely consistent with the consumer needs. We are also working a lot on the mix management. So, it’s really because we are seeing (ph) appetite for premiumization and this is what we are doing in both Prestige and Consumer Beauty. So, perfectly on track, (ph), we are granular, and again always focusing that we are matching consumer needs and expectations.
Sue Nabi: Yes. And Steve, good morning. This is Sue. So, on the second part the question, which is around the launch pipeline that was mainly brand extension, thank you, first of all, for reminding everyone about this. The performance of our Prestige business is indeed in comparative with the big, big launches we have made last year. It was Burberry Hero, it was Gucci Flora, and of course Calvin Klein’s CK Defy. So, this year, of course, it was a line extension. This is traditional in our business. But again, for the first time, line extensions that are towards more premium offerings, Eau de Parfum Burberry is 30% above Eau de Toilette has made, in a way, this second year, a year of continuing growth. But you’re right, the question is how about fiscal ’24 and, hopefully, we’ll be back to blockbusters.
Operator: Our next question comes from Korinne Wolfmeyer from Piper Sandler.
Korinne Wolfmeyer: Hey, good morning all and thanks for taking the question. So, first from my end, can you just touch a little bit about how you’re thinking about China growth for the rest of the year? And how much improvement are you baking into guidance? And then, as we look into 2024, how are you thinking about expectations for China there? Thanks.
Laurent Mercier: So, in — so first of all, we indeed — hi, Korinne. First of all, we are confirming indeed our guidance, 6% to 8%. So, this is — and as you can see, these H1 results, we are perfectly on track. Definitely, China was a headwind in Q2 due to lockdown. So, we are betting on acceleration definitely in Q3 and Q4. So, this is embedded in our algorithm, 6% to 8%. And this is, of course, supported by all the strong initiatives that Sue has explained. And definitely that all these initiatives will accelerate in ’24. So, China will become indeed an acceleration for growth in fiscal ’24. And again, all of this is fully included in our midterm algorithm of 6% to 12%.
Korinne Wolfmeyer: Very helpful. Thank you. And then, can you just touch a bit on the broader fragrance market? I mean, it’s been growing really well the past couple of years, and then the fragrance segment for Coty has been growing even better. Can you just touch on how sustainable you think this market growth is? Do you think you will come up against some tough comps at some point? And then, as we think about the segment for Coty, how sustainable do you think that strength is? Thank you.
Sue Nabi: Yes. Thank you, Korinne. This is Sue speaking. I’m going to take the second part. So, again, when it comes to the fragrance market/the fragrance index, indeed, the fragrance market is 25% — 20% to 30% higher than the levels of 2019. And in markets like the U.S., again, and you may know this, the Prestige fragrance market is over 60% higher than compared to pre-COVID levels. Again, it’s hard to see how this would just be driven to some one-time factors, I have to say. And sometimes I hear this, and I do believe it’s not the right explanation. Historically, this has been a big distinct category. But what we are now seeing, consumers using fragrance as part of their daily routine. I mean, this business has become really a health business, mental health business, I would say.
Fragrances being seen as huge boosters, allowing people to see better in the day-to-day life. In particular, during the last couple of years, we have seen increased usage by new categories where the penetration has increased structurally, I’m thinking about Gen Z, I’m thinking about men and I’m thinking about Hispanic consumers, if you, of course, focus on the American market. We are also seeing, at the same time, the rise of fragrance influencers in social media, specifically Tiktok, but also on YouTube, which is also helping to drive sustainable growth for this category. They are driving discovery of different fragrances. They are providing authentic ways for consumers to engage with the product virtually instead of purchasing, which is really new.
It’s a new kind of sampling, if I may say, virtual sampling. We are also noticing particularly with the younger consumers that they are using fragrances more and more. So, the penetration in the U.S., to conclude with, is in the high 20%-s level, which is still well below that of Europe, which is closer to 50%. Not speaking about the Chinese penetration, which is around 3%. So, this give you, I would say, a zoom out of what is coming soon with this fragrance category globally.
Operator: Our next question comes from Olivia Tong from Raymond James.
