We have also some great initiatives in Prestige. Prestige fragrance I want to name, and you saw during the presentation on Burberry Goddess, which currently, I mean, what the data we received from retailers and consumers, I mean, are really stellar. So again, this is really giving a very strong start of the year. Consumer Beauty also, we are seeing very good momentum. Yummy Gloss that we launched recently, sales are 8 times higher than our initial forecast. So, you really need to see as a combination of very dynamic market growth, again, on Prestige and Consumer Beauty, and amplified by, definitely, all the initiatives and the work that Coty has implemented and has built over the last three years. So there is nothing structural implying slowing down in H2.
And we have good visibility to the strong momentum in H1 at this stage. This is really what I can tell you.
Korinne Wolfmeyer: Very helpful. Thanks for all the color. And then, if I could just touch a little bit on the segment margins. I believe there was a bit of a contraction in Consumer Beauty. Can you just touch on it as we think about going forward over the next couple of quarters and years on how to think about the proper run rate for margins for each of the segments? And where will we really see the most expansion from? Thank you.
Laurent Mercier: So, definitely — I just want to remind that when you look at the EBIT margin fiscal year for Consumer Beauty, I mean the EBIT grew 21% and by 70 basis points. So, it’s growing. And definitely, all the work that we kicked-off three years ago, which really is a revamp of the brand, and Sue shared the example of CoverGirl. This is — we are also doing this sort of work on gross margin. So, definitely, in our mid-term algorithm is really that gross margin expansion and EBIT margin expansion is definitely on both segments, Consumer Beauty and Prestige. What I can add to your question is that I would say Consumer Beauty was most — was more impacted by COGS inflation during fiscal ’23. And then that’s why, we implemented some price increase, and we continue, as I said, in Q1 fiscal ’24.
And we are continuing definitely on our innovations. I can definitely tell you that the innovation that we are currently launching, and we launched even second half of last year, the gross margin, in some cases, which is equivalent for Prestige. So, we have really all the elements in our hands. We need to build sustainable, profitable growth for Prestige and also Consumer Beauty. And we have also some productivity actions on Consumer Beauty. One big one is we shared a few times with concrete example is about platforming. So it’s really to have a standard platform on all our brands. And definitely this is going to create really some optimization. And of course, we will see some expansion in both businesses, Consumer Beauty, in the coming years.
Operator: Your next question is from Olivia Tong of Raymond James.
Olivia Tong: Great. Thanks. Good morning, and congrats on a very strong year. My first question is around the pricing actions in Consumer Beauty. If you could just elaborate a little bit on the range of price plans that you have, key categories where you see the biggest gaps, and then, whether it’s coming with new product plans along with that?
Laurent Mercier: Thank you, Olivia. So, pricing on CB, as I usually repeat, is very granular, okay? So, there is not a simple answer. It’s really that we are reviewing brand-by-brand, segment-by-segment, market-by-market and really making sure that our pricing is really matching consumer needs and also what retailers are working on. What’s very important, as you know, is that the price partition is quite extended on Consumer Beauty. We are starting from $4, $5, and we can go up to above $20. So this is also what we are reviewing in detail. So this is on the existing portfolio. What I want to add on top is, of course, is about innovation. We have a great pipeline of innovations, and we shared already some example as Yummy Gloss, mascara, Cleantopia, Lash Wow.
And we are making sure that all these initiatives are really launched with a premium and definitely — so we are taking opportunity of these innovations to increase price. So this is definitely a lever. But again, because these are high-quality products and this is amplified by the Gen Z and there is really strong appetite from this product, and as I shared before, is also combined with a clean vegan sustainable product. Last, the third element I really want to bring to you is that we are — we have now kicked-off streams on strategic revenue management. And definitely, these are programs that we are going to amplify in all the key markets. And it’s really a way, of course, to increase value of our products and always to make sure that we share this value with retailers and Consumer Beauty.
So, we have really a very detailed plan, very granular, and this is going to enable, of course, the improvement of the gross margin of Consumer Beauty in the coming years.
Olivia Tong: Great. Thank you. And then my follow-up question is just around the fragrances and the licenses, given that you’ve renewed a number of fragrances for your licenses of late. And in some cases, are you renewing earlier or are they all just kind of coming up for expiration or for renewal around the same time? And if you are renewing earlier, could you talk about terms, whether anything has changed in terms of length of partnership or terms around it? And if so, what’s driving that? Thank you.
Sue Nabi: Yeah, let me take this part. So indeed, fragrance licenses, some of them are renewed before the renewal period, if I may say, and some of them are renewed earlier, which is a great sign of confidence towards Coty as the leading destination for this fashion brands that are willing to go into beauty, not just fragrances, but also makeup. We’ve seen this recently also with Marc Jacobs. So that’s very important in terms of moat. And again, let me remind the audience that we’ve renewed and extended and sometimes enriched in terms of categories for contracts recently. This is really also something that I wanted to stress. Second, it’s very important that everyone hears also the fact that there is a momentum today in terms of fashion companies reaching out to Coty to create beauty businesses together.
And again, it’s very important that we have this ability to make new brands, new territories, new visions of beauty, part of the Coty portfolio. That’s something that’s very important. There have not been any material changes in licensing terms, this is something I can confirm to you. And again, it’s really a great occasion for me to say how much Coty is seen today as a partner of choice. And again, I welcome any fashion brand willing to enter the beauty industry to partner with Coty, because the ecosystem we’re proposing is unparalleled, in fact, in terms of reach, in terms of R&D, in terms of ability to operate multiple categories and in terms of marketing. And this gives me the occasion to say a few words about one of the launches of the company.
They are all important for me, but one is very dear to my heart, which is the one of Burberry Goddess. Burberry Goddess, for me, have a look at this launch, this is the best of Coty know-how in terms of creating, winning users. I’ve been talking about this since many, many quarters. We are there, finally. It takes time to put in place this kind of methodologies to craft the launch, that is a 5-star launch at this level. To execute it, we started to do this in Travel Retail in July. And now we are expanding globally. And what we are seeing is, in a way, giving a direction or a flavor of what could be the upcoming innovations from Coty in this area, and therefore, for our partners, when it comes to fashion houses. So, this is really something I want to stress during this earnings call.
Operator: Your next question is from Chris Carey of Wells Fargo Securities.
Chris Carey: Hi, everyone.
Sue Nabi: Good morning, Chris.
Chris Carey: So I realize it’s been asked several times, but just a couple of quick follow-ups on pricing and impact. Number one, with the high end of the 6% to 8% sales outlook, is it reasonable to assume that your full year sales expectations are exclusively price-driven? And can you comment on what you expect for volumes this year? And the second question is with your pricing around in Q3 and Q1, I guess I’m a little surprised that gross margins would be down in the front half of the year, even with the inflation, which doesn’t sound like it’s getting worse. It’s just lingering. And so, can you perhaps expand a bit more on what’s driving the gross margin down year-over-year, despite the incremental pricing and inflation, which doesn’t seem to be building? So thanks for those two, just on price-risk volume, I guess, for the full year and the gross margin question for the front half.
Sue Nabi: Yeah, sure, Chris. So let me take these two elements. I mean, I want to make it very clear that, I mean, volume is absolutely key and definitely. And this is what we are seeing already in the second half of fiscal ’23 that the growth is driven by pricing, by mix, but also by volumes, okay? So it’s — and definitely, the model we are building for fiscal ’24 and beyond is really a balanced-growth algorithm, which is really the combination of pricing, mix and volume. So, I’m really insisting on this. And we gave very concrete examples, just what we shared. I mean Burberry Goddess, all what we are doing in Consumer Beauty, Yummy Gloss sort of launches. So these are definitely volumes — additional volumes in our equation.
And volumes are also very important, because it’s really showing penetration, increasing of market share. And of course, for our factories, our footprint, is also a positive way to absorb the fixed cost. So this is very, very clear in our model. On your second point, which is gross margin, so first of all, I really want to highlight, I mean, the great landing that we are doing on gross margin. We shared several times that there will be a modest gross margin expansion, fiscal year ’23. And this is exactly where we are landing and even with a very good result in Q4. So you see that all the work we are doing on gross margin, despite inflation, has delivered strong results. So, we confirm also that for fiscal ’24, there will be also modest gross margin expansion.
So gross margin will keep growing. And we also confirm to be in the mid-60%-s by fiscal ’25 exactly, as per our mid-term algorithm that we shared more than two years ago. Now to tell you, indeed, so we highlighted that there will be some phasing, H1 from H2, definitely H1, so big few elements. Number one is that we are expecting — price inflation is here to stay in H1, as I said. And we have also some, I explained a few times, accounting treatment that inflation COGS are capitalized during four months. So between the moment that we have inflation and the moment it’s released in the P&L, there is a lag effect of four months. So that’s why we still see this inflation in H1, but there will be some easing in H2, okay? So that’s number one. Number two, also, which is important for you to know, is that last year, due to service-level challenges and also component shortage, we had to make a decision really to reduce gift sets in Prestige.
And as you know, I mean — and this year, in H1, now that we have solved all supply chain issues and component shortage, now we are really back towards the normal share of gift sets in Q1 and Q2. And as you know, gift sets gross margin is a few points lower than the standard scale. So this is also something which is explaining the phasing. But it’s absolutely in control. It’s also supported by business decision and fully embedded in our fiscal year ’24 algorithm and mid-term algorithm.
Operator: Your next question is from Andrea Teixeira of JPMorgan.
Andrea Teixeira: Thank you, everyone, and good morning. I wanted to just take this opportunity, Laurent, you mentioned, the phasing for gross margin. Can you talk about SG&A? Because you gave a 10 basis point to 30 basis point EBITDA margin expansion. How we should be thinking of your long-term algorithm? It seems to me that now would be the year where the inflation just – [you disclosed] (ph) inflation of 2%, you had price and mix up 10%. Isn’t that — right now, I understand all this puts and takes on the phasing of gross margin, but as we go into fiscal 2024, especially the second half, wouldn’t you be able to trickle down more? Or you’re just having the cost saves and all this gap between pricing and inflation be reinvested into greater SG&A or greater marketing investments, as Sue mentioned [indiscernible] and all the other influencers that you became more, I’d say, [avant-garde] (ph) of that?
Is that the way or it’s mostly the investment in Prestige and especially skincare into China?
Laurent Mercier: Okay. So I mean, all your points, remarks, I mean, this is definitely the constant focus and work that we’ve been doing over the last three years. So it’s really focusing on productivity, focusing on gross margin expansion, and then definitely allocating these resources, this money to support all the strategic initiatives. And you are currently, I mean, seeing that this model works with really the 17% growth in Q4 and also improving our margin and improving our profit. And again, as you see, we are improving our EBIT margin this year by 170 basis points, and we’re improving our EBITDA margin by 40 basis points. So, the model is in place. Now looking forward, as I shared, I mean, definitely, the mid-term algorithm is fully in place.
So it’s really reaching the mid-60%-s gross margin by fiscal ’25, and it is supported by all the actions I shared before in productivity. On SG&A, definitely, we have a strong focus, and it’s fully included in our All-in-to-Win program. So, definitely here, we continue some productivity initiatives. But also, we are making sure that when we are talking about resource allocation, indeed, we are allocating in A&CP to support the strategic initiatives, to support also all the white space opportunities that we are seeing. And Sue shared a few, of course, we continue — China plan is really mid-term strategic, very, very important plan. We talked about Brazil, so these are really fantastic opportunities. And we’re also improving in our capabilities.
We shared the example of R&D. So, we have a very strong footprint on R&D, but we keep investing. So we continue really to improve productivity, to allocate the resources, which create profitable growth. And at the same time, we continue to improve our margin. And we just — our mid-term algorithm, which is a 6% to 8% net revenue growth, and EBITDA improvement, 9% to 11%, doesn’t change. So your question is definitely is the daily work that we operating.
Operator: Your next question is from Linda Bolton of Davidson.
Linda Bolton: Yeah. So, I was wondering if the pressures in the Hainan region with still waiting to have more travelers return to that area, if that impacted your ability to get shelf space for the Lancaster launch? Could you have gotten more shelf space, but for the pressures in that region, is that affecting? And also, is that affecting Gucci and Burberry growth at all in the region? Thank you.
Sue Nabi: Yeah, good morning, Linda. Let me take this question. So in fact, what we are seeing in Hainan is that our shelf space for Lancaster has not at all been affected by all the pressures we are seeing. We are just doing the job step-by-step. In fact, we don’t want to open a massive number of doors and — while at the same time, creating the business model of success of this brand. So, we are doing this very carefully in terms of investment, be it capital investment, media investment, et cetera. And therefore, in Hainan and also in Mainland China, we are making the productivity of the doors that we have opened so far as high as possible before starting to expand the number of doors and the expansion of the shelf space. When it comes to the other brands that you have mentioned, which are Gucci and Burberry, there was no impact from what’s happening in Hainan.
Today, these two brands that were doing great on makeup, are recovering, thanks to the back of makeup consumption in the country. They were growing very fast on the makeup area. This has been, in a way, limited during the lockdowns and the fact that since the opening of the country beginning of calendar ’23, it’s chasing step-by-step in this area. But I wouldn’t say that the — what’s happening behind, I guess, that you are referring to the [dilute] (ph), et cetera, et cetera, is affecting our brands, because we are not exposed to this kind of phenomenon, given our small size, but also given how much we are willing to pay a very strong attention to preserving the brand equity of the brands we have into Coty.
Operator: Your next question is from Mark Astrachan of Stifel.
Mark Astrachan: Yeah, thanks. Good morning, everybody. I guess, just a follow-up on one of the prior questions back to price and volume assumptions. So, if we carry over the pricing in 4Q, and I know there was some incremental pricing in 4Q, it would certainly suggest that most, if not all, at least the first half, is pricing driven. So, I just wanted to, again, understand that. And if you could just give the specifics in terms of your underlying volume assumptions. And then maybe a bigger picture, how do you think about pricing and mix on a longer-term basis in terms of composition to overall sales growth within that 6% to 8% algorithm? And sort of related to kind of both of them, how do you think about the A&P spend? What’s the optimal level for the business over time if gross margins sort of modestly increase relative to where we ended fiscal ’23? Thank you.
Sue Nabi: Yes. Thank you, Mark. So, I mean, just to make it very clear, and again, so we are positioning our fiscal year ’24 top-line at the top of the guidance and really is higher in H1, so it’s 8% to 10%. And as I shared, it’s absolutely confirmed by a strong start of fiscal ’24. And this is built, yes, with the pricing carryover. We continue also mix improvement, and it also includes volume growth. And we shared, again, some very concrete example, Burberry Goddess is a very obvious case. So, this is really a part of it. Now looking ahead, and I said it is — we are really making sure that starting H2 fiscal ’24, definitely that our growth algorithm is really well balanced between pricing, mix and volume. So this is really the combination of three.
So, once we are out of this really high inflation period with high pricing, we enter more a normalized model in terms of growth. And the second part of your question, our algorithm, our methodology doesn’t change. So it’s really definitely — and as I shared, we continue this All-in-to-Win program. So, we announced that next year, we will deliver $100 million savings, and in fiscal ’25, $75 million. So the objective of this productivity plan is we need to continue to improve our gross margin, to optimize our SG&A, and then to reinvest to support all our strategic initiatives. So concretely, what does it mean? It means that in terms of A&CP, we are — now we are at the level of the high 20%-s, and this is really a level that we are going to keep and reallocate in a very perfect manner, always focusing on [AOI] (ph) on both divisions and on all the new initiatives that we are launching.
Operator: Your next question is from Ashley Helgans of Jefferies.
Ashley Helgans: Hey, good morning. Thanks for taking our questions. So, just first on the pricing action. I’m just curious if you could talk a little bit about the key indicators you’re using to gauge consumers’ willingness to spend more on clean beauty. And then, maybe you can just give us a little bit more color on planned investments in the first half that’s offsetting some of the pricing benefits? Thanks.
Laurent Mercier: So definitely, on the key indicators, I mean, what I can — I mean, we have a strong, powerful team, C&I team. So — and again, when we say that over the last three years, we rebuild strong capabilities, of course, we talk about A&CP. We just talked also about R&D. But indeed, I can add that for the consumer research in terms of teams, we have very good teams, and we have also tools, okay? So, it’s really that we can really capture data from consumers. And we have, thanks to CRM and so on, we are really expanding and we have very good understanding. And of course, also listening, always going on in social network and so on. And we get also some good indications and data from our retailers, which are very precious.
So it means that, again, when we — all the actions, all the work we are doing on clean beauty is really based on very — and I would say, scientific data. But I also want to add that, in fact, these data, they don’t come as a surprise. Sue was referring to CoverGirl. Clean beauty in CoverGirl is not something new. It started at the beginning when the brand was launched. So, it’s also reigniting things, which are obvious for the brand. So again, this is — and again, on this clean beauty, this is really well accepted, and this is the case on Consumer Beauty, and this is also the case on Prestige.
Sue Nabi: Laurent, if you allow me, clean beauty is the only area where consumers, in all the studies that are published by us, but also by any company studying consumers’ mood, et cetera, is the only category where people — clean and sustainable beauty, where people are ready to spend more money on. And that’s very important, because they believe they are doing the right choice for the planet and for them and for their skin health, by the way. So, I think we can close the call after this question. If you allow me, Laurent, everyone, I would like to do some closing remarks. The first one is also to clarify again, if needed, how we see the white space opportunities phasing. It’s very important that you see that the immediate white space opportunities for this company are female fragrances, ultra-premium fragrances, Prestige cosmetics, Travel Retail [indiscernible], Brazil, if you want.
And then there are the mid-term opportunities, which are skincare and China. It’s very important that this is, in a way, understood by all of us and all of you who are watching Coty. And last but not least, I wanted to say that we are very proud for the second year of double-digit growth. I have to say that this is really a great reason for — pride for all Coty teams around the world. And we are very, very happy to see Q1 starting very strongly. Thank you very much.
Operator: This does conclude today’s conference. You may now disconnect your lines. And everyone, have a great day.
