02.08.23
Global beauty company Coty Inc. has shared its results for the second quarter of fiscal year 2023, ended December 31, 2022.
Q2 sales decreased 3% as reported, fully driven by a 7% headwind from foreign exchange rates (FX), with sales up 4% on a like for like (LFL) basis, which includes approximately 300 basis points (bps) of negative impact from the Russia business exit.
1H23 sales declined 1% as reported, while LFL sales grew 6% including approximately 300 bps of negative impact from the Russia exit. As a result, 1H23 LFL sales growth for the core business surpassed the Company's 1H23 guidance of +6-8% LFL growth, adjusting for the impact of the Russia exit.
"I am incredibly pleased by Coty's tenth consecutive quarter of delivering results inline to ahead of expectations, especially as most quarters surpassed expectations despite the highly complex external environment, with particular pressures this quarter from component shortages and FX. This delivery validates the strength of our brands, our teams, and the growing nimbleness of our organization, positioning us for success in various macro scenarios,” remarked Sue Y. Nabi, Coty’s CEO.
Although the Company delivered strong LFL growth across both divisions, as expected Coty's Prestige revenue and sell-out growth continued to be constrained by industry-wide component shortages stemming from accelerated fragrance demand. Encouragingly, the Company has already begun to see an improvement in its Prestige service levels entering Q3.
Q2 Prestige revenues decreased 5% as reported and grew 3% LFL, which included approximately 300 bps of negative impact from Coty's exit from Russia. With no signs of slowing in the premiumization trend in global prestige fragrances, Coty's key fragrance launches reached top positions, with Burberry Hero EDP ranking as a Top 3 innovation, Boss Bottled Parfum a Top 2, and Gucci Flora Gorgeous Jasmine as a Top 3 innovation in most key markets.
Meanwhile, Prestige makeup revenues were impacted by the COVID-related total lockdowns in China. However, Coty continued to drive momentum outside of China, with particular strength in the U.S., where retail sales of Gucci makeup and Kylie makeup grew over 40%.
During the quarter, the global mass beauty category grew at a mid-single-digit pace year-on-year, while Coty continued to outperform the market, delivering a full year of global market share gains in the portfolio.
Americas sales rose 6% as reported and 8% LFL driven by strong momentum in Brazil and Latin America, while the continued strength in U.S. demand was offset by supply constraints. Asia Pacific sales declined 5% as reported but grew 2% LFL in Q2 and 6% LFL in 1H23, with strong momentum in Asia-ex-China and Travel Retail, while China revenues were impacted by COVID-related total lockdowns.
“Demand for beauty products remains as strong as ever, fueled by consumers' desire for self expression, confidence building, and well-being. We are as confident as ever in our view that beauty remains a structurally attractive category, that will continue to outperform global economic growth,” Nabi said.
The exit from Russia is estimated to negatively impact FY23 sales by approximately 2%, including an approximate 2% impact in Q3 and none in Q4. Based on current exchange rates, the Company now anticipates FX headwinds towards the better end of its prior outlook of -6-8%. This FX outlook includes a mid-single-digit negative impact on sales in Q3 and a low-single-digit negative impact in Q4.
Q2 sales decreased 3% as reported, fully driven by a 7% headwind from foreign exchange rates (FX), with sales up 4% on a like for like (LFL) basis, which includes approximately 300 basis points (bps) of negative impact from the Russia business exit.
1H23 sales declined 1% as reported, while LFL sales grew 6% including approximately 300 bps of negative impact from the Russia exit. As a result, 1H23 LFL sales growth for the core business surpassed the Company's 1H23 guidance of +6-8% LFL growth, adjusting for the impact of the Russia exit.
"I am incredibly pleased by Coty's tenth consecutive quarter of delivering results inline to ahead of expectations, especially as most quarters surpassed expectations despite the highly complex external environment, with particular pressures this quarter from component shortages and FX. This delivery validates the strength of our brands, our teams, and the growing nimbleness of our organization, positioning us for success in various macro scenarios,” remarked Sue Y. Nabi, Coty’s CEO.
Demand Remains Robust
During the quarter, consumer demand for beauty products, particularly prestige fragrances, remained robust, with high-single-digit growth in the prestige fragrance market and mid-single-digit growth in the mass beauty market.Although the Company delivered strong LFL growth across both divisions, as expected Coty's Prestige revenue and sell-out growth continued to be constrained by industry-wide component shortages stemming from accelerated fragrance demand. Encouragingly, the Company has already begun to see an improvement in its Prestige service levels entering Q3.
Prestige Business
Coty's Prestige business delivered solid performance in Q2 due to the success of key innovations, even as this year's launch pipeline was primarily composed of brand extensions.Q2 Prestige revenues decreased 5% as reported and grew 3% LFL, which included approximately 300 bps of negative impact from Coty's exit from Russia. With no signs of slowing in the premiumization trend in global prestige fragrances, Coty's key fragrance launches reached top positions, with Burberry Hero EDP ranking as a Top 3 innovation, Boss Bottled Parfum a Top 2, and Gucci Flora Gorgeous Jasmine as a Top 3 innovation in most key markets.
Meanwhile, Prestige makeup revenues were impacted by the COVID-related total lockdowns in China. However, Coty continued to drive momentum outside of China, with particular strength in the U.S., where retail sales of Gucci makeup and Kylie makeup grew over 40%.
Consumer Beauty Business
Coty's Consumer Beauty business delivered a strong performance in Q2, supported by solid market growth and Coty gaining market share. Consumer Beauty Q2 revenues decreased 1% as reported and grew 6% LFL, which included approximately 250 bps of negative impact from Coty's exit from Russia. LFL revenues grew across key categories, including cosmetics, bodycare, and mass skincare.During the quarter, the global mass beauty category grew at a mid-single-digit pace year-on-year, while Coty continued to outperform the market, delivering a full year of global market share gains in the portfolio.
Geographic Performance
Geographically, revenues grew in all regions on a constant currency basis. EMEA sales declined 10% as reported due to significant FX headwinds, but grew 2% LFL in Q2 and 6% LFL in 1H23 despite a 5% negative impact from the Russia exit. This solid growth was fueled by significant Travel Retail momentum and growth across most markets.Americas sales rose 6% as reported and 8% LFL driven by strong momentum in Brazil and Latin America, while the continued strength in U.S. demand was offset by supply constraints. Asia Pacific sales declined 5% as reported but grew 2% LFL in Q2 and 6% LFL in 1H23, with strong momentum in Asia-ex-China and Travel Retail, while China revenues were impacted by COVID-related total lockdowns.
Outlook
Coty continues to expect FY23 revenues for the core business, adjusting for the impact of the Russia exit, to grow 6-8% LFL, with revenue growth trends in 2H23 consistent with this range.“Demand for beauty products remains as strong as ever, fueled by consumers' desire for self expression, confidence building, and well-being. We are as confident as ever in our view that beauty remains a structurally attractive category, that will continue to outperform global economic growth,” Nabi said.
The exit from Russia is estimated to negatively impact FY23 sales by approximately 2%, including an approximate 2% impact in Q3 and none in Q4. Based on current exchange rates, the Company now anticipates FX headwinds towards the better end of its prior outlook of -6-8%. This FX outlook includes a mid-single-digit negative impact on sales in Q3 and a low-single-digit negative impact in Q4.
