Coty Inc. (NYSE:COTY) Q2 2023 Earnings Call Transcript February 8, 2023
Operator: Good morning, and good afternoon, everyone. My name is Gretchen, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Coty’s Second Quarter Fiscal 2023 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, February 08, 2023. Please note that earlier this morning, Coty 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 now like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty’s earnings release and the 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 non-GAAP financial measures section of the company’s release. With that, we would now open the line for questions.
Operator: And our first question comes from Nik Modi from RBC Capital Markets.
Nik Modi: Hi, good morning, everyone. I guess two questions. First on just the glass and the fragrance situation. How is this impacting the innovation agenda in terms of the pipeline and the launch calendar, if you could just provide any context? And I apologize, I missed some of the earlier remarks. I had some other company’s reporting. Did you provide a timeline in the prepared commentary on when you feel like you’ll be fully kind of back to normal from a component standpoint? And then, the second question is just would love your thoughts on what you’re seeing on the ground in China currently? You suggested an improvement. I just was curious on some details behind some of those comments.
Sue Nabi: Yes. Good morning. This is Sue speaking. Thank you again for the question. When it comes to the first part of the question, which is around the fragrance shortages specifically focused on the glass components, again, this is indeed the parts of the components that has been the most affected, and this is, I would say, an industry-wide issue and not just at Coty, of course. And this is improving already at the moment where we are talking. Hence, the communication around the sequential acceleration of our sales entering in Jan. And this is clearly something that’s a very, very good news, coupled, as you can imagine, with the robust beauty demand, specifically on the fragrance side. So, I would say these two elements altogether give us a lot of confidence that we’ll have these shortages slowly, but surely, fixed into the industry widely and at Coty, of course.
So — but I would say the way I would describe the story, did it impact the innovation pipeline? The answer is no. If you look at the way our innovations have been performing on the markets, the results have been, I have to say, outstanding, be it on the Burberry. I can start with this brand, because what’s happened, for example, in a market like the U.S. behind Burberry is unprecedented. We’ve done last year the launch of the Burberry Eau de Toilette. And then, we continued this year, I mean, in September of calendar 2022 with the Burberry Eau de Parfum. And the Eau de Parfum, for the first time, surpassed Eau de Toilette sales, which, by the way, says a lot about the premiumization of this market. Traditionally, any innovation that’s a line extension moving from Eau de Toilette to Eau de Parfum is performing 20% to 30% versus Eau de Toilette.
In this case, it’s bigger, which is really big, big sign. So, this one is doing fantastically well. Burberry Her in the U.S. is climbing the rankings incredibly, which allowed the brand to become a top 10 fragrance brand in the very competitive U.S. market, which is a jump of 9 ranks. If you think about what we’ve seen behind Hugo Boss in the rest of the world, because the brand is not as big as it is in the rest of the world in the U.S., so if you think about Europe, the rest of the world, Hugo Boss success behind fashion and now translating into the fragrance business allow us to have a top two fragrance launch with Boss Bottled Parfum. If you think about Gucci again with Flora Gorgeous Jasmine, that’s the continuity of last year’s Gorgeous Gardenia.
Again, it’s a top two to top five innovation. So, in a way, the shortages didn’t prevent us from pursing biggest innovations during calendar ’22, our key launches. Last but not the least, Chloe, specifically the line Atelier des Fleurs, Atelier des Fleurs is really booming in all the premiumized markets. If you think about the Asian ones, the Chinese one, hopefully, that is restarting now. This is clearly another leg of growth for us. So, no impact on innovation from what we have seen. Last but not least, again, going to China, we read, again, like all of you the headlines of Jan. being better than expected for the economy in general in this country. We’ve also seen some pictures that we posted during earnings call today where we see consumers back to stores, which is really a fantastic news for the beauty industry and for our businesses, as you can imagine, having the most important white spaces of the whole industry in terms of companies in this country.
So, there is a confirmation. It’s not, I would say, a strengthening/acceleration of two things we have seen since, I would say, the post lockdowns of last year and including some recent studies, because we continue to study the consumers’ mindset in the country almost on a monthly basis. And we see the premiumization trend accelerating and becoming more radical, if I may say, and building into all categories on one side. And we see on the other side, the healthification trend stronger than ever, which is great for both our business as premiumizing and becoming more and more skincare in the country. And last but not least, something very important we are seeing in the country too is that the shift from, I would say, heritage brands towards new brands active in the Chinese market is stronger than ever.
The highest end consumers are now more open than ever to try new brands, new innovation, versus the traditional, I would say, loyalty that we have seen in the past towards more classical and traditional brands.
Operator: Our next question comes from Ashley Helgans from Jefferies.
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