Coty reduces Q1 like-for-like revenue growth view to 4%-5% from 6%

The company states: “The global beauty market has maintained solid but slightly lower global growth. Within this backdrop, the prestige fragrance category continues to outperform, supported by expansion in both volumes and price/mix, while mass beauty continues to experience slower growth trends fueled entirely by unit demand. While beauty growth remains resilient in many parts of the world, the U.S. market growth has slowed in the second half of Q1. For Coty, very tight order and inventory management by retailers has resulted in Coty’s sell-in tracking well below sell-out in a number of markets, including in the U.S., as well as in Australia, China and Travel Retail Asia, each of which account for only a low single digit percentage of the Company’s business. Coty’s revenue growth across other key markets has remained robust, growing by a mid single digit to double digit percentage. In addition, due to its limited exposure in China, Coty continues to be relatively less impacted by the market there. In total, Coty’s Q1 sales grew approximately 4-5% LFL, despite the very elevated comparison of the prior year, though moderately below its prior Q1 estimated growth of 6% LFL. Factoring in the ongoing retailer caution and incrementally slower U.S. market, Coty now anticipates Q2 LFL sales to grow moderately, with some growth acceleration expected in the second half supported by easier prior year comparisons, resumed alignment between sell-in and sell-out, several strong launch initiatives in both divisions, and select distribution expansion. The combination of lower than anticipated order patterns in the second half of Q1, the investments behind strong ROI sell-out initiatives, the timing of certain fixed costs, and the profit impact from the divestiture of the Lacoste license, are resulting in Q1 adjusted EBITDA which is expected to be roughly flat to moderately lower YoY despite strong gross margin expansion. However, in anticipation of a more uncertain demand backdrop, including cautious retailer behavior and a complex macroeconomic environment, Coty is re-accelerating its cost reduction efforts across all parts of the P&L to deliver savings well above the initial FY25 target of approximately $75M. Through the combination of continued sales growth, continuous gross margin expansion and increased cost savings for FY25 and beyond, while maintaining A&CP in the high 20s percentage, Coty continues to expect FY25 adjusted EBITDA to grow +9-11% YoY, consistent with prior guidance, including resumed adjusted EBITDA growth in Q2. This adjusted EBITDA growth target, in conjunction with continued though more moderate revenue growth, reflects an even stronger adjusted EBITDA margin expansion in FY25, following the 30 bps adjusted EBITDA margin expansion in FY24. Coty continues to target leverage close to 2.5x exiting CY24, though the tight inventory management by retailers is adding some variability on cash inflow timing.”