Coty Delivers Strong FY23 Results

Coty Inc. has announced its results for the fourth quarter of fiscal year 2023, ended June 30, 2023. The company delivered its 12th consecutive quarter of results in-line to ahead of expectations, while consistently executing across its strategic growth pillars.

Coty's strong Q4 performance, with double digit growth in both sales and profits, came in ahead of expectations and recently raised guidance. Q4 reported sales increased 16 percent or 17 percent on a LFL (like for like) basis, ahead of its recently raised guidance of 12-15 percent LFL growth in Q4. This concluded a very strong year for the company, with FY23 reported sales growth of 5 percent, which includes approximately 2 percent of negative impact from the Russia business exit, and core LFL sales growth of 12 percent. This strong FY23 core LFL growth exceeded its recent target of 9-10 percent core LFL sales growth.

Coty's sales were driven by consistent momentum in both divisions, supported by strong global beauty demand across categories, geographies and channels. Importantly, core LFL growth for both Q4 and FY23 included low single digit volume growth and approximately 10 percent benefit from price & mix.

Prestige segment led during the quarter, with both reported and LFL sales growth of 21 percent versus the prior year. For FY23, the Prestige segment grew 5 percent as reported while core LFL revenues grew a robust 13 percent. The momentum in the fragrance category remained in full effect, with the prestige fragrance market growing over 10 percent in both Q4 and for the full year. Coty's prestige fragrance revenues outperformed the market, growing over 20 percent in Q4 and a low teens percentage in FY23 on a core LFL basis. Importantly, this strong performance in Coty's fragrance portfolio remained broad-based, with all its top brands growing double digits LFL in FY23. Coty once again delivered industry-leading innovations during the year, including Burberry Hero EDP and Burberry Her Elixir, Hugo Boss Parfum and Gucci Flora Gorgeous Jasmine, while the Chloe Atelier des Fleurs line continued to excel in the ultra-premium fragrance segment in Asia. The company continued to strengthen the foundation of its fragrance portfolio during FY23, through the extension of the Hugo Boss, Davidoff and Jil Sander licenses, together with the expansion and extension of the Marc Jacobs license, which now includes plans to launch a prestige cosmetics line.

In spring 2023, Coty kicked off its prestige skincare acceleration strategy, with new launches and strong in-market activations behind Lancaster and philosophy. These initiatives saw very positive early results, with revenues for both Lancaster and philosophy up double digit percentages in Q4. Revenues for Coty's prestige cosmetics were pressured in the early part of the year by the Chinese lockdowns, but rebounded strongly in Q4 with over 25 percent LFL growth.

Consumer Beauty revenue rose 9 percent as reported in Q4, with core LFL growth of 10 percent, driven by strong growth across all categories. For FY23, Consumer Beauty grew 5 percent as reported, while core LFL revenues grew 11 percent, including high single digit to double digit LFL growth across the majority of Coty's leading brands. In FY23, Coty continued to lean into the market-leading trends of clean beauty with the launches of CoverGirl's Clean Fresh Yummy Gloss, adidas' Active Skin & Mind range, and Bourjois' Healthy Mix foundation, as well as into skinified beauty with the launches of Max Factor's Miracle Pure foundation and the extension of the CoverGirl Simply Ageless line.

Geographically, all regions contributed to the company's growth in Q4 and FY23. For the year, Americas grew 9 percent as reported and 10 percent LFL, EMEA grew 1 percent and 13 percent on a core LFL basis, and Asia Pacific grew 7 percent as reported and 13 percent LFL.

Coty continued to deliver on its targeted gross margin expansion, despite the elevated COGS inflation. In Q4, reported gross margins increased by 110 bps YoY to 62.9 percent, while adjusted gross margin grew 70 bps YoY to 62.8 percent. For FY23, Coty delivered a reported and adjusted gross margin of 63.9 percent, reflecting a 40 bps increase YoY on a reported basis and a 20 bps increase on an adjusted basis. Coty's Q4 gross margin improvement was driven by the benefit from pricing and its revenue management efforts, as well as supply chain savings.

The reported operating income totaled $129.0 million in Q4 and FY23 reported operating income was $543.7 million, up roughly $303 million YoY.

The adjusted operating income for Q4 increased 61 percent to $105.1 million from $65.1 million in the prior year, while FY23 adjusted operating income expanded 20 percent YoY to $738.8 million, driving a significant 170 bps increase in the adjusted operating margin to 13.3 percent.

The adjusted EBITDA for Q4 was $165.4 million, up roughly 25 percent YoY, while FY23 adjusted EBITDA was $972.8 million, ahead of guidance, and up 7 percent YoY, fueling a 40 bps increase in the adjusted EBITDA margin to 17.5 percent.

Commenting on the operating results, Sue Nabi, Coty's CEO, said, "Today's FY23 results mark the third consecutive year that Coty has delivered strong financial, operational and strategic performance, and the 12 consecutive quarter of results inline to ahead of expectations. We are incredibly proud of the focus and agility that we see across the whole Coty organization as we continue to amplify our strengths, adjust to evolving market conditions, and capture new opportunities, all of which has enabled us to deliver results which are again amongst the best in our competitive set."

Entering FY24, the beauty market remains a strong and outperforming category, with ongoing premiumization trends. Coty is continuing to benefit from these positive trends, with momentum across its core categories, a strong innovation pipeline, and early wins in key white spaces. The combination of these factors are fueling the company's expectations for FY24 for the core business to grow at the top of Coty's medium term target range of 6-8 percent LFL. Reported FY24 revenues are expected to include neutral to 2 percent benefit from FX, primarily in first half of FY24, and a 1-2 percent scope headwind from the divestiture of the Lacoste license, concentrated in the second half of FY24.