Coty has announced its results for the first quarter of fiscal year 2024, ended Sept. 30, 2023. The company continued to deliver strong financial momentum, with growth once again ahead of the beauty market, while consistently executing across its strategic growth pillars.
This marks the 13th consecutive quarter of operational results inline to ahead of expectations.
"We are proud of our great Q1 results, with sales growth once again amongst the best in our peer set and ahead of the beauty market," said Coty CEO Sue Nabi. "Coty continues to deliver on our balanced growth agenda, with strong LFL growth across both divisions and all regions, with growth contribution from volumes and premiumized mix, complemented by targeted pricing, and from our key categories including fragrances, cosmetics, and skincare."
Coty's strong Q1 sales growth of 18 percent, as reported and LFL, came in well ahead of expectations and recently raised guidance of +10-12 percent for the first half of FY24. The company once again delivered a balanced growth equation, with low-single-digit percentage volume growth, estimated high-single-digit percentage pricing contribution, and high-single-digit percentage benefit from mix and other.
Prestige revenues grew at a very strong rate in Q1, accelerating to 23 percent growth as reported and 22 percent growth LFL. The momentum in prestige fragrance demand evidenced in recent years continued in Q1, with the prestige fragrance category continuing to grow at over 10 percent.
Against this backdrop, Coty's prestige fragrance sales grew approximately 25 percent LFL, driven by momentum in its core fragrance lines, outstanding results for Coty's recent innovations and improved service levels. In particular, the recently launched Burberry Goddess Eau de Parfum has been the #1 female fragrance launch in key markets, while simultaneously elevating the sales of other Burberry fragrance icons including Hero and Her.
The strengthening of Coty’s fragrance icons was evidenced by three franchises — Burberry Goddess, Gucci Flora, and Burberry Her — reaching the Top 10 female fragrances in the U.S. for the first time in the company’s history. Coty continued to advance its skincare strategy, with key brands philosophy and Lancaster both growing revenues at a double-digit percentage pace LFL in both Q1 and the last six months.
Coty's Consumer Beauty Q1 revenues grew by 10 percent as reported and LFL, growing inline with the global mass beauty market, where demand remains resilient. During the quarter, the company saw strength in its color cosmetics, mass fragrances, and mass skin & bodycare sales.
The consumer beauty business saw particular momentum in e-commerce, with over 25 percent LFL sales growth, delivering share gains in the channel. As part of the company's strategy to accelerate its influencer and social media strategy, Coty reached key milestones in its core U.K. market, with two of its cosmetics brands — Rimmel and Max Factor — ranking within the Top 10 brands in terms of Earned Media Value and Visibility, Impact and Trust.
Geographically, all regions generated double-digit percentage revenue growth. EMEA sales expanded 20 percent as reported and 18 percent LFL in Q1, driven by double-digit percentage growth across most markets and Travel Retail.
Americas sales rose 17 percent as reported and LFL, driven by strong momentum in all markets and Travel Retail. Asia Pacific sales grew 16 percent as reported and 19 percent LFL in Q1, with strength in broader Asia and Travel Retail. In China, sell-out growth in Coty's Prestige business was well ahead of the market, growing by double digits percentage in mainland China and triple digits percentage in Hainan.
The Q1 sales momentum translated into significant profit expansion. While gross margins declined as anticipated, on the back of elevated inflation and normalization in fragrance gift sets as part of the mix, Coty's Q1 reported operating income of $197.5 million grew 15 percent YoY, adjusted operating income of $302.2 million grew 21 percent YoY, and adjusted EBITDA of $360.3 million grew 17 percent, aided by strong operating leverage.
During Q1, Coty's free cash flow totaled $124.0 million, reflecting a strong $35.8M improvement versus the prior year. This drove Financial Net Debt to $3.9 billion and the financial leverage ratio to approximately 3.8x exiting Q1, which does not factor in the secondary share issuance proceeds received in early Q2.
The value of Coty's retained 25.9 percent Wella stake was stable at $1.06 billion at quarter-end, supporting Coty's Economic Net Debt at approximately $2.9 billion.
Coty also continued to progress on its ESG agenda, with three of its global manufacturing plants now carbon neutral. The company will provide additional details on its progress and ambitions in its upcoming 2023 Sustainability report.