Coty Inc.'s second quarter of fiscal year 2023 (ended December 31, 2022) sales decreased 3% (net revenues: $1,523.6 million) as reported due to a 7% headwind from FX, while like-for-like sales were up 4%, which includes approximately 300 basis points of negative impact from the Russia business exit. First-half fiscal 2023 like-for-like sales grew 6% (net revenues: $2,913.6 million), also including approximately 300 bps of negative impact from the Russia exit.
Coty Q3 & First-half 2023 Growth Drivers
Results were driven by prestige fragrances, which experienced high-single-digit growth, as well as mid-single-digit growth in the mass beauty market. Key launches like Burberry Hero EDP and Burberry Her Elixir De Parfum, Hugo Boss Bottled Parfum, and Gucci Flora Gorgeous Jasmine supported growth.
In the United States, Gucci and Kylie Cosmetics grew more than 40%.
Consumer beauty also experienced strength in the color cosmetics, body care and skin care sectors, with single digit to double digit revenue growth across CoverGirl, Rimmel, Max Factor, adidas and Monange.
That said, glass and other component shortages stunted prestige revenue. This has apparently improved somewhat in Q3.
Coty Q2 2023 Details
Q2 prestige net revenues totaled $957.7 million, a decrease of 5% on a reported basis versus the prior year, due to 8% negative FX impact. Like-for-like, net revenues grew 3%, which includes about 300 bps of negative impact from the Russia exit. Results were boosted byu recovery across geographical regions, as well as travel retail, which posted 40% growth in both Q2 and the first half of 2023.
Q2 consumer beauty net revenues totaled $565.9 million, a decrease of 1% as reported versus the prior year, due to 7% negative FX impact. On a like-for-like basis, net revenues rose 6%, including about 250 bps of negative impact from the Russia exit.
Coty Full-year 2023 Outlook
Coty anticipates full-year core business revenues to grow 6-8% on a like-for-like basis. 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.
Its FX outlook includes a mid-single-digit negative impact on sales in Q3 and a low-single-digit negative impact in Q4.
Of the results, CEO Sue Nabi said,
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.
Coty is firing on all cylinders financially, supported by solid LFL sales growth, ongoing gross margin and profit expansion, strong EPS growth, and our ability to reach the critical milestone of 4x leverage at the end of CY22.
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. As stated before, the "fragrance index" remains in full force, as consumers turn to fragrances as mood-boosting and affordable luxuries in an uncertain environment. As a result, Coty's business should outperform against any slowdown in global economic growth for three key reasons. First, we are not yet in the mature phase of our growth evolution, with significant whitespace opportunities ahead - including skincare, China, Travel Retail, and prestige makeup. Secondly, our Prestige division remains protected by our affordable luxury beauty offerings relative to much more expensive luxury goods. And finally, our Consumer Beauty business continues to perform from a position of strength, consistently offering consumers value through high-quality and desirable beauty products at an affordable price.
Against this backdrop, we are delivering on our balanced growth agenda, with solid LFL growth across both divisions, all regions, and each of our key categories including fragrances, cosmetics, and bodycare.
In Prestige, we continue to grow the fragrance category and premiumize our portfolio through our brands' iconic pillars and market-leading premium launches, such as Burberry Hero and Her, Gucci Flora Gorgeous Jasmine and Gorgeous Gardenia, Boss Bottled Parfum and Chloe Atelier des Fleurs. I am pleased with the performance we have delivered in our prestige fragrance business year-to-date, despite supply constraints, an innovation pipeline consisting of primarily brand extensions, and continued tight control on value distribution. At the same time, we have robust plans underway to accelerate our skincare business, including the upcoming launch of Lancaster's ultra premium skincare line Ligne Princiere in China, as well as new products and omnichannel activations behind the new philosophy platform.
In Consumer Beauty, we have delivered global market share gains over the past year, and I am excited about the initiatives still to come across our key brands.
As we continue to deliver on our strategic and financial objectives, we have identified additional savings projects for both FY24 and FY25. We now target $90 million of savings in FY24, a $15 million increase from our previous target, and an additional $75 million in FY25. These savings will protect our profit and cash delivery under a variety of macroeconomic scenarios, while simultaneously supporting a significant step-up in investments behind our strategically critical skincare pillar.
In our social agenda, we launched the #Undefine Beauty campaign, calling on English-language dictionary publishers to update their definitions of 'beauty' so that no one feels excluded by the definition or the examples that accompany it. This is an important step in our organizational purpose, "together, we unleash every vision of beauty."
In sum, I am as energized as ever by the continued resilience of the beauty market; Coty's balanced portfolio covering key categories, channels, and markets; the substantial white space opportunities ahead of us in skincare, China and Travel Retail; and Coty's culture of fearless kindness to promote positive change both inside and outside the company. We continue on our journey to transform Coty into a true beauty powerhouse.