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  Title	Coty Reports Solid 1H25 Financial Performance, With Strong Margin Expansion and Cash Generation in an Uncertain Market Environment
  ID	6766930
  External ID	7539824603
  Author	Unknown
  Published Date	Feb. 10, 2025, 4:01 p.m.
  Summary	Regulatory News: Coty Inc. (NYSE: COTY) (Paris: COTY) ("Coty" or "the Company") today announced its results for the first half and second quarter of fiscal year 2025, ended December 31, 2024. Across
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  URL	https://www.ariva.de/news/coty-reports-solid-1h25-financial-performance-with-strong-11531258
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  Content ID	4206249
  Key	cecbcba4-e3f9-4766-9744-db012b8f79dc
  Content	Regulatory News: Coty Inc. (NYSE: COTY) (Paris: COTY) ("Coty" or "the Company") today announced its results for the first half and second quarter of fiscal year 2025, ended December 31, 2024. Across both periods, the Company delivered strong gross and operating margin expansion, while continuing to invest behind its brands and execute across its strategic growth pillars. Anhören Teilen Feedback Kopieren Coty Inc 6,53 € In 1H25, Coty's reported net revenue decreased 1% year-over-year and included a 2% negative impact from FX and a 1% headwind from the divestiture of the Lacoste license. Coty's LFL net revenue grew 2% despite elevated comparisons in the prior year when LFL revenues grew 14%. The 1H25 reported and LFL revenues were supported by growth in both prestige and mass fragrances, as well as mass skin care partially offset by declines in cosmetics and body care. In 2Q25, Coty's reported net revenue declined 3% on a reported basis and included a 2% headwind from FX. Coty's Q2 net revenue declined 1% on a LFL basis. The Q2 reported sales reflected the further slowing of the mass beauty market, particularly color cosmetics, together with continued headwinds in the APAC region, particularly China, Travel Retail Asia and Australia. At the same time, the global fragrance market remained robust, and estimated sell-out for Coty's prestige fragrance portfolio grew at a high single digit percentage in the first half. In both 1H25 and Q2, LFL revenue growth on a company-wide basis includes a contribution of 1% from Argentina, which experienced hyperinflation. In 1H25, Prestige net revenue grew 2% on a reported basis, which included a 1% negative impact from FX and a 1% headwind from the divestiture of the Lacoste license. On a LFL basis, Prestige net revenue grew 4% in the first half, despite lapping 18% LFL growth in the prior year. Prestige reported net revenue in the first half was supported by solid growth in the underlying fragrance category and Coty's brands' performance partially offset by lower cosmetics sales largely as a result of headwinds in the APAC region. The majority of Coty's leading prestige fragrance brands grew by a mid-single-digit to double-digit percentage year-over-year, with solid growth in prestige fragrance volumes in 1H25. In Q2, Prestige net revenue decreased 1% on a reported basis, which included a 1% headwind from FX and a 1% negative impact from the divestiture of the Lacoste license. On a LFL basis, net revenue increased 1% supported by growth in Coty's prestige fragrance category partially offset by prestige cosmetics. Despite strong sell-out in Coty's prestige fragrances, Coty's Prestige reported net revenue was impacted by broader headwinds in China and Travel Retail Asia, coupled with continued tight inventory management and lower than anticipated replenishment orders by retailers in the U.S., Europe, and Australia. In 1H25, Consumer Beauty net revenue declined 6% on a reported basis, which included a 4% negative impact from FX. Consumer Beauty reported net revenue declined in body care and mass color cosmetics partially offset by reported net revenue growth in mass fragrance and mass skin care. 1H25 Consumer Beauty net revenue declined 2% on a LFL basis. In Q2, Consumer Beauty net revenue declined 8% on a reported basis and were impacted by a 4% headwind from FX, with LFL sales declining 4%. In 2Q25, Consumer Beauty reported net revenue declines in color cosmetics and body care were partially offset by growth in mass fragrance. Coty's Consumer Beauty sell-out was below the broader mass beauty market due to the Company's greater exposure to the more pressured mass color cosmetics category. In addition, Coty's sell-in continued to track below sell-out driven by pressure on U.S. mass retailers due ongoing channel shifts, tight inventory management at retailers in Australia and parts of Europe, and higher trade investments. By geography, EMEA net revenue increased 4% on a reported basis and 5% on a LFL basis in the first half and increased 2% on both a reported basis and LFL basis in Q2. The reported net revenue growth in EMEA in each of these periods was supported by growth across several European markets, including the U.K., Ireland, Spain and Portugal, coupled with strong growth in Africa and the addition of a new export distributor. In the first half, Americas net revenue decreased 5% on a reported basis, but grew 1% on a LFL basis. In 2Q25, Americas net revenue declined 7% on a reported basis and by 1% on a LFL basis. The Americas region was impacted by the softness in the color cosmetics market in the U.S. and lower body care revenue in Brazil. In both Q2 and 1H25, Americas LFL net revenue included a 3% contribution from Argentina, which experienced hyperinflation. In 1H25, Asia Pacific net revenue decreased 8% on a reported and LFL basis. In Q2, Asia Pacific net revenue declined 11% on both a reported and LFL basis. The reported net revenue in each of these periods was lower year-over-year due to the challenging dynamics impacting the market in the Chinese mainland and the regional Travel Retail channel, further exacerbated by significant retailer inventory reduction. Coty delivered continued very strong gross margin expansion both in the first half and second quarter. In the first half, reported and adjusted gross margin of 66.1% increased 180 basis points year-over-year. 2Q25 reported gross margin of 66.7% increased 160 basis points year-over-year, while adjusted gross margin of 66.8% increased by 170 basis points year-over-year. Coty's reported gross margin improvement in both periods was fueled by supply chain savings including procurement savings and productivity gains, excess & obsolescence reduction, a net benefit from pricing, and strong discipline with regard to promotional activity. In the first half, Coty generated reported operating income of $506.0 million, up 17% year-over-year, with a reported operating margin of 15.1%, reflecting 220 basis points of margin expansion year-over-year. In 1H25, Coty's adjusted operating income of $637.3 million increased by 4% year-over-year, while the adjusted operating margin of 19.1% reflected 90 basis points of margin expansion. In Q2, Coty generated reported operating income of $268.2 million, up 13% year-over-year, resulting in 240 basis points of reported operating margin expansion to 16.1%. Coty's Q2 adjusted operating income of $333.7 million grew 8% year over year, resulting in an adjusted operating margin of 20.0%, which expanded by 210 basis points year-over-year. The higher reported and adjusted operating margin reflected strong gross margin expansion and a reduction in fixed costs, while the A&CP percentage moderately increased as Coty continued to invest behind its brands. In the first half, Coty's reported net income of $100.0 million decreased from a net income of $175.9 million in the prior year, resulting in a reported net income margin of 3.0%, down 220 basis points year-over-year. In the first half, reported and adjusted net income included a $129 million negative impact from the equity swap mark-to-market in the first half, compared to a negligible net impact in the prior year period. Q2 reported net income of $20.4 million declined from a net income of $177.6 million in the prior year. Adjusted net income of $98.8 million decreased from $229.1 million. The decrease in both reported and adjusted net income in Q2 reflects a $97 million negative impact from the equity swap mark-to-market, compared with a $55 million benefit from the mark-to-market on the equity swap in the prior year. In the first half, Coty's adjusted EBITDA totaled $750.8 million, up 3% year over year, resulting in an adjusted EBITDA margin of 22.5%, which reflected a strong 90 basis points of margin expansion. In Q2, adjusted EBITDA of $390.7 million increased 7% year-over-year driving an adjusted EBITDA margin of 23.4%, expanding significantly by 220 basis points year-over-year. In the first half, cash from operating activities was $531.9 million and free cash flow was $411.1 million. In Q2, cash flow from operating activities was $464.5 million and free cash flow totaled $419.0 million. Total debt at the end of the second quarter totaled $3,459.0 million, while financial net debt was $3,209.4 million. This drove the total debt to net income ratio to 100.3x and the financial leverage ratio (net debt to adjusted EBITDA) to 2.9x, a reduction of 0.2x versus a year ago and consistent with recent guidance to end CY24 with leverage below 3x. Coty's retained 25.8% Wella stake was valued at $1,053.0 million at quarter-end, supporting economic net debt of $2,156.4 million. Updates on Strategic Pillars The prestige fragrance category continues to outperform the overall beauty market growing by a high-single-digit percentage in Q2. In Q2, sell-out for Coty's prestige fragrance portfolio grew at an estimated high single digit percentage level off the high baseline of the prior year which included major fragrance launches, while sell-in was several points lower as the Company continued to be impacted by a significant gap between sell-in and sell-out. This gap was most prevalent in the Chinese mainland due to continued pressure on the overall beauty market, and in the U.S., Europe and Australia, as key retailers continued to tightly manage their inventory levels. During the quarter, Coty continued to grow the Burberry Goddess franchise, which contributed to the brand's strong double-digit percentage reported net revenue growth. In CY24, Burberry's sell-out grew over 30%, outperforming the market by 3x and highlighting Coty's strong position as a leader in fragrance. Continued momentum in Hugo Boss drove the brand to become the #2 male fragrance brand in Europe, increasing by one spot from the prior year. In the U.K., Marc Jacobs Daisy Wild was the #1 launch in CY24, supporting the brand's mid-single-digit percentage growth in 1H25. Prestige cosmetics revenues declined in Q2 and 1H25 primarily driven by the continued weakness in the Chinese mainland and Asia Travel Retail channel. Coty continued to expand its brand portfolio with the signing of a new beauty license with world-renowned crystal house Swarovski. Under this agreement, Coty will develop, produce and distribute a new vision of fragrances. Swarovski Crystal Business is represented in over 140 countries worldwide with 2,300 Swarovski boutiques complemented by selected multi-brand partners. The first offering is anticipated to launch in 2026. The global mass beauty market growth continued to slow to a low-single-digit pace, below the peak ~10% growth level experienced in FY24, which benefited from inflation-related pricing. The mass fragrance category, which grew at a mid-single-digit percentage in Q2, continued to outperform the broader mass beauty market. This outperformance reaffirms that consumers continue to prioritize fragrances in their spending habits across price points. Coty continues to prioritize the expansion of its mass fragrance offerings to strengthen its position and capture more market share in this growing category. The successful launch of the adidas Vibes fragrance collection marked the biggest launch for Coty's Consumer Beauty business in the last 10 years, fueling strong growth in adidas fragrance and driving market share gains. Sales in Coty's mass color cosmetics business were lower while the broader mass color cosmetics category was flat in the quarter, as U.S. mass beauty retailers continued to be pressured by ongoing channel shits and retailers in Australia and Europe continued to tightly managing their inventory levels, resulting in a continued gap between sell-in and sell-out. At the same time, the combination of Coty's social media advocacy strategy and on trend innovation supported strong online market share gains for CoverGirl and Rimmel. Coty continued to invest in its skincare strategy. Lancaster delivered double-digit percentage net revenue growth in Q2 supported by the launch of its Golden Lift skincare range and the brand's unique positioning as the photo-aging prevention and repair expert. Philosophy continues to lean into its social media advocacy strategy, engaging with dermatologists and influencers, which drove an over 4x increase in the brand's earned media value year-over-year. Orveda continued to expand its footprint with the opening of the La Maison Orveda in New York City and in Paris, the next step in its steady brand building and distribution expansion. Coty saw strong consumer demand in its e-commerce business, which accounts for approximately 20% of the Company's sales. Coty's e-commerce sell-out in both the Prestige and Consumer Beauty businesses grew by a double digits percentage in both Q2 and 1H25. This was well ahead of the underlying e-commerce market growth in the first half, as Coty gained market share across many brands including Burberry and Marc Jacobs in Prestige, and CoverGirl, Sally Hansen and Nautica in Consumer Beauty, reaffirming Coty's strong digital capabilities and the relevance of its brands. At the same time, the Company's e-commerce sell-in declined, significantly lagging sell-out growth in both Prestige and Consumer Beauty due to tight order management by e-retailers. Coty's growth engine markets net revenue, which accounted for approximately 21% of total sales in the first half, declined 2% as reported and grew by 9% on a LFL basis, led by strength in LATAM, Brazil, Africa, Southeast Asia, including India, and North Asia. LFL growth in 1H25 in Coty's growth engine markets includes a 5% contribution from Argentina, which experienced hyperinflation. Coty continued to make progress on its sustainability agenda. Last week, CDP raised Coty's Climate score to A- from the previous score of B, putting Coty in towards the top of thousands of disclosing companies. This strong ranking and improvement recognizes Coty's continued progress in measuring our climate impact, setting ambitious yet achievable targets and progressing on our sustainability agenda. Additionally, this marked the first year in which Coty made submissions to CDP Water and Forests. Commenting on the operating results, Sue Nabi, Coty's CEO, said: "As we are now midway through our fiscal year, it is clear that FY25 is shaping up to be a pivotal year. On the one hand, the global beauty market continues to grow at a healthy pace, even if growth has moderated off of the elevated levels of the last few years, which benefited from more material pricing increases. And in this backdrop, fragrances of all price points continue to outperform most other beauty categories, which strongly benefits Coty's business as fragrances account for over 60% of our revenues and an even bigger portion of our profits. In fact, the performance of our fragrance portfolio remained robust, including volume growth for both our prestige and mass fragrances in 1H25. The sell-out of our Prestige fragrances grew by a high single digit percentage in the first half, well ahead of our Prestige sell-in, fueled by momentum in Hugo Boss, Burberry, Chloe and Marc Jacobs. We continued to reach new milestones with our brands, whether its Hugo Boss becoming the #2 male fragrance in Europe, Marc Jacobs Daisy becoming the #1 franchise in the UK, and Coty overall becoming the #1 prestige fragrance player in South Africa. At the same time, sales for our mass fragrance brands grew by a low-double-digit percentage LFL in the first half and a mid-single-digit percentage LFL in Q2, supported by the success of the adidas Vibes collection with strong market share gains in several European markets, strong growth in Nautica, and new agile fragrance launches. On the other hand, the pressure in pockets of our business which we discussed at length on the last earnings call, namely in China, Travel Retail Asia, Australia and in Consumer Beauty U.S., impacted us even more significantly in Q2. And in our core markets, despite a seemingly strong holiday period, where beauty performed strongly and consumers engaged with the category, this did not translate into improved replenishment orders for Coty as retailers managed their inventory very tightly. As a result of these factors, our Q2 LFL sales trends were below our expectations. While we are prudently assuming these patterns will continue into the second half as well, the strong sell-out growth of our fragrance brands gives us confidence that these headwinds are temporary and we should return to stronger sales growth as we enter FY26. Against this complex backdrop, our teams acted with agility, activating strong savings initiatives and protecting our cash flow. The results of these efforts can be seen in our Q2 financial performance. In the quarter, our adjusted gross margin expanded by 170 basis points year on year, reflecting not only strong supply chain savings but also our disciplined approach to promotional activity at a time when many beauty players stepped up promotions and discounts. At the same time, we maintained strong marketing support, EBITDA expanded by 7%, and our EPS excluding the equity swap impact grew by 16%. And on the balance sheet side, we reached a key milestone exiting CY24, as for the first time in over 8 years, our leverage was below 3x. The beauty market has changed significantly since we first laid out our strategy and ambitions over 3 years ago. From a category perspective, fragrances have accelerated significantly supported by structural consumer behavior shifts, while color cosmetics is challenged by evolving channel preferences and new business models. At a market level, China is no longer a key short term growth driver for beauty, while the U.S. market remains very dynamic. With this backdrop, FY25 is shaping up to be a pivotal year for Coty, as we evaluate our operations to fuel Coty's long term success. While the uncertain market environment may weigh on trends in the near term, our financial equation is now stronger than it has been in the last four years and we will see outsized benefit from our healthier leverage levels and cash generation, which will fuel EPS growth and our Total Shareholder Return. As we look to the exciting brand initiatives and distribution opportunities on track for FY26 and beyond, coupled with the initial launches in the next couple of year of products under our new and expanded licenses including Swarovski, Marni, Etro, and Marc Jacobs Makeup, we remain confident in Coty's ability to accelerate sales growth and outperform the beauty industry over the coming years, all while steadily expanding margins and cash flow, and significantly growing EPS. We look forward to sharing a deeper dive on our strategy and outlook as part of our CAGNY presentation on February 19 The power of our brands and the strength of our teams, together with our leading innovation and commercialization capabilities, have underpinned our strong strategic and financial progress over the past four years and will support our growth in the years to come." *Adjusted financial metrics used in this release are non-GAAP. See reconciliations of GAAP results to Adjusted results in the accompanying tables. ** E-commerce penetration and contribution based on countries where e-com info is available covering approx. 86% of total Coty. Sources: Circana (Prestige) and Nielsen (CB) December 2024. Additionally, the data includes estimated data for Brick and Click sales, which is subject to change. ***Prestige sell-out data is sourced from third-party market research firms, including but not limited to Circana, as well as retailer data, and supplemented by Coty's internal estimates for markets where external data is unavailable. While efforts are made to ensure accuracy, reported figures may be subject to revisions based on updated market insights and methodological adjustments. RESULTS AT A GLANCE Three Months Ended December 31, 2024 Six Months Ended December 31, 2024 (in millions, except per share data) Change YoY Change YoY COTY, INC. Reported Basis (LFL) Reported Basis (LFL) Net revenues Operating income - reported Net income attributable to common shareholders - reported ** Operating income - adjusted*
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