Business snapshot: Premium fragrances boost Coty profits, Natura &Co revenue up 3.4%, Evonik addresses difficult quarter

10 May 2023 --- Industry’s beauty brands and suppliers released their quarterly results this week. Coty highlighted prestige fragrances as a key demand driver for better than anticipated performance later in its fiscal year. Meanwhile, Natura &Co posted a “resilient” Q1 performance, with sales growth in constant currency and an improvement in profit margins. Evonik reported difficulties as overall sales fell 11% to €4 billion (US$4.4 billion).

Coty fragrances boost sales
Coty announced its results for the third quarter of fiscal year 2023, ended March 31, reporting a sales performance that “came in well ahead of expectations.” Prestige fragrances was highlighted as a key demand driver.

Q3 sales increased 9% as reported, which includes approximately 3% of negative impact from the Russia business exit, with core LFL sales up 15%. Fiscal year-to-date (YTD) sales increased 2% as reported, while core LFL sales grew 10%, tracking well ahead of the company’s initial FY23 guidance of 6-8% LFL growth, adjusting for the impact of the Russia exit.

Prestige fragrances was highlighted as a key demand driver of Coty Q3 performance (Image credit: Coty).“We are delivering on our balanced growth agenda, with strong LFL growth across both divisions and all regions, with growth contribution from volume, price and mix and from our key categories including fragrances, cosmetics and bodycare,” remarks Sue Nabi, Coty’s CEO.

Coty’s Prestige revenues grew at a strong 10% rate as reported and grew 16% LFL. During the quarter, consumer demand for prestige fragrances accelerated to mid-teens growth, from the already strong high-single-digit growth of the previous quarter, highlighting the structural changes in consumer behavior which are fueling growth in category penetration, increasing consumer usage and overall premiumization.

Coty’s Prestige growth also benefited from the significant improvement in its service levels, allowing retailers to restock following the trade inventory depletion during Q2. Coty also ignited its comprehensive skin care strategy, with activities across its leading brands including the launch of its breakthrough Lancaster Ligne Princière skin care line in China and Travel Retail, setting the stage for its targeted multi-year skin care revenue acceleration.

Coty’s Consumer Beauty Q3 revenues grew 12% LFL. During the quarter, the global mass beauty category grew at a high-single-digit pace year-on-year, while Coty continued to outperform the market with double-digit sales growth. Many of the Company’s leading Consumer Beauty brands delivered double-digit sales growth, including CoverGirl, Max Factor, Rimmel and Monange.

Geographically, revenues grew in all regions on a constant currency basis. EMEA sales expanded significantly at 18% LFL in Q3, driven by double-digit growth across most markets. America’s sales rose 15% LFL driven by strong momentum in North America, Brazil and Latin America. 

Asia-Pacific sales grew 4% LFL in Q3, with strength in broader Asia and Travel Retail, and gradual improvement in China trends.

Demand for prestige fragrances accelerated in the quarter across developed markets, spurring Coty’s premiumization activities, such as in Burberry Hero and Her, Gucci Flora Gorgeous Jasmine and Gorgeous Gardenia, Boss Bottled Parfum and Chloe Atelier des Fleurs. In the midst of continued constraints in fragrance components, Coty expanded its dual-sourcing initiatives.

Natura &Co posted Q1 consolidated net revenue of R$8 billion (US$1.6 billion), driven by solid constant currency growth at Natura &Co Latam and Aesop (Image credit: Aesop).Natura &Co’s sales growth
Natura &Co posted a resilient performance in the first quarter of 2023, with sales growth in constant currency and an improvement in profit margins.

The company posted Q1 consolidated net revenue of R$8 billion (US$1.6 billion) – up 3.4% at constant currency, -2.8% in BRL – driven by solid constant currency growth at Natura &Co Latam and Aesop.

“Natura &Co’s performance in the first quarter is in line with our plan and with our previous communication, as Q1 numbers show a solid improvement both in gross and adjusted EBITDA margin, while the company continues to put in action important structural changes in its portfolio, focusing on simplifying its structure and improving its capital structure,” says Fabio Barbosa, Group CEO at Natura &Co.

Excluding Aesop, Q1 showed a strong profitability improvement, mainly driven by gross margin expansion across all business units and continuous cost control, that were partially offset by sales deleverage at The Body Shop, Avon Latam and, to a lesser extent, Avon International.

This quarter'’s gross margin expansion is driven by price increase carry-over and more favorable mix, more than offsetting the inflationary environment we continue to experience.

As per the normal seasonality of the business, cash consumption in Q1 was high, as planned, and working capital management was impacted by build-up of inventories for Q2 and changes related to the continued integration of the Natura and Avon brands in Latam.

From a revenue standpoint, the highlight remains the Natura brand, which continued its strong momentum from last year, with Natura Brazil sales growing 25%, led by volume and strong productivity growth.

Shortly after the close of the quarter, Natura &Co announced important milestones, which are transformational for the future of the group. First, the group announced it has entered into a binding agreement to sell Aesop to L’Oréal for an enterprise value of US$2.53 billion (subject to customary regulatory approvals). 

Evonik takes disciplined steps
Despite a difficult first quarter, Evonik confirms its earnings forecast for 2023. “The start to the year was even more challenging than we feared,” says Christian Kullmann, chairman of the executive board.

“However, we saw signs of a business recovery during the course of the first quarter. Both February and March were better than the preceding month in terms of operating profit.”

Supplier Evonik flagged a challenging start of the year, characterized by muted economic activity and weak demand (Image credit: Evonik).The first quarter was characterized by muted economic activity and weak demand, with customers still destocking, especially in the first weeks of the new year. Overall, sales fell 11% to €4 billion (US$4.4 billion).

“Volumes declined by 14%. Higher prices offset some of the volumes lost and compensated for inflation effects. Earnings before interest and taxes, depreciation and amortization (adjusted EBITDA) declined by 44% to €409 million [US$449 million].”

Despite the weak operating results, free cash flow reached €21 million (US$23 million). “To achieve our goals with respect to free cash flow this year, further efforts are needed,” says Maike Schuh, chief financial officer. “We need a lot of discipline in dealing with our working capital and investments. Now, we all have to pull together and show that we can withstand the difficult environment.”

Undeterred by the current challenges, Evonik is pressing ahead with its announced portfolio adjustments. The first step in the divestment of the Performance Materials division was the sale of the site in Luelsdorf, Germany, south of Cologne. The divestment of the Superabsorbents business is underway: Investment teasers were sent out in March, and the process is progressing according to plan.

Cost-adjustment measures including cuts in the number of external consultants, reduced business travel and disciplined hiring are also bearing fruit. However, most of the savings target of €250 million (US$274 million) will only be realized later this year.

Meanwhile, the implementation of the sustainability strategy is picking up speed. In March, Evonik started construction of a new world-scale facility for pharmaceutical lipids in the USEvonik also inaugurated a corresponding production facility for clinical quantities in Hanau, Germany. In February, Evonik started up a new plant for gas separation membranes in Austria. 

By Benjamin Ferrer