Coty annual sales boosted 10%, driven up by prestige beauty performance amid macroeconomic uncertainty

23 Aug 2023 --- Coty released its results for the fourth quarter of fiscal year 2023, ended June 30, 2023. The cosmetic giant’s twelfth consecutive quarter of results performed “ahead of expectations,” posting double digit growth in both sales and profits, which was led by the company’s prestige beauty category.

“In the midst of on-going macroeconomic uncertainty, beauty demand remains resilient across our key categories and geographies, with no signs of tradedown, while the ‘fragrance index’ we have been discussing for over a year shows no sign of slowing,” Coty discloses.

“In fact, the beauty category continues to be a standout in key markets like the US, as the only category among all CPG and general merchandise categories to grow volumes in the last six months, speaking to the beauty industry’s ability to meet consumers’ emotional needs.

The company’s Q4 reported sales increased 16% or 17% on a like-for-like (LFL) basis, ahead of its recently raised guidance of 12-15% LFL growth. FY23 reported sales growth was recorded at 5%, which includes approximately 2% of negative impact from the Russia business exit, and core LFL sales growth of 12%. 

The Burberry Goddess fragrance was launched launch in line with strong recorded performances for the Burberry brand (Image credit: Burberry).Financial highlights
This strong FY23 core LFL growth exceeded Coty’s recent target of 9-10% core LFL sales growth and is deemed “well ahead of the underlying beauty market.”

“Today’s FY23 results mark the third consecutive year that Coty has delivered strong financial, operational and strategic performance, and the twelfth consecutive quarter of results inline to ahead of expectations,” highlights Sue Nabi, Coty’s CEO.

Coty’s profits grew significantly in both Q4 and FY23. The company delivered Q4 reported operating income of US$129 million, with 61% growth in the adjusted operating income to US$105.1 million and 25% growth in the adjusted EBITDA to US$165.4 million. 

For FY23, reported operating income more than doubled to US$543.7 million, adjusted operating income grew 20% to US$738.8 million and adjusted EBITDA grew 7% to $972.8 million.

The company’s adjusted EBITDA performance exceeded its recently raised adjusted EBITDA guidance of US$965-970 million and EBITDA guidance at the start of the year, despite incurring over US$70 million of negative FX impact on adjusted EBITDA in FY23. 

Premium beauty segment strengthens
Coty’s Prestige business segment led during the quarter, with both reported and LFL sales growth of 21% versus the prior year. For FY23, the Prestige segment grew 5% as reported while core LFL revenues grew a robust 13%.

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% LFL growth.

Meanwhile, momentum in the fragrance category “remained in full effect,” with the prestige fragrance market growing over 10% in both Q4 and for the full year. Coty’s prestige fragrance revenues outperformed the market, growing over 20% in Q4 and a low teens percentage in FY23 on a core LFL basis.

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 positive early results, with revenues for both Lancaster and Philosophy up double digit percentages in Q4. 

“White space opportunity” in fragrances
All Coty’s top fragrance brands reportedly grew double digits LFL in FY23. Notable players this year include 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.

Coty continued to broaden 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.

“Underpinning the strong foundations of our fragrance business is the extension of our license portfolio, with the average remaining duration of our Top 7 prestige brands now averaging 13 years,” says Nabi.

Coty renewed its partnership with Adidas with aims to capitalize on the new well-being and athleisure trend in beauty.The company saw the renewal and extension this past year of multiple key licenses, including Hugo Boss, Marc Jacobs, Davidoff, and Jil Sander. I am particularly excited about the expansion of our partnership with Marc Jacobs to include the creation of a new makeup line, as I believe the brand is perfectly positioned between couture and indie, and will become a great and differentiated addition to our Prestige Cosmetics portfolio.

While historically active in the male premium fragrance category, Coty says it sees ample room to improve its position in the much bigger female fragrance category, which is “roughly double the size of male fragrances and where [Coty is] currently in the Top 3.”

A key milestone in this strategic ambition is the company’s newly launched Burberry Goddess female fragrance, which is now rolling out globally. Coty highlights the “strong momentum of the Burberry fashion brand,” is helping advance its position in female fragrances. 

“The early results for this launch are spectacular, with Burberry Goddess already a Top 3 fragrance at leading global airports, with sell-out significantly higher than our recent blockbuster fragrance launches,” comments Nabi.

“At the same time, we are actively strengthening our positioning in the smaller but rapidly growing ultra-premium fragrance category,” she adds.

“Whether it’s through our Chloe Atelier des Fleurs collection whose sales have grown by five-times versus two years ago and are on track to accelerate further as we rapidly expand our global distribution, or through the upcoming launch of our internally developed Infiniment Coty Paris fragrance brand, we are seizing this white space opportunity.”

Consumer beauty performance
Consumer Beauty revenue rose 9% as reported in Q4, with core LFL growth of 10%, driven by strong growth across all categories. For FY23, Consumer Beauty grew 5% as reported, while core LFL revenues grew 11%, 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-steering 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” hybrid cosmetics 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 Consumer Beauty growth in Q4 and FY23. For the year, the Americas region grew 9% as reported and 10% LFL, EMEA grew 1% and 13% on a core LFL basis, and Asia-Pacific grew 7% as reported and 13% LFL.

“In parallel, we have recently embarked on our third strategic pillar, accelerating our skincare portfolio, led by our prestige skincare brands,” says Nabi.

“With Lancaster and philosophy leading this effort, through a combination of new launches, revamped in-store and online merchandising, and new brand communications, I am very encouraged to see that revenues for both brands increased by a double digit percentage in Q4,” she maintains.

In FY13, Coty continued to lean into the market-steering trend of clean beauty with the launch of Clean Fresh Yummy Gloss by CoverGirl, among other introductions (Image credit: CoverGirl).“As we pursue our ambition to double our skincare revenues in the next few years, we will continue to strengthen our organizational capabilities, including step-changing our R&D investments in this area.”

Refocusing on Gen Z opportunity
The next phase of Coty’s Consumer Beauty business focus is to “fully capitalize on the Gen Z opportunity.”

“We have successfully begun to harness the power of social media influencers and natural advocacy, with launches such as CoverGirl Clean Fresh Yummy Gloss and Rimmel Kind & Free going viral on TikTok,” remarks Nabi.

“As we enter FY24, we will further embrace the full power and reach of social media to drive our brands and build stronger community engagement, fully keeping in step with the evolution of the market and with Gen Z habits.”

Nabi highlights the Consumer Beauty portfolio was further reinforced by the company’s recently renewed partnership with Adidas, which is positioned to capitalize on the new well-being and athleisure trend in beauty.

Forward strategies
Beyond its core portfolio, Coty says it is progressing on its broader financial strategy. 

“The agreement to sell a portion of our retained Wella stake is a concrete step in our commitment to both fully divest our retained Wella stake and reach leverage towards 3x exiting CY23 and approximately 2x exiting CY25,” says Nabi.

“Our continuous focus on identifying further productivity opportunities is now fueling over a US$10 million increase in our FY24 savings target to over US$100 million, which will support both organizational reinvestment and profit growth.”

Nabi concurs Coty is “successfully executing on the strategy we laid out three years ago.” “We are delivering a best in class medium term growth algorithm, including a mid-20s % EPS CAGR, active deleveraging and targeted capital returns, as we propel our growth story.”

In the context of sustainable advances, the recent fiscal year included a number of “industry firsts” for Coty, such as, integrating a carbon-captured ethanol into a growing percentage of its fragrance portfolio, introducing gender neutral parental leave, and reaching gender pay equity as of October 2022.

“We aim to build on these achievements with further advances in FY24 and beyond,” Nabi concludes.

Edited by Benjamin Ferrer