Coty delivers strong Q4 sales and profit growth

Coty Inc. reported fourth quarter sales increased 16 percent to 1,351.6 million dollars or 17 percent on a LFL basis, ahead of its recently raised guidance of 12 to 15 percent.

The company’s FY23 reported sales growth was 5 percent to 5,554.1 million dollars, which includes approximately 2 percent of negative impact from the Russia business exit, and core LFL sales growth of 12 percent.

The company said that Coty's sales were driven by consistent momentum in both divisions, supported by strong global beauty demand across categories, geographies and channels.

Commenting on the operating results, Sue Y. Nabi, Coty's CEO, said in a statement: "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. 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.”

Review of Coty’s Q4 and FY23 results

The company’s Prestige segment posted both reported and LFL sales growth of 21 percent versus the prior year. For FY23, the Prestige segment grew 5 percent as reported while core LFL revenues grew 13 percent. The momentum in the fragrance category remained in full effect, with the prestige fragrance market growing over 10 percent in both Q4 and for the full year. Coty's prestige fragrance revenues outperformed the market, growing over 20 percent 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 boosted revenues for both Lancaster and philosophy by double digit percentages in Q4. 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 percent LFL growth.

Consumer beauty revenue rose 9 percent as reported in Q4, with core LFL growth of 10 percent, driven by strong growth across all categories. For FY23, consumer beauty grew 5 percent as reported, while core LFL revenues grew 11 percent, including high single digit to double digit LFL growth across the majority of Coty's leading brands.

Geographically, all regions contributed to the company's growth in Q4 and FY23. For the year, Americas grew 9 percent as reported and 10 percent LFL, EMEA grew 1 percent and 13 percent on a core LFL basis, and Asia Pacific grew 7 percent as reported and 13 percent LFL.

Highlights of Coty’s operational performance

In Q4, reported gross margins increased by 110 bps to 62.9 percent, while adjusted gross margin grew 70 bps to 62.8 percent. For FY23, Coty delivered a reported and adjusted gross margin of 63.9 percent, reflecting a 40 bps increase on a reported basis and a 20 bps increase on an adjusted basis.

The company delivered Q4 reported operating income of 129 million dollars, with 61 percent growth in the adjusted operating income to 105.1 million dollars and 25 percent growth in the adjusted EBITDA to 165.4 million dollars. For FY23, reported operating income more than doubled to 543.7 million dollars, adjusted operating income grew 20 percent to 738.8 million dollars, and adjusted EBITDA grew 7 percent to 972.8 million dollars.

Coty's reported FY23 EPS increased to 57 cents and the adjusted EPS nearly doubled to 53 cents.

Coty targets FY24 LFL sales growth between 6 to 8 percent

For FY24 for the core business to grow at the top of Coty's medium term target range of 6 to 8 percent LFL.

Coty is targeting FY24 adjusted EBITDA margin expansion of 10 to 30 bps, with similar performance in 1H24 and 2H24, implying FY24 adjusted EBITDA of 1,065 to 1,075 million dollars. Within this outlook, Coty expects modest FY24 gross margin expansion year on year.

The company targets total FY24 adjusted EPS, excluding equity swap, of 44 cents to 47 cents, implying 16 to 25 percent growth.

“In sum, 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 percent EPS CAGR, active deleveraging, and targeted capital returns, as we propel our growth story and strengthen our position as a beauty powerhouse," added Nabi.