This month, the American multinational beauty company released its third-quarter financial results for fiscal year 2024, showcasing a robust performance that significantly exceeds market expectations. The company has demonstrated strong growth across its product lines, particularly in the prestige and consumer beauty segments, leading to an optimistic revision of its full-year financial guidance.
Revenue & earnings growth
Coty reported an 8% increase in net revenues to $1.38 billion for Q3 FY24, and this growth was driven by strong performances across its prestige and consumer beauty segments. Adjusted earnings per share for the quarter were $0.06, surpassing analysts' expectations and reflecting significant income growth and margin expansion.
In the company's most recent earnings call on May 6, Sue Nabi, Coty CEO, explained that specific to the "Americas, like-for-like (LFL) sales grew 11% in Q3 and 13% fiscal year-to-date, with Latin America, Canada, and the regional Travel Retail channel delivering very strong double-digit percentage growth in the quarter."
Product & market performance
Coty attributed its strong Q3 performance to high demand for prestige fragrances and successful new product launches, notably the Burberry Goddess fragrance, which has set new market records. The Burberry Goddess launch was particularly successful in the US, where it outperformed recent competitive launches.
Coty's fragrance innovations have dominated the market, with three of its lines in the US top ten. As Nabi explained, "In Q3, we launched Marc Jacobs Daisy Wild and Cosmic Kylie Jenner, both of which have already reached the top ranks: Marc Jacobs Daisy Wild is the #1 fragrance launch in the US calendar year-to-date, which has also benefitted the full Daisy franchise, and, Cosmic Kylie Jenner, the first fragrance launch under Kylie, is the #2 fragrance launch in the US calendar year-to-date."
As a result, she continued, "this means that Coty innovations hold the Top 2 spots amongst US fragrance launches this spring, with Burberry Her Petals also reaching a Top 10 position."
The CoverGirl brand also performed exceptionally well, contributing to positive results in the consumer beauty segment. Coty saw a 30% increase in e-commerce revenues, highlighting the ongoing shift towards online shopping in the beauty industry.
Strategic initiatives & financial health
Coty has raised its full-year guidance, expecting core LFL sales growth of 8-10%, up from its previous 6-8% forecast. The company is focused on improving its financial health through strategic deleveraging, aiming to reduce its leverage ratio to approximately 2.5 times by the end of 2024.
Despite a Q3 free cash flow outflow of $234 million, mainly due to tax payments and working capital timing, Coty projects full-year free cash flow to be around $400 million. Nabi emphasized the importance of ongoing innovation and marketing efforts, highlighting the company's successful execution and strong product pipeline.
She explained that the company's "global and multi-category presence, coupled with our industry-leading capabilities and desirable brand portfolio, equipped Coty to boost consumers’ desire for beauty through our disruptive innovations and established icons" in Q3.
As reported in the recent earnings call, Coty also plans to divest its stake in Wella by 2025 as part of its strategy to strengthen its financial position.
US market highlights
Coty has seen strong demand in the US across its prestige and consumer beauty segments. The CoverGirl brand, in particular, has shown robust performance, helping to drive overall growth. In the company's May 6 earnings call, Nabi explained that "in fact, in March, CoverGirl propelled to the number 3 rank for earned media value in the US among the brand’s peer set, which is a very strong increase from the brand’s number 5 in Q3 and the number 6 rank in Q3 of last year."
Further, she added, "CoverGirl’s year-over-year EMV rose nearly 1.5x in the third quarter, which was the highest growth amongst the brand’s competitive set," which "speaks not only to the quality of CoverGirl’s disruptive innovations, like the Simply Ageless Skin Perfector Essence as well as Outlast Lipstain, but also to Coty’s activation strategy, where the launches have been amplified by thousands of influencers."
Coty's strategic focus on e-commerce has paid off, significantly increasing online sales. The company's digital and in-store marketing investment, particularly for its prestige fragrances, has resonated well with US consumers, reinforcing Coty's market leadership.
"The combination of CoverGirl’s distinctive brand equity, disruptive innovation and the strong momentum we are gaining in social media advocacy is allowing CoverGirl to outperform the established cosmetics brands at US mass retailers while simultaneously outperforming in e-commerce," summarized Nabi in the earnings call.
Outlook & future growth
Coty has delivered a strong Q3 performance, significantly outpacing the global beauty market. The company's strategic initiatives, including increased marketing investments and a focus on e-commerce, are yielding positive results, and "to sum up, we continue to see a strong and dynamic beauty market, with our diversified portfolio and strong execution enabling Coty to once again outperform," concluded Nabi in the earnings call.
With CoverGirl’s strong performance and the successful launch of new products like Marc Jacobs Daisy Wild, and Cosmic Kylie Jenner, Coty is well-positioned for continued growth in the US market. The company’s diversified portfolio and clear growth strategy underscore its potential for sustained momentum in the competitive beauty industry in the year ahead.
