In framing the results, the company noted in its media statement that "the global beauty market has maintained solid but slightly lower global growth," and "within this backdrop, the prestige fragrance category continues to outperform, supported by expansion in both volumes and price/mix, while mass beauty continues to experience slower growth trends fueled entirely by unit demand."
The prestige fragrance category continued to outperform, driven by both volume increases and favorable price/mix dynamics. Coty’s first-quarter sales grew approximately 4-5% on a like-for-like (LFL) basis, though this fell short of the company’s prior estimate of 6% LFL growth.
"Very tight order and inventory management by retailers" in key markets, including the US, Australia, China, and Travel Retail Asia, contributed to the lower-than-expected growth, the company noted. However, these markets represent a relatively small portion of Coty's overall business. Coty’s revenue growth in other markets remained strong, ranging from mid-single-digit to double-digit percentages.
Mass beauty and US market challenges
Coty also highlighted the continued challenges in the mass beauty segment, where growth is being driven solely by unit demand. "The U.S. market growth has slowed in the second half of Q1," Coty stated, citing this as a contributing factor to the company’s lower-than-expected revenue growth.
Looking ahead, Coty expects moderate sales growth in the second quarter, with potential for acceleration in the latter half of the fiscal year. This forecast is supported by anticipated new product launches, increased alignment between sell-in and sell-out, and expanded distribution efforts across both the prestige and mass-market divisions.
Strategic focus on cost reduction and margin expansion
Coty remains focused on managing costs and improving profitability. The company announced that it is intensifying its cost-reduction initiatives, aiming for savings "well above the initial FY25 target of approximately $75 million." This is in response to the "more uncertain demand backdrop" and cautious retailer behavior in several markets.
Despite these challenges, Coty reaffirmed its full-year adjusted EBITDA growth target of 9-11% year-over-year, supported by "continued sales growth, continuous gross margin expansion, and increased cost savings," according to its press release. Coty also projects stronger adjusted EBITDA margin expansion for FY25, following the 30 basis points improvement reported for FY24.
For cosmetics and personal care manufacturers and suppliers, Coty's latest financial update provides important indicators of current market conditions and emerging opportunities. The continued strength of the prestige fragrance segment suggests sustained demand for premium products, while the company’s emphasis on cost control and margin expansion may signal potential shifts in supplier relationships.
Additionally, Coty’s efforts to accelerate growth in the second half of FY25, through new launches and distribution, highlight areas of focus for industry partners in the coming months. Coty is set to release its full Q1 results on November 6, 2024, followed by a live Q&A session with financial analysts and investors on November 7, 2024.