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Coty raises earnings outlook on strong Q2 results

By Prachi Singh

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Business

Image: Coty #UndefineBeauty campaign

Second quarter reported net revenues at Coty of 1,523.6 million dollars decreased 3 percent, including a negative foreign exchange impact of 7 percent, while like-for-like revenue increased 4 percent, driven by a 3 percent increase in Prestige and a 6 percent increase in Consumer Beauty.

Year-to-date reported net revenues of 2,913.6 million dollars, the company said in a release, decreased 1 percent, including a negative FX impact of 7%. LFL revenue increased 6 percent, driven by a 5 percent increase in Prestige and a 9 percent increase in Consumer Beauty.

Commenting on the operating results, Sue Y. Nabi, Coty's CEO, said: "I am incredibly pleased by Coty's tenth consecutive quarter of delivering results inline to ahead of expectations, especially as most quarters surpassed expectations despite the highly complex external environment, with particular pressures this quarter from component shortages and FX. This delivery validates the strength of our brands, our teams, and the growing nimbleness of our organisation, positioning us for success in various macro scenarios.”

Highlights of Coty’s operational results in Q2

Reported gross margin of 65.5 percent increased from 64.4 percent in the prior-year period, while adjusted gross margin of 65.5 percent increased by 90 basis points from 64.6 percent in 2Q22.

Year-to-date reported gross margin of 64.8 percent increased from 63.9 percent, while adjusted gross margin of 64.8 percent increased by 80 bps year-on-year.

Reported operating income of 199.3 million dollars declined from a reported operating income of 244 million dollars in the prior year, while adjusted operating income of 261.4 million dollars rose 11 percent from 236.3 million dollars in the prior year.

The adjusted EBITDA of 317.6 million dollars increased 2 percent from the prior year, while adjusted operating margin was 17.2 percent, a strong increase of 220 bps, while the adjusted EBITDA margin was 20.8 percent, increasing 100 bps.

Year-to-date reported operating income of 371.2 million dollars increased from 261.2 million dollars, while adjusted operating income increased 17 percent to 511 million dollars, with a margin of 17.5 percent reflecting 270 bps of margin expansion, while the adjusted EBITDA totaled 625.5 million dollars with a margin of 21.5 percent.

Second quarter reported net income of 235 million dollars increased from a net income of 188.9 million dollars in the prior year, and adjusted net income of 191.9 million dollars increased from 147.7 million dollars in the prior year period.

Year-to-date reported net income of 360.3 million dollars increased from 291.9 million dollars in the prior year period, while year-to-date adjusted net income of 284.6 million dollars increased from 210.8 million dollars in the prior year.

Reported earnings per share of 27 cents increased from a reported earnings per share of 23 cents in the prior year due to the increase in reported net income, while adjusted EPS of 22 cents improved from 17 cents in the prior year. Year-to-date earnings per share of 42 cents increased from 36 cents in the prior year and adjusted EPS of 33 cents increased from 26 cents in the prior year.

Coty’s performance across its core businesses and markets

Coty's Prestige business revenues decreased 5 percent as reported and grew 3 percent LFL, which included approximately 300 bps of negative impact from Coty's exit from Russia.

The company added that Prestige makeup revenues were impacted by the Covid-related total lockdowns in China. However, Coty continued to drive momentum outside of China, with particular strength in the U.S., where retail sales of Gucci makeup and Kylie makeup grew over 40 percent.

Consumer Beauty revenues decreased 1 percent as reported and grew 6 percent LFL, which included approximately 250 bps of negative impact from Coty's exit from Russia. LFL revenues grew across key categories, including cosmetics, bodycare, and mass skincare. During the quarter, the global mass beauty category grew at a mid-single-digit pace year-on-year, while Coty continued to outperform the market, delivering a full year of global market share gains in the portfolio.

Geographically, EMEA sales declined 10 percent as reported due to significant FX headwinds, but grew 2 percent LFL in Q2 and 6 percent LFL in 1H23 despite a 5 percent negative impact from the Russia exit. Americas sales rose 6 percent as reported and 8 percent LFL driven by strong momentum in Brazil and Latin America, while the continued strength in U.S. demand was offset by supply constraints.

Asia Pacific sales declined 5 percent as reported but grew 2 percent LFL in Q2 and 6 percent LFL in 1H23, with strong momentum in Asia-ex-China and Travel Retail, while China revenues were impacted by Covid-related total lockdowns.

Coty targets FY23 revenue and earnings growth in FY23

Coty continues to target FY23 adjusted EBITDA of 955 million to 965 million dollars based on current FX rates, relatively in-line with its medium term growth target of 9 to 11 percent, adjusting for the impact of the Russia exit.

Supported by strong EPS delivery in the first half, Coty now expects FY23 adjusted EPS growth of over 20 percent to 35 cents to 36 cents, an increase from its previous adjusted EPS guidance of 32 cents to 33 cents. The company continues to anticipate adjusted EPS growth of approximately 20 percent in FY24 and beyond.

Coty continues to expect FY23 revenues for the core business, adjusting for the impact of the Russia exit, to grow 6 to 8 percent LFL, with revenue growth trends in 2H23 consistent with this range. The exit from Russia is estimated to negatively impact sales by approximately 2 percent, including an approximate 2 percent impact in Q3 and none in Q4.

Coty continues to expect modest gross margin expansion in FY23.

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