This Prestige Brand's Latest Investor Presentation Left Us Bullish
Speaking at a Deutsche Bank conference this week, the CEO of Coty reinforced growth opportunities ahead.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
*Coty’s recent investor presentation speaks to our One rating on the shares
*Coty continues to lean into the prestige category for fragrances and skincare
*Gross margin gains and balance sheet de-leveraging should drive favorable EPS gains
Coty COTY shares are outperforming the market today, something we chalk up to CEO Sue Naby’s presentation this week at the Deutsche Bank Global Consumer Conference.
As we suspected, Naby’s presentation was one part explaining to the audience who Coty is, while the other touched on its growth prospects. Mixed in were comments about how Coty has been outperforming its industry, with Naby citing the fact that in nine of the last 11 quarters, Coty has been the fastest-growing global beauty company. We’d probably add a footnote to that claim that Coty doesn’t compete in several of the luxury goods categories that have been under pressure. But all in all, the presentation reinforced our stance on COTY shares, and the opportunity as Naby’s transformation plan accelerates in the coming quarters and Coty continues to de-lever its balance sheet.
Now, let’s share some highlights from Naby’s presentation. As we drink in some of these comments, let’s remember Coty’s total revenue in calendar-year 2023 was $5.8 billion and it is only getting started in the skincare market:
“In Prestige Fragrances, which is a $40 billion market, which we expect to grow mid- to high-single digits in the medium term, we are the second player globally and continuing to outperform significantly the market … we continue to drive the premiumization of the portfolio of the company.
"Prestige fragrance penetration in the U.S. has grown strongly to the high-20s, but penetration still remains well below that in Europe of over 50%. Similarly in China, fragrance penetration remains in the single digits.
“In the $70 billion prestige skincare market, we have begun activating core Coty brands like Lancaster, Philosophy, but also Orveda, with promising initial results and more to come.
“In the $30 billion prestige makeup market, we've expanded some brands like Burberry and Gucci into this space, with a Marc Jacobs makeup line coming in the next couple of years, while, at the same time, driving the strong Gen-Z appeal of Kylie Cosmetics.
“We continue to see a like-for-like CAGR (compound annual growth rate) at the upper end of the 6% to 8% over the next three years and beyond. We continue to expect gross margin in the mid to high sixties by fiscal year 2027 (compared to 60% in fiscal 2021."
Naby also noted that the company “exited calendar year 2023 with net debt of approximately $3.3 billion and leverage of 3.1 times. Over the next two years, we expect to generate at least $400 million in free cash flow annually or over $800 million cumulatively. We remain confident in our ability to divest Wella by the end of the calendar year 2025, which is currently valued in our books at over $1 billion.”
At the time of publication, TheStreet Pro portfolio was long COTY.
