Coty Q3 2025 Prepared Remarks Earnings Call Transcript

Quartr
Provided by Quartr
May 5, 2025

Key Takeaways

  • Negative Sentiment: Q3 net revenues fell 3% like-for-like, driven by a 2.5% drop in Prestige sales (despite fragrance volume growth) and a 4.8% decline in Consumer Beauty, offsetting by flat volumes.
  • Positive Sentiment: Adjusted gross margin expanded by 120 basis points to 65.6% year-to-date, adjusted EBITDA margin grew 130 basis points in Q3, EPS up 33%, and leverage reduced to 3.2×, strengthening financial health.
  • Positive Sentiment: Achieved $40 million of productivity savings in Q3 and is on track for $120 million in FY25, plus a newly announced $130 million fixed cost savings program, targeting total run-rate savings of ~$370 million.
  • Neutral Sentiment: Anticipates low-$100 million tariff headwinds in FY26, mitigated by elevated U.S. inventory, planned mid-single digit price increases, supplier diversification, and potential U.S. production shifts.
  • Neutral Sentiment: FY25 guidance forecasts a 2% like-for-like sales decline, flat EBITDA margins, $0.49–$0.50 EPS, and $300 million free cash flow, with management expecting gradual improvement in FY26 via blockbuster launches and e-commerce growth.
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Earnings Conference Call
Coty Q3 2025 Prepared Remarks
00:00 / 00:00

There are 3 speakers on the call.

Operator

Thank you for joining us today for the prepared remarks portion of CODI's third quarter fiscal twenty twenty five earnings. On Wednesday, 05/08/2025 at approximately 8AM Eastern Time or 2PM Central European Time, we will hold a separate live Q and A session on our results, which you can access via our Investor Relations website. Joining me for our presentation are Sue Nabi, CEO and Laurent Mercier, CODI's CFO. Before I hand the call over to Sue, I would like to remind you that many of the comments today may contain forward looking statements. Please refer to CODI's earnings release and the reports filed with the SEC where the company lists factors that could cause actual results to differ materially from these forward looking statements.

Operator

In addition, except where noted, the discussion of CODI's financial results and CODI's expectations reflect certain adjustments as specified in the non GAAP financial measures section of the company's release. Thank you.

Speaker 1

Thank you, Olga. Welcome everyone. Fiscal twenty twenty five has been a pivotal and transitional year for Coty as the consumer and retail environment of the past few quarters became even more challenging in the third quarter and we took more proactive measures to clean up the baseline of our business to prepare for a healthier fiscal twenty six. Let me take a few moments to focus on the current backdrop and how our company is navigating this context with multiple levers to fuel improved trends into next year and beyond. It's important to properly frame the challenges we are facing in Q3 and even more so in Q4.

Speaker 1

For our Prestige business, fiscal twenty four was an exceptional year, with several coty blockbuster launches at a time when the prestige fragrance market was growing double digits. At the same time, the level of coty fragrance stock at retailers exiting the year was elevated as a result of strong sell out trends for our brands as well as retailer incentives, particularly in The US. With this backdrop, the combination in fiscal twenty five of a slowing prestige fragrance market, our launch calendar this year dominated by extensions rather than major innovations, and the need to deplete elevated inventory at the retailers has driven a triple negative effect on our business, which we are fully focused on correcting by end of this fiscal year. In Consumer Beauty this year, we have begun recalibrating our business in response to diverging market trends between cosmetics on the one hand and fragrances on the other hand, taking into account our relative strengths. While this is the right strategy for our business, it will take some time to drive a net benefit at the full division level.

Speaker 1

At the same time, in the challenging microeconomic and beauty landscape, we remain laser focused on protecting our profitability, driving free cash flow, and of course deleveraging. And we are much more strongly positioned to navigate the current complex dynamics, including tariffs and broader micro economic uncertainties, supported by the strategic, operational and financial fundamentals within the business that we've worked so hard to significantly strengthen over the last four years. While we are not satisfied with our revenue performance, these improved fundamentals coupled with our multi pronged strategy for accelerating innovation, distribution, and efficiencies give us confidence that business trends should gradually improve as we progress through fiscal twenty twenty six. Our third quarter net revenues declined 3% like for like. In Prestige, sales declined 2.5%.

Speaker 1

Importantly, Prestige Fragrance volumes continued to grow positively in the third quarter, while volumes for the division declined 3% due to pressure in Prestige makeup. In Consumer Beauty sales declined 4.8%, with flat volumes supported by volume growth in Brazil offset by decline in color cosmetics. Let's take now a minute to frame the current dynamics at play. Overall beauty growth has decelerated from the 2025, driven by softer consumer demand due to micro economic uncertainty and recessionary concerns. While some parts of the beauty market have been under pressure, consumer demand for prestige fragrances continues to grow.

Speaker 1

At the same time, the category experienced some normalization with growth slowing to a mid single digit level in q three on a comparable basis, which is a bit lower than the high single digit growth we saw in q two. Within this category backdrop, Coty has been significantly impacted this year by the lapping of prior year blockbuster launches. For us, fiscal twenty four was a fantastic year as we launched multiple top performing blockbuster fragrance innovations, including Burberry Goddess, Marc Jacobs Daisy Wilde and Cosmic Kylie Jenner. On the flip side, our fiscal twenty five launches were largely franchise building extensions of last year's blockbuster innovations, including Burberry Goddess Intense, Marc Jacob Daisy Wild Intense, and Cosmic Kylie Jenner two point o, which traditionally reach roughly half of the same sales levels of the prior year's innovations. This lapping impact was compounded by the level of trade inventory at retailers exiting fiscal twenty twenty four as customers stocked up on our brands in response to the strong sell out trends and retailer incentives, particularly in The US market.

Speaker 1

The combination of these two related factors have resulted in several points of headwind to our prestige sales growth in fiscal twenty twenty five. Additionally, the strong momentum and share gains by Amazon and TikTok shop in beauty is putting additional pressure on brick and mortar retailers to reduce their inventory. Now on the consumer beauty side, we've seen consistent slowing in the global mass beauty market in the recent quarters. In the third quarter, global category growth turned negative, declining by a low single digit percentage. These declines are driven by continued worsening of the mass color cosmetics category, which declined by a mid single digit percentage in the third quarter, with The US market under the most pressure and somewhat better trends in the rest of the world.

Speaker 1

In this challenging mass color cosmetics backdrop, sell out for our consumer beauty business was somehow below the market in q weighed down by our outsized presence in mass colour cosmetics, which was the weakest performing category, but also by our efforts to actively recalibrate our portfolio approach. In colour cosmetics, we are building a dual engine of scaled innovation across all major brands, coupled with our agile innovation strategy to capitalize on trending products with a concept to launch timeline of six to eight months. In tandem, we are accelerating advocacy marketing behind colour cosmetics, which has higher ROI, to free funding for mass fragrances, advertising and advocacy, and that the figures so far mirror this transition from one model to another as we remain focused on diversifying our categories within Consumer Beauty division. We have accelerated our efforts to balance out our Consumer Beauty division in response to the underlying market dynamics and in recognition of our areas of strength and of course profitability. Colour cosmetics was a little over 60% of our consumer beauty sales in fiscal twenty twenty four, but the full category has been more challenged.

Speaker 1

There has been more competition and the subcategory is much less profitable for Coty. On the other hand, mass fragrances continue to boom, we are the number one player in the category and our profits in mass fragrances in particular are much higher. With these factors in mind, we have been actively diversifying our portfolio. As you can see on the slide, fiscal year to date we've grown by 3% our proportion of fragrances, skin and body care within our Consumer Beauty business approximately to reach 41%, with these categories growing mid single digits percentage. At the market level, our performance in The US has been especially challenged.

Speaker 1

The US market accounted for the vast majority of our like for like sales decline in the third quarter and was the biggest headwind in our fiscal year to date results. In contrast in our other major stronghold Europe, our fiscal twenty twenty five sales trends have been relatively stronger and our sellout performance in Prestige Fragrances has been in line with the underlying market. In response, we are activating plans to improve our execution in The US. Specifically, we recently announced new US market leadership as well as a more scaled and agile regional setup across the organization with the new regional leader in the area fully focused on significantly improving our performance in The US, empowered to accelerate decision making and of course faster execution. In summary, we are taking important steps to position the company for success even in this volatile time.

Speaker 1

Let me now turn the call over to Laurent to discuss our financial results before I close with Coty's plan of attack for fiscal twenty twenty six and beyond.

Speaker 2

Thank you, Soo. 2025 is indeed a transition year for beauty and for Coty, characterized by slowing demand in some areas, significant uncertainty, and active interventions in our business and operations to create a healthier baseline for growth. While this is having an impact on our near term sales trends, our financial equation is now stronger than it has been in the last four years, and we will see outsized benefit from our healthier debt levels and cash generation. I want to underscore that we are laser focused on protecting our profitability, driving free cash flow, and deleveraging even as we navigate the complex dynamics including tariffs and broader macroeconomic uncertainty. Beginning with our ongoing productivity programs, in Q3, we delivered savings of approximately 40,000,000, up from approximately 35,000,000 in Q2 and approximately 20,000,000 in Q1, with most of the savings in gross margin related areas.

Speaker 2

In total, we continue to target productivity savings of approximately 120,000,000 in fiscal year twenty five, And we are committed to delivering productivity savings in fiscal year twenty six and beyond, primarily in supply chain and procurement, with a similar annual savings level as fiscal year twenty five. The additional 130,000,000 fixed cost savings program we recently announced will come on top of this. While we saw sales headwinds this quarter, we remained focused on fueling healthy gross margin expansion. In the first nine months of fiscal year twenty five, our adjusted gross margin was 65.6%, reflecting very strong expansion of 120 basis points, fueled by supply chain savings, including procurement savings and productivity gains, excess and obsolescence reduction, a net benefit from carryover pricing, and strong discipline as it relates to promotional activity even in the face of quite significant discounting from some of our peers. Our adjusted gross margin in Q3 declined by 50 basis points, broadly consistent with our expectations, reflecting an anticipated normalization of the quite elevated gross margin levels in the prior year's third quarter.

Speaker 2

We continue to expect another year of steady gross margin expansion in fiscal year twenty five, supported by our strong delivery in the first half. As part of our focus on maintaining a healthy business equation and supporting our strategy over the short and long term, we continue to invest behind our brands and initiatives. We maintained a high 20s ANCP percentage in Q3, up year on year. Coty's adjusted EBITDA grew two percent in Q3. As a result, we delivered 130 basis points of EBITDA margin expansion in Q3, with very strong margin expansion in Prestige.

Speaker 2

Fiscal year to date, our adjusted EBITDA expanded 3%, resulting in an EBITDA margin of 20.6%, which was up a strong 110 basis points year over year. The strong EBITDA growth despite lower reported sales was supported by a combination of cost reductions as part of our All in to Win program, as well as shorter term cost controls including the mechanical reduction of variable compensation as a result of the lower than planned financial results. As we look to fiscal year twenty six, our recently announced fixed cost reduction program and annual productivity savings give us strong counterweights to offset the restoration of variable compensation and the portion of tariffs not absorbed by pricing as we aim to deliver profit growth next year. In the first nine months of fiscal twenty twenty five, our interest expense declined by $26,000,000 year on year to $164,000,000 reflecting the lower debt balance and a lower cost of debt. And based on the trajectory of our deleveraging and the current interest rate backdrop, we expect interest expense to decline further in fiscal year twenty six, driving additional EPS accretion.

Speaker 2

Our Q3 EPS, excluding the equity swap, grew by 33% year over year to $08 and our fiscal year to date EPS grew 17% to $0.48 This very strong EPS growth was fueled by solid profit expansion and much lower interest expense. Our fiscal year to date EPS growth benefited from a discrete tax hurt in the prior year totaling 3¢, which did not repeat this year. While lower shipments and lower cash profits weighed on our free cash flow, we delivered free cash flow through the first nine months of fiscal year twenty five of $243,000,000. In March, we also closed on the sale of our 20% stake in the SKKN by Kim brand, part of our ongoing portfolio review efforts. The free cash flow generation, coupled with the proceeds from the SKKN divestiture, offset the negative impacts from Forex and the cash prepayment to the banks in connection with our equity swap following the pullback in our stock price in recent quarters.

Speaker 2

All in all, we ended Q3 with leverage at 3.2 times, down 0.1 turns from the start of the fiscal year. Our disciplined approach to profit expansion, cash generation and debt pay down have fueled the significant reduction in our leverage over the past four years. While in fiscal twenty twenty one our leverage was close to seven times, we ended Q3 with leverage of 3.2 times. Now, in the current more complex economic environment and outlook, our significantly lower leverage and stronger balance sheet assure that we are more strongly positioned for any macro scenario. We remain fully focused on continuing to deleverage through strong cash protection plans and EBITDA expansion.

Speaker 2

While we have 1,100,000,000.0 of debt maturities coming due in calendar year '26, this can be addressed through any combination of refinancing our seasonally strong free cash flow at the end of each calendar year, and or our revolver as we have ample available liquidity under our revolver and cash on hand of 1,800,000,000.0. Now looking at the other assets available to us, we can confirm that the performance of the Vela business remains strong. At the same time, we are mindful of current equity market conditions. So while we remain fully committed to divesting our stake in Vela, the current backdrop may delay monetization of our stake. And consistent with our approach to divesting the SKKN business when the opportunity came, we will continue to evaluate our portfolio.

Speaker 2

Let me also take a minute to address the tariff topic, which we know is top of mind. As evidenced in the last several months, the global geopolitical and tariff situation remains quite fluid, further adding to the broader uncertainty and decline in consumer sentiment. Having said that, Coty is relatively better positioned than many consumer companies. As a reminder, approximately 30% of our sales are in North America, including approximately 13% in Consumer Beauty and approximately 17% in Prestige. For Consumer Beauty, our products are primarily manufactured locally in The US.

Speaker 2

On the other hand, our prestige fragrances are manufactured primarily in Europe, where we have the world's largest fragrance manufacturing facility. This is consistent with our beauty peers who also produce fragrances primarily in Europe. Our finished goods sourcing from China is negligible aside from local sales. Having said that, our teams have been planning for several different scenarios with action plans to minimize the potential impact on Coty, and we are actively planning mitigation actions to address the impacts of tariffs on our business. Under the current tariff framework, the biggest areas of potential headwinds for us are first, prestige fragrances shipped to The US from our Barcelona plant, and second, sourcing various components and marketing materials from China.

Speaker 2

We have multiple levers to balance or minimize these tariff headwinds. For Prestige Fragrance, we have built up inventory on hand in The US that will carry us through at least the end of fiscal year twenty five. Pricing remains an additional lever, particularly in the relatively priced inelastic prestige beauty market, and we are on track for a mid single digit price increase in The US starting this summer. And finally, if it becomes more definitive that these tariffs will stay in place for the long term, we will consider transferring some production to The US to mitigate the impact of tariffs on imports from Europe, which would carry lower investments and building a new site. While our sourcing of finished goods from China is negligible, we do source some components and marketing materials from the country.

Speaker 2

Therefore, as part of our mitigation efforts, we will resource suppliers in other countries over time to broaden our supplier base in each component and have already begun this process of bringing new suppliers online. Importantly, we are contemplating all of these mitigation plans while at the same time being conscious to minimize disruptions to our operations, distribution partners, and the long term health of our business, especially if the tariffs are more transitory in nature. Combined, based on the current anticipated tariff landings, we see a growth headwind from tariffs in the low 100,000,000 level, with minimal impact this quarter due to our proactive inventory build and an impact step up in fiscal year twenty six. Before we transition to our fiscal year twenty five guidance, I wanted to take a minute to help frame the current backdrop both outside and inside coty. From a category standpoint, there has been some sequential improvement in April in both the prestige fragrance and Mass Beauty categories, though we believe much of it relates to the phasing of Easter which occurred in March and in April.

Speaker 2

For Coty, as part of fiscal year twenty five, being a transition year, both in q three and even more so in q four, we are continuing to clean the baseline, including assuring that retailer inventories are right sized relative to the current demand trends, that we are rebalancing our resources within consumer beauty to overdrive our profit engines while scaling our cosmetics innovations, and that we remain disciplined in our promotional activity to protect the health of our brands. All of these efforts are targeted to prepare for a gradual improvement in sales trends over the course of fiscal year twenty six, underpinned by multiple levers that Sue will discuss shortly. And at the same time, as we have discussed, we are actively intervening in key areas of the business to set us on stronger footing into fiscal year twenty six and beyond. This includes stepped up fixed cost savings and productivity savings to protect the p and l and fuel our brands, and making concrete changes in our organizational setup and leadership in key markets like The US to improve our execution and set out trends. With this backdrop in mind, let me share our updated guidance for fiscal year twenty five.

Speaker 2

The continuation of current category trends, coupled with our active interventions to clean up the baseline of the business, are driving our expectation for a high single digit like for like decline in Q4 sales. This translates to a 2% decline in our fiscal year twenty five like for like sales. On the reported revenue side, we see a mid single digit decline in reported sales which embeds a roughly 3% headwind from Forex. We continue to expect continued expansion in fiscal year twenty five gross margins to approximately 65%, consistent with our prior outlook. We remain on track to deliver EBITDA margin expansion at the lower end of our guidance range with approximately 70 basis points of expansion to roughly 18.5%.

Speaker 2

This translates to roughly flattish EBITDA in fiscal year twenty five, which includes a low single digit headwind from Forex. At the same time, the strengthening of our balance sheet is helping drive significant improvement in our interest expense year over year to the low 200,000,000 level. And we are also on track to end the year with a lower tax rate in the mid twenties percentage, down from the high twenties in fiscal year twenty four. The benefit from both of these below the line levers is supporting our relatively stronger EPS delivery as we see FY25 EPS of $0.49 to $0.50 near the low end of our prior guidance range. On the cash flow side, we now expect fiscal year twenty twenty five free cash flow of approximately 300,000,000.

Speaker 2

While our EBITDA outlook is only incrementally lower than our outlook a few months ago, this P and L outlook includes a benefit from lower variable compensation, which is a mechanical result of the lower fiscal year twenty five outlook. As the variable compensation gets paid in October, our actual cash profit underpinning our free cash flow is tracking lower in fiscal year twenty five, but should see a benefit in fiscal year twenty six in light of the lower compensation accrual this year. Finally, we expect our leverage at the end of fiscal year twenty five to be relatively in line with our leverage at the end of Q3. Before I hand the call back over to Sue, I want to take a moment to reiterate that Coty's financial position is the strongest it has been in many years, so we are well equipped to maintain our performance in a variety of scenarios. We have spent the last four years substantially improving our business fundamentals.

Speaker 2

Here you can see a snapshot of our financial delivery. Between fiscal twenty one and fiscal twenty five, our like for like sales are on track to grow at 9% CAGR. Since fiscal twenty twenty one, we have grown our adjusted gross margin by approximately 125 basis points each year and we are on track for continued expansion in fiscal year twenty five to roughly 65%. We also delivered very strong profitability improvement. Our EBITDA margin expanded by 130 basis points from fiscal twenty one to fiscal twenty four, reaching 17.8% and is on track to reach roughly 18.5% in fiscal year twenty five.

Speaker 2

This equates to an expected EBITDA CAGR of plus 9% through the end of fiscal year twenty five, squarely in line with the targets we laid out four years ago. Finally, our EPS delivery has resulted in an expected CAGR of close to 80% between fiscal year twenty one and fiscal year twenty five. In fact, it is not worth it that we delivered this very strong revenue CAGR and margin expansion in the last four years in the context of a very constrained P and L where a key priority was deleveraging our balance sheet. The progress we have made confirms our focus on financial discipline, which positions Coty well despite all of the headwinds we are facing. At the same time, in light of the current macroeconomic and tariff uncertainty, we have made the decision to postpone our Investor Day by at least a few months, which we had previously targeted to hold this June.

Speaker 2

With that, I will turn it back over to Suk to discuss our plan of attack for fiscal year twenty six and beyond.

Speaker 1

Thank you, Laurent. Our improved fundamentals coupled with a multi pronged strategy for accelerating innovation, distribution and efficiencies give us measured confidence that business trends should gradually improve over the course of fiscal year twenty six. This is coupled with strong plans to protect profitability, cash flow and deleveraging even in the face of tariffs or broader micro economic uncertainty. First, it's important to remind everyone that beauty has always been and will remain, by the way, a highly resilient category. Across economic cycles, beauty has remained resilient.

Speaker 1

In fact, even in periods of microeconomic slowdown or regular challenges, global beauty demand has grown three to 4% most years over the past decade and a half. Despite the current backdrop, this reinforces our confidence in the category. The US market is a perfect embodiment of this. Even as economic sentiment has fallen in The US in the last few years, prestige beauty sales have continued to grow. While much of fiscal twenty five innovations were extensions providing a modest contribution to net revenues, entering fiscal twenty six, we are reigniting our pipeline of blockbuster launches and market expansions.

Speaker 1

In fiscal twenty twenty six, we have exciting launch and distribution initiatives planned, which we anticipate will improve sales trends even if the current complex macro and retailer backdrop holds. We'll have a major launch under a top prestige brand in the '26, and another major launch under another top prestige brand in the second half of the year. We also have sizable distribution expansion plans. At the start of fiscal twenty twenty five, we launched Chloe in The US market with very positive results, and this market is now Chloe's number four market. Importantly, the brand had exceptional growth, including over 15% growth in Q3 and fiscal year to date, with strong momentum in both the core fragrance line and the ultra premium collection called Atelier D'Fleur.

Speaker 1

Building on this success, in the fall, we will be expanding another one of our top brands into The US, effectively doubling the brand's addressable market. We will also capture more of the ultra premium fragrance market with our ultra premium fragrance collections including Infiney Mont Coty Paris, Atelier Des Fleurs, Bost de collection, Burberry signature and the new Jill Sander collection. Chloe's Atelier Des Fleurs ultra premium collection supported the brand's strong double digit percentage growth in the third quarter and fiscal year to date. And Infinement Coty Paris, our internally developed niche fragrance brand, continues to resonate with consumers in The US and in European markets. As we mentioned earlier, we are focused on expanding our mass fragrance business and we are actively supporting the expansion of mass fragrances with stepped up media investment to overdrive our growth in the category.

Speaker 1

This has paid off. The Adidas Vibe collection, Coty's biggest consumer beauty fragrance launch in the last ten years, drove over 20% growth in Adidas fragrances in the third quarter and fiscal year to date. In addition, across each of our key markets, Adidas fragrance is gaining market share. With the outstanding initial results for the Adidas Vibes launch, our goal for fiscal twenty six and beyond is to make Adidas Vibes into a full scenting platform, and we will share additional details in the coming months and quarters on the new products we will be launching under Vibes. We also continue to invest in our skincare strategy.

Speaker 1

Lancaster delivered net revenue growth fiscal year to date, supported by the brand's unique positioning as the photo ageing prevention and repair expert. Philosophy remains focused on its social media advocacy strategy, leaning into the brand's unique retinal complex patents. And Orveda continued to steadily expand its distribution footprint and generated triple digit percentage retail sales growth in the first nine months of fiscal twenty twenty five. Our third step in our plan of attack for fiscal twenty twenty six is our push to capture new opportunities and adjacencies to supplement our core growth. We have many different scenting related initiatives in the pipeline for fiscal twenty six.

Speaker 1

We have co created multiple scenting lines with key retailers globally with locked in distribution. We will be more actively expanding our brands from traditional eau de parfums and eau de toilettes to fragrance mists for both our prestige and consumer beauty brands. We will be expanding our offer of smaller format fragrances, including pen sprays, to capture consumers who are either more value conscious or looking to expand their fragrance wardrobes. And we will continue to expand distribution of value priced fragrances in emerging markets. As part of our strategy to reach new audiences, our latest campaign for David of Koolou Elixir is anchored in fantasy and gaming targeted at teen males.

Speaker 1

Let's take a look at the new campaign. Davidoff Kulou Elixir. A treasure is worth the fight. Cool Alexa, the new Oud treasure. Additionally, in calendar year '26, we are on track to launch Marc Jacobs makeup with a truly distinctive and craveable assortment.

Speaker 1

Next, in a time of rapid shifts in retail channels, we will continue to overdrive the growth channels and win with the winners. Our momentum in ecom in both divisions is undisputed, with ecom revenues reaching $1,000,000,000 this past year. And with ecom sales for beauty outpacing brick and mortar sales across countries and across price points, we are continuing to win share in this critical channel. In the past quarter, our sell out in ecomm has been well ahead of the beauty e comm growth in both prestige and consumer beauty. While our sell in has been below these levels, our sustained outperformance positioned us well in e com into fiscal twenty twenty six.

Speaker 1

One example of our ecom success has been our multi year partnership with Amazon, where we have been active with both our consumer beauty brands and some of our prestige brands for several years, well ahead of key competitors. We are excited to share that another one of our brands will be launching on Amazon in Q1 fiscal twenty twenty six. We are also exploring the TikTok shop channel for our brands, particularly as a driver of consumer excitement and halo on our core channels. Our first test was in The UK under ReMail with positive early results as our limited quantity activation covering three ReMail SKUs sold out in a short period of time and fueled EMV of close to $2,300,000 Importantly, outside of the sales on TikTok shop itself, the buzz generated by this activation on TikTok provided a significant halo for Remail across all channels, resulting in the brand reporting flat market share in The UK for the first time in three years. We are building on these learnings with TikTok shop activations for CoverGirl planned in the coming months.

Speaker 1

We continue to fuel our brand through strong momentum in social media advocacy. Our prestige brands across fragrance and skincare categories are resonating online, supported by this advocacy strategy. For example, Hugo Boss global earned media value linked to influencer activity grew nearly four times, while skincare brand Lancaster's European EMV grew over 10 times year over year. Among our consumer beauty brands, mass fragrance brand Adidas Global earned media value linked to influencer activity grew five times, while color cosmetics brands Bourgeois and Rimmel each grew by 409% respectively. Importantly, as we ramp up our focus on advocacy across our brands, our focus is on recommendation and durable advocacy rather than simple virality, which is often short lived.

Speaker 1

Next, we are laser focused on reigniting growth and profit expansion in our Consumer Beauty division. In fiscal twenty twenty five, we actively began rebalancing our divisional mix to overdrive the categories that are much higher margin or higher growth and where we have clear leadership, namely mass fragrances and Brazil skin and body care. As we enter fiscal twenty twenty six in the more challenged mass cosmetics market, we are putting in place the building blocks to improve our performance through a dual engine of scaled innovation and agile on trend innovation, all powered by a digital advocacy model. In parallel, we will continue to fuel our smaller but more profitable pillars with multiple launches and distribution expansions in mass fragrances. And we will generate additional capacity to fuel these multiple initiatives and increase media investment through a combination of cost saving programmes and the savings generated from being more deliberate and focused in our launches, thereby not spreading our funds over too many initiatives and triggering gross to net pressure from small launches.

Speaker 1

Here is an example of this scaled innovation process in action. In Q3 last year, we launched the very unique CoverGirl Simply Ageless Essence Foundation, which has continued to do well. And last quarter, we launched the same formulation under our European centric brands, namely Max Factor and Bourgeois. We have done some limited technology platforming in our cosmetics portfolio in the last few years, but we have really stepped up in fiscal twenty twenty five and even more planned in fiscal twenty twenty six as our goal is to both increase such platform launches and to launch new technology under multiple brands at the same time in non overlapping regions to really maximize the halo to consumers' discussions. Here we have an example of one of our agile innovations, the Rimmel Thrill Seeker lip ink pens.

Speaker 1

We co created this innovation with influencers capitalizing on viral social media trends. The early results were very promising at Superdrug, a key retailer in The UK where we had the highest ever exclusive sales under email. This innovation and collaboration reinforces the success of our agile innovation model and strategy to capitalize on on trend products powered by our digital advocacy model as we work to recalibrate our consumer beauty portfolio approach. A key part of our strategy going forward is our focus on savings, profit and cash protection in order to drive the business, even if the market experiences turbulence. Importantly, we have delivered over $800,000,000 in productivity savings since fiscal twenty twenty one, while also driving the core fundamentals of our business, including a like for like CAGR of 13%, over 400 basis points of gross margin expansion and 130 basis points of adjusted EBITDA margin expansion.

Speaker 1

As we recently announced, we are now entering our next phase of All In to Win, a strategic initiative to establish a simplified and scaled operating model to reduce complexity across functions and markets and sharpen our focus on top innovation and market priorities. We are streamlining our organisational structure across key markets to unlock operational efficiencies, reduce duplication and better align with the consolidation in the local and regional retail landscape. These market organisations will be part of a more scaled and agile regional setup, with the new regional leaders empowered to accelerate decision making and faster execution in keeping with the rapid evolution in today's global beauty markets. Next, we are consolidating and centralizing support function activities to better align with these new regional structures. We are also step changing our innovation impact by identifying key launch priorities early in the process and focusing organizational efforts and resources into fewer and more impactful initiatives, which will be supplemented by smaller agile launches to capture short term opportunities.

Speaker 1

Finally, we are structurally reducing non people fixed costs across all areas of spend to maximize investment behind our brands in the most efficient way possible. This newly announced next phase of our All In to Win program is expected to generate annual fixed cost savings of approximately $130,000,000 before taxes over the next two years. This is in addition to approximately $240,000,000 of productivity savings during the same period, resulting in total savings of around $370,000,000 We anticipate that this initiative will impact approximately 700 positions following all necessary regulations and will result in a one time cash cost of $80,000,000 split evenly between fiscal twenty twenty six and fiscal twenty twenty seven. In total, this will bring the cumulative savings under our All in to Win program to approximately 1,200,000,000.0 between fiscal twenty twenty one and fiscal twenty twenty seven. Finally, as part of our ambition to be a leader in sustainability, let me highlight several key sustainability milestones.

Speaker 1

We are very proud to share that Coty was recently upgraded by the two leading ESG rating agencies. Our MSCI ESG rating was upgraded to A from BB, reflecting enhanced performance across several key ESG areas. In addition, our MSCI carbon footprint score remains at the maximum level, demonstrating the company's ongoing commitment to minimising its environmental impact. Also improved its Sustainalytics ESG risk rating, moving from medium risk to low risk, which places Coty as the lead amongst global beauty companies and third out of 104 in household products companies as rated by Sustainalytics. These achievements underscore Coty's dedication to advancing sustainability across all aspects of our business.

Speaker 1

With these various strategies in place to boost our performance in fiscal twenty six and balance out potential external headwinds, whether tied to macro pressures, consumer demand slowdown or tariffs, let me share a framework for how we think about fiscal twenty twenty six. Assuming no significant change in the current category trends, we would expect like for like sales trends to gradually improve over the course of fiscal twenty twenty six relative to the low Q4 fiscal twenty twenty five like for like trend. Both the first and second half should benefit from a strong innovation pipeline, some distribution expansion and incremental contribution from the pricing we're putting in place to partially offset tariff impact. However, the comparison base should get progressively easier as we proceed through the year. On the profit side, based on the current announced tariff framework, we would expect a relatively balanced net headwind between the first and the second half, taking into account timing of cost recognition and timing of various sourcing adjustments.

Speaker 1

We should see some savings contribution in the first half and a higher contribution in the second one, though in both cases this will be partially offset by the reinstatement of variable compensation which has a bigger year on year negative impact on profit in the second half. In sum, we would expect somewhat lower EBITDA in the first half and higher EBITDA in the second half, with the full year EBITDA targeted to increase. In summary, we see 2025 as a transition year. In Prestige, we are absorbing the triple headwind of a slowing fragrance market, lapping a blockbuster innovation year and depleting elevated retailer inventory, all of which was particularly acute in The US market. We are laser focused on entering fiscal twenty twenty six with alignment between sell in and sell out to create a healthy baseline for growth.

Speaker 1

In consumer beauty, we have begun recalibrating our business in response to diverging market trends between cosmetics on the one hand and fragrances on the other hand, taking into account our relative strengths. Our goal is to strengthen our cosmetics business while making it more profitable while in parallel overdriving our mass fragrance business where we have leadership and a strong margin profile. Importantly, we are in control of our destiny and are already making the changes needed to address many of these challenges with new leadership in The US, an organisational structure to drive faster changes and improved execution, and a robust cost saving programme to protect our P and L and increase our firepower to accelerate our business. Our multi pronged plan of attack to accelerate innovation, distribution and efficiencies give us measured confidence that business trends should improve over the course of fiscal twenty twenty six, with our brand desirability and equity at the highest levels in years, a pipeline of initiatives which is the strongest in five years, and our margins, profit, debt and leverage all significantly improved versus four years ago, we have the levers to protect our profitability and cash flow in a variety of micro economic scenarios.

Speaker 1

Coty remains well positioned to succeed and outperforming in the coming years.

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