Coty Inc. (NYSE:COTY) Q3 2024 Earnings Conference Call May 7, 2024 8:15 AM ET
Company Participants
Sue Nabi – Chief Executive Officer
Laurent Mercier – Chief Financial Officer
Conference Call Participants
Filippo Falorni – Citi
Oliver Chen – TD Cowen
Christian Junquera – Bank of America
Rob Ottenstein – Evercore
Korinne Wolfmeyer – Piper Sandler
Shovana Chaudry – JP Morgan
Olivia Tong – Raymond James
Chris Carey – Wells Fargo Securities
Ashley Helgans – Jefferies
Lauren Lieberman – Barclays
Linda Bolton Weiser – DA Davidson
Mark Astrachan – Stifel
Operator
Good morning and good afternoon everyone. My name is Ashley and I’ll be your conference Operator today.
At this time, I would like to welcome everyone to Coty’s third quarter fiscal 2024 question and answer conference call. As a reminder, this conference call is being recorded today, May 7, 2024 at 8:15 am Eastern time, or 2:15 pm Central European time.
Please note that on May 6 at approximately 4:30 pm Eastern time, or 10:30 pm Central European time, Coty issued a press release and prepared remark webcast, which can be found on our Investor Relations website. On today’s call are Sue Nabi, Chief Executive Officer, and Laurent Mercier, Chief Financial Officer.
I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty’s earnings release and the reports filed with the SEC where the company lists facts that could cause actual results to differ materially from the forward-looking statements. In addition, except where noted, the discussion of Coty financial results and Coty expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company’s release.
Question-and-Answer Session
With that, we will now open the line for questions. (Operator instructions)
We’ll take our first question from Filippo Falorni with Citi. Please go ahead.
Filippo Falorni
Hey, good morning everyone, and good afternoon for you guys. I had two quick questions.
One, I understand you’re going to give guidance for fiscal ’25 in August, but you mentioned in the release that you expect a sequential acceleration in like-for-like sales in the first half of ’25, so maybe you can give us some color what drives that confidence and what are the drivers of the acceleration.
Then the second one on the consumer beauty business, you called out some softness in U.S. mass cosmetics. How long do you think that softness can last, and what are the offsetting parts of the business that drove the like-for-like sales in the business? Thank you.
Sue Nabi
Yes, good morning Filippo. Thank you. This is Sue speaking. Again, thank you for giving us this opportunity to indeed comment on this [indiscernible] that are in this time above expectations and above our guidance for the third time this year. Indeed, the performance we have seen in prestige, which is as you know growing double digits, is giving us confidence to see and to continue to see an acceleration in the first half sequentially from Q4. We’ve been outperforming the market during this quarter, Q3.
The market is very dynamic, as you know. The prestige fragrance market is even accelerating sequentially versus last quarter, and this is a global phenomenon, not just in the U.S. – it’s also seen in big markets like Europe. On a very dynamic market that we expect to continue to be dynamic because of the fragrance index structural drives, we believe we are going to continue to outperform this market, which explains why we think we are going to sequentially accelerate from the Q4 numbers in terms of sell-in.
What gives us this confidence? Number one, the track record of the company, we’ve been seeing a large number of our brands growing double digits last year, and this is continuing for most of these brands, thinking about the top seven fragrance brands growing double digits last year. Most of them, the majority of them continue to grow at the same rate. We have great highlights or great, I would say, superstars in the portfolio, such as Burberry. Burberry [indiscernible] confirming its huge potential, more than potential, it’s today the number one innovation globally. It’s today having a fantastic halo effect on the overall brand, pushing the other fragrance franchises but also the color cosmetics performance, and on top of this Burberry Goddess, that is continuing to build over time and with an increased penetration across the different markets around the world.
We have also new stars arriving – I’m thinking about Cosmic Kylie Jenner, a fragrance that started one month and a half ago, which is the second innovation, the number two innovation of the U.S. market this calendar year to date, and we have also another one that’s the number one innovation in the U.S. market, which is Daisy Wild from Marc Jacobs, so this on top of other brands, growing double digits – I’m thinking about Chloé, I’m thinking about adidas, and of course as I said it before, Burberry. This is really what gives us the confidence that we are building launches that are going to stand the test of time, that are going to amplify and hopefully continuing to increase the number of successes, which we call the track record in this very competitive fragrance business.
We are also accelerating in consumer beauty. Consumer beauty, as you remember, the story was about increasing the pace of innovation. This is happening now. The latest innovations are all becoming viral – they are potentially innovations that have this ability to speak to the influences around the world, I’m thinking about Covergirl [indiscernible], I’m thinking about Covergirl [indiscernible] from last year that’s continuing to do very well, Covergirl lip stain, I’m thinking about Rimmel wonder bond mascara, which is the first bonding mascara in the color cosmetics industry. All these innovations are going to be amplified by other innovations, and I said to you in the previous earnings call that we are going to increase the pace of innovation.
All these elements give us the confidence that things are going to get–to continue to do well, and the beauty market, we believe is going to continue to do well. Prestige is structurally driven to become–to continue to grow very strongly, and mass, we saw the–mainly–it’s mainly in the U.S. that we see figures that are not where we want them to be. The rest of the world mass market, especially [indiscernible] fragrances is booming, but in the U.S., last month’s figures are a bit better than the month before, so we are optimistic and we think that this will improve. After the shock of inflation, the shock of price increases, I strongly believe consumers are going to see a clearer picture and hopefully they will continue to buy these new innovations, new categories, etc.
What allowed us to offset this weakness in the U.S. market is indeed categories and regions, categories because we are growing very, very strongly behind mass fragrances globally, we are very strongly behind body skin care, as I love to call it, and this is also an area that is not only premiumizing but also accelerating, it’s skin care for the body, if you want to name it differently, and we are also bringing in other regions, what we call the growth engine market, new regions that represent almost 20%. It’s growing two times faster than the rest of the company.
Last but not least–that was a long answer, so that the others also get maybe answers to the upcoming questions. Travel retail is doing fantastically well and also ecomm, so if you add travel retail, ecomm, new regions, plus new categories, you have almost half of the business of the company that’s growing two times faster than the more classical business, the heritage businesses in mature markets.
Operator
Thank you. We’ll take our next question from Oliver Chen with TD Cowen. Please go ahead.
Oliver Chen
Hi Sue and Laurent. The results continue to be really impressive. Was there opportunity to guide even higher, given the momentum that you’re seeing? Geographically, it looked very strong across markets, if you could help us contrast perhaps Europe versus Americas and what you’re seeing with customers there. Then as we think about the fragrance category, it looks like inventories are likely very clean at your retail partners, given the sell-out trends. What do you expect to happen with normalization – you know, all the KPRs are so robust. Thank you.
Sue Nabi
Yes, thank you Oliver. I hope that you are very well.
I wanted to start maybe with the last part of the question, which is around the fragrance normalization, as we call it. Indeed this was something that everyone was referring to during last earnings call, and even since almost a year now, we hear this kind of when is the normalization, some people call it slowdown, others call it trade down, but it’s not happening in fact. The reality is that it’s accelerating, so we see this accelerating thanks to volumes and thanks to premiumization. It’s not just a question of pricing, it’s also volumes that are growing, and we see this fragrance index across the full world in a way, from our mass fragrances that [indiscernible] or adidas, to the most premium one, including the recent launch of Infiniment Coty Paris at the tip of the iceberg.
You clearly see obvious different price tiers continuing to grow, and consumers are continuing to use fragrances as a mood booster, as a social connector, and as a feel-good category more or less. We see this category probably going to be not as dynamic as it was two years ago, where we were talking about mid-teens growth in some markets, but still it will continue to grow at levels that we believe are much higher than the historical levels. For those who remember pre-pandemic, when fragrance business was growing 1% or 2%, it was already an achievement, so here we are talking about mid to high single digit growth for the fragrance business, which we believe is going to be something that is sustainable over time.
Now the second part of your question around the contrast between Europe and the U.S., I have to say that Europe is very dynamic. In both divisions, in both markets, color cosmetics is doing very well in Europe, prestige fragrances are doing very well in Europe, skin care is doing also very well. In the U.S., the picture is almost as good as the one in Europe, except as I said it before, regarding the mass color cosmetics category; but there, we believe that after the, I would say, these price increases that put some pressure on, I would say, the low income consumers, the continuous innovation rate of this market, the continuous premiumization, the ability to connect with consumers on social media in a way are another compensate this, I would say, more difficult moment. But we see this getting better during the last month compared to the month of–the previous month, where the figures were quite [indiscernible].
Now, was there opportunity to guide even higher? I believe guiding at the upper end of 9% to 11% for this fiscal is honestly an outstanding performance, it’s probably the best in class among our peers now that almost everyone has finished, so I believe this is really a performance that we are super proud of, and again what we did tell you in terms of what we are starting to see around Q1 figures is also a good element of confidence for the company and for everyone who is looking at this.
Operator
Thank you. We’ll take our next question from Anna Lizul with Bank of America. Please go ahead.
Christian Junquera
Good morning, you have Christian Junquera on for Anna Lizul. Thank you for taking our question.
You mentioned ecommerce was particularly strong in the quarter, now representing about one-fifth of your business. Can you talk about the drivers of this with greater innovation and marketing, and where do you see the potential for sales from ecommerce? Also, do you expect to launch more products with ecommerce retailers, similar to Estée’s launch of Clinique on Amazon’s beauty store? Thank you.
Sue Nabi
Yes, good morning. Thank you very much for the question. Indeed you are totally right to call out the ecommerce performance, which is–for example in consumer beauty, is half of the growth of the division, in prestige it’s a little bit under half of the growth of the division, so we are outstandingly performing in this channel and we have a lot of room still to continue to grow compared to some of our peers. This is really an area where we are doing the right things. We are accelerating but still with a lot of room to continue to grow.
What explains this performance? If it take the consumer beauty division, where the growth has been astronomical, this is really where our brands are winning in a big, big way, specifically Covergirl in the U.S. It has to do a lot with the digitalization of our marketing means. In a way, we were, as you will remember, communicating in a traditional way just two years ago, still talking to the loyal base of our consumers, which were people above 35 years old, and this is a precious part of the market that Covergirl is one of the only brands that is continuing to take care of, in a way. But we were not using the modern marketing tools, such as influencer marketing [indiscernible] and all the funnel that goes with it with retail media [indiscernible]. The progress we have done in this area and the latest [indiscernible] from Covergirl in the U.S., where we moved from number six a year ago to number three in terms of [indiscernible] on the very competitive U.S. market, same thing, by the way, on Rimmel in U.K., where we moved from nowhere to number four last month, this explains a lot why we are over-performing, because as you can imagine, the bigger visibility of the brand online translates instantly into bigger sales online, as simple as this. This is what explains the consumer beauty division, I would say, over-performance.
We are implementing this playbook into prestige too. This is also an area where we are using the experiences we are doing with consumer beauty to drive the penetration and the different launches. [indiscernible] this was one of the first launches that really used powerfully the power of fragrance influencers, and you see it in the results and in the very, very quick build-up of the performance, and we are doing more or less the same thing today with Daisy Wild. As you know, Marc Jacobs is the king of social media, so Daisy Wild will be for sure a key performer in this channel. Same thing with Cosmic Kylie Jenner – as you can imagine with a name that has more than 400 million followers online, you can imagine that the sales online are going to be very, very big. This is what extends the performance.
Are we going to explore opportunities with key retailers? The answer is yes. This is really driven by this grand strategy that we are, of course, doing a great job with them. We continue to do this great job and see which brands can sit with these retailers.
Operator
Thank you. We’ll take our next question from Rob Ottenstein with Evercore. Please go ahead.
Rob Ottenstein
Thank you very much. You kind of touched on some of this throughout the call, but it’s important, so maybe just kind of go through some of these again. In terms of the fragrance market acceleration, how much of that has to do with travel retail? That’s kind of question number one.
Question number two is–and again, I know you just sort of touched on it, but I’d love to get a chance for you to elaborate more, there is increased competition in the fragrance area, but you guys continue to do incredibly well. You know, Burberry has been a home run, now you’re number one with the Marc Jacobs Daisy, number two with Kylie Cosmic – you mentioned some of the stuff around that, but maybe if you could just unpack your competitive advantages in the fragrance market versus the competition that allows you to continually do better than everybody else. Then just finally, maybe talk a little bit about the timing on Etro and Marni. Thank you.
Sue Nabi
Yes, good morning Robert. Thank you for your questions.
First part, which is around how much is travel retail, how much is the rest, I would say that at the end of the day, it’s really a performance that’s based on core U.S. and Europe, mainly. The core is really U.S. and Europe, which are booming, and on top is travel retail, so travel retail is not specifically over-driving this performance but it comes on top, and indeed you are totally right to call out travel retail, which represents now 9% of the company net revenue, coming from 8% just a year and a half ago, so it’s a channel where we are over-performing on the fragrance business but also–on color cosmetics, but also on skin care.
Now when it comes to why we are doing good in a way in this very competitive market, I believe it’s a mix of, first of all, finding ways to create ways of working, ways of creating what we call blockbuster fragrances that use data, that use understanding of consumers, that use ability to create uses that resonate globally but also locally, ability to create advertising that’s going to stand out from the crowd, and making sure this is not depending on individuals. Traditionally, what happens in brands is that sometimes, from time to time you have one or several individuals who understand the brand very well and take it to a new height. This is of course always happening, but what we try to do is to be independent from this and make sure the organization is done in a way that it will, whoever are the people leading the brands, without again underestimating the power of individuals, which is super super important, but still it has to be both elements, and this is something we’ve been doing for the last few years, finding ways to understand what is going to resonate.
There is also a portion of, I would say, ability to say this is going to be the big launch of the company. This is something that is intentionality–intentionality is very important but it’s based, of course on data, it’s based on what your hear, what you see, how consumers are talking about our products when they test them, etc., so it’s a mix of organizational capabilities but also ability to be intentional and to be ambitious. Last but not least, it’s also a question more and more of technology. You’ve heard how much Infiniment Coty Paris, the latest launch of the company, uses for the first time the power of technology to have increased longevity for the fragrances. Each and every fragrance of this line last for 30 hours at minimum, and this is industry, this is science, this is technology coupled with art and artistry and understanding of consumers.
Last part of your question, which is around Etro and Marni, Marni–Etro, sorry, has already a fragrance line, so we are integrating this fragrance line into [indiscernible] ecosystem, if I may say, and as soon as this integration and registrations are done, this existing fragrance line will instantly be launched all around the world, which will give a base to the brand in terms of net revenues, and of course in parallel, we are working, we are creating the, I would say the upcoming fragrances that represent the brand equity.
Marni, same thing – there isn’t a business that is existing today, but we started to work almost at the moment we made the announcement a few months ago, and we believe that in the next two years, we can see new things arriving from this business.
Operator
Thank you. We’ll take our next question from Korinne Wolfmeyer with Piper Sandler. Please go ahead.
Korinne Wolfmeyer
Hey, good morning. Thanks for taking the questions, and congrats on the quarter.
I’d like to touch on, first, what you’re seeing in the Middle East and if there is any headwinds you’re baking into guidance, and if there’s any change in trends that you’re seeing there. Then as we think about these new partnerships coming on and then the one announced this morning, how should we be thinking about the contribution of these to the longer term growth algo? Thank you.
Sue Nabi
So the new partnership and then on–okay. When it comes to the first part of your question, again this region, the Middle East accounts for mid single digit percentage of our revenues, and it’s fairly broad-based, so this is the first thing. At present, we are not seeing a change in the business; in fact, I have to say that we are seeing even strong momentum in the Middle East which is driven mainly by our prestige fragrances, so this is what we are seeing today in the Middle East, nothing that would be materially impacting our business over there.
Now when it comes to the new licenses, the idea is really to build businesses that are complementary to the current businesses of the company. These licenses have been chosen and chose us also because they are incremental to our portfolio, they are bringing new visions, they are bringing new ways to talk to consumers, and these are the main reasons why we end up working together – it’s because we believe new brands can bring new audiences. In the case of Marni, it’s obvious; in the case of Etro, it’s also obvious. If you think about the extension of Marc Jacobs license to color cosmetics, it’s also very obvious what a brand like Marc Jacobs can bring to the color cosmetics portfolio of a company like Coty with this kind of indie-meets-couture brand, which is a very unique position in the market.
That’s the way we see it. It’s really all about bringing additionality, targeting new audiences that increase the reach of the company over time.
Operator
Thank you. We will take our next question from Andrea Teixeira with JP Morgan. Please go ahead.
Shovana Chaudry
Hi, this is Shovana Chaudry [ph] on behalf of Andrea. I wanted to ask you for more color on consumption versus shipments, and more specifically, if you could please confirm if the now mid single digit headwind from restocking in the base period that is expected in the fiscal fourth quarter, it seems it is not–if it’s similar to fiscal third quarter, because when you gave the guidance for second half last quarter, the hit was expected to be low to mid single digits, but now it’s been raised to mid single digits.
Also, I wanted to ask you about your LFO growth of 6% in consumer beauty. Did you see some pull forward of inventory building in this segment that could have put a little bit of pressure on fiscal fourth quarter? Thank you.
Laurent Mercier
Hello, good morning. First of all, consumption and shipments are fully aligned, okay, so it’s really that we are making sure that there is strong correlation between sell-out and sell-in, and indeed we are making sure that there is no inventory building at the retailers’ level, so this is a very healthy equation, so now about a mid single digit headwind in Q4. We shared several times and we shared very clearly in the last earnings that indeed there will be a rebalance Q3 and Q4, and in fact the headwind in Q3 was very minimal, but then it means a headwind is definitely located in Q4 and this is mid single digit in Q4.
But again, Sue explained during the earnings call, this is really purely base effect from shipments done last year, which was really service-level recovery, and also the pace of great innovations, so this is definitely not change versus what we shared. Indeed as we explained, it was low single digits, mid single digits in H2, and this is again what we have been saying for many months.
Operator
Thank you. We will take our next question from Olivia Tong with Raymond James. Please go ahead.
Olivia Tong
Great, thanks. Good morning. My question is primarily around the mix between prestige versus mass – you know, obviously given the strength in prestige, your mix has shifted to about 60/40 prestige from 50/50 pre-pandemic, so this has clearly helped you drive pricing on top of the volume growth that you’ve gained nicely, obviously nicely on target to get to your mid-60s gross margin target as well, so how has that changed your management of the overall business? How much further can you go in terms of gross margin, and what are you embedding in terms of a volume-price mix going forward as you continue to push the premiumization? Thank you.
Laurent Mercier
Yes, so indeed–I mean, mix, prestige weight has increased, but definitely what you can see is that although our gross margins are significantly improved over the last four years, so remember that we were at a level which was below 60% of gross margin, and now we are reaching this level of 65%, and I want to be very clear that the gross margin expansion is coming from both divisions, so this is really all the actions that we put in place, productivity, and we shared many examples of our productivity initiatives that we put in place on standardization, platforming, and these brought definitely significant savings in gross margin, so that’s number one.
Number two is the pricing – definitely we implemented really some very targeted price increases on both divisions, and you see the result in this Q3 with 190 basis point gross margin expansion, so this is what we did again on both divisions. Last but not least is definitely on mix management, same work, same playbook on both divisions, so it’s really–and you know on prestige, all the work done, but now we are [indiscernible] eau de parfum, we are–the niche category is booming, and this is of course gross margin accretive. But we have also in consumer beauty that all the new initiatives that we are launching in color cosmetic are strong and gross margin accretive, sometimes even at the level of prestige, and also the new categories that we are pushing, such as mass fragrance and so on, have a very strong gross margin. Again, really keep in mind that this gross margin expansion is really coming from a strong improvement on both divisions. It’s not a division mix effect, this is pretty minor.
So now looking ahead, and you see again the results of this year on the fiscal year-to-date, you see our volumes are low single digit, price is high single digit and mix is low single digit, so definitely we are making sure in our algorithm that we keep this good balance between volume, mix and also pricing. Definitely pricing impact is going to lower because we will not be at the same level of price increase as we did the last two years, but I want to be clear that it will be really well balanced between these three items. Again, what Sue has explained is give you concrete examples that volumes–I mean, all the work we are doing on new initiatives, the growth engine market so will really bring volumes. Mix is again the continuous work we are doing on both divisions, and pricing, we will continue pricing in a very targeted manner – again, we are very well equipped, so again very balanced between these three items in terms of top line growth and continued gross margin expansion in both divisions.
Operator
Thank you. We’ll take our next question from Chris Carey with Wells Fargo Securities. Please go ahead.
Chris Carey
Hi everyone. Thank you for the question. One follow-up on consumer beauty, and then more of a global strategic question.
On consumer beauty, I think ecommerce was up over 30%, and really was quite strong in the quarter. It does imply, I think, that the brick and mortar business was weak. Can you just contextualize how important U.S. brick and mortar is for the overall organization, the underlying trends that you’re seeing in that business, and perhaps a bit of your sequential outlook from here, specifically for U.S. brick and mortar?
Then Sue, just a bit more globally, the prestige market is driven by balanced growth, but Asia and travel retail are actually exceeding what we’re seeing in Americas and EMEA, which were also solid but certainly higher growth. You’re so thoughtful about the sustainability of growth and the durability of growth. Are you seeing anything in these markets that might give you a little bit of pause about whether they’re perhaps growing faster in areas that don’t seem to give you multi-year returns, as we’ve seen with some of your peers? Just the concept of responsible growth globally and whether you’re seeing any hotspots in Asia and travel retail that might give you some pause as far as your longer term objectives. Thanks.
Sue Nabi
Yes, thank you for the question, Chris. Indeed ecomm was a top performer for the consumer beauty division, and you’re right – the brick and mortar performance was not as high as the one from ecomm, but in a way–another way to say it is that among, I would say, big players among what we call historical brands, and the U.S. market, Covergirl, if we think about this brand, is the one that’s resisting the best, including in brick and mortar. We are in the middle of a transformation of this brand as you know it. We are doing the, I would say, fastest part of the market, which is the online reinvention, with new brand equity, and Covergirl is still the number one brand equity in terms of score in the U.S. – great innovation supported by advocacy marketing, all this translating into a huge increase in terms of penetration online. But we are also taking care of our stores and we are working hand-in-hand with our key partners to reinvent what the shopping experience in brick and mortar could be for a color cosmetics brand, and there are beautiful things that I see in the work, so hopefully this will help us to also make sure that both sides of the story are performing equally and well for both sides.
This is to answer your question about the brick and mortar versus the ecomm for the consumer beauty division. Now, when it comes to prestige, I have to say that the net revenues that we got for prestige in the EMEA region are very good, double digit growth during the quarter. The U.S. market remains very, very strong, so again it’s very balanced, and it’s not tied to one region or another region. But again, the best way to be ready for whatever can happen and could happen is that you multiply the number of growth engines, be it in terms of categories or in terms of regions.
If I start with regions, we were just a week ago visiting the Southeast Asian region – we were in Vietnam, we were in Thailand and China, and many other countries, and these are markets where the fragrance penetration is also increasing. People are more and more looking for fragrances specifically on both sides of the market, be it very accessible price tiers or very high end price tiers, and these are markets where the company is growing two times faster than the rest of the portfolio, the rest of the regions, so we are in a way preparing for the next growth engines.
But also in terms of categories, color cosmetics is accelerating like never before in the prestige division, mid-teens growth, and skin care, I didn’t the question for once but I can answer it even if no one has asked, but skin care is accelerating. It’s been a year in test-learn-correct, test-learn-correct, and now the brand equities of each of the three brands are quite clear, they are performing, and skin care is increasing by double digits inside the company, some brands are–the smallest are even triple digits. So we are preparing for the future and we are preparing in terms of categories, in terms of regions and using the power of both divisions. That’s the way I would answer your question about maybe growth coming from here and there – it’s now the reality.
Operator
Thank you. We’ll take our next question from Ashley Helgans with Jefferies. Please go ahead.
Ashley Helgans
Hey, good morning. Congrats on the nice quarter.
We wanted to ask about the current promotional environment, and then just anything you can tell us about your expectations on promos as we head into holiday, especially here in the U.S. Thanks.
Sue Nabi
We are not seeing any major change definitely in terms of promotional environment. As we just explained, definitely we are going through some adjustments, the market is going through an adjustment following some significant price increase which was done over the last few years. But definitely the last results we are seeing is really slight recovery of the market, and again our brands are really–namely Covergirl, is gaining market share omnichannel, I mean across brick and mortar and ecommerce, so it is really performing really well.
It’s really–the way also we do it is really through premium innovation, in fact, so this is what matters, and this is also coming with high quality products, and the launch of Simply Ageless Essence is a great success and it’s a premium product, so you see that really coming with high quality product is giving really some [indiscernible], and it’s not about increasing promotions. Again, we are making sure that within Coty, we are not playing that game.
Operator
Thank you. We’ll take our next question from Lauren Lieberman with Barclays. Please go ahead.
Lauren Lieberman
Great, thanks. Good morning. Sue, you’ve offered a lot of perspective this morning, and so I may have lost a bit in the details, but I was just wondering if you could comment on why you think there’s been a slowing in U.S. mass cosmetics, just kind of getting behind the why, not the fact that it’s happened but why; and then also why it may or may not impact other categories – you know, where are the consumers spending, are they allocating differently, are their pantries too full of stuff?
Then with that backdrop on category growth, just curious when we look–you called out in your slides last night the expected acceleration into the first half of next year. I know you’ve got easier comparisons, obviously, but just curious if that’s an expectation to be sort of on the algorithm growth as we get into Q1 and the comps start to ease. Thanks.
Sue Nabi
Good morning Lauren. Again, let me start with the last part of your question, which is around the acceleration in the first half. I have to correct something now, which is it’s not easy comparatives at all. This Q1 of last year was double digit growth, high teens, mid teens if I’m not wrong in the prestige division. This was the biggest quarter ever at Coty, it was the launch of Burberry Goddess, the launch of the fragrance under Hugo Boss, the launch of fragrances under Gucci. All the brands were doing launches at that time, so you cannot say that we are getting into easy comparatives – I would love to, but it’s not the case, so that’s an important point to correct before answering your question.
Let me now maybe move to the first part of your question, and I’m sorry, I’m going to give you even more details, so be ready. But when it comes to the U.S. weaker performance when it comes to color cosmetics, we believe there are a few things at play. Number one, pricing, as you can imagine, was a contributor to the higher growth of the category in the last couple of years, and now the pricing benefit by definition is moderating by several percentage points. Number two, the mass cosmetics consumption in the U.S. was growing, here again like on fragrances, above historical levels in the last years, and we are seeing now some easing in these dynamics since consumers are stocked on some products.
Related to that element of stocked up at home coupled with economic pressure, particularly on lower incomes, there has been some decline in cosmetic household penetration across age groups – this we see, but at the same time, and this is very important, younger consumers are changing the dynamics of the market, including number one, shifting to new channels which are not captured by Nielsen, such as [indiscernible], Amazon, dollar stores.
Number two, shifting to new ways and new consumption when it comes to color cosmetics – I’m thinking about primers, I’m thinking about concealers, I’m thinking about highlighters, [indiscernible], and this comes at the expense of traditional products like foundations and mascaras, which used to be the queen categories.
Number three, these consumers are even trading up, and we see them trading up to masstige brands and to masstige channels because they are looking for what we call cool beauty, trending beauty, etc., and this has been seen in fact that prestige color cosmetics is benefiting from this, that would explain the [indiscernible].
The good news for a company like Coty is that we are really adjusting, actively adjusting and keeping with these changing consumer behaviors. Number one, as you’ve seen it with the performance of consumer beauty, we are doubling down on ecomm, particularly Amazon, where our brands – I’m thinking about Covergirl, I’m thinking about Sally Hansen – are growing by close to 30%, three-zero, in the last quarter. Number two, we are picking up distribution in growing channels – I’m thinking about channels like Dollar General or [indiscernible]. We are also reallocating media on one hand with our advocacy to drive penetration with younger consumers, but – and this is a very important but – we are also keeping the right level of media to continue to feed the consumption of consumers above 30 years old, because they are a big part of the market.
Number four, we are also, you’ve seen it, launching products that are more and more disruptive, distinct, made to viralize on social media. We are amplifying the cool factor of our brands, so at the end of the day, it’s important to note that all these other trends as cosmetics demand in other parts of the world remain very solid, including strong category growth in Germany, in U.K., Poland and Brazil, so the American market will go in the same direction.
In sum, this again reinforces the ability of the company in terms of multi-channel, multi-category, international portfolio, to be in a way a good differentiator and a point of strength versus competition.
Operator
Thank you. We’ll take our next question from Linda Bolton Weiser with DA Davidson. Please go ahead.
Linda Bolton Weiser
Yes, hi. I was wondering if you could comment, first on fragrance. You called out different things that are really drivers, like Goddess, but I was curious about Gucci and Hugo Boss. You didn’t really call those out, so are there plans in the upcoming quarters there, and maybe you could comment on how with Hugo Boss, just in general, how men’s fragrance is doing.
Then secondly on Lancaster, I was curious, what does it take to see before you kind of expand it beyond Asia in terms of making it a broader global anti-aging skin care brand? Thanks.
Sue Nabi
Yes, good morning Linda, thank you for the question. Let me start with Lancaster. Indeed the brand is not an Asian brand, the brand is mainly a European brand. Lancaster is the number one photo-aging or sun care brand in Europe in prestige channels, and this is something that is important to remind everyone, so it’s a big business in Europe. It’s one of the fastest growing sun protection brands in Europe, and we took the brand to China mainly to see how we can confront this super, very competitive market.
You’ve seen Lancaster acting now on two legs, Asia on one side and Europe on the other side, on both categories, be it photo protection or skin care, so the brand will be double-sided, photo aging and photo repair, which is skin care and UV protection, but also two legs, one European leg and one Chinese-slash-Asian leg. That hopefully answers your question, and this is going to happen in the calendar year that we are in this year.
Now when it comes to the fragrance part, you were talking about entry prestige fragrance brands. I can tell you that a brand like [indiscernible] is booming in the portfolio of Coty simply because this brand is a quality brand, at the same time much more affordable than many other brands, and this part of the market is doing well. Hugo Boss is also doing well – again, it’s part of our top seven brands that have been growing double digits until the end of last year, and we see also all these brands accelerating more and more inside the portfolio.
Are there plans there? Of course there are plans – I’m not going to reveal whatever is going to happen in the fall because of competitors listening to us, but this part is very important as a growth driver of the company. In men’s fragrances indeed Hugo Boss is a huge leader specifically in countries like France. I have to tell you that the over-performance of Burberry, Chloé and Hugo Boss in a country like France explains that Coty is one of the only two companies that are gaining market share on the very competitive French market during the last quarter.
Operator
Thank you. We will take our final question from Mark Astrachan with Stifel. Please go ahead.
Mark Astrachan
Yes, thanks, and hi everyone. A question on fragrance, I guess maybe more specifically on the prestige side. Wanted to ask how to think about the category broken out between designer brands, which is sort of the bulk of your portfolio, the prestige beauty brands that also have fragrance extensions, and those that are more or less pure play ultra-prestige fragrance brands, where I feel like you’re gaining obviously a lot of share relative to some others. Is it that some of those other segments are decelerating, the designers are accelerating? What’s driving that?
Sue Nabi
Yes, that’s a good question. You perfectly described the three parts of the market – fragrance coming from beauty brands, fragrances coming from designer brands, including what we call collections, which is the high end of designer brands, and a few players of the niche. The part that’s doing the best, the one that’s accelerating is indeed pure player, so it’s really fragrance brands that are not tied to fashion companies or to beauty companies, more or less. It’s really pure players – you know some of them, I’m not going to quote our competitors, but Infiniment Coty Paris is exactly this, it’s a pure player, it’s not tied to a fashion brand and it’s not either coming from a beauty name, if I may call it like this.
This is the fastest growing part of the market, and this is even representing in some regions like China, almost a third, it’s not 40% of the market. We believe this is going to be the fastest growing part of the market for the next decade, and this is where more and more consumers are shopping.
Then you have designer brands with fragrance successes, such as Burberry Goddess or Daisy Wild, or Kylie Cosmic that we launched recently. Some of these brands have collections which is a small portion of the business, still the fastest growing part but growing less than pure players, and indeed the part that we see not growing anymore, at least the last time I looked at this, it was not the part that was growing, and it’s, I would say, more than a decade of trend, is beauty brands doing fragrances, which is really in a way shrinking year after year and over the last decade. That’s the way I would describe this fragrance market.
For us, we have a fantastic opportunity, as you can imagine, on niche pure players. This is an area where we are working very hard, and Infiniment Coty Paris is clearly one of the best that we’re doing in this area. We are of course double betting on designer brands – the recent successes we’ve been posting are really a great testament to how much this category is something we understand well and in which we are going to compete more and more, but also collections. Chloé [indiscernible] is one of the fastest growing collections among the portfolio of the company, but also Hugo Boss [indiscernible], which was launched a year ago with a more masculine audience, this one is also doing very, very well, so that’s more or less the way I would answer your question.
Operator
There are no further questions at this time. I’ll turn the call to the speakers for closing remarks.
Sue Nabi
Thank you very much everyone. I think this is another [indiscernible] results that are above expectations since [indiscernible] almost four years, so we are super, super happy, super proud, and we are going to continue to create the most innovative, the most exciting, the most–the trendiest things that consumers are not expecting, because this is the way the beauty industry works, and see you in August for the Q4 earnings. Thanks to everyone.
Operator
Thank you. This does conclude today’s program. Thank you for your participation. You may disconnect at any time.
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