Coty’s 'strong sell-out' fragrances offset lower demand in Asia

Coty, the owner of Rimmel London and Kylie Cosmetics, announced its revenues flatlined during the first half ending 31 December 2024.

The company saw revenues decrease by 1% year-on-year. Like-for-like net revenue grew 2%, compared to 14% growth the year prior. Growth was supported by prestige and mass fragrances, which accounted for 60% of its revenues, as well as mass skincare, partially offset by declines in cosmetics and bodycare.

The prestige division, which includes brands such as Burberry, Kylie Cosmetics and Chloé, saw net revenue rise 2% on a reported basis. On a LFL basis, net revenue grew 4% in the first half, compared to 18% growth the prior year. The division was supported by "solid" growth in the fragrance category, partially offset by lower cosmetics sales largely as a result of headwinds in Asia.

The consumer beauty division, which includes brands such as Rimmel London and Max Factor, reported net revenues declined by 6% on a reported basis, impacted by lower demand for bodycare and colour cosmetics. However, fragrance and skincare saved the day.

Revenues by geography:

• EMEA net revenue increased by 4% on a reported basis and a 5% on a LFL basis.
• Americas net revenue decreased by 5% on a reported basis but grew by 1% on a LFL basis.
• Asia Pacific net revenue decreased by 8% on a reported and LFL basis.

Despite its flatlining revenues, Coty said it delivered "very strong gross margin expansion both in the first half and second quarter". Adjusted gross margin was 66.1%. The business generated an operating income of £409 million ($506 million), up 17% year-on-year, and a reported net income of £80.8 million ($100 million), down from £142.2 million ($175.9 million) the year prior. Adjusted EBITDA was up by 3% to £607 million ($750.8 million).

Looking ahead, the beauty market continues to grow at a healthy pace. However, "given the complex retail environment", Coty expects LFL sales trends in the second half to be down by 1-2%. The cosmetics company has planned several key brand initiatives and distribution opportunities for FY26 to support improvement.

Sue Nabi, Coty's CEO, said: "As we are now midway through our fiscal year, it is clear that FY25 is shaping up to be a pivotal year.

"On the one hand, the global beauty market continues to grow at a healthy pace, even if growth has moderated off of the elevated levels of the last few years, which benefited from more material pricing increases. And in this backdrop, fragrances of all price points continue to outperform most other beauty categories, which strongly benefits Coty’s business as fragrances account for over 60% of our revenues and an even bigger portion of our profits.

"On the other hand, the pressure in pockets of our business which we discussed at length on the last earnings call, namely in China, Travel Retail Asia, Australia and in Consumer Beauty U.S., impacted us even more significantly in Q2.

"The beauty market has changed significantly since we first laid out our strategy and ambitions over 3 years ago. From a category perspective, fragrances have accelerated significantly supported by structural consumer behaviour shifts, while colour cosmetics are challenged by evolving channel preferences and new business models. At a market level, China is no longer a key short-term growth driver for beauty, while the U.S. market remains very dynamic. With this backdrop, FY25 is shaping up to be a pivotal year for Coty, as we evaluate our operations to fuel Coty's long-term success.

"The power of our brands and the strength of our teams, together with our leading innovation and commercialization capabilities, have underpinned our strong strategic and financial progress over the past four years and will support our growth in the years to come."