COTY - Earnings call transcript Q4 2018

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Operator

Good morning, ladies and gentlemen. My name is Candice and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's Fiscal Fourth Quarter and 2018 Full-Year Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

conference being this August today, reminder, XXst. a call recorded is Tuesday, As

cause SEC today Chief Chief the filed Camillo press may Patrice for net current the as forward-looking Christina remind are results basis On the statements. calls contain and joined than the revenue company recently period, organic that comparison Head list excluding Pane, Please factors commentary the joining currency call the I Executive constant Beauty and All Coty Coty differ President, that net those Frank, who Also de P&G Vice with release could Executive P&G of and from of Officer. Global the many year refer business. to combined Financial the legacy Investor is reflect acquisitions Talhouet, divestitures business and the like in Relations. Coty's impact and forward-looking reports at acquisition the the actual the of of to on would materially on you revenue to comments statements. today Officer; and other prior and a of Beauty

where certain financial our results our discussion the our expectations the and release. earnings reflect except of measures addition, adjustments In in noted, specified of as financial non-GAAP section

Pane. earnings the can the turn the I'll release. in to in find bridge tables now Mr. You call from GAAP results to reconciliation non-GAAP the over

Camillo Pane

and everybody our to we progress XXXX integration as and continued fiscal for welcome call. good business was and ambitious the you, Thank of conference overall with stabilized agenda. fourth year Candice, Coty's XXXX quarter a full-year Coty

forward. great I half brands, and philosophy the like recent Bloom had of healthy and to in modest have remind The a about share with Love. will but this our adjusted in the the remains retail. going Gucci We're done, growth an Nevertheless, Marc fired on very We all innovation framework a and by performance guide you much second excited year. Daisy operating Chloe Luxury all fueled the by and Tiffany be strategic the travel that improvement and margin to Calvin strong like-for-like launch our organic was Nomade launches, revenue XXXX China would not the as Klein also target opportunity gains excellent the just with growth of and use ALMEA, results, The us cylinders growth, call in in of delivered and growth and fiscal model by Jacob's the and of with to America. review division division performances year Latin in in particularly terrific regions and strength the driven and X% earnings

of activity inventory as was center continues of category disruption, the supply American continued to region by our recent was was strength despite fueled very warehouses. markets, key with consolidation brands our the the North and Beauty our while decline trucker rate the by regions, with normalize North one our vibe. and driven ALMEA Burberry the was strike. performance more declines due markets. XX% confident negative in fiscal competitive share of you OPI, months by single a the are in mid-to-high revenue Europe customer pricing, year launching the by end XXXX, portfolio in regions to than price fiscal will chain in acquisition to after digit and will revenues pleased and to portfolio inventories, progress the unsatisfied stronger ALMEA offset XXXX. year a of remain QX license, As this on the the fiscal beauty launch. the remain high-single Color GelColor, mass single improvement year very centered declined the by a Consumer Beauty WellaPlex in in and this we the momentum and key Brazil, double on a the my Beauty Wella low half emerging including show growth from like strong second this continues progress made gains added backdrop significant be well brands' date the most In even an America on in-house. of following Wella OPI we Consumer XXXX of fragrance for aiming Less Professional future. about our at and in I in industry stable, performance of are double-digit the XXXX Consumer And due current the to with and the division, We've London and in The bringing know, had is to Burberry digit Fiscal brand-new also was Luxury growing one we of Burberry X.X%, strong while declined basis, digits the growth intervention a continuing to aggressive strong growth distribution division these than XXXX. X% disruption like-for-like Brazil with priorities. against solid Beauty growth fiscal very XXXX nine as in of the net region like-for-like increases. and Overall, Her, the the with planning

to future. Now turn let's the

growth in release, digits medium-term fully are We operating This believe even of over divisions cost the years. top growth. adjusted a press our ongoing in role five returning our to next that delivering and we’re us revenue our cost underpins growth margin and now remaining achieving of a helping described like-for-like line focused play each business this unique after to synergies profit on the margin synergies our combined the on target level reducing enhancing As by growth. high-teens deliver the delivered, net of low-single with operating focus profit structure

and In Wella's development Professional strong our expansion, while capabilities, color expansion, Beauty, ongoing on position. division of potential look by we look further its backdrop, XXXX we above and to geographic achieve line leading skincare improve to important offerings. medium-term fiscal Against Consumer Specifically, ghd, we by line the maximizing growth innovation fueled and market to to ambitions. for sustain cosmetics right standardize Prestige we OPI detail bottom Beauty, untapped into view accelerate get top shortly. an and as In will step our our our Luxury top the the this market of and direction I aim the capitalizing in

continued operating XXXX, of fiscal and $X.XX adjusted we're deliver in growth framework would margin of fiscal in drive performance, basis strong top drivers towards Luxury like-for-like are of net and XXXX, XXX target targeting that details targets the will the and with and of his believe flat modest our income EPS Beauty. Consumer outline more progress delivery cost Beauty, adjusted $X.XX. line the in and which We Professional achieve to will synergies growth the combined now over operating synergies, strategic For I stabilization to the of in expansion, our discuss revenue growth target announced to well key points section. Patrice mid-teens will profit these

brands the all innovation much distinct the is harder, focused It to expansion in focusing driving equally on on which execution digital drive on matter divisions. for which are and emerging pillars, three ALMEA have four and on growth in-store markets. strategy transformation relevant all includes potential, on rapid Our

iconic such in to in the COVERGIRL, and Clairol, Beauty, and point, drive we longevity brands, potential Gucci, our will in first Luxury. of continue as the Wella and Wella, Professional Consumer Calvin Boss Klein, On Professionals Burberry Beauty, global Rimmel Hugo

in believe have that we we Tiffany Veneta will brands Consumer on Beauty, Professional in Marc Younique and Bourjois, high and Chloe, driving ghd focus Jacobs in addition, OPI Luxury. and In including potential, growth Botegga Beauty,

investment has our our this is to enabled to We coupled that them outperform target pleased these say brands further behind strength to are this of and the enhance group outperformance. with disproportionate

with number improve improved and Beauty and third-parties our like innovation are can in-store Philosophy, countries our strategy. have where our highly And flagship a and examples priority. with innovation, Key DNA with brand progress to the on will partnership consumers is of shorten stores our execution connect the key China, time We a launch especially Bourjois, localization Gucci and in to to products. pipeline market where for select continue brand of made

Younique. store the e-commerce to rejuvenate another our to core equally that confirm Alongside our business, focused making plans goals. I'm net towards approximately we're accounted our is the we're U.S. revenues, our COVERGIRL on XX% improved progress example. year great of recently Our XXXX, our in including pleased fiscal digital of execution total transformation and In for

which e-commerce the is three this which driven in entirely more e-commerce than market an Younique, focus strong ahead divisions. business, pleased all year-over-year. are has that I'm revenue net well very XX% e-commerce fueled Excluding change of across results, grew

to acquisition, over talent content to data capabilities, and product disproportionately make contribution creation in invest expect Coty's We and time. to channel, will growing an management rate this growth further including e-commerce increasing systems, in-house and continue

for the for for of so that is key a most area a in our mentioned the work me divisions potential one I Brazil, we're focus to moment which opportunity let in all momentum fuel Finally, ALMEA. across doing China, areas is of important us. growth already amplifying

an market Our China double-digit going in earnings all presence Fiscal is to in and believe reinforces our in increasing contributor. our growth clear the and confidence right three we China. in we ALMEA's XXXX across ALMEA brands for growth us divisions ability be will gave our iconic XXXX have win fiscal small forward this today, but role model

Within the be Western We channels. continue talk North the to our in recognize contest stabilizing of due objective let declines America Consumer me traditional achieve medium-term of about how to Europe and mass Beauty. to retail going framework, this pressure we're under will that

Our neutralize in the importantly, region, aggressive and channels, our most growth to markets this businesses. driving new these down new share new improving from target headwinds performance is road and by to by

and like growth next the Middle channels as Mexico, growing believe expanding and rapidly improving on Expanding as in ALMEA our e-commerce in a revenue and accounts performance Younique low improvement teens few and in percentage provide increasing East we've to like continue underlying of America sales, consumption contributions. trends. markets well will Clairol. Brazil, total China, on share for we North disproportionate we Western years, relaunches and brand Over and brands build COVERGIRL Beauty seen and COVERGIRL the Consumer net the of Europe, will

and on on shelves with and driving consumption retailer making productivity assortment. on we're improving is focus progress productivity innovation partners, our good through better optimize Our

in prioritize space disruptions, chain tied see fiscal three risk well To performance. shelf However, we're our continuing to key to historical these as challenges, supply both as affect XXXX, our areas. we to

innovation focuses which franchises. our on pipeline First, core

first of top media cosmetic in digital US, the earned mindset, has terms into the our brought value. brands Second, in COVERGIRL which XX Difficulty] [Technical color

Operator

Speakers, Instructions] may [Operator resume. you

Camillo Pane

we I the inconvenience. had for lost the I'll from technical Apologies where believe resume connection. that

our digital three these about in offset we're innovation Square core such with to So, media continuing into the our mindset, To our of on color U.S. introducing challenges, top second, has first I terms pipeline first, was cosmetic COVERGIRL. focus talking the areas: the new ways prioritize which ten franchises; which COVERGIRL brought for flagship as to plan brands Time brand, in earned third, and value; key store. interact consumers

American North is brand European key Another Clairol.

helped in in U.S., we confidence, of with stronger Max moderate brands ALMEA, in extremely to the Bourjois. through the us the and Factor and time stronger Nice'N'Easy well household seeing the to In for Although the recently execution decline Wella, us is gives including consumers, would the on know focus accelerating improvements that in in our we're increase sellout innovation first the allow growth several trend. improve the the years, relaunch consumer penetration the UK resonate

a ALEMEA we which Consumer that of these brand, as substantial of into resonates of and the the the the The Wella overall beyond. hair segment. days in good on introducing which and of very joyful, proportion in and Middle and many hair hair Turkey. activity We of largest push had in JD.com. approach East Consumer it small to see revenues coloring very gain major On in in the positioning in while e-commerce, potential delivered Beauty significant Parisian allow Mexico for Bourjois in business, the social price including majority of several we're masstige us growth still in back fiscal has believe the this regions Wella consumers brand of share category the from retailers our and Bourjois brand well the XXXX division, further ALEMEA, Amazon, as China, Our such is coming is early countries, growth partnership Tmall opportunities color Beauty as market's retail and such color as over a in

While of and we're a work this do, become to we partner lot product growing of still channel. adapting processes actively have rapidly portfolio choice to in a our

attractive and margin growth basis. with differentiated a business a business Coty fiscal In to very a strong the profile. rapidly shows brings platform Younique Finally, expanding on full-year XXXX,

we biggest active a fair presented one challenging that QX say QX Younique’s quarters Younique XXXX. as was XXXX of lapped in one for it's to However, ever

to growth social market this We’re on coupled should net of pipeline. empowering now as revenue growth program the announcement well compensation and to innovation very strong trends selling women implementing our as partners presenter as fuel to strengthening further expansion the entrepreneurs. and with with the of as enable This loyalty, well-positioned new profit is platform capitalize contribution sustainable

me let to fiscal Now, turn upcoming back the year.

linear, Given chain to impact expected already constraints of income the significant drive a the low on quarters brand the tail both QX have XXXX QX bottom fiscal teens adjusted peak and to top program the constraint not in XXXX the across come decline that together and the rationalization line, of and I in with impact supply impact will is financial be with our performance our mentioned, supply in operating year-over-year. This smaller of will a XXXX. QX in chain

of target supply financial I XXXX disruption on quarter to the into fiscal fourth takes consideration. some elaborate priorities. key and will the chain about turn to over Patrice, Our to speak it now

Patrice de Talhouet

round you, start already of summary I to for everyone. quick Thank by a out morning our in you. QX operating has providing good Camillo Camillo, performance provided the will data and XXXX

topline we various XXXX pleased internal on end were better note While external fiscal headwinds. to a we strive results, and continue for good despite to

more in chain context about the but scale give X.X%. XX XXXX of changes implemented me by have little chain basis, last we revenues months. the QX the increased a the On supply supply has to Camillo already let like-for-like the spoken disruption,

and simplifying goal factories, our into of hubs, several planning delivering two countries. the centers processes six over we consolidated committed restructured third factory, With in agreements footprint chain and down synergies, TSA planning and consolidated distribution have our a three supply shut exited XX locations

XXXX. unprecedented the U.K. a XXXX, the in the end the up QX until of accomplished our results expect was Beauty largely our in but half first business centers of the also end U.S. our ramp time the XXXX disrupted, the XXXX Professional mostly of in of results, QX planning do the distribution transformation of disruption Nevertheless, related America. will have these this be over in Beauty level and XXXX one new with in QX impacting We and targets disruption fiscal integration that North no the hubs impacts record Consumer virtually of one consideration. and and of We by take into during consolidation

margin that, improved gross which at gross Inc. QX by versus Coty, Let freight points, chain me the the driven mention have level, supply supply the slightly issues, and margin Without the primarily disruption. basis XXXX higher chain our last cost was XX declined year. by would

mid-XXs In fourth FX in reduction is masked investments, with fixed quarter, this partially percentage which A&CP progress more to the margin to of trend. costs adjusted doubled $X.XX, total, the translation by with the a made reported income year-over-year Our point of total, we base, year The XX%. for of margin in impacts. although operating year-to-date EPS the in marked fairly the expansion good we than our the $X.XX. In our XXX is basis consistent of bringing quarter QX EPS adjusted

alone. complex the the our In our XXXX program. integration Let the go-to-market order, journey, step, It of Coty of with million synergies ship, and you me Coty integrated simplification scalability execution, important an will by including fiscal Coty allow our sell, million fully final the progress, and synergies of integration for the the significant to final XXXX, of told most the the integrated that the invoice in all our in way about potential, customers. program integration. expect step industry. shift achieved of and This company, in $XXX complete our continue Last beauty one make quarter, one increase integration brands able we the half first fiscal in will context $XXX this now represent a invoice shipment, an status to in to have we one will cost

end balance fiscal the We realization expect XXXX. of by achieve the a of to

million fiscal great the $XXX achieved driven we our Additionally, largely progress XXXX, respect through target to by $XXX working benefit of tables. end million capital with of

to expect X.X which billion are approximately approximately to expected cash. billion, incur cost continue of to be We one-off of X.X

previously and the fiscal $XXX now about would explain will as fiscal accrued of remain cost a in of years $X.XX the is we're approximately the As being our with $XXX we today. the billion, XXXX, million come of simplicity announcing savings have communicated the $XXX estimate next drive independently new CapEx incurred cash, investment XXXX, result digital I to flexibility P&G from we $XXX million. to have million, meant for integration e-commerce $XXX been paid million that One-time line million integration in run more fuel P&G $XXX those strategic our with like the and approximately and original cost P&L, as having million such be which program over still a in will able This this P&G charge program. the And integration. to to three remaining one-off to to and areas. we related the and is generate program, efforts in

a years $XXX result over expect reinvested transformation savings the three significant of million portion digital of to up deliver next as program our We gross in to agenda. a with this

incremental of flow. benefited approximately had the In to result over program this impact three investments, let and would down approximately and million, $XXX from and associated the fiscal to net operating me our cost we outlay. cash $XXX flow to of XXXX, provide with some fiscal expect XXXX, million related would between QX million In backdrop, outflows timing savings accruals remaining next cash this in cash million $XX XXXX, the these from fiscal years. we lag connection $XXX in expect million fiscal be cost one-time which a cash As Against XXXX over $XX the cash flows. totaled on color XXXX

best-in-class driven made working cash by receivables million. of year While negative were see capital working deterioration Free at and even key capital remains progress of ended the flow as payables. objective, to million, disappointed we $XX strong on approximately $XXX have inventory, a we

months of call. the we target year for from Talking total its integration the ratio Playboy earnings The regime. Cutex and of that increasing combined in Cerruti we into Beauty XXXX. rationalized business portfolio. XX have the sale of mentioned focus million. The the takes progressing the in X the have any Dion, $XX Now net brands, we on debt might P&G Since a Love set the of EBITDA [ph] and brands below calendar sale proceeds total and CLC recent of ex-P&G a that be our on years adjusted includes of last address the two X termination transaction, announcing their XX consider. the activity generation cash This Tim Gaga, M&A a including for towards by the Summer me will end, and Celine GUESS, M&A, JLo to target end is last Chopard, [ph], take Love, divestiture other of Berry, completion, of achieving Lady or account, moment Halle $XX expiration Esprit, million as our of brand we minor and let about McGraw. To

impact disposals portfolio and which fiscal to these mentioned, we the reflected is target. digit mid-single us business our to on previously EPS these a expect simplify rationalization XXXX EPS, annual already have in I As allow have

to of brand hand, to develop the other Luxury good purchase through a the a Escada million. opportunity additional XXXX, Escada our to the brand distribution. fragrance was innovation, start that consideration we us This the the EURXX business support for opportunity allows and right the total took license division for creating unconstrained On QX of at

one-off drivers Let as deleveraging organic from capital. benefit a networking cost walk important occur the to In decline well you expect our program. of In me from deleveraging now of as improvement profit in principally through of combination significant will fiscal a our cash plan. impact deleveraging most the XXXX, we our growth, XXXX, through

such billion Our I'm balance maturities the debt and we in remains and in took to to cover floating condition of XX-XX beginning years. to solidify our sheet market interest advantage the the portfolio X of over debt strong swap that we August, liquidity balance have our report good comfortable maturity ratio sheet further of of that medium-term. all pleased three we short approximately the rate to a next extending or maintain by fixed

reduce Looking rate the forward, ratio our would that we debt. expect to of value as we improve notional Difficulty] [Technical floating

Operator

Instructions] [Operator resume. may you Speakers

Patrice de Talhouet

sorry Hey the guys, for interruption.

will thoughts resign been and been for confident the finish strong I very its fulfilling saying, years, I'm has transformation I place, in strategy some very lead like from feel this that of I we share in I are So, topics to agenda. life. fulfil announcement you knowing Coty five with my morning's would been that now the business, the what incredibly been has proud a integrating about making having against a regarding I'm to comfortable have seen. time ultimately and My close the finally, of getting has assume of I feel professional decision to I mission. company all Coty team Therefore, the will we that critical was the have neglected that by After achieved such the here progress personal intense journey. and My Coty. our to commitment story. advocate and ex-P&G to fully completion remain

and As an a will mid-September Camillo thereafter. assist remain consequence, I CFO will will shares, my until transition hold Coty orderly onto with

Camillo Pane

you, Thank Patrice.

contender He in As our XX powerhouse, nearly status nearly beauty a as you several transformation for partner billion transactions. global has a years. current and newly me almost two M&A five tremendous complex been contributor beauty for years a Patrice all public know, a from to managed to finances valuable to during our Coty's including emerging Coty

journey. to have acquisition and the to allow now for largely I stage integration valid personal on the Beauty service of P&G foundation our us complete, his commitment. thank we With that the focus next Patrice

leadership plan been been has today, member CFO, a the helping his Patrice's ambitious and the With chapter. our next now integration to undertake next begin in I has in beauty Group in we an Coty important instrumental our him Patrice search most full for industry. wish team CFO. well of As announcement

Accounting look Coty's will Controller, this to Zafar, two Coty's as more Hertz smooth reasonably and a as Financial as transition. stepping to Corporation, September to Officer, pleased Soup into financial ensure Vice she XXXX. possible serve brings consumer Senior as years I for Campbell and advance Ayesha Bristol-Myers multinational soon We than years Group Ayesha as several will Company, Colgate-Palmolive the including XX been Principal a The operations goods President, Officer Ayesha in of Interim companies, financial including appoint and I'm for across experience role. responsible has successor, XX, announce pharmaceutical Chief accounting PepsiCo, Squibb, reporting, and thank Company. effective

Now back Q&A. to Candice for

Operator

Instructions] our of And Lauren question Thank comes you. first [Operator Lieberman from Barclays.

Your line is now open.

Lauren Lieberman

results. commentary good performance Great, talk the interesting around really about little the is in-market Brazil, more we bit I and because thank you, particularly a reported morning. could was hoping contrasting

a could So, the talk bit about you XXXX. little outlook for

So is performance drawdowns very the share – come have to inventory overall? retail, start and the where you're needed good so place XXXX will in-market on? saying a take is what done? that Thanks. in-market that to in see right Pricing we place, are year through to Is

Camillo Pane

Brazil. on happy be I'll expand to Lauren. Thanks,

continue complete, and negotiation the largely the the are mentioned with I had at the we among stocking of the terms Brazil, with growing we we pleased the actually half so resulting, for readjusting fiscal couple say our customers also consumer sort in has for continue resulting led gain, clearly, talking sellout our increase, of to across in in than groups. clearly continue that some As double are Brazil – – market Coty been in customers we of company is we is all XXXX. customers. most brand of a our growing so negotiation market strength in performance If space, are second and of fastest the share we we I'm also to the multinational and protracted the there which clearly are overall than call, to in price consumer multinationals, protract now to of see first that space see last the see pool gains gains of price the about more also last brands. the increase brands, of our the I also couple sellout This our a now accepted to quarters, shelf to the because our and look in on to

Operator

our Thank comes of question Robert you. Ottenstein from And next Evercore.

Your line is now open.

Robert Ottenstein

could what shelf you July looks a reorganization be forward of about announcement the go changes changes. of, group, into address thank kind – more very bit wondering on those space a you. on thought at behind And that like key going or On fairly brands. the Great, Xrd, in I'm there what you're U.S. then seeing also in you little focus least to fairly detail, leadership, a of talking more the the seem for was Thank of significant much. based explain, consumer an kind consumer including if you know today? the in the

Camillo Pane

Robert. Thank you for the question

the of within structure Beauty we Consumer market reorganization division. a announced So, the have

making having of also Beauty. CMOs consumers and agility, centricity, is a have the higher intention the decision There on have is we the company So, to the so three CMOs, or already for have to a the brought Consumer have now but straight while, The come board President. of directly proximity because faster which up with the have been to much President to Laurent, digital the been clearly report three person another three business. will given division, cosmetic of that And have we and of channel the have report raised then change importance to this the position so part the Beauty and we've so growing more CMOs the this color portfolio that equal care on. lead made body the or of split for to directly area less also rapidly Laurent, in Consumer from is that and hair color stronger

this So, to and all these division. progress and more with objective bringing the onboard great changes track in of record done, clearly a really continue becoming people agile have with been making

months, remarks in shelf question was chain shelf I the supply some North having in we mentioned you do the matter of couple that second more constraints my is conversation space. the headwinds because of also, Your the retailers could I in productivity you see imagine, complex. about shelves. last America. And This space made as all of looking in think we're that by driven at can it's bit the a with this the a has if imagine, the

seeing also the course Now, to is really fact net my the in continue partners we of more is in will are line the we've of fact, sales, U.S., the the which matter system remarks, is focused what to which KPI productivity in that what as from changed gross of our positive salesforce measure is we work productivity key I done on have. on this much by said that improvement And very COVERGIRL and a revenues, productivity. and we much volume clearly incentive more which KPIs moving for retailer with means that in

Robert Ottenstein

one-off shelf on is And purely of just in or with conversations the are there space, issue other based supply your the retailers, terms the concerns?

Camillo Pane

mix. a think I it's

end Patrice but first the over, we that in type and be I strongly suppliers XXXX. said, the QX the at on that at brought the half clearly of issues months, the think of to the is the of table last will of know definitely want supply of also different repeat believe I what conversation couple a majority you end which

productivity we warehouses level clearly right due that had investment. consolidation is temporary the of of the a the years to had the that – which brands point because planning point that is years The mentioned. having more productive a there Patrice from issue made about comes I the of center, indeed clearly unfortunately many many So,

the Now different. is situation

We We're stronger much are with the having pipeline. investing brand.

offset improvement half our decisions Patrice We also accept the in stabilization. one in consumer retailers we're to are sellout, revenues one. and as made towards we're and the on XXXX we seeing have to in that we headwinds. the we brands about mentioned brands, But innovation second to to Nevertheless, is and of the work are continue behind bringing invest this improvements continue confident the and this with continue the to net sellout XXXX, to that on strengths brands the the both of objectives pipeline very both the plan

Operator

Thank you. question of Alwy Deutsche And comes our Faiza from next Bank.

now is line open. Your

Faiza Alwy

morning. good thanks, Hi,

in So, I the Camillo brands. pick-up to investment wanted on

like you A&P and sort the last below So, about year around below to XX% the XX% in talked quarter in was and what historically, it looks spending of year sales. the the of

So, for And fiscal us also, specifically. as give for next on you what in year, are could quarter decline you about the we outlook for XXXX? some color your marketing embedding think the so spending year-over-year

Camillo Pane

can think that say which such in have media on I And for digital it's the resources ghd is over the some more new consolidated Look, fair and the more to for business Faiza. actually third over there lower we've level is Thanks, allocate of Clairol, our XXXX, now the a – We're spending have invest on you in-store of as point, and we're this XX%. the continuous the to in to basis. clearly course cost effort we're of effective now into all We terms and don't A&CP of media. more flow COVERGIRL digital focused investments, decline A&CP because into in some that also relaunches, it's than do our doing XX% as year-to-year reduces type of been line. ratio XXXX, imagine, investments have spend, traditional a we on media, of which brands brand naturally on typically

in I ratio XXXX. you've three fully, these would clearly, the decline seen think So, trends I the explain, that say in

expect future, for at on there percentage, remain decreases, investment we have or generally about but the room let's towards these continue I will we mid-XXs looking based to to this a money always think, brands consider the we not to Now, to, move I digital will would that because percentage, same increases across the get in really say, division, plans A&CP at will because time, and is we higher and support. obsessed media, the strategic

as fit. So, we will see this annual quarterly basis manage dynamic of on sort that is something we and a

Operator

And Wells from you. our Lachky question next Thank of Securities. Fargo comes Joe

is line now Your open.

Joe Lachky

the on in you you expect inventories, issue so free timing hoping expecting on guess, XXXX and why in flow you pressure cash free expectations. maybe free flow, billion relation an in roughly And expand the cash XXXX? cash then XXXX cash the HI, to so of flow of drivers level walk of in you're cash specifically Thanks. of $X – on far mentioned And forward ongoing synergy do it with and there you fiscal fiscal costs could what came receivables guidance original your looking fiscal I million was $XXX to below was could thanks. I through hoping that. and and free your in

Patrice de Talhouet

Thanks question. for the

you now versus made fiscal we had cash that, because So, in in be free some target. million synergies of on terms flow remind million have $XXX the progress what the payables, should first, good really very $XXX achieved of is XXXX, we

It's have So, expectation. on disruption. chain true by on disappointed mainly we our supply a bit were of areas, our that little couple one, related we this inventories, exceeded to

the there has is quite Now, that impacted the of XXXX. effect of calendar out achieve net one-off that below impact as into be XXXX in year, for the should you [indiscernible] also time, result XXXX. that of we cash time between in that, the fiscal last accrual XXXX a into like the first the the what and other to be bit would will is have And the will impacted what also XXXX generate to we've and said, a accrued the factor [ph] a This and of the and cash we a target that a lag being in we leverage X to end equation cleared ratio of XXXX. by debt-to-EBITDA

Operator

Thank Jefferies. our from of you. question Steph And next comes Wissink

now is line open. Your

Steph Wissink

everyone. good Hi, morning

on the just question dynamics. competitive a have We

peers worldwide among across aggressively and intensifying you two lean of what you competition us segments? think a channels maybe talked competition kind you of bit more brand about into then of and a your then you. your seeing Thank different that across have just scope forces terms to investment. Could give little in I you're overall

Operator

reconnected. Speakers, now you Instructions] [Operator are

Steph Wissink

and related our was but is question not line still sure open, you [indiscernible] if got Camillo my stuck Patrice, I'm have to the dynamics. competitive

you peers the competitive particularly I'm about across respect your the you markets your competition bit Luxury if and your you're just across can world. cited dynamics? among Consumer more I a to Thank seeing in-market think what with And talk you. little of have segments wondering

Camillo Pane

growing not the I So, intensity if has competition if doubt. very we pleased innovation, the with with performance absolutely countries which the is start been without I driving in the we're across in and also the – changed share Luxury my I but top growing look this think excellent The any on But growth new really mentioned fragrances only is – we massively, pleasing. it, share I by world. of say classic remarks, intense When in most in Steph, it's competitive I'm that to we very Luxury course have not classic, Asia is as Professional philosophy On intense. driving of is share clearly strong and pillars China, very performance. clearly competitive high remains look in have retail and in our travel and our Beauty, on also our especially China say in of rollout very at and I around

to is the product would to very our we take is online and own And believe our in of we I These they that which very orders is our I are us. directly also area. go-to-market think platform important forget and ghd capabilities, say e-commerce, and BXB that fast. are own platform potential with our we important the and dynamics fragmented couple OPI are at both very ghd. would ghd, a you complementary the should have OPI not really I BXB BXC look are the is very what which for building base, we are strong service in what One also allow have Here, customer MyWellaStore, growing of which very, the from uncapped when

question. is that where of increase is have we part also clearly is working which in seen Beauty, activity, which through. we Consumer something This your competitive are on an Going

also – We brands where on color COVERGIRL we the COVERGIRL is and of because very is by also and a and pipeline cosmetic much where also, with receive results mouth have that This pipeline the didn't digital in The promising innovation the coming XXXX past do different are conversation in the see with enter encouraged clearly something increased EMV the and other attraction consumers XX really from we innovation word brands experts. on enough for very beauty we we're two strong top is to get from stronger, confident our Clairol. investments we in reports COVERGIRL these and have starting saw where attention.

also that we have but a So, are want overall, of forget disproportionate and we within headwinds, neutralize making in the the of Beauty, for ALMEA, my three we tools Younique. lot These to and reason see not growth we high competitive, Consumer remarks. future we I by also intense do these and platforms level three where should investments or and explained confidence for that e-commerce in areas before have

Operator

next question Thank you. Teixeira, JP Morgan. from our And comes Andrea

line open. is now Your

Christina Brathwaite

shelf to It's commitment morning you've continuing talk finer Andrea. modest just to sales the put and kind can flat given just you guess, shelf embedding of year just like-for-like level free growth this half space on up the flow that you your plan that back I seen the the it point want in make guidance? do in of And Good go Christina in think sense space, question, to to Are then the I to if for Brathwaite is back about for that question. on Does I dividend going a continues contraction first on contract really cash you that your second decline. payment, of sustainable for business? forward, to dividend

Camillo Pane

targets shelf in U.S. I'll Yes, that for the XXXX. answer question, answer then risk the the Patrice see in on the we dividends. space included and Christina, on is first will our one

that. to that's the answer simple So

Patrice de Talhouet

it as flat, sweet it dividends in And going Yes. maintain are it, foreseeable one forward. the or decrease we probably short, future. be to increase going second to dividends, have and to we the the keep plan We will the will any don't but

Operator

Thank Mark Stifel. Astrachan of you. And next comes from question our

now is line Your open.

Mark Astrachan

everyone. Hello Thanks.

on So, first the free I to flow question. wanted cash follow-up

costs cash flow I So, XXXX and XXXX. million obviously think $XXX generation and year-end how we between about given happened should think I guess, accrued in paid fiscal roughly through fiscal free what delta

XXXX, fiscal not zero XXXX free another should improve of to in flow expect it even level. year approaching fiscal we back should cash if So,

question on So, any commentary just sort And give EBIT you then, there? margin of target. can broader a

about expectations, out So, don't you spend every is one guess, teens going I competitors of for I there. the it. high your up I mean, reiterated just get

I it. can believe don't you think standpoint, achieve it's fair that certainly a to most stock say from

do marketing So, be to point, this why advertising relates to with can stick it particularly that and confidence what actionable more spend. it you tends brands as business, on gives you harming side, of the the the the at consumer without it

So, of helpful. any just be sort commentary there would

Camillo Pane

Sure, Mark.

cash I free flow. So, will with start the

on so of to the two we that fiscal that, not far, is going to on capital working inventory. explore we the what expect the you receivables full did which levers are work the extent XXXX, should So, first, are and

the Second, being, we bit to because CapEx are going businesses time amount two we quite for to integrate start the CapEx have spent of the together. a tighten to

see impact as program leverage fiscal in of what And would one-off, third, is have come full and more should more still restructuring to working that that XXXX cash even significant So a more level to cash should estimate result in capital XXXX. up flow. And million the a roughly that is that improvement, with the operating the XXXX what will you $XXX a even our so back should precisely to positively in that, impact for you a free we in XXXX. on expect of normal more have the you

So, will due negatively be restructuring back and XXXX million will we be XXXX program. the normal still outflow I impacted to would to $XXX say the by cash

Patrice de Talhouet

five of So, teens, over years. the clearly medium Mark the part is the high second the term next on target question

So, the clearly operating is the enhancing profit. us in now focus for

low-single deliver like-for-like got the revenue return to and So, the digits, growth. to the business net synergies we've cost

underpins it level – synergies combine of expansion can continue margin. the are you basically we will above-market even top is sustain top cost after line target medium-term that. the first reducing you take with and thing cost, And adjusted Luxury. line growth, this this believe at ongoing which you model the focus – top synergies, underneath, saving this look on of program I if new the the we really at our we So, earnings do the and look delivered, to the high when can clearly, teens that that achieving believe line an We on

fantastic have record the great but a also team a record in industry, with within Coty. track track We

rather profitability, investment at growth room which expansion of there we but aim achieved X.X Wella I level high that margin Prestige well. also have to continue the tool and capabilities investing on has leverage Prestige a channel we in confident of In develop educational is much Consumer then will – very has we've Luxury on color we're And we I the in Consumer plus think share will is time, in we course build to and margin than these in-market a better Luxury can ratio and will these a division hard to or more strength a our is of of supply last neutralize e-commerce sort more us before, tools the to will will else as of e-commerce profitable. grow continue time, in you we we that to we be I future lot Europe in grow. results but our Beauty looking the will under over ALMEA, digital goal e-commerce, is Professional all digital will marginality what Younique. on also OPI is, of current really were – to ghd, new this at this Beauty, but also recognize that the base. over versus the and become sales to and Western our fixed regions, we to even color, cost and once clearly have at proving up capabilities think will be be something And said pressure headwinds, we capabilities, accelerate. because mentioned operating and leverage and markets, higher year, trying there strong believe skin America only ALMEA, still high beginning. we will profitable and beginning invest everything and we to and the, we geographic in and do for through North and have Beauty. clearly, a the have that the Younique two work If in see the operating still look the continue cycle because over that we the cosmetic are When going start course, color you I in pipeline, in

the pretty we hopefully a model that again, the to of I've of achieve bit five believe much. why I So, your can earnings by years, answered teens over think question you high explaining the we next

Operator

Thank from Feeney Consumer next our Research. you. comes of Edge Jonathan And question

open. Your line now is

Jonathan Feeney

how is decline the it and versus just much picture mean, by of integration targets, morning the the surprised very to what's hit marketplace, much. of lot and I'm available want Good have PG changes but as longer negatively I we specifically, in of far thank like opportunity to is you to hoped, just in I ask integration, of your go mass Camillo, as business. the seems much understand a been beauty back deferred. evolution been companies, the how And we just this you and than what's lost – the a to this bigger when – is taking trying question permanent

so, at two if when? do Thank get you ago, those if think when or ever thinking we So, were the about kind three just of could about comment point you about and you years targets this you. to

Camillo Pane

already a because charges. restructuring One the fixed and one, business, with a a the is headwinds one have we third the the for we $XXX because of the cost They're And couple which I'm targets, anymore that the transactions – organization medium-term I thing the million the faced ago, that the second that of that is, higher announcing So, targets cost program to say business, relevant and for mentioned anymore. larger did closing not smaller need a I Hence the the were today and designed the relevant one-off of original P&G margin, that I teens operating say discussed because first high have quarters and saving clearly I think of is challenges. have not inherited of reasons. before couple was are base. with

question a on medium-term So, before bit outlook the this I of were answers versus transactions. the what that original think our is numbers discussed

or which the of wanted lot these to first we headwinds lost of are business or of recover, the your question, business we and permanent a have In has this – piece contracted. terms is,

the took so because was smaller, inherited business, long. we smaller First, it took because it we when

decline XX July months smaller remember, in we the the we it's we have that to with industry have between deal announced might that the changed. XX day think You And over is have in and took time. business day condition Beauty the This we something last changing. months, it that October the business the was over because that the then so during second, an and is market loss I Consumer XX, XX, – in the became rapidly that

and delight really continuing to productivity, as to to on our and the our our future, mentioned, be launching But to consumers products behind improve choices our smart same So, in has focus better got make time, to be the share at right. we've has invest on brands. I

Younique, ALMEA, opportunities because marginality these there high of there. invest, with areas e-commerce, growth need So to are lot the we is a that

Operator

America. question of comes Thank you. And of Bank Olivia Tong from our next

Your line is now open.

Olivia Tong

thank you. Great,

are at on I'm run kind Consumer better your because terms supply low this And Just view out you old that the I'm think chain one, out Luxury done you a your that and it then of that in on stuff but assuming old flat. question or little confused on also the actually inventory, COVERGIRL, a around to you Is contribution it growth decline that understanding views point inventory getting -- just Beauty. I single-digit on quick talked But new my and your like-for-like continue similar your continues by is to of the disruptions expectation the a grow at divisions, pace bigger on of and that at in is decline, clearing fiscal XXXX. a COVERGIRL. stabilizes and rate about, lesser expectations Professional to or

be growth Just the in given to view potential the on recent category. just by helpful volatility quarters, you. your understand Thank it the in would growth all

Operator

you're Instructions] [Operator now reconnected. Speakers

Camillo Pane

Olivia Camillo. this is

I questions. Sorry, again. your all got

questions you off all to I'll cut So, your before. reply – didn't

I So, got it.

the COVERGIRL is inventory. So, on first one

supply the we're and all, and me footprint the chain the as one So, disruptions planning The consolidating happened something. centers. supply first consolidating full of of part transition, full things doing, of logistic – the because optimizing let clarify we're we're we're

planning one this COVERGIRL as in cosmetics which means why was U.K. color XXXX. continue this is in heavier capacity lot and centers mostly with brands. Max impacted said, impact I So, had and then not of the by in affected, got the this. This that will do a we disruption, distracted, mainly other was the Factor was QX on which Rimmel smaller

old I So, your sell-through the by now sell-through just of the the have end, of COVERGIRL almost calendar towards are the reassure that we to the for say, disruption finished, you second should question, relate of you know packaging of supplying SKUs of want inventory all new And answer is stock, going December, it's the all all old so would to doesn't I we XXXX, packaging the through, on because – shelf. new end to the COVERGIRL. stock inventory

for question in how we like-for-like – single revenue Now, growth. XXXX net target a your other digits have mentioned is low of

how you tell composed this me let is a So, bit.

confident So, and this division continue rightly to And Consumer goal progress Professional said, I Beauty. so strong expect and from stabilization. market and have why growth as mark is above our before, regarding towards we gaining deliver Luxury about did to are therefore mention Beauty, performance we you share.

in bringing within results progress better and the Younique clearly in is over also ALMEA, not and the necessarily I America that Beauty progress The Brazil, in us e-commerce. Europe this ALMEA dynamic business truly in in by grew proportionately work earnings the that give X% the mentioned really stabilize and that XXXX. Consumer stabilization. results North can double-digits we e-commerce in Consumer enough these already of because that Consumer in that yes, if in neutralizing have this Beauty saw we by but XXXX, you to model Beauty confidence performance the So, today minus make had we at towards the target investing Younique and But results ALMEA, exclude to headwinds

Operator

next Davidson. our And Weiser you. comes D.A. question Linda from Thank of Bolton

is line Your now open.

Linda Bolton Weiser

Hi. Thanks,

Brazil business, your to their Brazilian other penetrate in your with other originally still brands. market into So, my that when your that to progress the help any would it you of was positioning at all expand Is into use you been long-term some that some trying made market? brands in bought of to and Brazil has understanding mass plan Thanks.

Camillo Pane

think Linda. the question remains the mentioned for Consumer and before, Consumer the beyond one powerhouse Beauty, from of success, continuing and Thanks Absolutely, for market Beauty. I us about which I XXXX earlier Brazil Coty gives one Brazil of Lauren our in to question within confidence about

and it's loved know good portfolio you XX% I think portfolio, made are our really our there is brands these important, and brands which at brands doing consumer is and of than innovation also by by now by Looking local are the packaging consumers but are investing that is – the connection there in there advertising. are always brands, we also lower are the acquisition marked international news in buys, because

and So, was we brands it done supporting before. are it a different in done our how actually – was way treating on

our in profitability allow to improve price help our continue would Brazil, which Now, also increase us plan will to us to with plans.

how Looking hair the brand color Adidas is brands hair there is one the number actually main one it's in And there, course, we're in been Brazil, your not and clearly retail. answer we in brand from that year, the really markets about developing we we've company. other the that one using will international acquisition second question brands, last which Wella at in of Adidas, to And is for is acquired the some a the X two brands the future. we P&G, there. more in in the that And and which is our the retail, consider of Brazil of global of have before using was footprint [indiscernible] clearly, the

Operator

over question-and-answer Thank you. any to back conference Mr. like concludes And remarks. I'd to that the closing turn our for today. Pane, for session

Camillo Pane

make remarks. a to closing couple like would I So, of

to and wish time in next So, him his Patrice like first, one thank I well chapter. more would

but above in reemphasize of expanding these line. markets, in stabilize America as well to in our top recognize like importantly growth expansion. will as ghd. would Professional be that the its e-commerce line We and bottom And Western earnings retail traditional market importance improving Europe of headwinds our driving I mass Younique. We underpin to today, gone the I've due under to share in these Beauty by look Second, for North target OPI top through which sustain channels, neutralize accelerate grow is to like the continue declines line to the by that model and and will potential pressure, aggressive medium-term most Luxury target. rapidly Beauty growth and Consumer in maximizing division untapped regions performance by to to our improve the and channels

are about and incredibly year very forward the in We I and November. much. ahead you you excited energized Thank again look to to talking

Operator

thank conclude great all disconnect. participating you may day. does program Everyone, gentlemen, and in have for and a you the today's This conference. Ladies

Coty (COTY) 21 Aug 182018 Q4 Earnings call transcript