COTY - Earnings call transcript Q1 2019

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Operator

Good morning, ladies and gentlemen. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty’s Fiscal First Quarter 2019 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. reminder, XXXX. call a today, being As Xth, November Instructions] this is conference recorded [Operator call Camillo today’s Interim On are Chief Ayesha Officer; Financial Zafar, and Officer. Pane, Chief Executive the to that remind I may would statements. many like of forward-looking contain comments you today release press factors the these lists the reports could forward-looking materially from cause actual statements. Coty’s SEC, to filed the where refer and Please differ company that with results to reflect and All currency, a year organic commentary revenue comparison constant impact current net business the divestitures. in the excluding the and prior of period, at acquisitions on of

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

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

Camillo Pane

Coty Thank XXXX everybody fiscal first quarter you, welcome Christie, call. and to conference

we quarter financial We chain supply are over disruptions poor QX experienced disappointed resulting last with very performance. the have the the and

While some level increased in and disruptions from disruption we results previously had quarter resulted expected. planning the the of than scope anticipated much the warehousing weaker consolidation, first in of

been working and to second remedy financial in do we the fully the the hard supply to recover expect resolved the them the chain QX XXXX. quarter, impact third headwinds issues in be have fiscal although quarter, to temper and balance substantially have the We in not of expect

remains end underlying fiscal of synergies XXXX and of challenged. by of $XXX to should in year Professional strong, plan a modifications minimize we in Luxury By With these consumer the division, result business a have these to but of already no our the the QX, Beauty synergy performance center XXXX. disruptions, of remains decided consumer to delivery healthy synergies for As modify fiscal underlying and commitment beauty million distribution of remainder our million of demand in $XXX have the impact consolidation impact.

business right the in focus now three-pronged. immediate Our is

resolve supply disruption. chain the to First,

generation. underlying Second, to in third, improve and consumer beauty, flow cash performance improve to

get let’s the results. into So

revenues supply the on beauty flagged shortages was affecting like-for-like by quarter beauty, component as disruption declined headwinds. in Alongside, QX issues suppliers. supply a encountered external consumer impacted by chain also the basis, division Hurricane Luxury in temporary our First previously a and and European of X.X% we U.S. warehouse, certain professional chain by

that cumulatively impacted supply chain to factors this and have would X% of topline in drag only revenue the gross margin Luxury. net both X.X%. of quarter, close XX.X% adjusted by XXX the declined driven All decreased believe by first basis and impact The by Consumer our our the on of disruption, by points of without underlying we about primarily Beauty disruption the

below our Our quarter, in modestly with A&CP investments trend. in range revenue only net year of consistent the targeted and of remain XX% the last

which the driven last million, Importantly, $XX added which a net year back consumer underlying the growth related programs. despite about was of than as impacted months $X.XX estimate of EPS in by versus driven tax synergy margin outcome, cost versus supply Total operating a to year, XX% $X.XX, decrease our by delivery fixed reflects prior the with X% addressing quarter favorable beauty. the million which income year, headwind the support have of $XXX in versus cost in prior well but of chain synergies adjusted significant quarter as target, deterioration on for EPS. the the headwinds, line offset exchange during were we quarter by by This base, which rate. delivered fixed more gross in XX% The an first digits first our we were operating contraction, was the the income revenue the made in controllable mid single on progress the down past the with few

and serve Before would is our several that end future the I XX supply long-term you disruption a of organization, planned to merger. this about to and growth, one supply exited we distribution six for foundation distribution during meaningfully moving end, of several transformation I regional assure and a our supply three hubs, beauty the of chain From that To and our consolidated three shutdown in quarter. XXXX, supply planning remind the operational impacted have fit TSA countries. implemented XX the to but consumer the print intended chain encounter Frustratingly, far elaborate perspective, formally locations fourth chain U.S. results, restructured in the quarter only to efficiency. two started agile chain which U.S. performance chain fourth our the which toward design locations ramp-up we the to best-in-class in three the the a planning as to of like foot one, will fiscal chain changes a this the for represents last supply consolidation planning into for so efficient streamlined, center UK includes want the of months, challenges our agreements centers, not on divisional our of Europe, professional XX% hub and the plant end factories, in the consolidated in supply manufacturing beauty stage

related into to a in each in contain we have issues of center put the place the to and Additionally, address of comments partner these plans we issue my distribution actual mid focus the of consolidation duration on Luxury I the the discovered to Today, Europe. September, want impact.

disruptions of fiscal although impact in majority some of residual expect the strictly we We XXXX, the of are quarter. third half impact working temporary to first the to the these confine

consumer UK, beauty took to action the other brands. move Specifically to volume we in

particularly to had We warehouse related expect the improve with have quarter this expected level XXXX. channel. largely our level, and mainly the to key internal an nearby, customers, service warehouse And warehouse quarter. two-thirds tight challenges about largely we to the drive supply issue service we compounded while be service quarter second actual by level for by which resolved By is In retail of of be impact capacity expect partner travel profit the the second restored in during in the implemented the third-party integration the division. using chain external The fiscal we second first quarter. end to that restored initial North These the America, headwinds and impacted the clients. another were affected related account Luxury also we of prioritizing plan to factors two Luxury

is third XXXX. that Hurricane The our shortage expect during related North about in second million to move September and from on and supply constrained and headwinds hit Florence in approximately glass quarter. the to and impact $XXX on of top that We operating the the of are estimate U.S. the provided $X component to in quarter the expected which distribution reverse addressing fiscal fully pumps our line million of two this was of bottles to and issue suppliers products the key Luxury parts, chain ability total We center Carolina in impact resolve profit.

took plans many must and period, a business clearly our a short risk over carefully us disruptions changes with that our made related customers. to remaining balance footprint we fundamental we Although integration these our by needs realize have the making of calculated

this with we quarter not in fiscal than should XXXX, synergy With synergies to delivery million XXXX and no our modification the in developed weakness $XXX QX, a commitment decided did captured XXXX. the plan minimize to supply during of coupled our million offset fiscal more impact we result, allowed acknowledge fiscal first As conversion end healthy the profit the a synergies the of modify by of captured. as consolidation beauty these That in already consolidation for on markets, disruption of consumer said, chain distribution for remainder synergies disruption. center $XXX have have the

expect We of rate XXXX. remaining conversion of profit in synergies into to quarters fiscal the increase the

significant been the emphasis want these a impact results, chain temporary the achieving first targets. in quarter I of our that to While financial are to our factors headwinds supply setback has

underpinned fact growth reported market not remained Professional the by revenue year disruptions. where solid consumer QX, demand Beauty, both and XXXX strong divisions we it supply and confidence chain Luxury their underlying in full with if were is the net that trend, in where consistent share healthy for Our

Beauty cover you of remind should are interventions of and for strategic I model be accelerating number strategic me we underlying earnings in are they a choices. will moment. all Consumer underpins quickly not let our where However, the To which a results that end, that of

deliver synergies operating are to and flat even this helping high-teens next adjusted over that played profit us a margin believe of division achieve ongoing and achieving We each modest is five this structure delivered, target years. target margin the medium with underpins fully unique Our growth. role in term our focus to the a combined our line reducing growth, on our of after to costs, top

topline with and Consumer shortly. market revenues. and market Luxury Prestige we to expansion improve we to developments Wella, our innovation topline on division In billion ghd, I fueled geographic offerings. and our the margins, above Specifically, $X by for while initially untapped expansion leading cosmetics capitalizing growth accelerate of strong details look of skincare the the by portfolio largest ongoing Beauty, color and position In get Professional look further over OPI our the maximizing to potential into our of will its stabilize brand aim Beauty, in sustain capabilities, we

divisions. pillars, and equally and Our focusing matter includes innovation driving on relevant strategy on which on have which It momentum distinct all to drive growth expansion ALMEA first focused markets continues for this last three to be quarter. four continued saw digital are harder, brands all in transformation. execution in point, divisions the the in rapid on three we e-Commerce across in-store On emerging on much and potential,

Luxury internal by temporary our let driven external into performance we was deeper declined dig Now, X.X% experienced. by headwinds net revenue like-for-like. fully the This division. supply by and me

fiscal the able Despite factors, of our supply including launches first again remains was Sell-through important brands, Luxury would performance Jacobs headwinds, these robust. It’s Luxury the and our in share Tiffany, we Luxury by profit operating XX% from strong deliver that that performance. Gucci, view we basis momentum of the fact, growth estimate adjusted strong of of our close e-market XXX gains in the and chain revenue quarter net year. Tiffany quarter Marc with are to and margin Despite to emphasize several was for during consistent Gucci, last still have we portfolio XXXX to and quarter across confirms points improvement. the like-for-like pleased Excluding brand Chloe. brands that X%, Europe our grown lapped the particularly saw brand

we that in worth Burberry when quarter As QX are promising included enter will and It’s innovations start. a numbers. like-for-like off is the Her, quarter, both to second we had scent Boss market, first noting Burberry the in including Hugo important of be two which our

significant center on which American significant our America portfolio. like-for-like demand these with market we revenue commerce America, with We the businesses. the of the no in our of North similar for across distribution for hair issues masking pleased In growth momentum North we supply having at I’m level the seven of see customer saw change Luxury dynamic professional like-for-like Finally, with strong the last in Professional disruption strong. fundamentals net North quarter, in experienced brand. a with underlying our nail we estimate Luxury strong and brands with in brand the quarters. will beauty, negative leading net in nearly very declined increase Beauty revenues relatively X.X% quarter service remains Without consistent the trend impact a all headwinds in chain our our X.X% the as about

the the other parts capitalized of to in the very in roll over in in continue growth quarter, ME+ Koleston the parts and solid the team of digit Europe will division pleased high beauty other ghd. with low launched growth restage the on with momentum was ALMEA professional strong of I’m just single digit technology, Europe color in world a of how which Wella Perfect the number innovation single We course and in with including see breakthrough of XXXX. fiscal out and

supply momentum, and styling pleased the to the OPI’s predictive of we to about Despite consumer’s recent styler, Platinum+ headwinds, the hair are debut excited the impacted collections. brand’s which chain strong approaches. also coloring technology first our with ghd performance We’re of incorporate

the in several soon including despite disruptions, From mywellastore.com continue our the We Professional business, DXC new and countries supply adjusted standpoint, the out U.S. operating platform strong to e-commerce coming of Beauty see momentum our a Europe. grew in in profitability chain in supply income the basis points from XXX net external a the X% of by XX% combination of delivered internal chain in headwinds disruption. and of Consumer The decline weak margin and very drove improvement. revenue factors Beauty growth of results XX% the several included as roll like-for-like

ambition have a much this, in line than disruption, effect that promotional our supply as weaker customers, deterioration which our of by still chain the Beauty reflect Consumer The increased X%, knock-on reduced including is trends Excluding sequential with the more declined invested business division. top the net would for about activity result revenues. we

driving EMEA Rimmel brands sales income in the million, these categories Factor a share call results, top and result Brazilian adjusted beauty X.X%. disappointing quarter. gross partly strong was the share fueled weakness while continued number modestly a hampered gains in highlights deterioration versus adjusted line number U.S. growth region markets, to of top to period, a Max our color the net grow was leading distribution in importantly, previously in gain and the of losses emerging out with hair Europe, retail hair which was disruption, margin, $XX.X regions, there solid want and continue a in to decline year by category largest delivering are Our flat prior significant business in and that significant brand supply overall results impacted hair, experienced continuing headwinds growth styling commercial Against products. a Wella positive Despite these line to geographies, I by that and operating operating all improvement revenue The chain including these quarter share margin. net By were the our with mass share. the and our of in in first a

experienced category QX supply of pressure in ongoing on the disruption home the contraction the sales cosmetics reflecting and biggest impact color significant group. Our chain

Matte in key number CoverGirl, or a one becoming leadership continue the indicator. brand we to launch TruBlend brand months, improved season Made the progress value position face media EMV showed strengthen As after earned launch, our in face its of the and recent in health with

positive International. Monday, least, cosmetic at not received compelling certification, by have of forward our but CoverGirl this we’re last a our flagship Free consumers announced became from proposition of for to Cruelty the This we on Times CoverGirl in feedback store And opening Square earn the largest the Free As the Cruelty month. standard looking very brand gold we and our end customers. to is

in strong revenues while by below sequentially, plan Younique, compensation increased trajectory first quarter adjustments. and sponsorship For business’s profit and more activity trends was were term presenter sales performance as offset the growth improved long overall than promotional

goals subscription refinements translated improved broadening portfolio of into pace retention compensation expected, performance While strong loyalty initially in stabilization in that support below total, the the programs, presenter traction these momentum plan division our Consumer not the remains coming adjustments believe the have predictability. Beauty years. In at Younique continued the of well we and in and in will and the factored new Younique

on are disciple focus particularly in term. the and and particularly coming a focus our on We shore with and short promotional quarters, of we is service restoring sense to strengthening taking action supply operational fortifying the execution, decisive in urgency innovation the The headwinds driving in significant first trade abate. half once spend, year chain division critical discipline, up level

our allow we refocusing ALMEA the that, We us and mainly in these low subset brand-country Not potential in believe a are surprisingly, more from business in priority reallocation earn this will higher Wella investments. first combinations Beyond return U.S. among a toward includes combination. strong our high of the others. Covergirl investment to

Second, we top inline savings are continuing the to drive cost with line these division trajectory.

investments assets. supply assortment adopting channels, improvements our our numerous capabilities chain product to accelerating are and we Third, including creative e-commerce toward by

turnarounds to XXXX, and needs stabilize and to most over the already are expect in of shares covered significant ultimately actions of I’ve rarely much linear, Consumer Beauty. results. done impact course the positive a be the We expand though drivers work from fiscal these operational

drivers briefly the other increase me the metrics touch in let on EPS the our financial So, particular, in leverage. and of

$XX a by flow cash tax during quarter negative $XXX first free tied headwinds customer million, to working one-time costs. adjusted terms in cash $XX which negative borrowings versus supply lower and QX, our of It’s over higher relationship expense, due to was In strained income the was Euro capital million optimization provided pressured need primarily the operating first working net safety year, and the million more driven interest net million $XX our to net $XX.X the one Our by on quarter, emphasize, million on was quarter. coupled X% cash and and in production difficult. making activities primarily the grew impact benefit with our of while pressure important prior trade continued shift inventories, time was increase chain build up on capital to stock

to quickly work cash increased flow XX, disruptions $X.X course XXXX, XXXX chain and increase net supply million of with the we on expect working net This of XX negative of debt license quarter billion a we payment our the by free $X.XXX balance effect will of adjusted EBITDA $XX $XX times. of from ratio and reflects Net XX, resulting drive X.X to million June a net Escada cash on As we our dividend the last to the over of profit capital September year. improve ratio the which debt million. remediate times, in months compared X.X the payment XXXX of for the improvement, and flat had flow, debt the bonds of June $XXX free billion XX, last

revenue In Beauty Beauty Professional like-for-like we to divisions improve turn quarter, digit to business supply in the evolving of expected quarter first we should remainder Let’s for to inclusive and the and high-single a across trends how trends return look decline. outlook specifically, second the underlying Consumer to net to and of our whole like-for-like revenue quarter see the the versus quarter, year. expect Luxury three improve now in the growth headwinds second while we second chain

versus adjusted For the expect by remaining income chain impacts income, operating year we ago, adjusted supply to moderately lower driven operating QX headwinds. be FX and

quarter comparison tax versus second positive settlement prior of adjusted EPS million XQ last recorded year. by be year $XX pressured The the the will in

cost XXXX, fiscal in growth to XXXX, the significant synergy margin headwinds, delivery. despite to Looking profit driven supply and continue and chain in fixed fiscal progress by we operating expect reductions

expect committed and to call. flow of to of a any this net XXXX quarters fiscal priority beyond, and next However, we and, impacts top four the need ratio providing XXXX. the more debt Deleveraging we the remain of but further below on update target by financial disruptions a we our at assess cash to the are provide outlook remaining the in of in our expect XXXX earnings supply remains free positive an guidance, adjusted in on overall continuing stage, we time achieving to calendar times, and EBITDA end fiscal not

Our is $X revolver of over substantial, flexibility liquidity position from availability. significant with billion

modest margin supply payout achieving build consistent, driven delivering with shareholder our dividend and of goals, was our one a expansion. QX return. a our headwinds. growth conclude, by revenue should targets setback remains To chain in net This, financial temporary with goals mid-term drive strategic coupled Our total continuous superior

long However, much including Coty we and for culture remain fast-paced absolutely building changes processes, the people, stronger a agenda convinced ultimately that term. systems, ambitious transformational to is and our comprehensive

years. very challenges and shareholders the we headwinds consumers to areas. for will across strong I we external, and integration-related the the As will all create supply ownership I we to And and value all other shifting mindset. see significant tremendous the overcome major be the is a in from improved performance able potential milestones, am to our being our fully with see internal proud focus largely team for coming increasingly of Coty internal complete how addressing

to back will lines I the for line up Q&A. open Now, Kristy to turn the

Operator

Barclays. Lieberman your question And first from Lauren Instructions] [Operator you. is Thank of

Lauren Lieberman

cost it fiscal called if million headwind supply a in for that almost we had this financial – you ties is quarter, talked part prepared Thanks, $XXX your forecasted I this thank impacts, the $XX that the was being ask this detail, coming but million, there integration-related was of it of being chain helpful. release delay good remarks, some year, so morning you to any casted Camillo in into recall and how I the the it, chain, of issues it discussion being be from about the to things have just about around profits. going of impact and the on really thinking supply taking I gap both operating work there in the through wanted slowed to longer about because issues, in does down, the just just, is and bit almost a on but all first profit a in through to we’re impact there seem And

wasn’t we the first You said what it expected be, it to was question.

any of of whether working Luxury that on and componentry access a suppliers, had there suppliers you’re to this some those second trade. ultimately things efforts? certain the The to reason to issue. cost with a was tie how So saving ability that component you’ve knock Is done Thanks. choice your on it’s necessary the

Camillo Pane

Thanks, Lauren.

and in knew what were, the impact warehouse we to in known of the U.S. of issues chain we new question, Luxury impact XXXX we the if course the supply in of What time reality $XX learned earnings outlook had – sequentially disruptions at were on of OI together is by in year in is that the us gave, of from expecting happened in of QX, million at is the overall million QX. impacted supply of both happened XXXX – supply suffered the also is that of we were end which that drove first headwinds and full Germany, what our we the chain, almost that at supply chain these and we chain is which that of quarters some reality just the represents we the $XX and [ph]. August mid-September, previous we Looking in in your an were hurricane not said XX% so

these $XX two of out almost which XX% out So of not we comes aware. million headwinds, were

a the of to the rebalancing we we contain clearly, of the the disruption. and supply that address And this actions network. our September rebalancing peak production month is for remember and exacerbated also Luxury, we the lot supply course within are impact place logistics the the to of to have We further and impact, are duration a of need chain demand chain,

the course to might need our we we working this and better disruptions part second it there this question have that we supply half. finalizing We’re impact. working to And said to to disruption of have better with of in there, integration base one and need we in because I’ll done the swiftly disruptions the with supply component the in of magnitude of the be customers we ensure until things balance of consumers of residual of your did the the our that mention minimize it’s these and sufficient the disruption in the QX have remainder business in to the modifications that is confine year. the plans half, first delayed the or we pre-planned we of we impact the made is for modified are we’re have that although are the basically consolidation we And consolidation some have second and to going why possible our to and going

Looking at component is your at which the the question issues. second –

is driven base. this things. efficient, think more base to agile part demand. problems true our our of course problems, of majority of of journey a to that the it in our couple But I we supply say that by because increased I cost is that’s one would were have case, streamline it’s Yes, from decrease two came and become

demand couple demand that are bottles we that really but key are shortages, components. in pumps also the our there in suppliers shortages We’re it of second not into problems, which significant. the we have are of suppliers would this And then realize combination and these Luxury the with an well and our going meant having specifically impact, into therefore, enter from general us, with And they industry. only increasing been didn’t and higher of for

Operator

you. Thank

is of Ottenstein next ISI. Evercore from Your question Robert

Robert Ottenstein

very then is seem sense Two European thinking U.S. you products, a terms what more inventory about top side, of line of you retail are consumer the the the you little it give us for like why hand you you retailers? on was thank Thank doesn’t retail much. back have the you’re just And how just Great, talk of doing stepping if of the to one promotions, old on the promotions you the cleanup the bit consumer bit much. a Younique the accelerate whole very or about retail then performance Can of U.S. it mass in in in business, a kind on or little Brazil?. the can questions.

Camillo Pane

Thanks the we at and And yes, when is, I questions. by issues. driven that look is chain and have supply intensity, do of Robert we this problems for couple basically a issue One penalties, headwinds we promotional that to service that because the the leads supposed are of means able have maintain which more with to. level retailers, – a not distributor we’re to the

the of driver the increased of one that’s spend. So

to in you the effects. supply support were the that, entire issues store, issue we is supply this one why the we brands have these wanted portfolio. it’s not but like increase And while chain, chain to our seeing second the the in where across The that is

we decline, let in me in chain mid-single-digit and happening now a when on clearly, the supply lot of the start – and in a rest mix a moving I I Europe, we situation the U.S., mostly can about the Factor. decline Max with while CoverGirl better were toward we because is region is of continues And the our Rimmel and happening are which for the of stronghold Factor the past. there brands suffered, high a is which in terms is sequentially have in consumer you UK issue planning to in related Europe versus hubs performance, And CoverGirl, progressively the Rimmel the at Europe, the that are have the more of positive slower also have potentially look beauty both the the in because this decline brand, things majority single-digit and of and beauty in this. Max mentioned, improvement U.S. consumer U.S. talk the later to do and CoverGirl, is in regions headwinds the performance different in In performance an

high of in we So as decline story. In competitor, is Brazil the single-digit Brazil. fastest we supply Europe chain, are Brazil, growing and second of the and in we multinational Beauty because doing different fast twice well, are are most growing in and again, company a our

of – continued is be working, that – really our healthy. absolutely results that impacted XXXX we because in very share strategy our market Our to

strategic We’re profit the it new intervention which compensation at margin, the same the and the were much across recruitment time last from plan their through and we results but At time, clearly was is is, lastly, to compensation trends And behavior we have adjustments, in gross presenter this a implement time categories, what growing to money. plan. XXXX. view, to impact in the our our adapt share pricing intention, have quarter, an now, in while for happened and doing of takes And the same because by the absolutely this, Younique new presenters improved place a disappointed but we regarding point improved had new plan costing clearing did compensation Younique. when most have we

course, of coming strong a a program confidence have than very mascara. well give in is have business overtime. XX,XXX new program, the consumers And two of second and they offset Younique predictability doing subscription to improve increase our of these we And for and a programs, do for returning months, performance one Now quarters, which the the Younique. we retention two which had programs mid-August. couple we One is a the to more presenters, also the just us launched helping to loyalty lot very just subscribed is of this, course, because of in to which in program, of are that loyalty subscription

Operator

Thank you.

comes question Mark Astrachan of Stifel. next Your from

Mark Astrachan

everybody. of good morning Thanks and I of questions. housekeeping couple guess sort

the on much comment same And of the had sort business, So disruptions year think more how going the have an is have And the does if seasonality part pretty business lastly, get the somewhat chain related, given related impact then and then why part a you’re back to part wash, because that you you the year impact key back, challenges Luxury obviously talking is basically the keep just on year, supply with quarter of Consumer that, related Beauty back you of next results, of of never of these that quarter of to don’t then of you of the about that do a cash say get half this guidance that in the also a of in in so conjunction not that targets this about top is but supply as flows on to the line, sales given outlined business? of more getting disruptions some of why year, fourth first and the the the in the can profitability, business? chain you’re level and you profitability. in withdrawal so updates now permanent that sort to consider sort the

would looking XXXX of at as year the your now we’re meet be? basically where kind results So expectations fiscal whatever first out

Camillo Pane

your all it you questions answer Thanks, to try Mark. gave in to the order I’ll me. that

for The one is outlook of first XXXX. the

that course, like significant to because the just this we the and that’s profits, next disruption we told the we are to second and we contain why therefore have would to expect come first progress we synergies, But are improvement take the the reductions, are more and profit in do for hard revenues in And why quarter. XXXX, back we impacts have potential delivering and will overall impact visibility working to is there chain and to impact limited come quarter. to the this of the supply that assessment. fixed we and is margin you the and on we XXXX for want Despite half. Of very next to half, see future headwinds, saying operating cost growth we in we continue time

the I and Beauty, deliver outlook. to and be component of we the have it’s as is at the really strong course, Luxury. the and course that Now, will reaffirmed the – that believe demand when and headwinds in you believe QX revenues And divisions, us into got of in the season, not underlying we will In supply shortages, why able of is and in strong, true, the the the our ask impacted supply and underlying that do and grow Factor. we Max stop by specific strong entering external having one, chain Luxury internal stock that for we think season, business. It but both the have like chain hurricanes Consumer from we’ll but I and profits in we demand on this safety having Luxury, said, is the Rimmel a first a true highest are is we the impacted we headwinds I and the look the and we’re

Consumer different are So chain it and turn lot a are plan and a I’ve doing is that our I around Beauty. strengthening need absolutely mentioned, including underlying mentioned on performance operational we what supply and the changes to in Consumer focused of focus, mix is of this issues We actual to other business, plus capital. Beauty, be reallocating doing those our discipline the strategic first that the that’s

day. I of was, think in of last guidance, at same to last the more because giving one the And going in not flow wait quarter, terms your we for question and we of profitability, the the Now, question are answered end your it’s we’re terms why profit. cash understand I

are the two So much interlinked. very are things they related,

wait level flow in report want you specific and in So we it the expect will next quarters the we flow do next do a quarter. cash details, free because cash free but we of positive positive to give and the to impacts, in of three XXXX,

Operator

you. Thank

Faiza Deutsche from Alwy Bank. comes question of next Your

Faiza Alwy

Yes, morning. hi, good

within So just me. Consumer the Beauty. One on two ALMEA questions is performance from

because chain you bit, seems like your there put in so that, I processes, for a business on seems both on responsible synergy specific execution, lot me to just to there’s been internal little And the me a And now take that because on focus some then when new focus with team modified that would any love issues? that and Brazil? know wonder delayed you but number I acquisitions, just love sort your changes if it is go like plans and you’ve a if the decelerated delayed question to line like outside integration your do may be of understand similar these, there and a some plans, of not of around, since with of that these the expectations, to have issues, of this that your you’ve it realization, distraction, to integration-related was of just how Camillo, could transition, I perspective that understand Thanks. encounter of So P&G you some comment is it seems of things. So have specific I’d second just the me been supply anything like, actions, consolidation forward sort just these do going that’s so you’re perhaps of on less execution. we but going my

Camillo Pane

Faiza. Thanks,

I ALMEA, Brazil, extensively. quite think I at Looking mentioned

very also deceleration which we very different number good hair to we’re our grow grew which we with – of very – share, to positive, a also our good, actually but remains in driver Beauty stronger there. are color business continue in brand Consumer China. continue Look believe, quarter, things in not Middle the we as our growth, so So mentioned, China, I in Brazil had we very East, grew And very pleased also growth cosmetic was but dynamics, we doing the especially remain had good of Mexico China, moderately there, color the Bourjois that. there. is the was strong brand in lot of of which Wella, And couple a the confident a ALMEA with in was ALMEA one in and we the in on we we’re had we we and

strong, the that we of future. opportunities very across lot a for I health in there have our the business think Chinese all size us of the allow overall divisions and actually is

the because One quite is believe in of very this down high continued in mentioned also allow I and ALMEA temporary we of some country previous well level for Australia QX issues the decline and ALMEA on – in very, is slow earnings healthy in for had actually in executional where is XXXX, sizable Australia. grow ALMEA, model, confidence and Consumer Consumer potential for us, health performed is We growth, driving as Australia Beauty, the growth in there, our in so have us countries of Beauty. call we it’s This contrary, but very our we performance a to and down actually of is and the the August. sizable in which which in think didn’t Australia XXXX,

agile, the I organization, really trying integration us what in supply the give really we’re very streamlined, is Looking is foundation be that think is chain important best for which supply build really first remind at to a what class operational to strong disruption, efficiency. will

having issues of going keep without journey any So the lot we I the are in call, that always these having internal and fact and integration of last the the complex to things a ambition three did mind complexity issue. we in really that still the I’m mentioned

we robust have fit much we the people, organization are at forget of QX, came make it stronger to an they reviewing because more and from current people send we looking Now absolutely, do company the some three and have for because process in the a that the headwinds organization the had to new we that issue, entire also that of the has the outside out merger. we many during new many planning

now this, we where we integration. that done Now are of have the right with is XX%

a clearly remaining create have actually it’s a you platform de-risk and So and integration large we’re a the confident the some of the for consolidation. the we XXXX, going to some do that decided as to quite on Based modification, we’re mentioned fiscal of about brands, do, with to of had new with XX% details level the And of lower we now – never are much looking have that that the plan your this process we specific yes the clearly question risk. consolidation regarding scrutiny at and before. have teams specific teams, level and planning in

Operator

you. Thank

of is Lynch. of Tong question Merrill next Olivia from America Your Bank

Olivia Tong

Thanks.

bit clarification confused I – a your chain how cropped chain have am on and up that just supply the in First terms more supply recently. of you issues, issues have all a

impact that the it drawing in doesn’t terms the of delivery are some consolidation is of the the some synergies. delaying of manufacturing, yet, Why case? You’re consolidation, you of the

Camillo Pane

the a remaining simplification and the it, Out they many that one lot point, one attached but XX%, we because for saving attached to because and question. Olivia the a XX%. of simplification, on done we answer older XXX, these what it the delivering completely which growth order, impact having rather of said, all, first mostly risk but large some the and we the the of minimal the internally absolutely supply is we’ve are call of remaining achieve every project points one projects certification us, to have Thanks savings single your gets the the of and question, so on our plans as invoice, synergies there – is customers, were are it’s truly of than driving to cost we that’s because, XX%, for driving shipment and it. that by the is to for target. basically that It’s we distribution cost are problems trying Not has one also one absorbed

Olivia Tong

on the portfolio updated interest full rate. want portfolio need and Got be expectations there to pairing you. help get back to And you to terms brands if but challenge of you just net two to, does and a it. expense with in of fragrance then lot know housekeeping, more changes, unrelated, where tax Thank just and if get more could I of your one you to could lot us made year follow I up of

Camillo Pane

is can hear Olivia, you because, ask the I very repeat Can to best, your you’re the you couldn’t I question, again? line unfortunately repeat not well. – you

Olivia Tong

full of first to fragrance portfolio brands need pick Okay. my know challenge quite just I’ll be rid a one to interest But, expense the you’ve and to more just pairing get obviously but tax the updated the And to on does your because there then of I where want up phone. was you around was few to? just in one back around expectations of housekeeping for gotten year order get rate. the portfolio a your

Camillo Pane

Okay.

at to the some back rationalization, fragrance this as we of don’t think and we on I turned have point. have brand done more mentioned rationalization expect portfolio, you So portfolio have the any our we

clearly Professional and We’re plan with happy I that thought with to is continue mentioned from the focus actual the strong drive to drive, absolutely our Luxury to and is Beauty portfolio to the Beauty and Consumer our was turnaround growth before.

the and XX%. tax around first a expect terms so so XXXX’s in the tax And interest from is, rate, one low in of rate, rates we the

$XXX that’s last pulling we So million. be we’re given in estimate expense, call to committed continue the terms the this. and more our around have earnings we than at beginning, interest to in in of And

Operator

you. Thank

Your next question is from Steph Wissink of Jefferies.

Steph Wissink

improvement space the good Camilla QX positive from the you planned underlying just to for what of to what’s the past earlier your supply your on here. second Thanks, want changes or Can come Pro shelf to quarter, help and and us any in you’re consumer. also remediation and adjustments chain single-digits are morning mentioned bridge everyone. to promotions line update on question I and think guidance the then your chain. expectations from high just Thank versus any or programs impact supply Mark’s you. QX us the and on transition to line In expecting to or return back Lux the track down I you

Camillo Pane

Yeah.

point yes, you’re So from view, correct. of a guidance

much action this stronger of and So in higher one QX, our driven the will chain that Beauty to Consumer some supply be underlying have but are and resolution the revert chain or for is, putting strong the first service will that confident a are go we we level Luxury we’re headwinds the plus we clearly still in And to the Beauty XXXX of our approximately basically of will course – more and because about single-digit important is point well headwinds, management seeing all trade we to to will demand before Professional expect with offset the view, which back this we that as by, or supply same gross-to-net. in to is trend supply place we believe that. growth a less spending Beauty abate one benefit had one the that improvement from decline, and although able mentioned chain headwinds of I Consumer

better headwinds half there don’t I – impact all before, the positive and higher of then we’ll mentioned able mentioned so Consumer the by additional commercial by chain will – chain. investments, on the discipline, chain growth of impacted all the headwinds and abate, imagine were the penalties in also should promotional was reallocation decline staying and the revenue activities. As the supply I these underestimate gross-to-net supply – [indiscernible] you is impacted customers nature on organization dealing for to spending we course manage benefit XXXX. be will be a will as impact and of the will second that have be Once I will stronger course could the the before mentioned Beauty think before, of the headwinds a supply lesser e-commerce we in of reverse from they the will will that reverse these with QX on of improve eventually from this we’d I operational

actually growing practically distribution if also most especially CoverGirl, U.S. been a productivity, the four performance productivity have exclude the the row. in really in losses customers Rimmel in was seen is which is want months consumption on really, second I positive. and so in shelf said driving go we question, I to I say, your to our Regarding thing the positive that because back what to focus on one innovation in actually this positive of have want improving across I earnings productivity U.S. And and in which that the last is think shelf and is space, call, progression for all, in about of first but CoverGirl fact the we

why the distribution growth putting half flagged have of will it relaunch, the offset our in that objective the second this point the headwinds is shelf to way is the that stabilize Now brands, this the the reacting that course this in business all that and already is also North problems it and headwinds reassured productivity stop of, a is by remaining in productivity in in of to but increasing we’re to what distribution shows continue lot and but a growth good we I’m and truly some the and the it of America. course do. more news, that’s whether year work is most distribution our the for very we behind our insufficient this still losses continue that of there XXXX is I’m to Rimmel, to and productivity will be going seeing are by retailers. at reset the And CoverGirl brand

behind I think so one it, certification the external certification. a of Free, is of of chain order in Cruelty because by the that work audit for gone suppliers to Free supply obtain want has all full that mention this our to we our CoverGirl, I had this including problem – International the tons Cruelty we received

the So and committed which certification, and truly Free XXXX. also gold The reaction are of the have certification to CFI the audits is will sign this that control has be again are will certified to fiscal regular commitment become to another this we by committed every another brand been also strict and standard international by we year, is really, customers in positive. that to really claim of new this, Cruelty

ago, CoverGirl by help much So course top color believe to continue U.S., we’re but performance. few better announced cosmetics that another return, course, to it’s return program just be also we leader of in this, the it but in will we days to encouraged of the to just

Operator

Thank you.

question is Wells of Fargo from Joe next Securities. Your Lachky

Joe Lachky

growth the think and the if to chain focus challenges you are deleveraging, issues getting thinking much flow year, flow for committed flow full the Thanks. cash dividend? the talk need regarding you I how working cash are you capital was could the positive guess, then hoping cash impacted confident your and your and year cash how cash quarter free facing then free supply you you how in free and for full your to I in free flow the about in on considering flow, to

Camillo Pane

thanks, So, Joe.

on I net impact about cash first working is chain think severe. from the free flow, the capital quite the the is supply actually the question yeah,

same building with got better for because stock teams at headwinds, so a levels restore hit difficult got the safety our by managed to time ones, the to we new manage task the we’ve service when it, were that’s supply very about inventory inventories, better think but you stock. building we we’re the If

one receivable. Second is on

not having imagine, should we terms a when discussions it you because of more As the are where all challenging improving and our can levels debate our service for be. being becomes commercial teams

net hit gets severely and consequentially flow to supply So free cash ability any without course the the the by deliver chain doubt, working capital of impacted. headwinds, were the

Now truly in despite going especially remaining which year flow the and that, or validation we the was cash, free year. we quarter during focusing strong have something we’re not is that in two iteration, believe total of positive that’s first past, on that pronounced to the and the the the why in cash are as

is asked the now the We the a focusing our more including incentive our the the opinion because case. CapEx that to we’re market all sure to has you well, started believe one-off dividend, the dividends. of attention the which is sent capital my big are a is I changed make – to CapEx not cash cash dividends leaders and are that we much that in all problem, and organization have terminal flow incentive. of are a capital one-off, profit Well, we we their our confident about even while although absolutely and The also to and we course on dividends think ago signal these scheme a networking having,

one. as and of in also the and to material the important fact Our decrease CapEx cash it’s I just significantly, we by will a in the is improve XXXX, this that one-time positive I not especially free flow, reminder problem have costs said that XXXX benefit will and should a a temporary think underline will and permanent why drop, cash it’s

Operator

you. Thank

is Your Edge Jonathan Consumer Research. Feeney from of question next

Jonathan Feeney

being analytics how to the I the as Thanks sales this really to and gives process, and of maybe can haven’t that what do retailer you about Beauty, Consumer great maybe issues be QX, supply there? but you follow the QX about shelf, Thanks. on contained something convincing very have talked go even confidence do earlier up it that it’s feedback comfortable about retailer wanted especially questioning products that the not you to chain the much. issue get it’s and you you performing guess what and positioning just execution though talk I about you like has are to the me people on setback going been how – going, the line to relates that QX

Camillo Pane

partnership – strong think building I a the it’s retailers. matter of with

it’s But all, all were to honest, I proper it the already this through day, in Professional of mentioned we disclosed, that strong about of well, returning with, was knew the drive consumer timely the all Luxury it’s were because level at doing end demand August in with that Beauty, First have very one with our and for as very explaining course dealing we transparency as the transparency, we strong. type in it’s Luxury be we all to the and and of The retailers I the we us that manner. to service situation having explained issues it’s one think late been the and had well. hurricane the just and demand. of the issues went different transparent unexpected through the consumer is about about retailers And, very to of to that completely the going partnership, a programs timeline about warehouse call retailers in a back

that level if in shortages, in clearly the in innovation – it and the and performing of of there the they we to us for Consumer know do of mentioned the of in Beauty focus is do a place that before Consumer of we is between big taking the took more service that. prominent In So show retailers, for the the that discipline but customer We’ve for that for for incredibly restoring frustrating plans do plans everybody the with absolutely. I why and because and two, demand or retailers is course our strong that we next are the Beauty them customers, some not are, plans readjust the understand get launch plans on together way consideration months, a the we headwinds. the also promotional brands difficult deal how where for a build three this it’s and is is mix supply issues, they the but and this better execution me in reporting absolutely big, the fact priority and

Operator

you. Thank

Bolton-Weiser Your of next question DA is from Davidson. Linda

Linda Bolton-Weiser

Hi.

brought these So, issues how’s how I us was and a developing. new going, how of the – then the and also just lot in have you’ve anyways, is and the you CFO that you executives in curious update company search could morale on if that because

the in company? Thanks. is how morale So the

Camillo Pane

Yes.

middle CFO search update between candidates been we look So, toward that strong are our selection evaluating and had what we lot of we’ve is processes. end a the I the that very of you and can

into So we’ll strong with soon very with our pleased with one, to journey, background, in of are really our lot very journey. and quality be able high our interest update but very of strict we this the level that you needs candidates a candidates, on the of

beating rate situation do clearly different I a we because something beating would clear, Beauty, of a are performing morale, team working but Consumer morale, do to is this market leaders. the expectations. new in while, not we the Luxury I Consumer of new now quite have to business, mixed a because for have crystal expectation the with Beauty we been, and close very do In have and terms leadership that mean, high two performance it’s be Beauty. In into growth Professional a quite the that say or is we have course yes, recent,

and the things for have the and of skills perform look have and the continue cultural one fit and at to right done key I program that which vesting we our retention progress years, help changed period of four – the talent. with five the it also of will the we the We the drive morale is right some to of within of when turnaround our investing three, that think LTI to I

which and our So the is do belief me huge our for that. And and overall, in very, journey. priority company very remains long-term the for is Consumer Beauty our turnaround partners a we in is and this what also important focus and my is on colleagues there that reassuring of

these journey of complex but and see the for high of aware level to we’re headwinds belief with, is absolutely the value that continue the temporary very We a dealing new because we’re benefits Coty very and is that future in the that our within doubt. in loyalty very, not are creating everybody integration,

Operator

you. Thank

reached session. Please today’s time We We our at and joining have have Q&A allotted wonderful you call. for this day. lines today’s a disconnect time thank for your

Coty (COTY) 7 Nov 182019 Q1 Earnings call transcript