COTY - Earnings call transcript Q3 2019

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Operator

Good morning, ladies and gentlemen. My name is Maria and I'll be your conference operator today. At this time, I would like to welcome everyone to Coty's fiscal third quarter 2019 results conference call.

As a reminder, this conference call is being recorded today May 8th, 2019. On today's call are Pierre Laubies, Chief Executive Officer, and Pierre-Andre Terisse, Chief Financial Officer. remind forward-looking many statements. to today the like contain may would you of that comments I lists cause Please the from the company reports to these filed that refer Coty's with SEC earnings forward-looking statements. where differ results to actual release and factors materially could the All like-for-like divestitures. the excluding impact reflect acquisitions and net the business of the period, commentary constant and currency prior-year on at in revenue comparison the current of

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

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

Pierre Laubies

business Consumer solidly. few convinced the stage, analyzed detail have XX% our a as already in and as things. aiming to call. Since of centered the take we team key outlook. provide issues, third then, the are root as prioritize observations understand some has will my third I management a I'm together, in on my as leaders Thank through few comes been our have of three senior unit, walk causes fiscal have last only update pleased I of year will XXXX the collectively quarter well put with we around team, we, of And identify Coty's Maria, place, our coalesced you, welcome ahead, for strategic performing and which conference Coty. your everybody we're an ahead At opportunities after markets over and and new senior is business as how financials a and of the mostly business to you Pierre-Andre this better call, and The opportunities months the months and Beauty quarter the and spent with will the third last business fiscal team questions. our leadership close time earnings XXXX

gross First, simply and potential have what substantial currently that and we promotion significant by margin assortment our sales, simplifying without productivity, tactics. show optimizing upside our while even analytics we innovation, in shelf sell

a number a combinations invest Second, scale. brand-country and to and efforts limited behind more have real focus immediate behind of them brand-building to our we at opportunity

already have in We for the quarter and increase from this investment businesses our begun we media third activating priority shifted approach brand-country non-priority as combinations. media dollars

Third, analysis short-term to of complex overly we product real led, focus an our sub-ranges proliferation that a to SKU on has time, have our excessive range in growth identified and business upside prior as simplification has shown over expansion.

convinced are will productivity addressing opportunity substantial that, shelf improvement. We by and for complexity, we cost saving this unlock

data, a our grown have our Finally, to in on Coty and They their at on most people which, very approach are importantly, them based and strong result value business and enable turn, creativity orientation. skilled insight. rigorous

think respond will we well agenda. to they our that So,

As initial completion visit, Coty's as correct. our intuitions we confirm, I already market get were plan, closer the and analytics can, therefore, by that of strategic substantiated our to

obsessed, a possible have task long-term is our we'll investments. achieve. a take Yet, course, immediately a one, and, growth better were we also raise year to as strategic outlined This which This the has of call a improvement term levers more focus relevant We that much include all building the scaled principle energy before that and in understand in potential brands margin and more gross to fiscal as and more need are on which Coty's being Coty short XXXX. short we medium and principles capturing creation will starting bigger this selective resources driving to and the that that a medium-term value think time upside. most earning is future. truly business through the company ceiling than maximize core quarter's convinced We last are in business and ever earnings to

sure make will that turnaround growth while longer-term immediate our address We on potential, plans. we our we more deliver

quarter. to the Now, third turning

clearly and over chain we Performance resolved, we disruption G&A, issues indicate to of proactive largely impact well the say management the term structure supply that control supply pleased of A&CP. that results as cost both we increased that are limited of from shows also in remainder are expect Our quarter this in chain year. very have the as our

factors these in solid adjusted laid together, income, last have to the operating deliver we Taken allowed expectations line with us out quarter.

take our end shows much However, effectively, ensure delivery, business, work is line Beauty, completed unsurprisingly, weak be reliable going while in still as do. that I assure will with to This said to a beyond have no specifically we be the focus running And you forward. should for we shortcuts. consistent to earlier, be the And that towards our to With top are over strategy of the turn discussed now operations we I to done is I with Consumer communication the June, indeed as quarter's that, to want out you many as of will profit of we over to there it this time. will won't forward and pleased we I previously. our speaking Pierre-Andre. turnaround roll look have strategic plan. We also we although results aim much that slow, I

Pierre-André Terisse

today morning, earnings. deck. the good with be to And to again X everyone. our go I'm I'll Pierre. you of happy on to comment page you, QX Thank

our on were mentioned, earning out And operation. had quarter the consistent disruptions with Pierre laid financial third quarter we importantly, impact supply chain As expectation call. the second results minimal on

and was squarely quarter cash flow Our focus delivery. profit on this

remain that the free delivered flow. and profits we cash the top expected are So, while a undertook pleased we strong weak, actions the trends

initiating a XX% dividend with in to dividend XX% receive stock cash option to our their giving program their objective, stock. or and we're consistent the cash deleveraging in Additionally, shareholders reinvestment common full receive dividend

make third impact negative from included dividend with in the division. approximately need choice in strong a much will levels third share quarter service quarter, June. very beginning the on a revenue, weaknesses in revenue were and Luxury will $X.XX dividend Beauty revenues reflected declined recognition Consumer continuing result like-for-like of line or on in trends the a quarterly of quarterly unfavorable $X.XXX on X accounting from with And basis. quarter. This line COGS Overall, to Our percentage division, the their Beauty a points at low previous basis. Underlying payment annual minus X.X% quarter Luxury basis an top for shareholders stand a per on recovering change that the division Professional and in with

range in rest expect we of in XXXX, forward, line to a like-for-like as QX. the similar Going top trends fiscal be in tracking

supply now top while flow, getting finalizing key are strategy as fiscal focus move for remains to last profit line top the and from Our XXXX. smaller these overall prepared our impacts tight improve adjusted year, cash and Despite behind we brands line disruptions main was pressures, cost operating to QX support line we with into $XXX management. thanks income and continuing of and in review chain million

division and chain expect approximately to profit. steadily, I trends, fiscal with starting approximately quarter. X.X% the the its XXXX, expect Luxury caution in to our total we will X% divisional Luxury, fiscal from supply that do now temporary disruption and not $XXX to XXXX of I and to base headwind us, million lost factors. levels improving largely X. performance, an turn mid-single high impact relationship behind sales revenues including sales on like-for-like very lost after gradually The do digit profit customer page of be a with service maintained quarter and of but approximately growth now $XXX want With recover the million comparison lost we rather fully for impact

strength Nomade the brand that and markets. we the on quarter I'm renewed as Gucci portfolio for Marc growth Chloé of the supply Daisy to Calvin share continued Marc brand chain licensee screen. Solid The continued longevity Hugo Jacobs, Boss momentum the houses. fragrance left leading the license, and the very of On Infinite of you results across which of in as recently Klein, Jacobs of strength strength were the Boss fashion disruption and position Jacobs' abated and third return Marc Luxury regained pleased in beyond supported the gains choice multiple Coty's drove Bottled sell-out by sustained and a launch reinforcing solid Burberry, and see

sales, very excited strong we're a improvement continued represents margin represents momentum new great range our the X, Slide also line. see a increase of the Last, our Gucci division, of expansion, and and in Michele. our collection the in profitability which the Luxury third income operating the Gucci division's of in to leverage. features Gucci to continued The shades as in relaunch sales. quarter e-commerce launch which standpoint, our and with highlights latest Luxury Creative We about year-to-date, Alessandro of total percentage operating collection, Director, the first finishes wide makeup collaboration lipstick from and both significant step a

now a bps of income high-single to market, income expansion cost fixed with XX% the XX%, even of year. included negative driving quarter of underlying was digit like-for-like moderation operating trends losses. the and year-to-date. improvement third reduction. weaknesses Europe, marks both In profit in increased turn continues the third decline adjusted XX% integration year-to-date with pace supply beauty of implying quarter margin by be mass year-to-date $XXX of year, impact Beauty, from linked slide share remain chain operating prior the adjusted Consumer US from gross our like-for-like a the broadly sell-out particularly quarter bps XXX This sales factors, cost in we I'll performance the This continue consistent improvement X. combination solid continued decline by which Consumer and of operating margin in temporary Third of savings approximately global on in the growth to of brands driven prior line versus XXX see and pressured in as Luxury a as a to million with Beauty, the XX%, our

sponsorship. and Younique driven year-over-year, presenter down in by profits revenues were declines

retention, continue of one overall we performance to and effort few refine Despite quarter, brand offering were Younique in presenter product poor key to Although focus. improve these recruitment in with and a a positive there Brazil. particularly the remains turnaround our the results, an

Our trajectory. sell-out their share and Brazilian local brands gain continued grew

grew On the quarter, million impact in were Retail hair adjusted year including XXXX innovation, year-over-year in recent in the range sales This in when fiscal in Root And slide $XX of from decline to $XX adjusted million operating of X.X%. portfolio. third quarter the resulting from declined in included Touch-Up the the year, prior accounting change. million This was revenue of decline third X, ALMEA, lapped coloring Wella an a strength income margin $XX net pricing as and our Wella both Brazil net addition particular a styling operating significantly recognition quarter and revenue intervention. driven share following with the we higher temporarily depressed Brazil growth by hair revenues

significant over with pilot quarter line goal prioritization and While portion business and even this and stress result in to which healthy disappointing, profit cost consistent the does use reductions our as we will in this top continue delivery near as soon the drive in the the time that, in reflect parallel and emphasize of the we our as fixed active A&CP, the is reinvest to of plan. next here trajectory, strategic a term, growth the top we profit a I business must as fourth year. of line in

modestly basis of in Revenues North Turning X. most business. the on Beauty, slide America declined with Professional a like-for-like success to

supply as of few customers. factors, impact temporary well decline a inventory linked as at disruptions the to the Excluding key chain lingering trade is reduction the

from the rebuild While fundamentally brand returned for some healthy. With to is and of customer strong restored and confident relationships, in the and innovation to hot-brush well. Wella continued also time to the ground strong largely the of Beauty and gross in strong good to it service OPI, operating the adjusted disruptions brands momentum income operating impact bps Platinum+ Glide XX% with P&L, enjoy adjusted slide This business our close margin the million expansion with XX%. $XX the driven levels success we're perform XXX fixed very solid Professional improvements to XX.X%. year-to-date $XX bps the income supply foreign of continued will very to exchange, overall grew to Slide I'm X, a up Coty million grew chain to XX. over Beauty now Professional the XX%, XXX margin margin was operating Professional Despite to the launch are continues ghd growth we that styler. in cost take the ghd moving reduction. and by resulting on now quarter adjusted

margin of The in by adjusted margin was reflecting the improved chain Professional versus quarter of down still Sequentially, XX year Consumer margin third margin however, third was in sales bps as in primarily gross part continued bps, lower XX XX.X% versus XXX last our gross Brazil bps quarter business. last the expansion the gross gross margin Beauty and supply XX.X% high, margin Beauty. unusually was versus the last driven weak lower of year by quarter early by adjusted the of disruption Year-to-date Luxury year. XXXX, given

earlier, we key protecting on working headwinds of And prior operating other profit and X%. this $XXX investments. approximately expenditures, reduced year, on hand, income mentioned we, in foreign delivering other line including media significant of As the costs. non-working and fixed other the exchange Adjusted despite with focused quarter million was proactively media

quarter year-to-date. interest Year-to-date prior minority third year operating foreign the operating year, lower adjusted income profit, of Our stable earnings reflecting approximately for share with weakness of interest, in Younique. XX% last per an [ph] with of tax was all million the Slide expense and from in and adjusted exchange the year-over-year including XX.X%. expense line X% of adjusted margin XX, by of $XXX the with headwinds declined $X.XX

of amount going now I'm the cash XX. effect been $XXX to foreign million. slide exchange, would Excluding have flow, the

cash including our quarter grew operations sheet. management This So, with a underlying of free flow over in contribution of from $XXX decline $XXX by the initiatives, capital during same flow year-to-date, program. quarter from million and over improvement of CapEx, cash and despite for third million total period. receivables Cash the reflected flow one-time performance, factoring solid a million of impact year-over-year turning the the of outflows in of working to the improvement $XXX drove balance $XXX and aging the to This million. approximately $XXX $XXX million million million $XX receivables coupled cash the cash

with cash until $XX resulted our been below comfortably our This net the ratio. for leverage approximately our third our of million pay-down. in business a remains slightly target million close in and deleveraging you to JAB of stock the this Pierre, X formulation participating $XXX remuneration several thanks be important key growth cash of to debt of debt $XX flow are fully our introduction will the decreased annual will action tender and available with common on Slide we of offer. will $XXX them, medium-term confidence program of than dividend Shares quarters, XX% expression less leverage an XX, this XX, flow a And net in stock on receive the times, by than will acquired as to and prospect informed cash pleased debt and I quarter has priority very of a by improvement paydown. after now decision, recent now XXX the was dividend election months I'm and confirms Alongside of of also in component payment involved dividend emphasize payment, Coty. We as resulted adjusted which of seen, by X comes, on than as the the the conclude, our quarters. from targeted JAB in quarter new plan and XX, the dilution result in leverage that, of X.X with JAB JAB an coming debt medium-term second confidence of stock that covenant of the and leverage XX elect first to the Coty obtained X to supportive debt view of this EBITDA. stated and of shareholder, our with reinvestment million. confirm ex-dividend of Having of together a total slide tender It favorable net FX owns our Having to June our in they importance XX% debt to as our outstanding strategic And dividend we quarter. the target free shares. quarter, only permitted have $X.X for reached for the focus decision, JAB shares, adjusted June of clear to XXth. The third policy, deadline shareholder offer Slide quarter have reinvestment June stock, ratio net from expresses this deleveraging debt earlier, is achieved cash generation modest JAB ratio increased times And adjusted largest the support of JAB, net our election deleveraging immersed their us This developments. the Coty. by alone, free target. EBITDA which end trade The getting dividend lower program in saving of support earning of initiating our importantly, million mentioned the discussed of management. shows EBITDA the combination by performance, a in million on anticipate, result This threshold. which this less dividend in the expect adjusted million we in we EBITDA second will through of times, Coty net Coty in ratio outlook. potential and the

for QX in line. the implies billion expected us $X in top million of solid performance to the remainder the with income the be to quarter fiscal fourth which adjusted confidence these continued weakness operating XXXX, of of year, constant and delivery despite $XXX look a our results we As an at between give expected guidance profit currency, in XXXX

quarter of cash in We with XXXX the continue flow for to year. generation positive final expect free solid flow fiscal also the free cash

remain, those. control and cash flow, and second half has objective XXXX As successful we in been, said, to in over profit are getting and of protect our this

top are recovery our And objective particular context essential we this the another of see of we've working been XXXX, on, in strat we as Beyond the is line. preparing. in plan the

report ready on back are expect we June. on for that, the get this the coming you. to year With the around as now as on you it. well of We for and to questions end plans for overall line our Thank

Operator

Thank you. Instructions]. [Operator

comes line first from of Nik of Your Modi question the RBC.

Russell Miller

Nik. Miller for is Russ This Hi. on

Pierre Laubies

Good morning.

Russell Miller

working coming if a mind. We don't you spend and to compared a A&P you more detail I and in if were have over for working, plans on the wondering your promotion Hi. advertising comment during then, quarter are the what ago how follow-up year quarters? And could

Pierre Laubies

the If my in line been media remember question. working the year for what think there you clearly, well Thank were I are I categories. reallocation some quarter. broadly last figures, they our for with between And, has

they Luxury down non-working in has were up basically slightly I fairly probably think down. and Beauty. in been, speaking, And Consumer media

testers I think which them the in and mostly basically that at that's, things like positive because, time, already same And had we all quite reduced substantially, of sample a have speaking, lot necessarily we time. reduced the that place. assets are not that

– So, as going objective as between forward, I a I'll managing a delivering we doing be and much from are target think we we line media pragmatic want our this financial again, year, honest, probably standpoint.

approval So, for at our increase plan year objective stage just is our working always -- XXXX a until media. fiscal substantial we and we our have have XXXX. for we year our clearly, assumption media since today this hypothesis our last you maximizing will year. will But fiscal operating – our at of working aim in don't yet versus But, see,

Russell Miller

of any during be were or follow-up, Thank a as And losses last since business incremental should you. and the spoke new you. Consumer Thank quarter we mindful on forward? distribution going that helpful. weighed the headwinds there That's

Pierre Laubies

our clearly, we which have some behind shelf think, at that the stage, productivity opportunities as is do And we well this in nothing. communicated, lot which the we really during with team stage. clearly, – strategies current my been, I of of And, that is on customers the believe most period. as have thing our that this And, a item done really, layout. team alluded At focusing with of an our speech, behind have the last which elements have of engaged this – I whole No. And received. have is main I we focused

Operator

question the next Your from Nicholson of of comes Wendy line Citi.

Wendy Nicholson

fact Hi. tender My is the that ownership all agreement to on JAB participate that share the going Does their to based at a dividend. recent capped level first just question to up does be the certain out is XX%, change offer? that on at in

Pierre Laubies

No, does not. it

Wendy Nicholson

then, right And they – actually my so ownership, maximum second on number? Okay. to a question go XX% of the is up that is

Pierre Laubies

Yeah.

Wendy Nicholson

of Okay. some X% But on bit the is second fragrance bit my I fragrance over little of we And is segment the have on couple business, have there lumpy know, like-for-like seen of very a the distribution side. lower last still, two. that just sort And have expecting. a issues quarter chain other then, and sort you've and That on the the growth has disruptions growth companies or quoted of the little what again supply been Luxury havoc number a been business. slower we've been the than Got it. in question end wreaked have

on sort a Just So, strong about whole. be you think – few the softening? the fragrance generally? coming a of Thanks. think just category category really talk It's a Do comments luxury may couple as fragrance category can you that off you fragrance years sustains? Do growth. of of

Pierre-André Terisse

It's Yeah. Pierre-André.

high Just then in digits, I'm which is quarter, see fairly not excess mistaken, around pace, elaborate. and around their numbers let was we we and at to I'll of XX%, comment X%. which and on the was Luxury Last Pierre underlying – fairly the what if had high-single base as high which

and, therefore, trend had, is base. as this what have is what seeing all for we expect question a of Underlying, X%. weak continue X% between in numbers. and gives year. is year, Last launches. quarter that In different we we comparison we below, lot the and QX, a Luxury This it's but underlying had we of Burberry QX, a This

So, no.

let I the numbers that. Pierre business. It read For in in terms me, then, strong should can elaborate decline. you And remains not a anything on of

Pierre Laubies

Yeah.

both too. suspect been luxury last of last over the are the there a the at from But, strong remains X% other the and we our category pragmatically at confident substantial and performance. growing X% And in reduction And our XX one. months. that quarter rate quarter a combination to has think move which don't about we previous as feel I quarter, speaking, quarters, category. I growth innovation see one dates

Operator

Your next question comes Shannon Markets. of the from Coyne of line Capital BMO

Shannon Coyne

Hi. Thanks.

bigger just You quarter demands your And without your just there? having that and wondering upside I'm talked that beauty what substantial [indiscernible] last the talked are – now thoughts how innovation. consumer about projects. even you about markets and that newness and

Pierre Laubies

think And and personally on I in market I of innovation, definitely of I we'll adhere which we of say, may realized right. the one in I never done it's newness. the term the categories not past. a have necessarily and is codes of would subject am intensity learning. to This these you're code of some or the that the

higher referring have to I others. we assortment than our really more talking was earlier, which that the when have fact was the potential I I in of velocity items think

have places than edge We competitive more where others. we have

We which prices well well-positioned are have item positioned not prices. are and in which others in

identify simple really think is in one. make which what sell product more them. selling The is money of I and the more are we fastest are it we and after, the that bottle

and there are point track to barrier of time, of to exposure beauty of your entry key it, actually I complexity And business in a invent stuff. very advertising. low think is always they would the the value to of because lot level stuff, innovation that the sheer to invent to and for renovation, call level really a item clear SKUs right right? also not the I easy your key sure the lose is or of certain And or of deserve the the problem to There make are fundamentals be to this it be right but about opportunities consistent, where to ranges.

shelf for see subranges, precise pricing, do us, assortment, sorry, we in me, being performance. opportunity substantial and for So, in see we do very a – our very

Shannon Coyne

And recently know I'm you same looks, I'm consumer. then, what ground XX-plus to think the where seeing you're curious lost helpful. in demographic, do the gained That's actually you need Thanks. to do think like in the that how younger do you've you're do CoverGirl. around that? And turn in most to losing you but you've older, thing. then fast if you the ground you to just the think still and us, curious It can

Pierre Laubies

effective capitalizes distinctive on got we into integrate we thing. Yes. One, our We And we think again TV [indiscernible] uplift. we is a turn things. very need have simple which to do several we a the therefore, research for need see Yes. I advertising going what same surprising we probably and immediately forward. the do a to advertising on with consumers put just are where which We assets. results asset Two, very hardly doing. are we advertising is hard and are means And conducted Clairol and going distinctive And advertising just which versus to which not need the that and advertising which sells advertising have us. did it also the advertising sell with resonates our our and and to which same, these results for back instance, sales

So, brands, our work things works all what persistency, consistency, markets. rigor in our across all and apply and again systematically these what doesn't understanding require it

Operator

Your line next question Robert the comes of from Ottenstein ISI. Evercore

Robert Ottenstein

Thank Great. very you much.

penalty business them? will to you. in in You may Warehouse. done it mentioned just you're that past, I'm retailers fix of could And your and that manifest SAP what are you've what What been have press which the review if and of a issues kind in of fixed? box that Thank you maybe largely kind confidence themselves the are. extent, tremendous. the us then, long How they you supply Like, of wondering those these kind was improvements to have checklist chain if with issues is release fixed, last? certain any, in looking the for how how forward,

Pierre-André Terisse

the but blocked question. any for which issues different the one on hand DCs, distribution nature, and were more with, Supply which Thanks ones were centers, sorry, [indiscernible] of bigger Pierre-André. chain correctly. – two in the relation were

issue – to these to mistaken, to if DCs US to at solve now not done progressively still the the Germany, and make an almost have solved had this the click And close quarter. what basically an to quarter, So, them We issue. and capacity solutions we to with operating better I'm re-increase already of right solved find systems it's level, work was normal. but last distribution it's center

resolved. about The with [ph] being supply not of second some two suppliers bottles being other This Luxury. to us the progressively able part is and was for issue the fragrance supply

And, So, remaining the supply and we in issues, but part month. chain amount the of that's fact, shortage progressing of getting lower. have lower the it's is every

now impact we the issues. limited very see of So,

has losses which solved integration. It The doesn't time. that's we it share result. of solved supply So, – cause some of being be the supply some careful supply issues basically not we telling case reason is integration part remind And will imagine, particularly as Professional sorry, answer, and will not another were now arose obviously, issues. have well the the with delay This of launch and chain I this the And, solved been accelerated complete sold and Therefore, any And from Beauty new customers. risk it immediately. being is as you you that that. not that have be been initiative. management chain chain the market chain again of to on anymore. come in in will impact supply issues over has by over. some the is don't losses not process can why extremely in to again. – a is expect existing that an as long I'll that we and That for the response

– we XXXX, we be regain fiscal on market have regain progressing believe shares, move the had launch. and able the But time. to in effect progressively going we we these to this we into are not this immediate are customer, planned from As it launch point to an plan will innovation

I think that's...

Robert Ottenstein

us…? give you Can

Pierre-André Terisse

Sorry.

Robert Ottenstein

of were kind of magnitude losses there? What

Pierre-André Terisse

during $XXX revenues in my as losses $XXX profit, in presentation. million Total were said million and I

gradually it year will soon next the expect is – recover probably behind You it then us more so as we'd than largely can that increase. the of this and majority as majority – and

Operator

question Deutsche the next Your of Bank. from line Alwy comes Faiza of

Faiza Alwy

morning. Yes, Good hi.

the wanted I little talked around a more that you I bit strategy about. color So, simplification guess,

specific focusing on advertising focusing just foreshadowing and a question or you scaling is are of more portfolio countries, it and guess, those reallocating of I sort investment more in So, divestments on spending? brands brands

Pierre Laubies

of do divestment. in portfolio do strengthening the of existing we not We structure the No, foresee foresee brand. our portfolio

and So, we will we brand make the that is number as fastest sub-brands margin each one. assortment these have the key will we as reduce within of rotating that, well highest of the sub-brands, the one sure within gross the

And today that. a by out, we forward. but work, top speak of and work it, on insight and intensive of at across mobilizes that to lot our gives four same extensive us markets. of lot lot a Very for stone given fundamentals the going do no time, we methodology And of gives energy, using, key analytics innovation us the a insight this which brand. rolling call unturned we that's the we enables as are proprietary leave any So, assortment all of

to So, I call, to more it the needed speaking comes combination. would that's from, our of brand-country effectiveness it you're basically brand, When assortment. [ph]

we this XX% about business the at of growing business more of is we that – The of will our XX% XX% X.X%, is business probably XX% is concentrate our working have by growing XX% is aim behind advertising. that attributing faster growing We which media. of have and we probably next X.X% which growing And it year, declining XX%. our

advertising mission-critical the that, yes, will the that And market portfolio very some growing strong decline, so, is part grows And of our and faster. requires at other for scale. it but of

Faiza Alwy

Okay, you. great. Thank

Operator

question Wissink of line Steph the of from Jefferies. next comes Your

Stephanie Wissink

Good everyone. Two questions. Thanks. morning,

The first of to goods. related is cost

just you your question, each help that have with of sourced just could diagnose to any strategies some and place the to of And division outlook if the there? initiatives, with in maybe of throw could what's us of I happening coming start you. on goods US some just in a see us Thank Younique, share percentage If costing weakness in across if for your then improvement business us are second could remind you the China. and you maybe into your out what

Pierre-André Terisse

take You'll or…? Younique

Pierre Laubies

I'll Younique. take

Okay.

relatively simple. Younique, regarding is weakness So the

presenters. if Younique, reasons. presenters struggle probably complexity – can gone amount classic Unfortunately, to or an I so at and the of the But, recruit we fatigue basically operation answer businesses, phase to maybe phase, Younique, through for – all and our probably to we hype. reduction hype is there of think a of de-hype in We of there of of presenters say through do of phase and that like effectively the element do for the an are has a marketing Younique, sales at we of so. go have is over-complexified portfolio couple multi-level speaking,

of an we So, agenda there. have simplification

has is The changes Facebook that think probably performance at the algorithm we Younique second business. helped of not the that item some

into dialog need engaging three, Facebook are exploring we look beyond opportunity. channel into And the expanding we to Facebook possibly, So, other this media and to specifically we digital develop are on at with this matter. a business

mascara. talking in So, is And been which hasn't on start. to very, that's action and require This of speaking alluded are a we this Mascara, launched of of innovation, high and when we the one item the place. rhythm the of we value Younique key conversation innovation. category good degree which have broadly Also, mascara. to Younique of are is earlier of that is a of very the XD just sufficient And off innovation rhythm

launch reasonably time, again. laws And need the that silenced back that. is same off our we've range skincare go So, didn't to to exactly we respect start good the at the Probably and beauty we of to too. of

monitor the going for clearly to expanding But to partition industry of that Younique forward. going very the think relevant closely. we mission-critical following I be the are of the business So, or laws situation innovation

Pierre-André Terisse

things. the Okay. And so on several question, COGS

is that strong one continue supply from obviously the having The first chain. productivity we

reasons you've We Somehow, despite COGS. holding are that the and continue next but We'll in And chain extent, effort that which a in negative the generating margin the top further year. potential strong is line we of to to this year. of see due results gross the up is that's you the well the productivity one improve supply seen pretty believe we – that to some COGS. significant have disruption, productivity

focusing effort. helpful improvement going simplification. going them because drive the going will during lie our to element also from therefore, therefore, us this up because you line efforts fact, help simplification we one of on and, we that is media And as brands is allow reduce standpoint the detail step strat the We'll to but and In that's a on a Simplification helpful well side in can believe bigger, going the fewer be the to COGS. to top making of COGS number and, it's plan.

– On the an China which point, $XX goods the the $XX into million, $XX million have in million specifically, China. from is exposure we around – coming US around

very a monitoring course. high we one, are of not traffic, it's the So, but

Operator

Your next Fargo Wells Securities. of line question from Lachky of Joe comes

Joe Lachky

Hi, thanks.

hoping might the you Beauty from in Beauty to address you maybe you're then conflicting and business. since media of drag. kind Consumer be could be So, pulling I seeing advertising walk the some regards continues through along In you could same the making be sends retail it where but was and mentioned profits comments mentioned you're then, if hair particular, segment, business. you're working a the weakness to to the also back if get changes Consumer in to you in going away that to lines, those care in And reinvesting you

calling So, And recovery? Beauty, delays Consumer any Thanks. maybe from think reconcile do you you just away media if can if that. you sort are of that truly

Pierre Laubies

in I Yeah. like a we fine Over year, to pragmatic need Consumer said, invest in will we Again, this media line. manage time, Beauty.

May. advertise as again, for can much year. as we So, the But, we the of afford we're already in remainder

we is we of next through on that time. of our improving Basically through combination strategic profit our revenue essentially, fund So, combination COGS, going media fund focusing a Consumer and the non-working that reducing management, of combination lot year we not in right, of and high media, reinvest in the speaking, will costs. reducing margin But combination remainder of year, of a will combination forward, gross our of will item. reducing Beauty office substantially

other So, the of and broadly the working company. media P&L at the in the into gross invest improve speaking, over-the-budget margin the expense of

they will only So, that's And this but reinvested will manner. in focused intention. reinvested, be very a be not working more clear media

year So, our has that's lower we distinctive its feel it it the for intent, trajectory Clairol, – a when why the category deserves. plan for And using It penetration XXXX. penetration. an most And actually, not is the underleveraged That's opportunity the the the right category, is you that to have very not it is our assets a of salience, the right one, assortment fabric on is deserves are not It our category. confident that we're change not it because, packaging. And than for reason clear. shares trajectory. but us. category will than necessarily it it rebalance its has won't it mostly instance, That whole salience I much versus market change penetration that's will mission-critical if it the necessarily you of change brand We and or lower speaking, in here. our shade, in its the on focused the the our When and fiscal is very that trajectory of our is take comes it plan. hair, we our think

And we think given it, it some substantial is so there And but improve have penetration job I the it have a in have to and in XXX call a a and Touch-Up, when categories instance, performance. drive we are deserves we opportunity business real done nice in categories that to it performing to And our which given would are which retail, So, a are necessarily to growing we be of, value lot comes not the hair, yes, there – to lot opportunity to think Root than are have for category, there growing that opportunity very I innovation and we far. very drive the category. well. it more

Joe Lachky

Thanks.

Operator

next of Stifel. question line Our comes Mark of Astrachan from the

Mark Astrachan

of given free forward? debt. views a into decision morning, change why read to going dividend $X your I we I there relatively it's almost do curious good cash should anything Is the I'm And everybody. revisit Thanks. savings flow optionality guess a wanted cash of in relative it small to amount billion expectations there. of

Pierre Laubies

the taking, important the And was The The the free very solid does. a question. important are is in comes that cash it which for free cash leverage was topics very a other one. of a top option very one. dividend of Yeah, the Thanks is flow. reading level on of we construct

what dividend last And – cash have I to three it seen and And opportunities free to at of have is and, it. topic a two same The dividend, a it or generate provides has seen thought achieving on quarter. we past the materialize. we deleverage. I months flow have to the topic a optionality of one, the helps until time. seen is we I And was that some Number flexibility I what that two, the very which that opportunities for deleverage. things close more free opportunities the have number have more it So, lot closes And flow. more have believe have we important have been opportunities started what cash therefore, is still to these bit

focus solution the helps the So, one. improve the time, at deleverage I going we which flow, is and, is cash real thing which on It the which debt free the same it's of to think can company. is a clever a a

pretty to target And the the take by that's done is pretty leverage team helped to EBITDA affirm your order. one want medium-term well reason to with to want So, is we question and terms four good doing which that. clarify just clear as a this hijack very it by us term the direction. sense that to the the times And think to Pierre a that's comment debt and clear and way. the we by and therefore, to solution, and objective. the for somehow sustainable say are way, why I in and we've in very one a something, now, has a I add where medium solution try things the we net with or have, go And to what to and of

everything to this not possible. at We once think solve is are we here because not

we so one, performance take the one company. We the by creation are here address topics them and to in have that and sustainable value

chain that to the and company thing issues done to done standpoint, address the and So, the from first has stabilize we've that. supply we've been

The the cash flow. second has been free thing

been be company operating we assessing thing the income margins. the top It's important this At we we of could do and what need income. The third very stabilize line stabilize has the do, are the instead are we the time, in worst which the because of operating improper, same to at we need the to and to really we doing would to what we behind that terms money do of doing which the we immediately what where start shooting to everywhere, are put to money. And things waste is portfolio this understand moment. review exactly is

the cannot As soon time. Simply are reaccelerate to as at we objective ready, everything the can I top line. will do our that be we tell you same

are absolutely when my we the that is deliver. you what results, take we at want delivering look So, to

We that on us re-accelerate the the the of and we'll And makes prepared soon opportunities so far are cash line. on are as that we we delivering to top as getting are topic delivering able and everything see for confident are dividend, XXXX. we flow, have be we closing OI, that we

way So, we have management, spirit company, the the but to is important hijacked the that very really question, the Thank point taking because of your thought yeah, the this sorry I it this things. of to spirit you. make was and the are

We question. time more for have one

Operator

question next of Teixeira of line from Morgan J.P. comes And Andrea your the

Andrea Teixeira

for And me in. good you morning. squeezing Thank

the or this part on there's obviously, negative your cash, also that? are it's So, neutralize year, as you count income operating of going you ALMEA. but in you're negative of had of growth the we unlock a to for price you I taking if the you payment impact pricing because, speak on in so help What dividend the dilution. use the guidance share And assuming stock, Brazil in you should the ex-Brazil last assume are is to pointed not impact fact, talk you that in the you a question as from neutralize if to in impact. increase? slides able out you we And if then growth year, a for shares second expect it? buy Thank you. back looking, as the on be But moderate And the to Coty is understand,

Pierre Laubies

Yeah.

this only their X% a approx. performance the last growing rate XXX%. So, doubled it's the that about was represents year lot Brazil And, is quarter It's, of in business because low than it the year, obviously, sales which way. but year. last third I very can its was a healthy in one-off, more i.e. and is about thing base increase base say a a of it's of Brazil pretty therefore, of the

about you the about make the X% held now, per On two, if by to math divided X It's quarter. take dilution JAB X.X%. dilution, it's you shares the of shares number a million by so of

dilution. one, So, we a dilution just modest – targets doing. various is something X% but hopes a that's our dilution. We a that's that are consider nothing to It's through compare of if it's you the things accretion and EPS

to to So, the cash going our fact topic the aside put we focus try of and the the flow, the than have rather closed of topic different create to and be create to the and the dividend, to on able business optimize have value is position. the scheme That's more fact through and covenants far EPS the to leverage layers.

Andrea Teixeira

you. Thank

Pierre Laubies

the to come you end for and you road do of both not we'll tell and as attendance thank And the done. on your as term. the end over us to we're think June, Thank back want of June support. but I We we for happy to you you medium the probably. to QX, what want to be soon your waiting so see

Pierre-André Terisse

you. Thank

Operator

ladies conclude you, Thank call. conference does today's and gentlemen. This

disconnect. now may You

Coty (COTY) 9 May 192019 Q3 Earnings call transcript