Can Coty's New Chinese Leader Help Coty China Grow Again?
- Chaileedo Press
- May 11, 2023
- 5 min read
The net revenue in Asia Pacific business of COTY Group declined 0.4% in the third quarter, with COTY saying the decline was mainly due to the high-end fragrance business and consumer beauty business declining in China, where the market is still recovering.
On May 9, Coty Group released its financial results for the third quarter of fiscal year 2023, which ended on March 31, 2023.
During the reporting period, the Group's net revenue increased by 9% to $1.289 billion, which included a negative foreign exchange impact of 4% and a negative impact from the Russian exit of approximately 3%. Net revenue for the first three quarters was $4.202.5 billion, up 2% year-on-year, including a negative foreign exchange impact of 7%.
Earnings per share improved to $0.19 during the quarter and adjusted earnings per share for the first three quarters were US$0.52, an increase of US$0.23, or 79%, compared to the prior year.
Operating profit continues to rise
Coty has grown rapidly over the past two years, ranking 10th in the 2022 Top 10 Beauty Companies by CHAILEEDO's previous publication, replacing Johnson & Johnson, which ranked 10th last year, and is the only beauty company in the Top 10 that focuses on fragrances.
Through Coty's financial results for the last four quarters, CHAILEEDO found that Coty's net revenue has not changed much, but its adjusted operating profit is on the rise.
(The last 4 quarters of Coty Group)
Notably, in the third quarter of fiscal 2023, Coty reported net income attributable to common shareholders of $105 million, surpassing last year of $49.6 million, an increase of over 100%. Net profit attributable to common shareholders for the first three quarters was $465.4 million, up from $341.5 million last year, an increase of 36% year-on-year.
For the future, Coty is extremely confident. Modest gross margin growth is expected in the fourth quarter and in fiscal 2023. Within ELF, Coty expects core business revenues to grow by 9-10% in FY2023 after adjusting for the impact of the Russian exit.
Coty believes that in a complex global environment, beauty products remain a dominant category for consumers. It is in an optimal position for affordable luxury, self-care and confidence-boosting. This development reinforces the company's confidence that global beauty consumption is performing well in a variety of macroeconomic environments. Coty's leading position in fragrance and cosmetics, supported by the significant untapped potential in skincare, China and travel retail, is poised for success.
Commenting on the operating results, Sue Y. Nabi, Coty's CEO, said.
"We are once again proud to report strong operational and financial performance, with today's Q3 results marking the eleventh consecutive quarter of results in-line ahead. We are delivering on our balanced growth agenda, with strong LFL growth across both divisions and all regions, with growth contribution from volume, price and mix, and from our key categories including fragrances, cosmetics, and bodycare."
Prestige segment grows rapidly
By segment, Coty's Prestige segment generated net revenues of $799 million, or 62% of Coty's sales, up 10% year-on-year, with strong growth in almost all markets where the segment achieved double-digit growth.
The Prestige segment generated a reported operating income of $102.4 million in 3Q23, compared to $83.8 million in the prior year. operating income was $140.7 million, up from an adjusted operating income of $123.1 million in the prior year.
Coty also mentioned in its results that growth in the high luxury beauty and fragrance categories in North America and Europe accelerated sequentially. Global travel retail trends were strong across all regions, with growth rates of over 30% in the third quarter and first three quarters of fiscal 2023, supported by a continued recovery in tourism and increased spending.
High-end beauty brands maintained strong growth trends through the launch of iconic new products and expanded markets. Market-leading premium products such as Burberry Hero and Her and Gucci Flora optimise the premiumisation of the entire portfolio. The success of Gucci Makeup and the continued growth of Kylie Cosmetics also further strengthen Coty's position within the premium beauty segment.
In addition, the Consumer Beauty segment generated net revenues of $489 million in the quarter, accounting for 38% of Coty's sales and representing a 6% increase compared to the same period last year.
The global market share of Coty's Consumer Beauty business continued to grow, driven by colour cosmetics, body care and skincare, achieving five consecutive quarters of market share growth. The third quarter of the year and year-to-date saw strong growth across most of Coty's key brands, with CoverGirl, Rimmel, Max Factor, Monange and Paixao all achieving double-digit revenue growth, driven by volume growth, impactful innovation and pricing execution.
Credit: Burberry Hero and Her fragrance)
Coty’s business in China declines
Regionally, in the third quarter, Coty's net revenues in the Americas, EMEA and Asia Pacific were $543 million, $587 million and $157 million respectively, up 13%, 7% and -0.4% year-on-year, representing 42%, 46% and 12% of Coty's total sales.
In Asia Pacific, the Prestige achieved solid growth in the quarter, with almost all markets achieving double-digit growth. However, in a gradually recovering market, the Prestige and Consumer Beauty in China declined.
Moreover, on May 8, Coty China changed hands. According to the National Enterprise Credit Information Publicity System, Guilhem Julien SOUCHE, Senior Vice President of Global Travel Retail and General Manager of Coty China, is no longer the legal representative of Coty (China) Investment Company Limited and has stepped down as "Chairman and General Manager". His successor is Chen Min.
(Photo: Chen Min, Chairman and General Manager of Coty China)
In 2012, Chen Min joined L'Oréal China as General Manager of Retail for L'Oréal's Luxe, where he was responsible for the retail management, customer relations and operational strategy of all premium brands. In just two years, he doubled the size of his business in charge of the e-commerce, Sephora and domestic travel retail channels.
In February 2014, he joined L'Oréal Active Cosmetics and was promoted to Vice President of the division. In January 2016, he was promoted to Vice President and General Manager of L'Oréal China Active Cosmetics, based on his achievements in business building and organisational development. Since then, Chen Min has pushed SkinCeuticals to open the brand's flagship shop on the Chinese e-commerce platform Tmall and entered shopping malls such as Deji Plaza in Nanjing Reel in Shenzhen, driving SkinCeuticals's China sales to grow 84% in 2017, making it the brand's second-largest market globally.
The change of management at Coty China demonstrates its determination to continue to increase its presence in the Chinese market. The former General Manager of Coty China, Guilhem Julien SOUCHE, had said in a public interview that "China is one of the most important markets for any beauty company". The new General Manager of Coty China, Chen Min, is a Chinese who understands the Chinese market and Chinese consumers better. He will make more forward-looking and inspiring plans for Coty to increase its presence in the Chinese market.
Chen Min has previously said, "Compared to more developed and mature countries and regions, the development of the cosmetics category in China is in a stage of accumulation and acceleration, and the market has huge potential for growth in terms of per capita consumption and beauty market share." Coty's future development will also be aimed at the Chinese market as an important consumer market.
In addition, Coty made particular reference to its comprehensive skincare strategy in its Q3 of FY2023 financial report, including the launch of its Lancaster skincare range in China and travel retail. According to Coty CEO Sue Y. Nabi, "There is tremendous untapped potential in skincare, China and travel retail". In March, Lancaster launched a new line with the official announcement of its spokesperson, Guan Xiaotong. So far, Lancaster has opened offline boutiques in Hangzhou and Nanjing, with the next stop in Chongqing. Meanwhile, the official online flagship shops on Tmall and Douyin (Chinese version of TikTok) have been put into operation.
The change of hands at the helm of Coty China by a Chinese may indicate that Coty is paying more attention to localization. Whether the new CEO can lead Coty China to resume growth is yet to be tested by Chinese consumers.
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