Coty to ramp up marketing to ‘capitalise on momentum’

Beauty business Coty has reported a “strong” start to its financial year, with results “well ahead of expectations”, and is now looking to capitalise on this momentum by “doubling down” on marketing going into the festive season.

The business, which owns luxury beauty and fragrance brands including Gucci and Burberry, as well as consumer brands Rimmel and Max Factor, introduced a cost-cutting programme with the arrival of CEO Sue Nabi last September.

Coty is on target to save up to $600m by 2023, as the company cumulatively achieved $400m in this quarter.

Speaking on an investor call today (8 November), Nabi said given the company had “successfully” reduced cost margins and improved profitability, it now intends to “reinvest more in marketing spending to further boost our sales during this critical holiday period, capitalising on the unprecedented momentum our brands are seeing”.

Revenues in Q1 increased 22% year on year to $1.37bn (£1.01bn), while EBITDA was up 67% to $278m (£205m) due to a combination of “strong brick and mortar growth” and a 23% boost in ecommerce.

The sales momentum was fuelled by a number of launches within its premium fragrance portfolio during the quarter, namely Gucci Flora Gorgeous Gardenia and Burberry Hero.

Meanwhile, the repositioning of Rimmel and Max Factor in the summer have shown “solid progress” across key European markets.

The launch of Wonder’Extension mascara has become Rimmel’s most successful in the category within the UK and Germany, and the business said momentum is also building behind its Kind & Free range of vegan and cruelty-free cosmetics products. The range is currently in the “soft launch” phase, with marketing to support it to be fully activated in January.

Nabi claimed Kind & Free is “constantly breaking records in terms of reaching the best KPI [scores], so we are super confident that we are going to see an acceleration in Q2 in consumer beauty”.

Meanwhile, the launch of Max Factor’s Facefinity foundation, the campaign for which is being fronted by Indian actress Priyanka Chopra Jonas, has helped the brand drive market share gains in the UK “for the first time in years”. Since repositioning Nabi said the brand is seeing market share improvements in 70% of its markets.

Going forward Nabi said marketing investment will be focused on products with higher profit margins such as make-up, as the company reported a 500 basis point gross margin increase.

“Q1 marks the fifth consecutive quarter of Coty delivering results in line to or ahead of expectations,” she said. “Importantly, our Q1 results exemplify the virtuous cycle that we have been working to create, where our strong top line performance coupled with sustained gross margin expansion and cost initiatives, fuel both profit expansion and targeted reinvestments to support future growth.”

Chief financial officer Laurent Mercier said while Coty will feel the squeeze from price inflation for materials and freight transport, he expects the company’s gross margin management to cushion the blow.

Mercier also said marketing was “maintained or increased” this quarter as spend accounted for approximately 22% of revenue, a spend a rate that is consistent with last quarter, and 20% above the same period last year. Mercier added marketing spend was driven primarily by working media, which more than doubled in the quarter.

The prestige brands business delivered 63% of total revenues, raking in $870m (£641m) for the company, a 35.1% increase compared to the same period last year. Growth was driven by travel retail in the US, Asia and Europe, where demand for make-up and fragrances was high.

Coty’s consumer arm saw a 3% increase in revenue to $501m (£369m) making up the rest of Coty’s revenue (37%).

The cosmetics company also announced a definitive agreement to sell an additional approximate 4.7% stake in Wella to investment company KKR in a deal worth $215m (£158m). The deal reduced its total share in Wella to 25.9%.