US beauty house Coty reported slower growth for the first quarter of FY2025, with preliminary results indicating a year-on-year revenue increase of +4-5% (like-for-like).
This figure falls short of the company’s earlier estimate of +6% growth for the quarter.
The subdued performance was primarily attributed to tighter inventory management by retailers in markets such as the USA, Asia travel retail, Australia and China, resulting in Coty’s sell-in tracking well below sell-out. Aside from the USA, however, each of these markets contributes only a low single-digit percentage to the company’s overall business.
In contrast, revenue growth in other key markets remained strong, registering increases in the mid-single-digit to double-digit range.
The company’s limited exposure in China has helped minimise the effects of local market conditions, Coty said.
Looking ahead, the company is projecting moderate growth in Q2 like-for-like sales, reflecting ongoing retailer caution and the weakening US market.
Acceleration is expected in the latter half of the year, driven by easier previous year comparisons, resumed alignment between sell-in and sell-out, several strong launch initiatives in both divisions and select distribution expansion.
EBITDA is expected to be roughly flat to moderately lower year-on-year despite strong gross margin expansion. This adjustment is attributed to a combination of lower-than-anticipated order patterns in the second half of Q1, the investments behind strong ROI sell-out initiatives, the timing of certain fixed costs and the profit impact from the divestiture of the Lacoste licence.
In response to rising market uncertainties, including cautious retailer behaviour and a complex macroeconomic environment, Coty is ramping up its cost-reduction strategies across all parts of the P&L to exceed its initial FY2025 savings target of approximately US$75 million.
The beauty conglomerate maintains its forecast for FY2025 adjusted EBITDA to grow +9-11% year-on-year, in line with previous guidance. This is supported by continued sales growth, consistent gross margin expansion and higher cost savings for FY2025 and beyond, while maintaining A&CP in the high 20s percentage.
The adjusted EBITDA growth target, combined with steady yet moderate revenue growth, suggests a notable improvement in adjusted EBITDA margins for FY2025, following the 30 basis points increase in FY2024.
Coty continues to target leverage close to 2.5x exiting CY2024, though the tight inventory management by retailers is adding some variability on cash inflow timing.
The company’s full Q1 financial results are scheduled for release on 6 November. ✈
