All right. Good morning, everyone. I'm Dara Mohsenian, Morgan Stanley's household products and beverage analyst. We're very pleased to have Coty with us here today, including Stefano Curti, Chief Brands Officer of Consumer Beauty, and Alexis Vaganay, the Chief Commercial Officer of Consumer Beauty. And also, just before we start, a quick disclosure, please see the Morgan Stanley research website at morganstanley.com for our research disclosures. And with that, Stefano and Alexis, thank you for being here today. Maybe just first, help us frame a bit the Consumer Beauty business for the audience. You know, size, category exposure, geographic presence.
It's obviously one piece of overall Coty, so just help us give a little bit of background, and I'll tease the second question, which is maybe just talk about how this business has really evolved the last few years under a new management team with this great turnaround we've seen at the corporate end.
Right. Well, thank you very much for giving us the opportunity to introduce the Consumer Beauty division to to all of you. Obviously, we are addressing the value-conscious consumers, right? With this division. It's been a great division of ours. We've managed to post in fiscal 2022, a +8% growth. We grew another 11% in fiscal 2023, like-for-like, and in Q1, we posted another 10% growth, right, in the past quarter. So I think it's evidencing the fact that we have a great portfolio of brands, renowned, and a great footprint geographically. So if I get into the categories now. We primarily have a color cosmetics business, which accounts for two-thirds of our net revenues.
It's made of brands such as COVERGIRL or Rimmel, Max Factor, Sally Hansen. We have also a portfolio of body care, which accounts for 20% of our total business, and here we have brands such as Adidas, but also local Brazilian brands called Monange, Bozzano. And we have a mass fragrance portfolio, which accounts for 15% of our sales, and that's made of brands such as Vera Wang or Nautica, just to name a few. Okay? From a geographic standpoint, when you look at the countries, a third is made in Europe. Again, with brands like Rimmel, Max Factor, Adidas.
Another third is made in the U.S., COVERGIRL, Sally Hansen, and 20% is made in Latin America, primarily thanks to our Brazilian portfolio, where we also have a big footprint. Which means that the rest of the world is 15%, and that leads me to, you know, highlighting the immense opportunity that we have. Because the rest of the world, outside of LatAm, North America and Europe, is still kind of a white space for us. Countries like Africa, China, and I'd be happy to expand later on, maybe.
Sure.
You asked about the evolution of the business, right?
Right.
And the recent turnaround. Thank you. Thank you for that. Yeah, I think the phase of the turnaround starting in 2020. And it started with a new management team, as you mentioned, Sue Nabi, under the leadership of Sue Nabi. Alexis, I mean, I joined three and a half years ago. The executive committee was installed there, and Alexis became also the Chief C ommercial O fficer for the division. Prior to that time, Coty was under significant pressure. Coty had been losing market share, profit, and sales came down, and also there was a reset of the space on shelves. So, that's where we're coming from. When we were appointed in 2020, we focused on a couple of things.
The first one was an assessment of our key brands, key equity. The strengths and the values, where they're coming from, and then we relaunched them systematically, one after the other. The first one was COVERGIRL in the beginning of 2021, then followed by Rimmel, Bourjois. And when I say relaunch, I mean, we often say we looked back to move forward. So we looked at the values of the brands. And we decided to build on them, but refresh them in terms of visual identity, in terms of messaging, innovation, and advertising. The results, as you mentioned, it's been a turnaround, so we have either maintained or incrementally grown shelf space.
The revenue growth was strong, as Alexis mentioned, +8%, +11% in two consecutive years, and then the last quarter, +10%. We grew our retail sales either in line with the market or faster than the market, and probably the fastest place where we have grown is e-commerce, where just last quarter, we grew COVERGIRL by 25%. And we have expanded our adjusted operating margin. Now we are focused on share gains and strengthening the share gains, so we're focusing on innovation for the future. We're focusing also on pivoting our marketing model to more advocacy and more digital. Maybe we'll touch upon a bit later in a new consumer engagement way.
Okay. Well, that's a great segue for delving into social media. Obviously, in this sort of core color cosmetics category, there's really been a shift to using social media, advocacy-driven brand building over the last few years here. You guys have made a lot of progress. Can you talk about what you've done in this specific area? What inning you're in when it comes to sort of embracing this new strategy of engaging with consumers? And where do you think you stand today, just in terms of executing relative to peers, and again, the evolution over the last few years here?
Well, you're right. It's been a recent development for Coty, which also means is a huge opportunity for us ahead of us. Over the past year, we have moved progressively our attention, our focus, our investments from traditional media into advocacy, digital, et cetera, and we continue to shift. What we've also introduced for two years in a row is a marketing mix modeling. So we are looking at ROI, comparing everything in the mix, from BAs, beauty advisors, to television, to audio, to digital, social, et cetera. So we are looking at different ROIs to help us make those decisions. Now we are focusing on engineering virality through advocacy.
Everyone wants to become viral, and the way we are making the first steps: One, we have increased our focus on influencers and digital creators. Past, in the like 12 months ago, we used to work with approximately 100 influencers for each of our new product launch. The next product launch on the country, the one that is coming in January, we're gonna be working with 5,200 digital creators. So from approximately 100 to 5,200. That's one example. Another example, we have been opening TikTok studios in multiple countries.
Just in this country, we have a TikTok studio in New York, for instance, and a TikTok studio in Miami, because Miami is a platform for us to get more insight and more in touch with the Hispanic community, and also serves for the Latin America creators. We invite them in our space because we have good equipment. Sometimes they don't have space, especially in New York or access to good equipment. Also, we allow them to perhaps if they're also influencers in fashion, to or use our facilities. So we are strengthening, we are growing with the small, we're growing with them. Other things that we're doing, we are doing co-development. We started doing co-development.
For Rimmel, for instance, we have created a Rimmel squad of nine global influencers, and we're working with them to develop, in fact, to develop new products. In fact, the first new product co-developed with influencers will be a Rimmel eye product that is about to be launched. We're also co-developing collections. The collection with COVERGIRL with Kelsea Ballerini, a collection of eyeshadow just launched for the holidays, and the collection of Max Factor with Priyanka Chopra Jonas, that is our ambassador. We are seeing the first results. So in the U.K., for instance, and this is only early stages.
In the U.K. now, Max Factor and Rimmel are among the top 10 in EMV and VIT, Earned Media Value and VIT, Visibility, Impact and Trust. So we've become top 10. We have tripled the media, the EMV, just compared to last year on Rimmel and on COVERGIRL, where we have started a bit later, just in the last period, we have posted 4.5 x EMV compared to previous months. So again, just the beginning, a lot is happening and therefore we have tons of opportunities ahead of us.
Great, that's helpful. And one of the things that you really need to drive that, that social media aspect is innovation. So, can you talk a little bit about how you're approaching innovation in Consumer Beauty in general? What areas are you prioritizing? How important is that in building brand equity? And also maybe just forward contribution relative to recent history. And maybe both in this division and just broader organization, you guys can talk a little bit about how you've reinvigorated the, the innovation process at Coty the last few years?
Well, super important, the amount of innovation is actually increasing. In the past, customers were in the camp of fewer and bigger, and today is more and bigger. What we've done, we have followed some key innovation principles. First, we have identified the areas where we want to win big. COVERGIRL, for instance, is a market leader in clean beauty, and COVERGIRL is market leader in the skinification of color cosmetics. Another principle is designing product for advocacy. What does that mean? Now, the world has moved to visual claims, so we have our products that need to become more visually appealing so they can be relevant on channels like TikTok.
For instance, specific features of a curved brush or a two-in-one mechanism, etc. So things that can create a storytelling on TikTok. And then we have also followed another principle that is identifying white space opportunities. And I'll give us some example of that. Another thing is about the timeline of new product development. So we are accelerating. When we took over, Alexis and I, product timeline for new products was around 18-24 months. Today, we are down to eight months. So we can develop products and launch products within eight months, and we are targeting 13 weeks for some key categories. Some examples of what we've done, COVERGIRL, I mentioned, undisputed leader in clean beauty.
Some examples have been the recent launch of Cleantopia, 100% natural fibers that deliver 300% more volumes. We have launched a Clean Fresh Yummy Gloss. Yummy Gloss actually is a product that has gone really viral on TikTok and other social platforms, and we have relaunched the Clean I nvisible powders. So we continue to anchor ourselves in clean. The clean portfolio, in fact, of COVERGIRL, has been growing by 20% just in the last quarter. We have continued to skinify COVERGIRL's in Consumer Beauty. Remember, COVERGIRL sells the number one anti-aging foundation in America. Number one. It's called Simply Ageless, and we have just a new Simply Ageless product coming up in January. It's gonna transform again, the skinification journey of makeup.
We have also, in terms of designing for advocacy, for instance, we have launched Max Factor Lash Wow Mascara, which is a two-in-one mascara, basically for volume and if you want to lengthen, you use it, you know, in the first position. If you want to give more volumes, you twist it. So it's kind of the first two-in-one mascara on the market, and it's really designed for advocacy. And other things that we design for advocacy is dupes. The dupe phenomenon is big, especially on TikTok. So we target some luxury product, and we aim to match their performance. And this is, for example, the Simply Ageless product that is about to coming up in January.
Finally, filling white space opportunity, which we still plenty. An example is Sally Hansen. Sally Hansen is the market leader in this country in nail polish with over 43% market share. Our second competitor has half of our share. But we've always competed in nail polish or nail care, and recently we have launched artificial nails, which is a booming category where we're already taking share. So, these are some of the guiding principles and some examples of how we evolved our innovation model.
Great, that's helpful. Alexis, you're here in the U.S., and we love our data. We tend to look at U.S. scanner data quite a bit, and the question is really on the COVERGIRL brand and the trajectory of that brand. I think scanner data doesn't necessarily tell the full story, so maybe just give us an overview of that brand's trajectory. A little bit of sort of overall flavor for the brand, how it's performing across channels, and maybe how the untracked channels are a little different from some of the tracked channel data. Obviously, you've seen a nice turnaround on that brand over the last few years. As you think about the underlying drivers behind that, how sustainable are they going forward?
Yeah.
We touched a little bit on innovation, right? But what are the key drivers there, and how sustainable are they going forward?
Well, I'm glad you asked, because COVERGIRL is our number one brand. So it's primarily based in the U.S., but it's still our biggest brand. So making sure that we groom it the right way, in a relevant way for consumers is absolutely critical. So on the back of all the relaunch that this Stefano just described, we managed to post a +10% growth on COVERGIRL in fiscal 2023. We're still enjoying a pretty sustainable momentum in the beginning of this year in Q1. So it's. We've got momentum behind the brand, clearly. And that's thanks to not only the good work done from an equity standpoint, but also from a shelf standpoint.
We managed to expand our distribution in the U.S., not necessarily in channels that are tracked by Nielsen, but we grew during the spring reset. The space looks good as well in the fall 2023. Looking forward to 2024, we're also confident in terms of shelf space. So that's, you know, a great story for now, between the rejuvenation of the equity, but also the shelf space. Okay? Now, you know, something I cannot insist enough on is the fact that Nielsen, as most of you read it, covers brick-and-mortar. So in brick-and-mortar, the gap versus the category, between category and COVERGIRL is shrinking down, so we're still lagging slightly behind, but it's more than offset by our gains in e-commerce.
And that's strategically really important for us, because even if it's not tracked by Nielsen, we want to overdrive e-commerce, because this is where our shopper, especially the Gen Zers, shop, right? So if you look at e-commerce performance of COVERGIRL, it's exceptional, double digits. It's accretive. Our margins are really strong there. And it's driven by traffic. We saw an increase of 10% on e-commerce. It's driven by conversion. We managed to gain one full point of conversion online, and mix, because we premiumize as well, and our innovations are doing extremely well in commerce.
So clearly, this shows if you paid attention to the last quarter, which was delivered in September, we managed to gain share by 20 basis points in this country when you aggregate brick and mortar and e-commerce together. Okay? Great momentum, and we're happy to see COVERGIRL flourishing in this country.
Right. And do you think, is that momentum generally extendable as you think about, is this brand back to consistent growth? Is it a share gainer in the U.S., internationally? How do you sort of think about it-
Yeah.
-conceptually-
Yeah.
-going forward?
Absolutely. We believe that COVERGIRL has got what it takes to really win the hearts, not only of its legacy consumer, but also the newcomers, the new joiners, Gen Z. And with the work that we, Stefano, highlighted in terms of pivoting our support model towards more advocacy, we even start thinking of Gen Alpha now.
Okay, great. Sally Hansen is another core part of the U.S. business, a little different than some of the other brands like COVERGIRL, obviously, in terms of where it's focused. Can you just talk about how that brand is performing, what the big opportunities are from here as you look out over the next few years? You obviously touched a little bit on innovation, but, talk about the growth drivers for that brand going forward.
Yeah, Sally Hansen is one of our largest brands, one of the top three brands within Consumer Beauty. Is an American-based brand, and we have continued to strengthen our market share. The last read was 43% in market share, absolute market leader. Continue to strengthen actually, little by little. And as I said before, our second competitor has half of our share, so a very big gap. The internationalization of the brand has been so far successful. So, a year and a half ago, we launched Sally Hansen in the U.K., and just in less than two years, has become the number two nail polish brand in the U.K. By the way, the number one is Rimmel, so it's another one of ours.
So we see nail in general as a category that is gonna be a big driver, and that is already a big driver for C onsumer B eauty both in terms of revenue as well as in terms of margin, because it's a highly accretive category in terms of margin. And then we have plenty of spaces to grow, because we are primarily nail polish, nail care, but then there is another world that is skyrocketing at the moment, including artificial nails, including strips, stickers, including nail art. And this is the next frontier for the brand. Just entered with artificial nails, but we have nail art and more coming up.
We feel very strongly, and it's a big contributor, as I said, of margin to the division.
Great. Well, maybe let's move from nail to fragrance. Can you talk a little bit about the mass fragrance portfolio? What's sort of the role within Consumer Beauty in general? And, you know, what are the key focus points, key drivers of that business as you look going forward?
So, fragrance is approximately 15% of our Consumer B eauty business, and we do believe it's actually our current and next priority for the division, and we believe we have the right to win in this category. As you know, Coty is the number one market leader, is the absolute market leader in fragrance in the world. So we have strong capabilities. We have strong R&D capabilities. We have a large R&D center in Switzerland. We have big manufacturing capabilities. We in fact have the largest manufacturing plant for fragrance across all company based in Spain, and obviously, larger distribution capabilities in mass market.
So that's why we believe that with a portfolio of brands such as David Beckham, Nautica, Vera Wang, Adidas, Bruno Banani, Bourjois, Max Factor and Jovan, and more to come, we have the right to win also in mass. Because what we need to do really in mass is not just building market share, but it's actually building the category. The category is quite underdeveloped in mass, and it's a big opportunity. So we have the opportunity to create this new world of sensing experiences that provide surprisingly affordable attainable, everyday luxury, but with no compromise. So in other words, we have to continue to deliver that prestige feeling, but at accessible price point and accessible channel. The channel doesn't exist, for instance, in Latin America, and we're just starting creating it.
For instance, in Latin America, there is a channel of stores and a channel door-to-door, nothing in drugstores. And that's where we have entered with our portfolio brand recently. We're doing this in the rest of Latin as well. So it's not just a market share, it's a category creation, and we believe we have the right to win. Highly accretive from a category perspective, in terms of margins, so it's very important financially for us to grow that category.
Okay. And building on that, we've obviously seen a broader acceleration in the fragrance category over the last few years. That's true, just not only on the C onsumer B eauty side, but on the prestige side. So I'll cheat a little bit and bring in prestige, but just it'd be great to hear your perspective on what's driven this rebound in the fragrance category, how sustainable it is as you look going forward, more from sort of a holistic beauty standpoint?
Yeah. Fragrance across, across prestige and mass has really been an excellent, buoyant category, especially during COVID and after COVID. What we are seeing is increased penetration and more frequent usage of the category. And we know that it's because of the attitude towards fragrance has changed. It's now connected to health, it's now connected to self-reward, it's connected to the fact that you, you can have a little piece of luxury without spending an arm and a leg. I mean, when we, we have some of the fashion, biggest fashion, brands in the world, and, today, to afford, I don't know, a Gucci suit, for instance, you have to spend $4,000, $5,000.
Not everyone has $5,000, but most people can be part of the Gucci or the Burberry world by spending $150 on a fragrance. So, we call it the fragrance index. There was the lipstick index, so there is a fragrance index, and the fragrance index we believe is remains in full effect. We expect near double-digit growth to continue the you know high single-digit growth of the category in prestige. Mid-single-digit growth in mass driven by more Gen Z approaching the category, more men approaching the category, and the category being used more often. Actually, if people used fragrances as much as I do, the market would be ten times as big.
We'll hope for that. So we started out really on top line, Alexis. Maybe we'll shift a little bit to margins and the financial profile of Consumer B eauty. In the past couple of years, we've obviously seen a lot of progress in terms of operating profit dollars as well as margins. Margins are still below the company average. Talk about some of the key drivers and the margin progression from here, and maybe also how much pricing ties into that A&P investment, how you think about that? But again, margin drivers in general and sort of tie in the pricing and advertising side.
So, the Consumer B eauty division, to your point, is delivering an EBITDA slightly below the corporate average. We've made great progress. In the past two years, we've managed to boost our margins by more than 100 basis points. But of course, we focused on delivering way more than that. And for that, we have a clear roadmap, which is based on several levers that are pretty clear. The first one is working on our cost of goods. We have a great procurement department helping us, and we've seen tremendous results in the past few months, coming out of that cost of goods efforts.
We've got also a program to really strip out all the non-value add components that we have in our products. I'll give you an example. We spoke about fragrances where we've lowered slightly the quality of the glass. That's not even noticeable by consumers. We've tested that. But that's delivering savings, for instance. And there are many plans that are working in that vein. We have, of course, worked on our mix towards much more elevated innovations and more accretive categories. So that's what we call internally strategic revenue management, where we work really in details into the product mix, category mix, really make sure that we optimize the margin. And last but not least, of course, we have still our innovation streams.
That is always margin accretive, and we make sure that we don't launch anything that's not at least one full point accretive in terms of of margin versus average. So you see that we have a roadmap, and we're very confident in our ability to deliver several percentage points of margin improvements in the next couple of years. And it's really critical because in the meantime, we Our goal is to maintain our level of of investment in terms of advertising and promotions. These are key, you know, the C onsumer B eauty division is all about stimulating demand, pivoting our model towards more efficiencies when it comes to advocacy.
This to also fuel the amazing white space opportunities that we have, you know, in terms of categories, but also in terms of geographies. Okay? So yeah.
Great. That's helpful.
We put on.
Just looking at geographic opportunities, obviously a lot of the investor base is in the U.S. and Europe, but you guys have a very vibrant business down in Brazil and a nice infrastructure down there. Take us through that business a little bit and the opportunities to grow that business over time and what you guys are thinking on that front.
So, as I was mentioning, you know, in the beginning when we introduced the Consumer B eauty division, our footprint is primarily North American and Western Europe. Right? So which in turn makes, you know, the rest of the world extremely interesting for us because we have a lot of leeway for growth. That's our growth with abroad, and especially mass fragrance, the Consumer B eauty divisions and mass fragrance, for instance, have a great, you know, runway for growth in these geographies. I'd like to take the example of Brazil, where you rightly pointed out the fact that we're very strong today with a Brazilian portfolio of brands. But actually, we have a great opportunity to also launch our mass fragrance there.
So, Stefano alluded to the fact that we're now introducing our brands into a new channel, the drugstore channel. If you know the Brazilian market, it's the biggest fragrance market per capita in the world, $4 billion. But today, it's door-to-door, managed by the likes of O Boticário or Natura. What we have started to do is to introduce our mass fragrance portfolio into the drugstore channel, to turn our brands and make them available physically into one of the more most granular channels that we have in this country. And we've identified the opportunity to launch in 15,000 doors. So currently, we've launched in 4,000 successfully. Amazing response from consumers and retailers. We're still driving on, working and focusing on driving more productivity per door through the advocacy model.
Then we can leapfrog and launch in the 15,000 doors. The other example I can take is, of course, China, where the same could happen. We have plans now to launch our mass fragrance portfolio in China, and we also have plans, I mean, we actually already started in India, where we've launched our new light affiliate. We have boots on the ground, and we're now going direct with our mass fragrance portfolio in India. That's one example of one category, just to illustrate, you know, the immense opportunities that we have to leverage our brands in other geographies than just North America and Western Europe.
Great. Great. Maybe turning back to the U.S., just your perspective around category growth and perhaps some of the subcategories that offer the most growth opportunity. You obviously talked about momentum on, you know, cosmetics, nail, fragrance, right? They're pieces of the portfolio where you're doing very well. We obviously saw a malaise during COVID, for obvious reasons, but we've seen a pretty nice recovery in recent quarters. So I'd just love a general perspective on sort of health of the category in the U.S. Maybe some of the subcategories that are most attractive, more from a category growth perspective than the work that you guys have been doing internally at Coty, and just any perspective there would be helpful.
Sure. So the U.S., first of all, the category, the beauty category, is super resilient, as I said, it's a great category to be in, and in the past three months, for instance, it grew 8% in the U.S. We see similar trends across the world. In developed countries, high single digits, in developing countries, double-digit growth, right? So fantastic business to be in. Extremely resilient, and we are above pre-COVID levels, right? To start with. The second thing, which is important, is to highlight the fact that, it's still a category that grow volumes. I know it's a lot, a lot is talked about around CPGs and FMCGs and categories, but the beauty category still grows volume in this country and elsewhere. And that's really important.
It's not just driven by price. So it's really a category that is what I like to call a crisis resilient company, category, right? Beauty is really not. That's really what I wanted to say. So great momentum, category-wise.
Okay, that's helpful. And then, look, we talked about the category growth being attractive. We talked about a lot of the work that you guys have done behind some of the individual subcategories and brands. Just in terms of thinking about shelf space and sort of how that translates, given you've really been able to revitalize a lot of these brands over the last few years, do you guys see shelf space opportunity for the business from here? And part of the context is there are obviously a lot of smaller companies that have done pretty well, particularly in the U.S., right?
Where they've gained a lot of share. In theory, they're gaining shelf space as they move off of relatively low levels. So for a business with a little more scale, I'm sort of curious, both your momentum and, and the momentum of some of the smaller players. How do you think that sort of comes together in shelf space over the next couple years? Understanding some of the subcategories are probably different, but holistically.
I see where you're going. So in the U.S. specifically, again, we grew our shelf space back in spring, for instance, not necessarily in channels that are covered by Nielsen, but we expanded the number of doors in this country on COVERGIRL, Sally Hansen, and we ought to do and repeat that with some of our mass fragrance brands, right? So clearly, the same is true in Europe. If you look at Europe, our brands have either maintained or grown share of shelf. Okay, but the biggest opportunity, again, lies in developing countries, where we can really develop our shelf space in a big way, as I described in LatAm or Brazil, but even in China and India. So developed countries either maintain or grow shelf space. Developing countries, we can explode our footprint.
Great. That's very helpful. Well, with that, we're just about out of time, so I'm going to end things there, but really appreciate both of you gentlemen being here today. It was g reat to hear about the business.
Thank you.
Thank you for the opportunity.