Coty Inc. (COTY) Earnings Call Transcript & Summary

Good morning and good afternoon, everyone. My name is Angela, and I'll be your conference operator today. At this time, I would like to welcome everyone to Coty's First Quarter Fiscal 2025 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, November 7, 2024, at 10:30 a.m. Eastern Time or 4:30 p.m. Central European Time. Please note that on November 6, approximately 4:30 p.m. Eastern Time or 10:30 p.m. Central European Time, Coty issued a press release and prepared remarks webcast, which can be found on its Investor Relations website. On today's call are Sue Nabi, Chief Executive Officer; and Laurent Mercier, Chief Financial Officer. I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty's earnings release and reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from the forward-looking statements. In addition, except where noted, the discussion of Coty's financial results and Coty's expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. With that, we will now open the line for questions.

[Operator Instructions] We will go first to Ashley Helgans with Jefferies.

This is Sydney on for Ashley. I was just wondering, can you talk about the channel shift and outperformance online? Do you expect to see a continued shift? And do you feel that there is a higher level of trust for consumers to purchase online from platforms like Amazon?

This is Sue. So indeed, you're absolutely right to point out online as one of the outperformers of the company. Today, this is -- this has become almost the biggest channel for Coty as a channel for the Coty Inc. Company. And this indeed is fueled by retailers.com but also by amazon.com and pure players also that are acting on the Beauty segment. So we believe this is -- has to do a lot, and we had this question already, I think, in the previous earnings call, it has a lot to do with the fact that a lot of Gen Zs, a lot of younger consumers are connecting online with their communities, with their favorite influencers, hence, the importance of advocacy marketing. And therefore, the conversion online between the advocacy ecosystem on one side, on which, by the way, the company has been doing big progress, and I'll say a few words about this in 2 minutes. So the conversion from this ecosystem of advocacy online to sales online is the most natural and the most obvious, in fact. So that's the reason why we believe this online channel can only grow. And by the way, this is one of the reasons why we are also seeing disruptions in the mass channel, but also on other channels around the world because a lot of consumers today are using the conveniency, sorry, of shopping online. Coming now to Coty, you've seen that we have been working hard since 2.5 years now to put in place a playbook, which we started to implement behind Rimmel and CoverGirl with results that you have seen in our prepared remarks presentation that are outstanding, #4 for both brands, 40% of growth for Rimmel, 80% of growth for CoverGirl. And this is exactly what we were working on. So remember, repositioning the brands, creating products that have the ability to viralize, putting in place an ecosystem that's around advocacy marketing, retail marketing -- retail.com marketing, sorry. And this explains our outperformance and the outperformance at large of the online channel in the U.S., but not only in the U.S., it's happening all around the world.

We'll go next to Robert Ottenstein with Evercore ISI.

Great. I'm picking up through some of the e-mails I'm getting from investors that there may be some confusion in some of your commentary about the medium-term outlook, that somehow maybe it's changed or the algorithm has changed either explicitly or implicitly. So there's just some confusion there. So I was wondering if maybe you could just kind of reinforce what is the message? What is the outlook? Is there any real change that's going on here?

Thank you very much for your question. So in fact, the reality is that we continue to say and see that the Beauty market medium-term growth would be around 3% to 5%. We continue to see Coty outperforming these levels of growth for the Beauty market, and we continue to see a steady growth for our gross margin, for our EBITDA margin and our EPS growth. So this is really to say it again and again. This is really what we are seeing. And we believe this fiscal '24 is a transition year, mainly due to all the changes, mainly channel changes and changes that are happening in consumers' shopping behaviors, including the question I just had recently on the online performance. And by the way, where Coty is gaining market share in both divisions. So this year, we believe, is a transition year that once this transition and the different blocks will be in place all around the world, but also in the U.S., the 3% to 5% medium-term vision for the beauty market, which we believe is going to continue to be the most resilient market among all industries are going to give us this ability to have the full confidence in our fiscal '25 profit delivery and free cash flow and therefore, looking at shareholder returns and, of course, continued deleveraging of the company. All the fiscal '26 and beyond growth drivers such as new licenses, we are about to announce a new signature in the coming weeks or months. Skin care as a new category, new regions, and we were very wise to not bet on one country and to open the scope to many different regions, namely what we call growth engines regions. All this together plus fragrances, which is the #1 growth driver of the company and now extending to ultra-premium where we have a huge amount of white space, but also to mass fragrances where we have also as well a huge amount of white space, including in terms of relative profitability for the Consumer division. This is what gives us this confidence that we are going to continue to deliver on our commitments. Laurent, maybe you want to add something to that.

No, absolutely. So really to build on Sue's comments, definitely number one, I mean, definitely full confidence to deliver profit and cash in fiscal '25. So this is [indiscernible] number one. And definitely that we are going to improve our EBITDA margin this year close to 100 basis points, okay? So it's going to bring our EBITDA margin close to 19%. So it means that in the last 3, 4 years, in fact, we are growing our EBITDA margin above 250 basis points. And indeed, looking ahead, we continue to overperform the Beauty market, and we continue indeed to improve our gross margin and EBITDA margin. So all the actions that we are putting in place. So definitely all the levers in terms of gross margin as we have delivered over the last years. Now we are above 65%, and we are going to continue, thanks to all the actions in terms of productivity, mix, pricing. And also, we are working definitely to continue to optimize our SG&A. And this is exactly what I shared during the call that we are accelerating our productivity initiatives. We have already a lot of actions in pipe, and we are adding some new initiatives. And as you know, I mean, Coty is demonstrating really its ability and the teams really to accelerate this kind of productivity program. So indeed, I mean, there is full confidence in the algorithm on all metrics, P&L and balance sheet.

And by the way, should I add that we are continuing to outperform all our comparative peers. You've seen this in the last 9 out of the last 13 quarters. And this is really what we intend to continue to do.

We'll go next to Korinne Wolfmeyer with Piper Sandler.

I'd love to hear a little bit about some of the early signals that you've seen here in fiscal Q2 from a sell-in perspective across both Mass and Prestige. Any color you can give on what you're seeing between that sell-in versus sell-out differential and how you're thinking about that for the remainder of the year? And then additionally, as you talk about -- as you think about your partners with your various retail partnerships, how are you viewing the risk of those partnerships as we head into the back half of the year, especially as some of them are rightsizing their store fleets and going through some of their own challenges themselves?

Yes. Thank you, Korinne, for your question. So I mean, first of all, let me remind really, I mean, on the Q1 performance. So indeed, I mean we indicated a few weeks ago that we will be between 4% and 5%. So what's very important, number one is, as you can see, I mean, we are overperforming most of our peers. So I mean, again, it's a clear demonstration that even in a volatile environment, Coty continues to overperform. So that's really very important. Number two, which I really want to highlight, this is also on a high base from last year. As you remember last year, I mean, we were growing at 18% to 8% and Prestige was growing 22%. So it shows again what we shared several times is that last year, we had this significant growth, thanks to [indiscernible], but we are able really to bring some incremental growth on this high base. So this is very important, again, to have this in mind. So now if we go a little deeper, so we indicated indeed that Q1 and some of our peers also indicated that some retailers indeed anticipated some fragrance gift sets ordering. So indeed, this is really also driving some acceleration in Prestige. And you see that Prestige is growing 7%. Prestige Fragrance grew by 9% in Q1. So there is definitely now moving from Q1 to Q2. This phasing impact on fragrance gift sets. So this is also why we are indicating indeed that on fragrance in Q2 will be lower versus the sellout. But definitely on H1, it's neutral. So this is definitely on Prestige. And you saw the last numbers, I mean the category remains very healthy. We have very strong initiatives, which are going to be full speed in Q2. So and now they are [indiscernible] in acceleration. So that's definitely very healthy, definitely a question on Prestige. Consumer Beauty, definitely, we see Q2 same pattern as Q1. All the headwinds that we described seeing some retailers either destocking or being very tight on their inventory and cash management. We see this pattern continuing definitely in Q2. So this is definitely what's driving now our equation for Q2. And definitely, we are seeing what's very important is that we are not overexposed to any major retailer or channel. So we are seeing low single digit to mid-single digits in U.S. pharma, low single digit in U.S. department stores and low single-digit percentage for both China and Travel Retail APAC in H2, so which will bring really the H2 to the same level of growth as we have in H1.

We'll go next to Anna Lizzul with Bank of America.

I was wondering if you could talk a bit about the broader vision for Coty at this point. Where are you at now in terms of executing on your six strategic initiatives that you outlined about 3 years ago? And just how would you rank your progress on each at this point? And then also with the lower expected growth going forward or more normalized growth, are you still expected to be on track here with your deleveraging goals?

I'm going to start the answer and maybe Laurent, you can complement on the deleveraging path. Again, the vision is unchanged. It's the vision we have presented to all of you in 2021-- for 2021, which was about, number one, -- at that time, it was about stabilizing and growing the Consumer Beauty division, which we are doing. I can tell you that the Color Cosmetics results we're having behind our key brands such as CoverGirl and Rimmel are very, very good. In fact, if you look at what's happening in the U.S. market, CoverGirl, you've seen it in the slide of the presentation, is the only brand among traditional heritage brand that is almost stable on an omnichannel basis versus e.l.f. to name them. If we zoom in, and this was done by Evercore, I think, recently on the data from numerator, the 2 only brands that are growing at Amazon and Target are indeed e.l.f. and CoverGirl and all the others are losing and some of them are losing quite big. So the contract that I shared with you 2 years ago, which is to say we are going to fix these brands. We are going to put them back to growth or to stability is exactly what is happening right now. And you can expect an acceleration because we are not only implementing this playbook in bigger, we mastered the way to do it. Now we are going to put them behind it. But also we are plugging in [indiscernible] Beauty, which is something new that we've been working on since 18 months as now, has seen here and there on different brands how to make it happen to allow us to really [indiscernible] up the level of innovation from this division, specifically behind Color Cosmetics. Second thing still on the #1 priority, which is around diversifying the division into other categories, and this is happening behind mass fragrances, which are growing double digits in '24 and in '25, expected to grow in '25 -- double digit in fiscal '25, of course. So that's the number one point. Number two point is around Prestige, where we have explained that we will not only accelerate but diversify our Prestige fragrance business. We've done it, I have to say, in an outstanding way, putting on the market 4 blockbusters in the last fiscal year, Goddess, Kylie Cosmic, Marc Jacobs Daisy Wild, Hugo Boss LFL and many more to come in the coming quarters, I have to say, without revealing anything to our competitors. So this was done and we started the first steps into niche fragrances, including with the creation of an in-house brand, [indiscernible], whose start is very, very good. Number two, adding two other legs to this Prestige division. The first one is Color Cosmetics, which is, I would say, around 3% to 4% of the net revenues of the company. And this is thanks to, of course, Gucci makeup, Burberry makeup, Kylie Cosmetics, but we are also preparing a big launch behind Marc Jacobs beauty that's going to give us this ability to have [indiscernible] brand positioning inside our portfolio. And number three, skin care, and we are continuing to play on the marathon of skin care, as I like to call it, with three brands that are all progressing in the right direction. Changes happen in the meantime because China that was supposed to be the growth engine behind the skin care brands is not anymore a growth engine it used to be. There are changes here and there. We are adapting our strategy to make the company very resilient. So -- but skin care, the brands we are playing with the positioning of the brands, the productivity we are seeing there each and every brand is increasing, and this is exactly what we were looking for. So the strategy around the two divisions is still valid, still delivering results. And that's what we have seen during this quarter in CoverGirl and Rimmel being the two brands that we are using the most with a stable market share in their homeland on Consumer Beauty. But also, as Laurent said it, continued growth of our Prestige fragrance business, 9% of growth on top of a 22% of growth last year. This, I have to say, is an outstanding result. Last but not least, it's channels. E-com, I've commented on e-com at the very beginning of the Q&A. I've commented -- have not commented yet on Travel Retail, which has been growing very, very fast in the last, I would say, 2 years. Today, there is a disruption happening mainly in Korea and in China in the Asian Travel Retail. But the two other centers of Travel Retail are doing very, very well. So all this on top of the geographic diversification. So with the normalization of the growth -- are we still on track with the deleveraging path? And I leave the answer to Laurent.

Yes, absolutely. So let's be very clear, our deleveraging agenda is unchanged. I keep repeating, I've repeated many times that #1 [indiscernible] is really deleveraging the company and we are on track. As you saw, end of Q1, I mean, we are 0.4x below previous year. So this is definitely confirming the great progress. And indeed, even with the tight inventory management that we shared by retailers, which is adding indeed some volatility on cash inflow timing. I mean, we are absolutely on track to exit calendar year '24 with leverage below 3x, and we continue to target leverage close to 2.5x exiting calendar '24. And then second, we absolutely confirm moving towards 2x leverage ratio end of calendar '25. So again, we have all the levers, all the actions in place. And I mean, this is not counting on any Wella divestiture, okay? So this is really pure organic. So it means that now in 12 months, I mean, the company will be with a leverage ratio at 2x. And indeed, this is what you saw from the rating agency [indiscernible] consecutive upgrade from the rating agencies. So indeed, absolutely on track for de-leveraging.

We'll go next to Oliver Chen with TD Cowen.

Holiday remains key to second half. How are you planning this year versus prior years? And what do you expect for the holiday given a lot of the dynamics you've spoken to? And I know you had a lot of great comments on what's happening in Prestige fragrance earlier, but what are your thoughts on the moderation and the normalization? And as you do anniversary Burberry Goddess, some of your main innovation catalysts there? And finally and third, the demand planning program sounds very good. Just what's ahead with that and also the opportunity in managing the risk as you implement that program as well?

Yes, absolutely. I mean thank you, Oliver. So definitely, I mean, we indicated and you saw the numbers, I mean, the Prestige category, I mean, remains very healthy and very dynamic. I mean really we are ending -- you see the market category and the category growing by 10%. So this is very, very important that we see it is the fragrance category and we have full speed of the fragrance index that we have described so many times is at play. So definitely, what we are seeing is really that we are very confident in the holiday season. And we have, again, very strong ammunition. You saw talking about Burberry, [indiscernible] Burberry grew by 17% -- so it means that definitely the momentum that we have on Burberry Goddess -- now with Burberry Goddess Intense, Burberry Hero, Burberry Her. I mean really the full range is really at full speed. We have very strong plans on Chloe really with strong innovation, which is really off a very, very good start. We accelerate also the innovation that we launched last year in second half like Daisy Wild, Kylie Cosmic. So there is really a long list of innovations, which are fully supported and definitely with very good positive momentum from the retailers and the consumers. I want also to mention also Gucci Orchid [indiscernible] and now that we are expanding to full distribution in Q2. So again, very, very important to see that -- and we keep growing in penetration. And we have also -- we are addressing new markets. I mean our growth engines market are also accelerating on Prestige fragrance. But as you saw also, we have seen fragrance also accelerating a bit down in the Consumer Beauty segment, okay? So this is also definitely a strong acceleration. So that's really today what definitely we are seeing on the category and our sellout indeed in the Q2. Then second question, which is about the new demand planning program. So absolutely, I mean, this is a program that we started a while ago, and we are currently in full implementation. So as I indicated, is really that we are consolidating two planning hubs into one global planning hub, which is based in Barcelona. I can tell you that there are a lot of benefits by doing this. Number one is definitely that we are using technology to improve significantly our forecast systems. So having this knowledge, the technology, leveraging AI in one hub that definitely we have a clear in a control power on planning, and this will bring significant savings in terms of cost, number one. But also when we are improving the forecast accuracy, it has immediate effect on what we described several times, which we are calling excess and obsolescence. Excess and obsolescence is really when either you have too much inventory because you build too much inventory on SKUs and in fact, which were over forecast, then it's becoming a hurt in terms of cash and the P&L. So this is going to reduce significantly. But on the other hand, is also to make sure that when we have great innovation, great start, we're also improving significantly our service level. And by doing this, it's going to optimize our net revenue and also optimize our gross margin and also improve the collaboration with our retailers. There is also this dimension that by doing this, we are also now improving significantly the relation with retailers. So we will keep you posted on the progress. But you will hear from us that definitely, this is the beginning that there will be a lot of knock-on effect, positive effect from this new approach and new way of working.

We'll go next to Andrea Teixeira with JPMorgan.

This is Shovana Chowdhury on for Andrea. We wanted to ask you about, can you please how -- can you please parse out how much of your 3% to 4% LFL growth in the second half is from actual underlying growth expectations versus due to easier comps as compared to the front half? And how much confidence do you have in this updated outlook for second half, given that it really depends on a few factors like retailer inventory levels exiting the holidays and assuming -- we're assuming that fiscal third quarter may have lower sales of consumers hunkered down post overstock during the holidays. And of course, consumers have been challenged for some time?

Thank you, Andrea (sic) Shovana. So a few points to have in mind on H2 is number one, that in terms of pricing, definitely, H1 is benefiting from pricing effect, which is carryover from strong price increase we implemented last year. And this carryover, I mean, is going to fade away in H2. So it accounts for about 2 points, okay, if you want to compare the H2 to the H1. So that's number one. Number two, I want also to remind that last year, especially in Prestige, I mean, we made some big launches in Q3 and Q4. I referred to each with Daisy Wild and also Kylie Cosmic, which were really a breakthrough approach really to launch great initiatives not at the holiday season, but during second half. So we have also the higher comps in terms of Prestige. But now definitely, when we are taking all the elements, and you're right that also overall, having easier comps in H2, I mean this is giving us really full confidence definitely in the H2 growth algorithm. And we made it really in a realistic, but also, I would say, prudent manner because at the same time, definitely, we have new initiatives which are going to come in H2. So we have a strong pipeline on innovation. I can share -- for example, I referred to mass fragrance. Definitely, we have a strong pipeline on innovation and this is going to accelerate big time in the H2. And second, as I referred indeed, we are seeing in this H1 this normalization or retailer inventory adjustment. And definitely, we are considering that, okay, H2 is going to be more stable from this angle. So again, we really build this H2, taking all the assumptions, but we are very confident on this algorithm.

We'll go next to Olivia Tong with Raymond James.

Just two questions around your sales growth outlook, both medium and long term. For the long term, just maybe a bit of clarification to Robert's question earlier. But your target for mid-single-digit growth in fiscal '26 -- for fiscal '26 and beyond that you addressed yesterday, can you talk about what's driving that deceleration versus 6% to 8% long-term target you provided in the past? And then more closely, if you could provide some detail around the gap between sell-in and sell-through and what's reflected in your expectation for the Q2 slowdown and then the acceleration into the second half. Basically, why do you expect such a substantial second half snapback for this year?

So maybe I can start with the second half, which is really -- and I can say it again is definitely that, again, between the Q1 and Q2, there is definitely an impact that there is anticipation of gift sets -- fragrance gift set. And this was really a request from retailers that they anticipated gift set orders end of Q1. So this is definitely what's driving mostly the phasing between Q1 and Q2. So this is definitely the key element. Other elements, I would say, stay more or less the same either on retailers' behaviors, either in the U.S., but also in China travel retail, Asia travel retail and also what we shared about Australia, where we have really one retailer definitely, which is also adjusting its inventory. Now about H2, definitely, as I just explained, we are now on easier comps, adding new initiatives. And definitely, again, I mean, this is what's really giving full confidence on the H2 plan.

And on the second part of the question regarding the -- what's driving, as you see as an implied deceleration in the growth of mid-single digit to high single digit versus the 6% to 8% prior algorithm. And I think the answer is quite simple. This depends on where in the 3% to 5% range, the Beauty market will land, and this is something that we don't know. And of course, any further channel disruption like we see this year, specifically in the Asian region where for the moment, the visibility is quite low. So that's the way I would answer it very, very simply.

We'll go next to Charles Scotti with Kepler.

I have three. The first one, could you give us some details about your market shares online versus offline and whether this channel shift could eventually have an impact on your overall group market share? Secondly, can you please give us more color on your growth in China and the Travel Retail Asia in Q1 as you were fairly under-indexed and quite immune to the turmoil so far but it seems to be no longer the case. And finally, third question, what do you think could be the impact of the potential 10% to 20% custom tax on imported product to the U.S. as I guess, most of the Prestige products are made in Europe? And is there any plan to move production to your to U.S. or Brazilian facilities?

Yes. Thank you, Charles. So on online and off-line I mean, started indeed explaining that, I mean, definitely, we are accelerating big time on online. So we are gaining market share. It's now about 20% of our business, definitely with above 20% in Prestige, low double digit in Consumer Beauty, but definitely strong acceleration. We have definitely a very strong team with really a full playbook and working hand-in-hand with the commercial team. So now we have really definitely, I mean, this omni-channel approach which is really at full speed. And e-com is accelerating. We are seeing with e-retailers. We are definitely where the omnichannel work is really at full speed, but also with the pure players. We are definitely we have very strong partnership. I mean we refer to Amazon, definitely Amazon Beauty is accelerating. And as you know, we were really pioneering this partnership. So we have very strong position and it is the case in Prestige, but also in Consumer Beauty. So definitely, this is -- I mean, there is very strong potential for Coty. And we work on this always in this omnichannel approach, okay? So making sure that online and offline, I mean, really speak together and are definitely complementary. So indeed, very good dynamic that we are going to continue. On your second question, Travel Retail Asia, we shared during the call that indeed, this is declining in the Q1, while Travel Retail Europe and America are [indiscernible]. Travel Retail Asia is really part of this full China ecosystem, which is indeed currently under tension. And China is indeed slightly negative given also the current tension. But as you know, and I need to insist again, China is only 3% of our net revenue. So I would say, despite, I mean, the current turmoil, I mean we have limited exposure in this current context and this is also the same for Travel Retail Asia. But we are working on initiatives, as you know, what's accelerating in China is really high-end fragrance, where we have very strong positions. And we have also great initiative in skin care. So I keep repeating currently indeed there is tension, but it's the impact for Coty is limited, okay? There is an impact, but it's limited. And definitely, we keep seeing some potential. So the third -- your third question on tariff. So this is absolutely something that we have anticipated and that we have been working for a while. What's very important, number one, in terms of components we source very limited components from China really to busy. So there is very, very limited exposure. Now about Europe and U.S., the strength of Coty, and we keep repeating is really this global footprint. So we have factories in Europe, but we have also factories in the U.S. in Consumer Beauty and also on fragrance. So these are exactly the kind of hedging that we can create in terms of localizing some production either in terms of finished goods, but also in terms of components where we have the dual sourcing. So definitely, I mean, our footprint is helping -- at the same time, indeed, if these tariffs are confirmed and if our peers may be more exposed, we may -- it may imply some small price increase really to mitigate and really to keep the equation intact.

And to complement what Laurent said, it's very important to say it again and again, we are the least exposed company to China and Travel Retail Asia, and that's very important among the comparable peers still today.

We'll go next to Filippo Falorni with Citi.

On margins, you guys have delivered very strong performance, both on gross and EBITDA margin and you raised the target on cost savings to $120 million -- to over $120 million. Can you talk a bit about like what are the incremental cost saving initiatives that you're finding in the P&L? And you talked about having momentum into fiscal '26. So maybe you can also give some color on what is going to continue and what's the pipeline on cost savings going forward?

Yes. Thank you, Filippo. Absolutely. So margin is really a key focus for the company. So I mean, we are delivering, I mean, about 200 basis point gross margin expansion in Q1. So I really want to highlight this because it shows definitely that all the actions that we are putting in place strongly deliver -- so it's really a combination, as I indicated, pricing where there is really strong carryover on pricing. There is more moderate inflation indeed. We are improving significantly the level of excess and obsolescence. I was referring to it before with the planning hub implementation and procurement and supply chain keep working on very strong productivity initiatives. We shared many times and we continue all the work we are doing on platforming. We are reviewing all the products, all the formula and indeed creating some formula synergies, which is helping and also is helping our suppliers. So definitely strong partnership with our suppliers with very strong initiatives, and this is going to continue. So gross margin indeed is definitely the key driver. We are now above 65% -- and this is what we had indicated 3 years ago, where at that time, we were below 60%. So definitely, we continue. Now looking ahead, in the current volatile environment, we had a long list of initiatives in our pipeline. So some are already in motion, and we are accelerating. This is exactly what I explained about the planning hub implementation and how we are going to significantly improve our planning and our forecast model, which will bring savings, but also really improve our top line aggregation with the retailers, which is absolutely key. The second element I can bring to you, and we referred to it when there was a question about e-commerce online and offline channel. Definitely, we are seeing that now the landscape is really moving to this omni-channel world and definitely -- and we are seeing also some retailer centralization. This is definitely a fact, which is blurring also this offline, online. So we are assessing also the changes to our structure, really how to adapt to this and really to create some synergies and really to gain some efficiency. Also explained several times, our new model of speed to market, this agile beauty is also here to bring some savings and also acceleration. And last element, which I want to insist on is on technology. I explained in July that we have successful S/4ANA implementation. Now we are leveraging this technology, definitely where we can find very, very strong savings and improving also on the support function, how we can work on this. So you see there are all these initiatives that are in the pipe that we are accelerating. They are all connected and it's definitely part of the all-in to Win program that we initiated. So that's indeed what's giving us confidence to continue to improve our EBITDA margin. So your second point, which is now looking ahead for fiscal '26. Indeed, we have also a strong pipeline of growth initiatives. So we have fragrance launches across price points as we explained and as we explained several times is, of course, strong innovations in the fragrance Prestige, but we have also now strong initiatives in the mass fragrance. So we are covering the full price spectrum. Mist is definitely a great opportunity for us. So skin care, we are accelerating. Geographic expansion definitely with the growth engines, which are really accelerating and you saw the numbers. I mean they grow double digits, so they grow faster than the mature market. And last but not least, the Agile Beauty initiatives in cosmetics will really bring some additional initiatives. So again, in a growing market dynamic, we have, again, a lot of initiatives in the pipeline to go faster.

We'll go next to Chris Carey with Wells Fargo Securities.

So there's been a few questions on the algorithm. So I won't go there on the top line per se. But I think what I'm hearing is basically that previously, it was 6% to 8%, but now we have to be mindful that the category growth is a key foundation to be able to deliver that outcome. And if that category growth is lower, then that outcome could be lower, which, by the way, I think makes sense. But correct me if you heard anything there, which doesn't make sense to you said another way, the category will do what it does, and you'll gain share on top of category. But then connected to that is the 9% to 11% EBITDA growth. Obviously, this year, you have a pretty substantial step-up in back half EBITDA to kind of stay in that range. But over time, how should we be thinking about how sturdy 9% to 11%? I mean, should that EBITDA growth range also fluctuate somewhat depending on category? Or do you view that as really firm because perhaps it's more connected to your leverage target? So thank you for entertaining any of that and responding how you see this?

Maybe I'll start with the first part around the growth of the company. I think you understood that indeed, we are playing in markets and the level of growth of the beauty market will be a part of how we are going to build our growth ourselves. But we are an offer business and Beauty is one of the most resilient, if not the most resilient businesses. And Coty has been outperforming this market since now 4 years almost. So it's really a combination of both, how the market will be. And indeed, our medium-term outlook is to see the market between 3% and 5%. It's also going to be a question of how fast we are going to accelerate with our new growth engines, be it regions, categories, don't forget the new licenses, Etro, Marni, Marc Jacobs Beauty, a new license to be announced soon, and we are continuing to work on this topic. So all these elements together are going to give us the right number when it comes to the ability to be exactly in the algorithm that we did 3 years ago or close to this algorithm depending on all these elements together. And the second part, maybe Laurent, you can complement on the EBITDA part.

Yes, absolutely, Chris. I mean, so first of all, I want to remind that over the last 3 years, I mean, we have constantly overdelivered this 9% to 11% EBITDA growth, okay? So that's really -- today, we are even ahead of our initial plan. Indeed, as I indicated, leverage ratio, I mean, we will get where definitely we explained a few years ago. Now definitely, looking ahead, it's the #1 focus that EBITDA will continue to deliver significantly the top line growth. So this is a no-brainer and all the savings initiatives that I just explained, in fact, they are going to even accelerate in fiscal '26. So it will give us definitely the ammunition to fuel all the great initiatives that we have, but also, of course, to keep growing our EBITDA much faster than the net revenue and continue to expand our EBITDA margin. And this year, in fact, our EBITDA margin is going to grow close to 100 basis points. So we will be close to 19% EBITDA margin. And then starting from this base, yes, we will continue to expand significantly our EBITDA margin. So I want to make it very clear that, I mean, even if we are reaching our 2x leverage ratio, we are going to continue all this work to significantly expand our EBITDA margin.

This does conclude today's question-and-answer period. I will now turn the call back over to our presenters for any additional or closing remarks.

No, no closing remarks. Thank you very much for your questions again, and see you next quarter.

This does conclude Coty's First Quarter Fiscal 2025 question-and-answer conference call. Thank you for your participation. You may disconnect at any time.