Coty Inc. (COTY) Earnings Call Transcript & Summary

Hi, everyone. My name is [ Mica Galluzo ], and I'm a Managing Director in our Consumer and Retail Banking Coverage Group. And I've also had the pleasure of personally covering Coty for almost 25 years at TD and a few prior firms. So I'm particularly excited for today's discussion and happy to introduce Pierric Duthoit, who is Chief Digital Officer of Coty Inc., and he brings over 20 years of experience in growing digital and consumer goods businesses at an international scale. His professional career spans roles across major organizations such as Google, Meta, the Match Group and Pierric is also a graduate of the Special Military Academy of Saint-Cyr and holds a master's degree of entrepreneurship from HEC Business School. Welcome, Pierric.

Thank you.

Maybe we could -- and of course, everyone knows OC, he's been on the stage all day. Maybe we can start with a few questions here, perhaps to level set maybe an overview of Coty's digital strategy perhaps for those who are less familiar with Coty's digital footprint. Could you maybe share with us where you are on your digital journey and perhaps a few stats around where you see digital contributing to Coty's overall growth and profitability maybe over the next 3 to 5 years?

Yes. Yes. Thank you very much. So first of all, I'm across -- so we have 2 divisions at Coty Consumer Beauty and Prestige. So I'm really cross-functional and I'm looking at all the business. So my focus is digital across the oil company. When we speak about digital at Coty, so it's really to enable business growth, and this is what you see here. If we look at the fiscal year '24, e-commerce was $1 billion and crossed the $1 billion mark for revenue at Coty, which is 20% of the revenue at Coty. So that's a very good penetration of e-comm. And it grew 20% like-for-like. So really, in my function, I have a lot of things in digital, data, et cetera. But the bulk of it, what we really want to achieve is growing e-commerce because we want to go where the customers are. So that's what we have. And the e-com penetration, as you see here, where we want to be, we want to reach a 25% target by 2028 because that's where we think we should be. Let's be honest. If we're better because the market goes faster, then we're fine with that. We just want to go where the customers are. So that's really where we're playing and how we are planning for that. Then if we go further just on that because we have the Prestige division, and we have the [indiscernible] and if we can go further. So Prestige at Coty, it's everything with fragrances mainly, right? It's still 60% of our business, so Burberry, BOSS, Marc Jacobs, et cetera. And you see that Prestige is pretty good on e-commerce, and you see the penetration here and the contribution. So we really have good year because 25% of can penetration is good, and we're still progressing. We are the #2 overall on the market on that, and we're gaining market share. So this -- the appetite you see for fragrances across the board in total on the market is translated on the e-commerce and the digital journey that we have. That's really something I'm proud of with my team, and it's not only my team. Of course, the market is working on that. It's really good. And we're working with the brick & clicks, Amazon, all these companies. And then just to finish on that, when we look at the consumer beauty, and that's on the next slide. So consumer duty is a bit different on e-com because selling a lipstick $9.99, for instance, online with the cost of supply chain, et cetera, it will be different still. We see an even percentage e-comm penetration online with the market, and we're growing with that. And we are still -- and we're also the we're ranked #2 and we're gaining market shares also here. So overall, in our digital journey, the tip of the iceberg is the e-comm part and e-comm part is really doing well. So I'm very happy with that. Two other elements on top of that is, of course, the e-commerce part is one good thing. But the other things we are building, and we're going to go through that is, of course, everything which is related to data and the decision data marketing because we achieved these numbers with good ROI, and we're going to speak about it later. But that's the second part of our digital transformation journey that we've been achieving in which is pretty good, and we're pretty strong about that. And another one, of course, is about the upskilling of the organization. E-comm is not only with me, it's within the market, it's within the brand. It's it takes a village to really build these numbers on e-com. So this is really what we're building and in terms of digital transformation and acceleration. Coty is in a very good place now to really get all these challenges and really win on that.

Okay. That was a lot of great information. Curious, that was helpful to see some of your -- where you are in vis-a-vis that target. And then you mentioned ROI. Can you help illuminate maybe how Coty's digital strategy is contributing to your margin or profitability goals as well?

So e-comm is accretive to the business, right? And the thing is, I don't really like to make a difference between e-comm and the rest because we are focused on the customer journey. And there are a lot of things that you're doing online, which benefit for the offline world, too. You have research online, purchase offline, but you have also experience offline and purchase online. So everything we're doing is around that. But of course, the numbers you saw on e-comm, et cetera, it's accretive to the business and on Consumer Beauty and on Prestige. So that's contributing positively to the business and it's good and it's growing. But again, I want to really -- I'm not focused on the -- an e-comm is the tip of the iceberg because we're looking at creating the right experience for the consumers. And if they see something online and they want to purchase online, we had offline, we're happy and the other way around, we're happy. Because it's the global customer journey, which is important for us.

Fully integrated. Okay. That's great. Maybe a question about your role in particular as Chief Digital Officer. Given the scale of Coty given how many brands across so many channels and categories and globally, so you touched on this a little bit, but how do you efficiently lead a digital strategy within a large organization like Coty?

It's a real cross-functional job in the way that you have to partner with everybody, and you have to make that work everywhere. So as I told you, the role of digital equity is really to drive the business growth but also to empower the brand in the way they're interacting with consumers and all that in an integrated way, which means that digital is not the fact and the actions of the small team taking care of digital. It has to be in the brands. It has to be in the market. It has to be everywhere, including supply chain, et cetera. So the way we are structured in the central team at Coty for digital is center of expertise, really working with the rest of the company around 4 pillars. The first one is really to build around the customers and the consumers because we have the consumers. We want them to understand our product and so we are using digital technologies, digital media, et cetera, to reach them, and so they understand our products. But also our customers from Amazon to Ulta to all the retailers we're in a competitive environment. And we need to bring them good digital expertise, good extra experience also, but also omnichannel experience. It's -- now if you go with only one part of the strategy, it's not interesting. So we need to have this omnichannel view. So that's the first pillar. And this is what really we're developing. So for that, we need to work with the brands, but we need to work also with the markets we are in contact with that. The second part is data led decision. So having clear data around that. So we have a data lake, we're using data bricks. We have a lot of dashboards to help us drive the business properly. And this is really a new era of Coty with much more digital maturity and data maturity for that, which is the key for AI and everything you want to develop after that. The third pillar is innovation. And when we're speaking about innovation, we say innovation at scale. We are not interested to do a small proof of concept that you cannot scale. We really want to do something which is interesting at scale. So if we're working on a virtual try-on, we want to make sure that it's going to be compatible with all the retailers. If we want to do a fragrance finder with AI, we want to make sure that it's going to be used with everyone, all these kind of things, right? And the last one, which goes with how you make it successful across the organization is really upskilling the organization, making sure that in everything we're doing, everything new coming, we develop point of view that we share with the team that we built center of expertise where we get the best practices from China that we scale to other places, these kind of things really working without silos across the organization to make one digital organization around that.

Back to your comment on ROI, and you've obviously worked at Google and Meta and others. So how would you rank Coty where does Coty stand vis-a-vis your peers in terms of investing in the IT infrastructure to support this ongoing digital strategy?

The interesting thing with Coty is that the size of Coty, the way we are, give us a lot of agility and flexibility kind of. First of all, on -- and I mentioned the data lake, data bricks, et cetera, but one example is SAP S/4HANA. So SAP, I'm sure you know that there's a new version, which is S/4HANA, which gives us the ability to integrate AI and solutions such as '09 for supply chain, et cetera. and it's already implemented since last summer, '24, which is a real great milestone, and we did that very fast. So thanks to the work which has been done by our CTO before that, Jerome Auvinet we have a very strong infrastructure and our ability to deploy that across Coty was pretty fast. So that gives us -- now when we look at the future, we can look at implementing AI for supply, optimizing our solutions, having a cleaner data lake for that, which puts us in a very good position to tackle the challenges of the future. That's really for me one of the key elements. And you see here on this slide that this transition that we did on SAP S/4HANA was in 12 months only. If you look at our competitors, and of course, it's a different size. So I don't want to compare orange to apples, but still, it's fast, and we are in a good place. So I'm really happy with that.

Okay. Excellent. And thank you for sharing perspective as well in terms of how that links to AI and customer engagement as well, it's super interesting. Okay. I've been hogging the mic. I'll over to you.

Pierric thank you so much, and thanks, Mika. Regarding this SAP, what does it actually do for you, you'd say, in terms of the competitive advantage as it drives for you this product?

So I mean everybody is going to get this hopefully because the older version of SAP or are not going to be supported in the future. But what it gives today is that the way it's integrated in your system, it allows you to better work with your data across the board, and we have kind of one SAP across the board. And I was mentioning the '09 solution, which is an AI solution to help you on the supply and demand and the planning to be. Better. So of course, in our businesses, if you are better in your planning for that, then in terms of cost you're better, but you can also tackle the challenges of going faster, much better...

Agility in planning and allocation. Yes. Okay. And as we think more broadly about digital and how you're spending media, how you're spending digital for digital demand creation. How does it compare now versus 3 to 4 years ago? And what kind of tools are you using to measure return on ad spend?

Yes...

It is a very different question from what you were doing what we talked about earlier. It's a different expertise to.

Yes. So and you see the number here now, we have more than 60% of our media mix, which is on digital. Let's be clear here. What's behind that is TV evolved a lot. Now you have connected TV. So that's part of digital now. We have also retail media, which is a big part of that. You have all the investments in influencer marketing that you're going to boost, et cetera. So 60% it's good, and it really translates to something more efficient in terms of -- because we're going where the consumers are. Of course, when you do that and were mentioning Google and Meta and the challenges I had when I was there at the time was to prove the efficiency of that. And of course, the best way to do that is you take all the data and you do econometric modeling, right? It's been there for ages, yes, but now the technology and the way it works, make it really, really powerful. And so we have implemented with Equimetrics which is a company we're working with, and they're very good in the state of duty. They are working with different actors on that. This overall view not only on media, but all our investments, not only media, but also the gross to net or the A&CP investment that we have to calculate the incremental ROE. So for every dollar we invest, how much it brings more to the business. So we implemented that, and that gives us really the ability to pilot our business, first of all, at the brand level. So you want to optimize that at the brand level in the market. You want to understand how much you're spending. And if it's good, between your different channels between Meta, Google, TV, et cetera. Then at the level of the market, which are the brands and opportunities which gives you the best opportunity to invest better and then at the portfolio level worldwide. And this gives us very good insights strategically to invest where exactly we want to pilot for the short term, but also the long-term ROI. We don't want to get on the short-term ROI because then you're going to get super dry, and then you're going to milk the cow and that's it. So we're looking at long-term ROI where you have the advocacy playing a big role here on how you're going to invest there. And that's really what we're looking at. And that's -- so in terms of maturity here and back to the question of data, data lake et cetera, this is all connected, and we're really piloting that very well today.

That tells well into talking about influencers and advocacy. What's next happening there? You've really accelerated your engagement here. And one of the themes that we have today is conversational commerce community building, a 2-way conversation?

Yes. So first of all, you -- when we speak about advocacy, advocacy is a set of 7 elements, right, for us. You have your own social assets, you have the rating and reviews, you have the earned conversations. You have the community management. You have the BAs, you have the PR events and influencer marketing. All that is what creates advocacy. Advocacy is basically people understand your brand, love your brand and recommend your brand. And to achieve that, you need all these elements. So we're not looking at influencer marketing or social commerce separately. These -- all these levers are -- we're looking at it all together. And what we've been doing in the past 18 months to 24 months is really accelerating on that. I think Coty was maybe a bit behind on that 3 years ago, but the catch-up was very fast. And if we go to the next slide, then we will see that in terms of company globally, we are #3 in terms of earned media value. And the VIT is the score, which is our partner, which is tracker. It's a platform where you've got this vitality score for your brand which gives you the engagements, the reach and the trust with your brand, which gives a more qualitative element to your EMV. And you see in both, we accelerated plus 36% in global EMV, adidas Vibes and adidas, we had really a tremendous growth on that. Lancaster also and CoverGirl, you see also this. This is the shift to this advocacy, but we're not speaking only about influencer marketing here. We're speaking about community engagement answering to people on social media, et cetera, where we have a rate of 80% to 100% answering all these elements. That's really what's bringing the long-term value for your brand and engagement with the community.

Last question before I turn it to [ Mica ]. Coating is very interesting in that part of direct-to-consumer part of it's wholesale, part of it's Amazon. How do you balance the different ways in which you're using your assets and talent and resources and a complicated potential situation here?

You mean between the different channels, et cetera?

Yes.

So well, first of all, 60% of our business is fragrance and fragrance is very experiential so we're looking at retailers because you still need to experience retail, et cetera. So that's a big part of that. But again, we're focusing on consumers and the consumer, they are online and offline, and they want those. So this part with retailers is key for us, and we're really concentrating with our first pillar, how we are elevating the discussion with them, how we're connecting with them. So when we're doing a launch with a retailer, we're coming to them with what's going to be the 360 picture? How are you going to touch online and offline and make that super consistent, so the experience of the consumer and getting to know the product is 360. So that's really one first thing, which is key for us. And e-commerce is -- for me, it's not only pure players. E-commerce is really brick & click and pure players and we're trying to have this 360 vision and consumer engagement with all of them. For instance, what we're doing with Amazon, not only with Amazon, but we're looking at -- speaking about retail media, retail media for us is not only the lower part of the funnel. Retail media is upper funnel, and we're doing that with video prime but also in the U.S. We are working with the [ Trade Desk ] to work with the retailer media to have a full final approach because we have this demand generation on top of that. And then we're going lower in the funnel. So that's really a part of that. Now going to the D2C part, right, which is a bit different. So D2C is a smaller part at Coty. Just for the reason I evoke just the numbers, right? The fragrance part is bigger. And we classify that with 3 elements. So the first 1 is really -- you have the high luxury part with [indiscernible] and Orveda. Orveda is our skin care partner and [indiscernible] own brand for niche fragrances. And here, you have D2C and omnichannel because we have our own boutiques, we have our own shops, and we want to create this 360 environment, where you have the best experience for our consumers. And with Orveda and skin care, it's very relevant to have your D2C because you can have your routine, you have your loyalty programs. So you have that. By the way, I recommend you to go to the Orveda Maison here in New York. It's a great experience if you can go there and go for a facial you're really going to experience that. So that's the first thing. The second thing is, again, on the skin care, you have philosophy in the U.S. where the D2C is one part of the strategy where you have the customer relationship management, where you have the experience we have, by the way, live with philosophy today or tomorrow, if I remember well, so this is really part of this D2C. And the third one is the likes like Kylie, Kylie, which was a digital native brand. We're scaling it now with more retail but still, the D2C is a very important element of the community, the engagement, the online teaser with Kylie. So we're getting a lot of traction with that. And he's always structuring that. So we're not opposing one or the other. They all have a very specific role to play. And we're looking really again at the consumers and how we can be around this consumer with a 360 vision and make sure that we engage with them.

I have a question on innovation, which has also been a theme today and whether it's creating new products, new categories, serving unmet needs or even just marketing-driven perceived innovation, we've heard some speakers talk about how digital tools or social has actually been a funnel for providing new ideas for innovation. And so I'm curious how Coty's using social listening or digital tools of that nature trend forecasting. You talked a little bit about the data lake, for example, to track consumer sentiment real time and potentially influencing innovation?

So back to the point about advocacy, of course, when you do advocacy and you have influencer marketing, et cetera, you have to do social listening for many reasons. And we're doing the social listening and trying to capture the different trends that you see everywhere. The thing is at the moment you capture this trend, maybe you're a bit behind already. That's a bit of the issue. But there is a strong mix between the work you're doing on social listening and capturing the trends and the different mechanism. And I would say the usual work of CMI, consumer marketing insight, which we've been doing in the past and we keep doing. And for instance, a few years ago, we captured the cues of -- is very rich vanilla fragrance is really nice.

We heard about it earlier today.

Yes, which gave Burberry Goddess, which was one of the most successful launch that Coty has done. So I don't want to dream too much about like, yes, because it's digital, you're going to capture everything that easily. It's a mix of everything. But of course, digital helps you to get and validate and capture more data, and we're doing that with different tools from sprinkler to the different social listening tools we're doing with [ Semantiweb ] and all these kind of things, where we go beyond just what we have. Of course, there is something interesting now with AI is with the big amount of data it can use, how are that going to change a little bit. But still, you don't know what you don't know. So we still have a lot of work to do ourselves to try to imagine and create some trends before they appear. So there's a mix of both, and we're playing on all that. But definitely, digital is very rich to inform us about that. And I gave you the example of Burberry Goddess. But there was also -- we were able to capture some trends with CoverGirl having new lipstick beyond your phone and creating some trends about that. So it's more at the moment, you capture a trend and how you serve on that to make the buzz and go further. That said, I'm very careful about virality because virality, it's hard to create. Usually, you get it, you don't even know why you're getting it, but you need to be able to capture it and serve on that very quickly. So that's that.

Maybe a related question because we've also talked a bit about TikTok and general kind of social commerce. And with that and with live shopping growing and especially in markets such as China, just curious how Coty is adapting to these new consumer behaviors on platforms such as this. And then are they different or related to your core customer? And how do they engage with you and spend with you? I know you talked omnichannel a little bit so maybe that.

It's always complicated to compare China with the rest of the world because it's a very different ecosystem. But there are some learnings there which are interesting. That said, the usual live commerce, live shopping of China is not really translating everywhere in the same way, right? Still -- and you see that on TikTok shop. TikTok is a very interesting platform and social platforms are really interesting in the way that they give some trends, they help you identify some behaviors, and they connect a lot with the Gen Z, of course, and not only the Gen Z, but soon on Gen Alpha for that. So we're there and this is important. When it comes to specifically TikTok shop. Right, which is one of the key elements that we hear about. So we don't see TikTok Shop as yet another sales channel because the model behind that, the way it's structured is not -- it's not a sales channel as per se. It's different than that. A, it's within a platform where you can capture this audience a bit more seamlessly that if you have to send them to another platform to buy something. So what we're doing with TikTok shop is really -- and we did a test with remain in the U.K. 2 weeks ago, which was really successful because we went out of stock pretty quickly. It's really everything you know about your brand, the audiences, the influencers, you capture that and you go upper funnel, lower funnel to capture that. And it usually has a triple effect. You have the first effect of in the platform, creating these buzz and getting the audience that you want Gen Z et cetera, it depends on the product you have, of course, because you don't have only Gen Z on TikTok, you have much more than that. But then you get that. That's the first effect. The second effect is you get the concrete results. You know it converts. People are buying it, so you get that. But you have a third effect usually is that back to the full funnel, et cetera. It creates a halo effect also offline on the other channels usually because of the buzz because of the earned media value it gives to you. And that's part of that. So for me TikTok Shop is more of an investment in your media awareness, tiered lower funnel than just yet another sales channel, which helps you capture the young generation, et cetera, depending on where you are.

Pierric, we'll close it out with rapid-fire questions we're asking everybody here. So what's your most controversial prediction for the beauty industry in 2025?

I think the beauty is not going to be about how you look. It's going to be about how you are perceived and you know, with AI in all these filters and generated images, et cetera, that's going to probably make things look a bit alike. But the way you are perceived the desirability, your influence, charisma are going to be the weighting the beauty is going to be bigger. So how you feel confident, how you build on top of that, I think that's going to change things, which in the way you're going to act the promise of the product, I think that's going to change things. And that's, I think, for me, one of the trend and the thing I see, which is not how I look, it's -- yes, you look like that. But how are you perceived is that.

Why do you think that's happening? What do you mean by the perception?

Look, today, you go on social platforms, et cetera, you use the filter and you all look the same. What's behind western contents? What is -- how do you share who you are with the others? It goes a little bit beyond that. And even though I'm very in the tech and AI, I think that AI is going to put back at the center of everything, because then the value about emotion, et cetera, is going to be there. And so that's why the perception more than how you look for me, is going to be important in beauty.

Authenticity and transparency or?

Yes. It's part of that because you can't fake it too long.

And what's your favorite brand or product that isn't Coty?

So I have -- thanks to my wife. [indiscernible] I don't know if you know that? It's a serum. Works pretty well. I don't know. Using it every day. Yes, that's [indiscernible]

Okay. And lastly, when we think about the health of the consumer, beauty has been through a little bit of a change this year, normalizing on a scale of 1 to 10, how would you rate the health of the beauty consumer, your portfolio is pretty vast, I know.

I'd go for 7 out of 10. Beauty is pretty resilient, and we see the consumers making some choices about investment. It's not only they're looking for discounts. They're looking for discounts because they want to be able to offer a niche fragrance at a different price they want to rebalance a little bit how they're spending their money. So I think 7 out of 10 is reflecting, a, the excitement around duty and what's happening on fragrances and beauty, et cetera. But at the same time, you have some questions about like people are careful about how they spend money and they want to get the right value out of that. So for me, we are in this 7 to 10.

What's the hardest part of your job?

Two things. The thing is really trying to get the full organization at the same speed to tackle with digital. And the second part is, you know what keeps me awake? If someone tomorrow ask an AI agent or it's my wife's birthday, tomorrow, what I'm going to buy to her. I want to make sure that my products are here and how I'm going to do that. Because you used to have SEO search optimization and media try...

It will change the demand...

AI Agents coming...

The path to purchase is changing with large language models.

And so that's why data for me is key and the way to structure that and the value of your brand as per se, is key because if you have the right brand equity and if you build that very strongly, then the AI agent, I mean, AI is going to capture that like SEO, et cetera. And then we're going to appear there.

The power shift or power changes, but brands matter at the end of the day, too. Okay. Great. Well, we really appreciate your time. Thank you. Thanks. Thank you very much.

Thank you.