Coty Inc. ($COTY)

Thanks for joining us today. I'm Oliver Chen, TD Cowen's retail, new platforms and luxury analyst. We're excited to have Vanessa Reggiardo here. She's EVP of Consumer Beauty, Global Brands and Innovation from Coty. We also appreciate everyone's vote on the Extel poll as well. If you could vote, we'd love to have your vote if we've earned it. Thanks so much for being here.

Thank you. It's great to be here.

So it's very timely because you announced new leadership and a new strategic framework for your Consumer Beauty business. What's different about how the division is being run now compared to how it was run in recent years?

Yes. No, thanks for that question. So it's an exciting time to be with Coty, and we are on a transformation journey. The Consumer Beauty division a couple of years ago, pretty much '20 to '25 was pretty much, I guess, identifiable by a fragmented approach to leadership. So we had a CCO, a CBO, we had a Head of R&D, a Head of Supply Chain and basically just very slow and complex decision-making with very limited accountability. So back in fiscal '26, pretty much the fall of last year, we were lucky to have Gordon von Bretten appointed as President, and he now has end-to-end responsibility for the entire division. So pretty much fully integrated, including the commercial markets, all the functions. So we're really driving simplicity and agility in decision-making and making sure that we're all in the same boat going in the same direction. He's also assembled a great leadership team, again, that integrates commercial with cross-functional partners. And then I'm lucky enough to sit on the team and head up both brand and innovation, which is also a new hybrid, if you will, to make sure that we are managing our innovation in service of our core portfolio.

For those less familiar, what are the major brands in the portfolio and approximate mixes in the portfolio?

Yes, sure. So it's about $1.2 billion worth of retail sales. Our flagship brand is CoverGirl, Sally Hansen, those are our two primary U.S. brands. And then in our European markets, we have Rimmel, Max Factor and Bourjois.

It sounds like a really cool combination, innovation plus brands. Why did that role make sense? And what's on your mind for being the most innovative possible?

I think that it was an interesting combination and really applaud Gordon for kind of being a trailblazer in terms of merging the two because when you operate them as discrete entities, you're obviously not servicing the same goal and agenda. So you might have discrete innovation, however, not haloing your core business or your key franchises. And I think the other thing is it gives us the opportunity to really manage the portfolio at a macro level in addition to a brand bespoke level.

And why did the business not have end-to-end previously? What was the rationale versus why it's so advantaged now?

That's a great question. I don't necessarily know because I wasn't in the role at the time. But I think that they were basically, again, looking to just bring a new approach and just a more integrated approach to leadership.

On the Color the Future framework, which we spoke a little bit about, what actions have you started to take?

Yes. I think I have a slide. Let's take a quick look. So those are some of our great brands. So hopefully, they look familiar. And then just in terms of our priorities, our actions are really rooted in three big buckets, first and foremost, around brands. So like Oliver said, we're excited to have such portfolio heritage iconic brands such as the one we mentioned. But at the same time, while they enjoy great brand awareness and millions -- hundreds of millions of consumers around the world, we don't want to rest on our laurels, and we need to make sure that their equities are differentiated and salient and driving relevance. So we are really fine-tuning our equity agenda for each of our brands, making sure that CoverGirl is easy, breezy, beautiful, effortless for our core Gen X and Millennial consumers. We are really excited about living the London look with Rimmel. Max Factor is a heritage iconic brand, and we're really sharpening the pencil there for both visual expression and pipeline to make sure that we're catering to our Gen X consumer. Sally is our #1 brand. It's a category captain, and we are rooted in bringing care to all things color. And then Bourjois is our cheeky Parisian brand with great accessible price points and a fantastic pipeline. So that's a priority from a brand point of view. From a product point of view, we're really looking again to combine the brand NPD approach to make sure that we are introducing products that address a real consumer need that are first and fast to market and are very accessible from a price point perspective. And we're creating a new center of excellence in terms of managing all things innovation. So that's super important. And then from an activation point of view, very deliberate and intentional use of redirecting what we're calling nonworking spend to direct fuel to drive our brands, specifically in the areas, of course, of PR and influencer marketing, et cetera. The other thing very important at the heart of it, if you will, is this enabler that we're calling our new operating model. And basically, just as recently as yesterday, we made some announcement changes, whereby we're going to be changing the ways we work and creating hubs. So an NPD innovation hub to look at things at a macro portfolio level and through the lens of segments, face, nail, lip, eye, for example, and then at the same time, giving us an opportunity to rethink, again, how we work from a brand point of view. So we have NPD hub, and we're also looking to implement what we're calling advocacy hubs, we'll have one based in the U.S. that will oversee both CoverGirl and Sally and one based in the EU that will oversee our European brands.

That sounds like you're doing a lot of things. How do you prioritize -- how do you-- investing behind the hubs differently? And also the idea of cultural relevance, what does it mean to you? It sounds like you define these brands with much more clear parameters.

Yes. That's a great question. I think Rimmel is a wonderful example. So Rimmel really is rooted in culture of music and street and all things in London. So I think really making sure that we understand who the target consumer is, what makes this brand relevant and resonate with that person or with that consumer and then really double-click on there. I think that we do have a lot of things in action all at the same time, and we are on a transformation journey. And oftentimes, we don't have the luxury of doing things in sequence.

Yes. That's true. Okay. And CoverGirl, you're refocusing on a customer, Gen X. I really think you had focused -- tried to focus on Gen Z and Alpha. Why do X? It is your heritage, and I think it's a great idea.

So I think that we want to do both. I think that CoverGirl like Factor, for example, are multigenerational brands. However, we over-index in Gen X for both CoverGirl and Max Factor. We understand that, that group, that cohort is over 70% of total global beauty purchasing power. So we know that, that's the sweet spot. We know that, that's who's buying our products now, but at the same time, being tactical because we want to make sure that we also bring new consumers into the franchises.

What's also interesting about your background, Vanessa, you were the General Manager for Kylie Cosmetics. Is that your favorite brand? Or is Rimmel your favorite brand?

CoverGirl is my favorite brand, although you're supposed to love all your brands equally. But the Kylie experience was super great, had a fantastic time working closely with Kylie and the teams, and we were lucky to do great things together. So for example, we doubled the sales in just over 3 years. We entered new geographies. So we're actually selling the brand now in over 65 markets internationally, and 2/3 of the volume is done outside the U.S. continuing with Kylie at the forefront of launching great on-trend first products and then the thing that we were super excited about was entering the white space category of fragrance, which proved to be such a home run and true incrementality and really building fragrance as a destination for her as a brand. And I think what's interesting is we're able to really apply lots of those learnings. And I think maybe the biggest one was how do we really apply an indie agile mindset to a brand that's iconic within a big global matrix organization. So I think that's about being, again, nimble, agile, provocative, curious, making sure that we're building end-to-end teams with full accountability. I think that, that's a common practice. And I think, again, it's all about the right product at the right time with the right storytelling.

What will be the hardest part of CoverGirl and the evolution going forward?

I think it's interesting. The good news is that we're starting to see some really exciting bright spots. And I think we have really great anchors in the brand. Lash Blast is one of them. Simply Ageless is one of them. And I think the fact that we play in all segments is critically important. I think the other thing that we're doing is we're turning up our innovation, but we're being more focused and curated. So it's not more for more. It's actually much more specific so that it halos the core. And we're reinvesting in our icons in addition to our new. So we really feel like we've applied the pages of playbooks that are successful. We understand what's going on in the marketplace. We understand who our core consumer is, and we're fine-tuning all those pieces and parts.

We've had many companies here, including Costco, where you see trade up, you see trade down. You see a little bit of both, but it's a very competitive Mass and Masstige color cosmetics market. What do you think about pricing and making sure your value proposition is strong? And the consumer is pretty stretched.

Yes. So I think that, that's obviously a fair observation. And we're really excited to be able to offer such high-quality items at an accessible price point. So for example, in the case of CoverGirl, we have an EDLP with Walmart at $9.99, like the under $10 is super important. In the case of Bourjois in Europe, same thing, under EUR 10. So we're really excited to be able to bring high-quality on-trend products at that affordable price point, and we really think that, that's a differentiator for us.

You have a lot of other brands too. These multiple brands under the umbrella as well as smaller brands, too. What's going to happen to the whole portfolio? What's best for the division?

Yes. And I think that by Gordon now leading the ship and us looking at things at a macro level, that's a very important question. So we're really trying to make sure that all the pieces of the puzzle fit together to drive growth for the entire portfolio as opposed to, again, what's right for any specific brand in any specific geography. So for us, as a division, must-wins are CoverGirl in the U.S. at key retailers such as Walmart and Walgreens and CVS, for example. In the case of Rimmel, it's about winning in Boots in the U.K., for example. So we have very specific brand market combinations that will hopefully, again, in aggregate, drive growth for the division and for the portfolio.

Another key theme we all think about is like simplify to amplify and also a consumer and that's bombarded by so much. So one strategy is making bigger bets. Why are you doing that? What kind of risk are you underwriting indoor opportunity?

I think that, again, historically, we thought more was more, was better. And actually, it's not. We're really excited to have Markus now at the helm, and he's come up with a really great mantra, if you will, "Coty curated." So we're really using that as a filter through which we really make sure that we're checking the boxes of focus and prioritization. So for example, what that means for our brands is that we typically launch spring and fall bundles, which have been very SKU intensive in the past. So in spring '26 and in fall '26, we are reducing the size of those bundles by double digits, so really being very specific and focused. And at the same time, making sure that those innovations halo our core franchises, which enable us to then spend with sufficiency to make sure that, again, by the time they hit the wall and hit the consumer that there is a great degree of virality and already demand being built up.

On this aspect of innovation, how do you balance core -- and your core product versus the importance of trend drops that are fun and relevant to the consumer?

I think that when you are brands like ours, you're lucky enough to fire on all cylinders. So face, lip, nail, eye, they all need to work, right? In the case of the segments of face and eye, they're the biggest, they're the largest, they're the fastest growing. That's where most loyalty is. And I think if you're launching a new foundation, it's more complex, right, because it's got efficacy, it's got a diverse shade range, for example. In the case of mascara, there's so much technology that goes into volume or length. In the case of lip, however, we think that we can be a little bit more quick, a little bit more fun, a little bit more trend-driven and bringing new finishes and formats and sensoriality, particularly through that segment. And regardless which segment, very intentionally now moving forward, making sure that when we're launching a new item, it is in service of a key icon franchise like Lash Blast or like Simply Ageless, which is a key face pillar for CoverGirl.

Yes. That's what you're balancing, service and you're organized about it. We love -- I love heritage brands. I also love new emerging upstart brands and founder-led brands. How do you compete? And what are the right strategies and philosophies you have?

Yes. I think that if we look at what's driving the category today across the markets, it is a combination of what we call these power legacy brands together with our upstart indies. And growth right now is really being driven primarily by L'Or al Paris, and they are, of course, best-in-class, and we're happy to be a peer among that group. At the same time, we have brands like NYX or Catrice or Essence. And I think what they bring is a sense of quickness, is a sense of shiny penny. And at the same time, however, consumers love brands that they know, that they trust, that have authority in the space. So I think brands like ours, like L'Or al can bring those things, but at the same time, offer the same trend-driven innovation as some of these indies. And I think whether it's TikTok or Amazon, how do you create virality and demand for the brands, which I think the indies, of course, do a great job.

What are your thoughts on distribution is rapidly changing, and I love TikTok and TikTok Shop. I love Walmart, too, and I love Sephora. What's happening now with Amazon and they're a big force in beauty. How do you balance these channels?

Yes. No, that's great. Our channel strategy is diverse. Obviously, we're trying to react to all the different puts and takes in terms of what's going on. Brick-and-mortar is the biggest piece of our business. Obviously, online is also a significant component. In the case of Amazon and TikTok, we are really learning there. Our Amazon business and TikTok shops are growing. And right now, we're still using them as a sense of a platform to jump off and really make sure that we're driving awareness and demand.

And on TikTok, what do you see as the future there? TikTok Shop and also they've done a good job in live streaming. What's on your mind for innovation?

Yes. I think that, again, anything we can do to be spontaneous to be driving curiosity and also just surprise and delight. And I think that, that's what those channels bring. I think that they also bring, again, an organic authenticity to the product, to the brand, and I think consumers are really buying into that whole experience.

Easy-breezy.

Easy, breezy, effortless, yes.

Color the Future framework. You've been on this for 8 months, early progress in CoverGirl and Sally Hansen. Is that progress continuing? What are you seeing in your European cosmetic brand?

Yes. Thank you for the question. So I think we're really excited. So it has been a couple of months of our journey. Our Color the Future program has really taken root in the U.S., and we're really excited to show some bright spots that are quite meaningful in the CoverGirl example. So the category is the blue bar. CoverGirl is the purple bar. And you can see steady period-over-period improvements, whether it be in value or in units. And you can see quite substantial, like I said, momentum, if you will, across the business, really being driven by a focus on our icons, Lash Blast and Simply Ageless primarily. And we're really excited to be able to show that, that momentum is continuing. So we're really narrowing the gap in terms of us in the category, and we feel very bullish about the future.

What's happening at Lash Blast and Simply Ageless that impresses you most?

I think with Lash Blast, again, it is just an iconic product as is Simply Ageless. I think Simply Ageless is specifically is a great example of this Gen X consumer looking for high-performance, hybrid efficacious products where you have great color payoff, but also skin caring benefits. And I think that we're uniquely positioned in the market because there aren't too many other brands offering such an identifiable solution, if you will, for the consumer. And Lash Blast is just the OG. It doesn't get any better.

That's cool. I love the OG. What about European cosmetics brands?

Yes. And European cosmetics and actually -- if you don't mind, quickly on Sally, because Sally, we're really excited and proud to say that we are the #1 nail care in the U.S., #1 brand and really have seen such a remarkable resurgence, both in value and in units. So the pink is the category. The orange is Sally, which is our logo color. And you can see just such a hockey stick performance from minus 5% to plus 4% in value and actually outpacing the category in units most recently. So we're really, really thrilled about that. And as it relates to our European brands, also seeing some very great momentum there. For example, Poland, one of our biggest markets, it's the fourth largest market in Europe. And our brands of Rimmel, Factor and Bourjois are very significant there, and we're posting in recent months mid-single to as upwards as 10% growth versus prior period. So very encouraging.

At Sally, what has been the secret to success with innovation?

Yes. So it's a combination of innovation as well as investment. So we have portfolio plays. So we have Miracle Gel, which is a fantastic bottle and brush solution. We have Insta-Dri, which is fast drying, and we're very quickly garnering our fair share in artificial. So it's a combination of the right portfolio, right shades and again, with stepped-up levels of investment.

One focus area as well is gross margin. So profitability has declined in the Consumer Beauty division. How are you thinking about improving profitability into next year?

Yes. Thank you. It's a critical area of focus because we want growth, but we want profitable growth. And the biggest downward elevator, if you will, in terms of profitability was gross margin. So we had basically a contraction of about 400 basis points. And there were three primary drivers of that. One was supply chain overhead, just given sales decline in the moment, so we couldn't absorb that. The second was tariffs. And then the third was excess and obsolescence because we had some initiatives that just didn't meet our expectations. So those were kind of the drivers, if you will, of the issue. And then moving forward, very importantly, we really have an all-points bulletin, we're looking at every single line within the P&L to make sure that we are trying to be as accretive as possible. And we have a couple of very key work streams. Number one is indirect procurement on both merchandising and media. We have a very strict mindset about designing to cost our innovation. We are rightsizing the portfolio, again, in terms of not only the new, but rationalizing the tail across the assortment. And at the same time, making sure that we're being very mindful about what I mentioned earlier about nonworking A&CP and doing a pivot to make sure that we're investing properly in our brands. One other thing super important and as recently as yesterday we did just announce kind of a new operating model and new org structure. So we're also trying to take a look -- a very hard look at our fixed cost structure.

That's a good question then. What's your hypothesis across fixed operating structure, of areas that you're going to dive deeper into?

So right now, at the top of the to-do list, again, just coming off of yesterday, we are creating this innovation hub, which, as a result, will enable us to take another look and rebalance the new product agenda, what we make versus what we buy. And as a result of that, we will be taking a rightsizing, if you will, to our R&D organization in the U.S.

What's the hardest part about innovation? This could be a 3-hour conversation.

That's such a great question, the hardest part of innovation. I think it's again having the foresight being so consumer-centric and launching -- if you're lucky enough to have the stars aligned, launching the right product at the right time and then just great storytelling.

How do you have the right parameters for failing properly?

You know what, I think that, that's a really interesting point. I think it's okay to fail and it's okay to make mistakes, but we have to do so as a collective and do it quickly and learn and then move on.

Yes. Okay. One more, and then I'll open up to the audience. The Coty at large is rethinking fragrance as a scenting market. How are you approaching lifestyle scenting? It's another sizable business. What is that?

Yes. Lifestyle scenting. So my specific area is more focused on color, but happy to share some thoughts on fragrance or lifestyle scenting. So lifestyle scenting represents just about 7% of Coty's business compared to color, which is about 20%. So it's still sizable, and we know that there's a lot of upside potential there. So what we did with color was we identified a transformation program called Color the Future, and the future of scenting is the equivalent, if you will, on the lifestyle scenting side. That program is running about 4 to 5 months behind our color program, but probably the same guiding principles and tenets will apply. So we're really focused on a few key initiatives. The portfolio is first and foremost. And then at the same time, there are a number of probably about 5 key focus areas or priorities. We look at them through the lens of brand and geography. So the first is at a brand level. We're so lucky to have Adidas or Adidas depending on your geography. And we really think that, that has untapped potential. We are also lucky to have regional brands called Bruno Banani and Mexx, which we also think are really exciting jewels in the crown, if you will. And then we have other organic owned brands called Jawhara and Chanson, and we think that there's also opportunity to grow those. So that's from a portfolio point of view. And then from a geography point of view, we think that the U.S. lifestyle scenting market is vast and that it's really not slowing down. We have not yet garnered our fair share there. So as a geography, that's a key area of focus. And then finally, in the case of Brazil. Brazil is probably the biggest fragrance market in the world, and we have a very strong foothold in body care. So we have big visions and ambitions to make sure that we have a fair share of fragrance in Brazil.

Body mist relative to fragrance, what are the TAMs or relative opportunities that we should understand?

Yes. So we understand that, that is an important and still very relevant and growing segment within fragrance. Last year, we had a big Coty-wide initiative to really enter into that category, whether it be brands like CK, Adidas, for example, or even Kylie. And then moving forward, I think it's about really what is the right fit for purpose and proportion mist to fine fragrance to, for example, ancillaries. So all that work is really underway, and it's a very exciting time for fragrance.

Feel free to raise your hand if anybody has any questions. One question we're asking everybody at the conference is your best use cases of AI that you're most excited about?

Yes, that's great. Besides Copilot in the office. We are excited to really have recently inked a partnership with a company called Pencil, and we're really looking to leverage them and their AI expertise in terms of helping us with our asset production to be more relevant, to be more scalable, to be more effective and efficient. So that's an active program right now that we're running through our owned brands, and we're really excited about what that potential can be.

What do you think it will do? What do you think your company or the industry looks like in 5 years from the lens of AI?

Through the lens of AI? I don't know. I think sharper, more natural, more efficient. And I think probably AI lets us build the beauty world that we want it to be.

And as you think about purpose as well in Gen Z and Gen A, how can you match mission and alignment with brands?

I think that, that's a great point, and we don't want to have to choose. I think with brands like ours, we're lucky to be able to play in the multigenerational space, whereby we can talk to and embrace and cater to Gen X. And at the same time, we're driving new customers into the franchises every single day. And I think it's also now probably about reverse influencing, right? Mothers influencing their daughters, daughters influencing their mothers. And I think we're lucky to have a portfolio that celebrates all of that.

Other topics we're focused on is biotechnology, wellness as well and humanization as well as growth factors, which I'm using, and I'm using peptides as well and NAD. What do you -- do those excite you and your innovation mindset? Or are they overrated?

I don't think they're overrated. I think it's really important to bring efficacy, like I said, to our daily beauty routines, whether it be hair, body, makeup, it doesn't matter, whether it's peptides, niacinamide, hyaluronic acids or whatever is the next thing. And I think that the consumer today is getting smarter and looking for things that are just delivering more and more benefits. So...

How do you figure out the next thing?

Listening.

But who? Because you can listen to a lot of people.

Well, that's true. That's true. I think, again, just having your ear to the ground and listening to your core consumer, but also all the things that she or he is doing in an adjacent fashion because sometimes the conversation is not so linear.

One thing that is a challenge/opportunity because we've worked with so many direct-to-consumer brands versus wholesale. How do you think you manage change in the wholesale context relative to what you're seeing directly with your consumer?

I think that, that's interesting. We were lucky enough to attend NACDS and really had some great conversations with some of our key partners. And I think in addition to the obvious things, they're looking at KPIs as it relates to service, right? So making sure that you're on time and in full. So I think that you're managing each constituent through the lens of what's important to them. Of course, your key retailer also wants productive core and innovation. But at the same time, they want 99% service, and they want it on time and in full, which is the right KPI.

Yes. And as you think about your portfolio, which is pretty vast, what do you think about 10-year-olds going to Sephora and 5- to 10-year-olds using products relative to the aging baby boomer?

I think that today, we live in a world of experimentation and people are introduced to different things at different ages. And so long as it's done in a safe and empowering way, I think that that's okay.

And juxtaposing, we talked a lot about changes happening in the organization. What about people? And how will that manifest in terms of the right people at the right place at the right time for everything you're doing, because you listed maybe 20 things.

I think that people are at the center and at the heart of everything, making sure, like you said, that we have great, motivated, capable people to help us drive this transformation agenda, which is daunting and exciting at the same time. So we want people who can opt in, who can feel motivated by the power of change and who can really drive impact and results. And I think that in order to do that, you have to be able to be a Maverick, fearlessly frank and not take no for an answer. So where there's a will, there's a way.

The theme of the conference is also Future of the Consumer. What do you think consumers care about? You spoke a lot about this, and it's a little different for to your brand equities. But what would you say is the future of the consumer?

You know what, I think that whether or not it's now or tomorrow, I think that consumers look for products and brands and relationships that are just authentic and organic. I think they want to feel something. They want to feel an emotional connection. And in the end, they want a product that really delivers on its promise. So that's what I think.

How do you balance innovation and emotions?

I think that emotion can fuel innovation. I think that we're lucky enough to work in an industry whereby people use products so that they feel good or even a better version of themselves. And I think that there's emotion in every single thing we do, whether it's core or new and every day we work together as a team. So it's about fun. It's about being provocative, it's about being curious. And I think it's about being a change agent and keeping consumers at the heart of everything we do.

Well, thanks for also sponsoring our experiential con...

Yes, sure. I hope everybody enjoys.

Vanessa, it's been a pleasure to learn about magic, logic brands and innovation and also what you're doing across the portfolio. Congrats on the momentum. And we learned a lot about the equities and how you're reestablishing relevance. Thanks a lot.

Great. Thank you. Pleasure.