Puig Brands, S.A. (PUGBY) Earnings Call Transcript & Summary

Good evening, and thank you for joining us this evening as we discuss our results for the first half of 2025 that ended on June 30. Today, we have with us our Chairman and CEO, Marc Puig; and our CFO, Joan Albiol. Marc and Joan will share some brief remarks on the performance, financial results and outlook. We will then open up the line for Q&A. You will find this presentation, the press release and other supporting regulatory documents on our website. You will also be able to access a replay of this recording shortly, also on our website.

Good evening, everyone. We are pleased to report a strong first half of 2025, where we have continued to deliver on our commitments and outperformed the premium beauty market. In July, we discussed our sales performance. We delivered net revenues of EUR 2.3 billion. This represents plus 7.6% like-for-like and plus 5.9 percentage reported growth, in line with our 6% to 8% like-for-like growth outlook for 2025. We achieved this while delivering a strong gross margin position of 75.8% for first half 2025, which reflects the desirability of our premium brands and our strong ability to execute at scale. Our adjusted EBITDA of EUR 445 million implied a margin of 19.4%, which is a 0.5 percentage points improvement versus the comparable period in the prior year and puts us on track to deliver on our outlook for fiscal year 2025, in line with the margin improvement in 2024. Our adjusted net profit was EUR 247 million or 10.8% of sales, implying an increase of 3.9% versus 2024 and reported net profit was EUR 275 million or 12% of sales, growing plus 78.8% over 2024. In 2024, reported net profit was impacted by one-off costs incurred at the time of the IPO. Further, we continued to improve our free cash flow generation and had leverage of 1.4x net debt adjusted EBITDA, comfortably below our stated threshold. Joan will discuss our financial performance in further detail later in the presentation. To quickly recap our sales performance, which we discussed in detail previously, the EUR 2.3 billion of net revenues were a result of plus 7.6% like-for-like growth with a negative 1.7% impact from foreign exchange. This was a result of a few factors. A healthy performance in our Fragrance and Fashion segment, an encouraging improvement in our makeup segment in Q2 and robust delivery from our Skin Care segment throughout the first half of 2025. We saw growth across all of our regions with a noteworthy double-digit like-for-like growth in the Americas and Asia Pacific. This performance is consistent with the like-for-like growth in Q1 and Q2 of 7.5% and 7.7%, respectively. We have already discussed our net revenue performance per segment, but I would like to make a few incremental comments on each of these business segments. The Fragrance and Fashion segment delivered another solid performance with EUR 1.7 billion in revenues, up plus 8.6% like-for-like for the first half of 2025 in spite of some moderation in underlying growth, which was particularly evident in Q2. Three of our brands, Rabanne, Carolina Herrera and Jean Paul Gaultier continued holding rankings within the top 10 fragrance brands globally. This underscores our ability to achieve and maintain leadership positions while also highlighting the continued opportunity for further advancement. Niche grew double digit, led by Byredo. In H1 2025, we achieved a value market share of 10.9% in fragrances, reflecting our ability to execute in an increasingly competitive and promotional market. We continued to maintain strong market shares across regions with global Travel Retail showing standout share gain. LatAm, where we continue to defend a very strong #1 market share position, continue to show tough competition from promotional activity. In the first half of 2025, the makeup segment recorded net revenue of EUR 339 million with growth of 2% like-for-like and 1.4% reported. We saw an encouraging improvement in momentum in the second quarter. Our largest contributor to makeup, Charlotte Tilbury, maintained its #1 ranking in the U.K. and #3 ranking among makeup brands in the U.S. The brand continues to drive innovation in the category with Super Nudes collection and the expansion of the [indiscernible] franchise being key highlights. The Skincare segment delivered revenue of EUR 276 million in H1 2025, representing plus 8.6% like-for-like and plus 8.1% reported year-on-year. In particular, Dermo-Cosmetics continued to perform strongly with Uriage delivering double-digit organic growth supported by successful launches and hero franchise accelerations. This was complemented by a strong contribution from Charlotte Tilbury skincare, which drives the premium component of this segment. To quickly recap the performance of our geographical segments, which we discussed in detail a few weeks ago, we saw growth across all of our regions. In particular, we delivered strong like-for-like growth in the Americas and Asia Pacific. While our EMEA performance was more moderate, we saw particular improvement in skin care and makeup in this region. We continue to make progress toward our ambition of being at the forefront of ESG practices in our industry with further improvements to our scores. To call out a couple of examples, we maintain our position on CDP's A list for climate change. We were awarded an improved score of 19.8 by Sustainalytics, promoting us to low risk, which is #10 in the household product industry out of 101 and also improved our EcoVadis score to 80 out of 100, an improvement from 70 last year, retaining gold medal status and putting us in the 98 percentile. With this, I will hand it over to Joan, who will walk you through the details of the financial performance.

Thank you, Marc. We'll now like to spend more time on Puig's financial performance during the first 6 months of the fiscal year 2025. We are very proud of the financial performance of Puig during the first half of 2025. We showed strong growth ahead of the market and in line with our outlook for 2025. We improved our EBITDA generation while continuing to maintain a healthy investment level behind our brands. We continue to improve our cash flow management. And finally, our capital structure remains robust with net debt comfortably below our threshold, providing significant flexibility for future commitments. Now let's get into the details. I would like to start by providing you with a summary of our income statement for the first half of 2025, where I would like to highlight our net revenues like-for-like growth of 7.6%. Our gross margin of 75.8%, maintaining its position as one of the highest in the industry. The positive contribution from the premiumization of the portfolio as our niche brands scale were offset by negative impact due to foreign exchange. We delivered adjusted EBITDA of EUR 445 million, which at 19.4% is also an improvement of 0.5 percentage points compared to the prior year and puts us on track to deliver on our outlook for full year 2025, where we expect 20 basis points of improvement for the year. Finally, our adjusted net profit was EUR 247 million. This represents a modest increase of 3.9% compared to the prior year. While operating profit margin was aligned with first half 2024, adjusted net profit was negatively impacted by foreign exchange differences in the financial results and a lower income from associates, resulting in a margin decrease of 0.2 percentage points to 10.8%. Our key indicator for operational profitability, the adjusted EBITDA margin has increased to 19.4%. Let's review the drivers of this increase. First, we continue to maintain a strong gross margin at 75.8%. Our distribution costs improved by 20 basis points. We continue to leverage our SG&A expenses, improving 1.3 percentage points over the first half 2024. As we have continued to invest in CapEx over the recent years and our own stores count has increased, our depreciation and amortization as a percentage of sales increased 0.4 percentage points. These effects were partially offset by our continued A&P investment, which increased by 1.4 percentage points. In first half 2025, we invest in A&P to support sustainable long-term growth. As you know, we launched Million Gold by Rabanne in second half 2024, but only launched in the U.S. in first half 2025. This market tends to be an A&P intense region, which drove this as well. While we saw an increase of 140 basis points in the first half 2025, we do not expect the same level of increase in A&P as a percentage of sales for the full year 2025. Moving to operating profit. We demonstrated growth across all our segments in first half 2025. Our total operating profit reached EUR 332 million, an increase from EUR 330 million in the prior year with an overall operating profit margin of 14.5%, which remained stable versus last year. Analyzing the profitability of our business segments, we have seen varied contributions and dynamics. Our core fragrance and fashion business show an increase in operating profit to EUR 299 million in first half 2025 compared to EUR 294 million in the prior year. This reflects the growth of the segment at the scale. The operating profit margin show a small decline to 17.8% from 18.6% in first half 2024. This slight decrease in margin is a result of continued strategic A&P investment to support brand equity in key strategic regions like the U.S., as we just mentioned a few moments ago, demonstrating our commitment to long-term brand building. The makeup segment show an improvement in operating profit rising to EUR 12 million in first half 2025 compared to breakeven in first half 2024. This results in an operating profit margin of 3.6%. This improvement reflects enhanced profitability across our makeup initiatives, including the smaller [ exercise ]. Our Skincare segment also delivered a strong performance with operating profit increasing to EUR 21 million from EUR 80 million in first half 2024. The operating profit margin improved by approximately 40 basis points to 7.6%. This improvement was driven by the continued scaling of our larger skin care offerings, Uriage and Charlotte Tilbury. We continue to believe that as we gain scale in the makeup and skin care segments, their profitability will have the potential to converge with the group level. Focusing on the bottom line, we delivered a solid performance in our reported net profit for Puig in first half 2025, reaching EUR 275 million. While operating profit margins improved slightly above the first half of last year, we saw the negative impact of a couple of items below the line, which were an increase in costs due to foreign exchange impacts and a decrease in the income from associates, which impacted adjusted net profit negatively. While last year, we had a negative impact from one-off in our reported net profit due to the IPO. This year, we have made an adjustment to our net profit to reflect our reduction in the provision for outstanding earn-out reflecting the current environment. Moving on to cash flow. As we have previously outlined in our business in order to serve the heavier demand during the holiday season in the second half of the year, the business require an increase in working capital during the first half. During the first half of 2025, our free cash flow from operations improved markedly to minus EUR 116 million compared to minus EUR 173 million in the first half of 2024. Although it remains negative, this represents an improvement in line with the seasonal working capital build typically observed ahead of the second half. This improvement was primarily driven by better working capital management. Our CapEx remained in line with expectations as a percentage of net revenues. Operational cash flow improved to minus EUR 116 million compared to minus EUR 257 million in the first half of 2024, which was significantly impacted negatively by nonrecurring IPO-related cash flows. Our net financial leverage currently stands at 1.4x net debt to adjusted EBITDA, which is comfortably below our 2x medium-term threshold, allowing us to maintain both operating and financial flexibility. Net debt was EUR 1,426 million, and this reflects the seasonality of our operating cash flow, payment of EUR 202 million in dividends with another EUR 10 million in tax liabilities, which will be paid by the end of the year. With less material, we increased our stake by a further 12.5% in Kama Ayurveda in April 2025 for EUR 13 million, bringing our ownership to 97.5%. And there was a small impact from financial flows and leases. We finished first half 2025 with leverage levels 0.3x lower than those than June 30, 2024, reflecting our strengthened capital structure and continued financial flexibility. Liabilities from business combination stood at EUR 907 million, a decrease from EUR 1,088 million from last year. In the 6-month period of 2025, this decrease was mainly due to change in the market multiples to which the put call options are linked as well as to translation difference and update business projections to reflect recent performance. This also reflects the impact of our strategic decisions to increase our stake in Kama Ayurveda. Based on the combined effect of these 3 factors, the liabilities from business combinations were further reduced by EUR 181 million over the last 6 months. I now pass it back to Marc for a few closing comments.

Thank you, Joan. We feel confident that based on the strength and desirability of our brands, we will be able to outperform the premium beauty market. For the full year 2025, we reaffirm our outlook. We continue to expect net revenue like-for-like growth to be in the 6% to 8% range, albeit expecting to land in the lower side of the range. For the second half of the year, we're seeing a further moderation of growth in Fragrances, our largest business segment, where we expect outperformance in makeup and skin care. Coming to adjusted EBITDA with a head start in the first half of 2025 and while remaining cautious about the impact of foreign exchange and potential impact from tariff implementation, we continue to aim for margin improvement in 2025 in line with 2024. We made significant progress this year with respect to our capital structure, as Joan described a few minutes ago. We continue to manage our balance sheet conservatively, maintaining the threshold of 2x net debt adjusted EBITDA. We maintain our intention for a 40% dividend payout ratio in line with our historical practices. The first dividend since our IPO was paid in June 2025 with respect to the full year 2024. And lastly, we continue to maintain a highly selective approach to M&A. True to our character as a home of creativity, we have some great initiatives for the second half of 2025. Of these innovations, we are most excited about the launch of Carolina Herrera La Bomba. We prelaunched this in very selective points of sale in June with the official launch in EMEA and LatAm that will take place in September. We will be making a worldwide presentation in Madrid on the occasion of the Carolina Herrera fashion show, which will be taking place there. As always, you will see the rollout of extensions with our prestige fragrance brands. We continue with our collection-based approach with launches in niche. The Cut from Penhaligon's, Havana Gold from Dries Van Noten and Alto Astral from Byredo are a few examples. While Charlotte Tilbury is a very well-known brand, its distribution even in some of its largest markets remains well below some of its comparable makeup brands. In Q3, we expect to roll out Charlotte Tilbury on Amazon in the U.S., which is increasingly becoming a channel of importance for the makeup shopper in this region. In Fashion, we strengthened our portfolio with the appointment of Duran Lantink as Permanent Creative Director of Jean Paul Gaultier, marking a shift in strategy after 5 years of revolving guest designers. His first ready-to-wear collection for Jean Paul Gaultier will be presented in early October 2025. In skin care, we have a steady pipeline of launches over the course of the year across our brands. We continue innovating on Uriage Age Absolu, [indiscernible] and XEMOSE. I also want to share an organizational update with you today. I have made the decision together with the Puig's Board to create the role of Deputy CEO. I am pleased to announce the appointment of Jose Manuel Albesa to this position in charge of all divisions and reporting directly to me. As Deputy CEO, he will drive the delivery of Puig vision and strategy across the business. He will also continue in his role as President of the Beauty and Fashion division. I remain fully committed to my role as Chairman and CEO of Puig. I have worked closely with Jose Manuel since 2004, and I can attest that his passion, deep understanding of Puig's story and exceptional talent as a brand builder and leader have been instrumental in our transformation to becoming the global premium beauty player we are today. He was instrumental in repositioning Rabanne, Carolina Herrera and Jean Paul Gaultier, transforming them into 3 of the world's top 10 fragrance brands. I wish him every success in this expanded position. Before I close, I want to reiterate how proud we are of our results. They are a testament to our ability to be a true home of creativity and our commitment to deliver on our promises. We are energized by all the great initiatives we have planned for the rest of the year.

Thanks, Marc. With that, we come to the end of our prepared remarks, and we will begin Q&A.

The next question comes from Patrick Folan from Barclays.

Just, Marc, touching on your new appointment of Jose to Deputy CEO, which is a new role. I guess what is the reason behind this new role and appointment? And I guess, how should we think of Jose's role over the medium term? Will he be joining results calls? Or will he be not as public facing? And my second question is just on margin phasing. So you said A&P won't increase at the same level for the full year as we saw in the first half. So should the second half A&P as a percent of sales be broadly similar to levels we saw in the second half last year?

Thank you, Patrick. Look, the reason for the nomination of the Deputy CEO is it seems like since I was appointed the CEO nearly 20 years ago, the company has more than 6 -- growth more than 6x. And the complexity and the challenges we have made us together with the Board, decide to reinforce with the appointment of Jose Manuel Albesa. And at this point, that we are starting to work with him in this position. And that's as much as I can share with you because that's what we have decided so far. Whether he will be joining the calls maybe later on early next year or at the end of this year, we probably will also ask him to join us so that he can answer some of the questions that will be posed for him. Regarding the second question, the margin call, basically, Joan want to answer that question?

Yes. I think, Patrick, you're right. I think we're expecting second half of the year similar A&P that what we had last year. What we are saying is overall, we are not expecting the increase we have had in the first half to stay at the same level in the -- for full year.

The next question comes from Mariano Szachtman from Santander.

So my first question is on fragrance demand. So could you please comment on the summer trends? Have you noticed any material change from what was seen in the first half? And also if you could expand on the comment on the moderation here? And also my second question is on Fragrance and Fashion margin. The decline in year-on-year margin to understand is this almost exclusively due to the Rabanne 1 Million Gold campaign or it's increased investments in most of fragrance brands?

Thank you, Mariano. Regarding the fragrance demand, during the first half, our best estimation of the growth of the category as a whole, it was in the mid the mid-single-digit number. And over the past couple of months, we're seeing moderation even from this growth. So we expect the second half to be more in the low single digit. But it's still maybe too early because in fragrance, the most important season is Christmas. And we still don't have yet the feedback from retailers in terms of open to buy nor we have yet the -- all the answers, let's say, from the consequences of some of the impacts of the tariffs, for instance. So still a little too early, but we see -- since we have seen a moderation over the last couple of months, we expect the second half to be in the lower single-digit percentage versus, let's say, mid-single digit in the first half for the category as a whole. I hope this responds your question. In the -- for the second question, I'm going to pass to Joan.

Yes, Mariano. I think related to advertising and promotion is related to fragrance is more overall, but Rabanne Gold play an important role in it. So I think with this, what we are saying is that A&P, it has been growing in the first half, but we don't expect the same level of increase in the second half of the year. It's more related to seasonality of the launches. I hope I have answered your question.

That was our last question. Thank you all for your questions today. We look forward to speaking again when we present our sales update for Q3 of 2025 at the end of October. Thank you very much.