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

Thank you for joining us this evening as we discuss our sales update for the 9 months and third quarter that ended on September 30, 2024. Today, we have with us our Chairman and CEO, Marc Puig; and our CFO, Joan Albiol. Marc will share some brief remarks, and then we will open up the line for Q&A. You will find this presentation and the press release on our website and you will be able to access a replay of these comments shortly on our website. Thank you.

Good evening, everyone. Before we dive into the latest results, let me quickly run through the strength of our portfolio of a Love Brands. We're driven by a focus on premium beauty. We have 3 brands in the top 10 fragrance rankings worldwide and we're building a niche portfolio and striving to diversify further into makeup and skin care. We are brand owners and creators. Today, our own brand represent 96% of the net revenues from our Love Bands. With that, let's turn to the update. We are pleased to report an acceleration in Q3 versus first half with 11.6% like-for-like growth in net revenue and 11.1% on a reported basis. In this third quarter, Puig delivered record sales of EUR 1.3 billion, and we continue to outperform the premium beauty market. This resulted in a robust performance in the first 9 months of 2024 with net revenue of EUR 3.4 billion, which represents 9.6% like-for-like growth and a 10.1% increase on a reported basis, well in line with our midterm guidance provided at IPO and well ahead of the premium beauty market. In addition to the strong performance that we have seen this quarter, we are further encouraged by the performance of Puig in recent weeks. Turning to the drivers of this performance. The EUR 3.4 billion of net revenues were a result of 9.6% like-for-like growth, 1.4% from the acquisition of Dr. Barbara Sturm and a negative 0.8% impact from foreign exchange. The key driver was the very strong performance from our core business, fragrance and fashion in both EMEA and the Americas. With a double-digit growth in this segment, we continue to reinforce our competitive position and capture incremental value market share. This was further complemented by a much improved performance and makeup this quarter as a gap between sell-in and sellout, which we spoke about in the first half continues to narrow. Further, we saw incremental organic growth from our skin care segment in addition to the contribution from Dr. Barbara Sturm. As a reminder, given the categories we are most exposed to, we tend to generate more sales in the second half of the year due to the importance of the holiday season. If we have a look at the evolution of growth of this year, we saw a clear acceleration in Q3 versus the first half of 2024. This last quarter, we delivered 11.6% like-for-like growth. The change of perimeter contributed an additional 1.3% increase, partially offset by a negative foreign exchange impact of minus 1.7%, resulting in reported growth of 11.1%. Let me share some more color on the performance of each of our business segments. We are a leader in the thriving fragrance market, which benefits from very strong underlying trends and robust customer demand. Fragrance and fashion continued its strong momentum in the third quarter, with revenues up 11.1%, driven by EMEA and the Americas. In the first 9 months of 2024, this segment generated net revenues of EUR 2.5 billion, an increase of 10.9% on both a reported and constant perimeter basis compared to 2023. This segment contributed 73% of Puig net revenue in the period. During Q3, we delivered the noteworthy launch of Million Gold by Rabanne, and we also launched Vénus by Nina Ricci, the first new fragrance from the esteemed brand in 10 years. We saw continued strength in our Prestige branch in this quarter. According to our estimates, Good Girl by Carolina Herrera, maintained its #2 position among female fragrances and La Male Loma by Jean Paul Gaultier, secured the #3 position among masculine lines. further solidifying their market-leading positions within the top 10 brands globally. We now have 3 brands on the top 10 Prestige fragrance ranking worldwide. We also saw increasing momentum in niche, which delivered double-digit growth. Makeup grew plus 7.3% in Q3 as the gap between selling and sell out narrowed as anticipated. The segment saw strong growth in EMEA and improving performance in the Americas, while APAC continued to show softness. For the 9-month period of 2024, this segment recorded a net revenue of $535 million, an increase of 1.4% on a reported and constant perimeter basis against 2023. This segment contributed 16% of Puig revenue in the period. Q3 2024 marked the return of the Makeup segment into positive growth territory. The sellout for the largest brand within Makeup, Charlotte Tilbury remained strong with double-digit growth in its largest markets, EMEA and the Americas. The recently launched Exagger-Eyes Mascara is off to a good start. Further to the comment that we made on [indiscernible] during the first half, we are responding to this situation with creativity and innovation in a way that is very authentic to the brand. As a reminder for Q4, growth in the segment will face a tougher comparison due to the pipeline sell-in related to the entry of Charlotte Tilbury Ulta at the end of 2023. Skin Care showed double-digit sales growth of 18.6% on a reported basis and 5.2% at constant perimeter in Q3. The Dermo-Cosmetics brands in this segment continued to perform strongly with double-digit growth, while this segment faced a tougher comparative base, primarily due to the impact of meaningful launches, including Magic Water Cream in the second half of 2023. For the 9-month period of 2024, skincare delivered EUR 381 million in revenue. This is an increase of 22.9% on a reported basis and 9.4% at constant perimeter against the same period of 2023. This segment represented 11% of Puig net revenues in the period. The integration of Dr. Barbara Sturm is on track and the brand continues to perform in line with expectations, having contributed 1.4% for 9 months 2024. EMEA remained Puig's largest and fastest-growing region with an acceleration of sales in Q3, up 12.6% at constant perimeter, reinforcing Puig's leading position across categories. For the 9-month period EMEA achieved net revenue of EUR 1.8 billion, up 11.3% at constant perimeter compared to the first 9 months of 2023. The Americas also delivered a standout performance in with robust growth of 8.3% at constant perimeter, fueled by the continued strong momentum in fragrance and the performance of Makeup. For the 9-month period of 2024, the region achieved $1.3 billion in net revenue, up 7.5% at constant perimeter compared to the same period in 2023. Without the negative impact of LatAm currencies, our constant perimeter growth for the Americas would have been well into the double digits. We wanted to know that in Q4 2023, Puig accounted for a negative hyperinflation adjustment for Argentina, which will allow for an easier comparison for Q4 2024. This impact primarily affected our fragrance and fashion segment. In APAC, a region where Puig is underexposed, sales increased by 1% in Q3 amid continued market challenges. This region contributed 8% of our sales for the quarter. This translated to $308 million in net revenue for the first 9 months of 2024, up 0.8% year-on-year basis, both on a reported and constant perimeter basis. The company continues to invest at a measured pace in the region for the long term, including China, where we have a limited presence, and in India, Japan and South Korea, where we have recently established subsidiaries. Our business has delivered a strong performance in the first 9 months of 2024. And we are encouraged by the business performance in the last few weeks. We remain very confident in our ability to deliver for fiscal year 2024 in line with our midterm guidance. We manage a diversified and created portfolio of brands and continue to feel encouraged by our consolidated performance across our complementary brands and segments which balance different and evolving market dynamics.

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

The next question comes from Olivier Nicolai from GS.

I got 3 questions, please. First of all, in fragrance, should we think about inventory level as we enter the key Q4 period? And what has been the feedback from the key retailers into this festive season, which is coming up. Linked to that, actually, Million Gold appears to be a major launch and quite a successful one. Would you be able to quantify the impact it had on the quarter? And will it benefit Q4 as well? And just lastly, if I may, are you able to give a bit more details on the sellout trends in Makeup in the U.S.? And how should we think about Q4 considering that you are lapping the launch in Ulta?

Thank you, Olivier. First question regarding the inventory levels and retailer feedback so far for the Christmas season. Well, what I can say is that retailers are being quite bullish on the fragrance category. Now we've seen a little bit of consumer tough or tougher situation in general, but it's not the case with the fragrance category. So retailers are bullish and they have been building up inventory for their expectations for the Christmas season. So at this point, we think that we are ready for the agreement season, and we just have to wait to see how Christmas goes, which we will not know until next -- beginning of next year. Regarding the Million Gold, it's been a significant launch for Rabanne, and that was one of the initiatives we had for this brand, which was mainly in the second half, as we mentioned, in our first half results. And as you say, the first indications are quite positive, and we're encouraged by the feedback we've had, but there's no more we can say at this point. These brands are -- there's a dynamic behind the innovation of these brands. And it is important that we keep being relevant to consumers. And so far, clearly, we have somehow again gotten the interest from consumers. So it looks very promising. And regarding the sell-out, sell-in in Q4 for the U.S., what we can say is that the -- in the case of Makeup, the largest brand is Charlotte Tilbury. And we continue seeing double-digit growth in sell-out. And what we said in the first half is that there was evidently a gap between sell-in and sell-out, which has been narrowed. We still -- we'll see some impact on the last quarter, particularly because as we mentioned last year, we opened Ulta. And so the comparison will be tough versus last year, but the gap between sell-in and sell-out has been progressively narrowed, and we think by the end of the year will be finished.

The next question comes from Celine Pannuti from JPM.

My first question, Marc, in your prepared or your commentary, you said it's a complex environment. Can you talk about what the Puig market is looking like in developed markets, if I think about Europe and U.S.? One of your competitors in the U.S. has been talking about a slowdown in the market, including in Makeup. Are you also seeing that even if you are recording good sell-out from Charlotte Tilbury? My second question is on Charlotte Tilbury, the Makeup division. You just mentioned that the sell-in, sell-out is narrowing in the U.S. Can you talk about what you've seen in terms of sell-in issues that you had in Q2 in the Middle East and about China as well, the situation there with regard to makeup? And then coming back into fragrances, you mentioned that the market remains quite bullish about the category. Are you seeing this both in Europe and in the U.S.? And what are you looking -- I mean, how is the market looking like as you look into 2025 in the context where other categories are also seeing some slowdown?

Thank you, Celine. Regarding the complex environment, we mentioned this because among other things, we are expecting an important election year in the U.S., among others. And we are -- we don't know what's going to happen and what will be the outcome of that and what consequences will have. And that's why we said well, we are in a complex environment, waiting for certain scenarios to clarify. And it's true that we've seen certain peers mentioning a slowdown in the U.S., but we're not seeing that at least for the territory where we compete, which is premium beauty, particularly in Makeup, we see double-digit growth in sell-out with some of challenges within sell-in and sell-out, as you know. And in terms of fragrance, we've seen a strong Jean Paul Gaultier, a strong Good Girl for Carolina Herrera and the fact that we still have in the U.S. market share that is below our worldwide market share. We believe that we still have room to continue growing faster than the market. So we have -- we're not seeing that, at least in our own business. Regarding makeup sell-in, sell-out, it is true that we had mentioned certain gaps in the Middle East. We think that in this fourth quarter that will be finished. And in some countries in APAC, we still have some gaps that will be finished -- we planned by next year. So Middle East, fourth quarter is already -- the gap is closed and for the rest of APAC will be next year. And regarding next year for 2025, how do we see the market? Clearly, particularly for fragrances, you mentioned that you're asking Europe and U.S., given that others are mentioning certain slowdown. It is very important to see the -- because it's a little early for us to comment in 2025, given the significant role that Christmas play for this category. So we will be able to better assess the 2025 expectations or a scenario once in the first quarter of next year when we have the results of Christmas. Having said this, in our internal work that we're doing does not give us any reason to deviate from our thoughts on market growth that we provided at IPO, which was that the market, we believe, will still grow at 6%, 7%. And this is a different number that we've heard from our peers, but remember that we compete in the premium sector, a strong position in fragrance and Makeup in case of skincare, the largest player in our case is Derma Europe. So when we look at our specific perimeter, and we have, as we mentioned, we're less exposed to others than on APAC. That means that our overall growth scenario at this point continues being what we had expressed during our IPO. I hope that this answers your question, Celine.

The next question comes from Jeff Stent from BNP Paribas Exane.

I was wondering if you would be able to tell us what proportion of your U.S. sales are manufactured outside the U.S., i.e., the products are imported into the U.S.?

Yes, Jeff. Basically, in our case, most if -- maybe this -- I would say, more than 95% at least of our manufacturing happens in Europe. So we have no manufacturing plan or we don't buy from any U.S.-based manufacturing facility or basically euro-based cost company. Does this answers this your question?

That's very, very clear.