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

Good evening, and thank you for joining us this evening as we discuss our sales update for the full year and fourth quarter that ended on December 31, 2024. Today, we have with us our Chairman and CEO, Marc Puig, and our CFO, Joan Ramis. 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 this recording shortly, also on our website. As a reminder, this is a sales update only, and Puig will report the full year 2024 financial update and outlook on February 27 after the market closes.

Good evening, everyone. Before we dive into the sales update, 2024 was a historic year for Puig in which we celebrated our 110th anniversary and became a publicly listed company. Once again we delivered record sales driven by the exceptional performance of our core Fragrance business in our core geographies, EMEA and Americas. We also continue developing our Makeup and Skincare segments, achieving meaningful milestones such as acquisition of Dr. Barbara Sturm and the extension of our partnership agreement with Charlotte Tilbury till 2031. The desirability of our brands and the strength of our geographic footprint have enabled us to outperform the premium beauty market as well as our midterm revenue growth guidance. With that, let's turn to the details of the update. We have delivered a strong performance for the full year '24, driven by the exceptional growth in our Fragrance and Fashion business, which has resulted in record net revenue of EUR 4.8 billion. This represents double digit growth, that is 10.9% like-for-like growth and 11.3% increase on a reported basis, ahead of our high single-digit like-for-like growth, medium-term revenue guidance provided at IPO and well ahead of the premium beauty market. This was due to a further acceleration in Q4 versus the prior 9 months with 14.1% like-for-like growth in net revenue and 14.3% on a reported basis. In our fourth quarter, Puig delivered record sales of EUR 1.36 billion. In light of this strong performance, we are confident that our results for the full year '24 will be in line with our overall midterm guidance. We will share the details of the full year results on the 27th of February and address our midterm guidance then. Turning to the drivers of this performance. The EUR 4.8 billion of net revenues were a result of 10.9% like-for-like growth, 1.2% from the acquisition of Dr. Barbara Sturm and a negative 0.8% impact from foreign exchange. The key driver was the exceptional performance from our core business, Fragrance and Fashion in both EMEA and the Americas. With double digit growth in this segment, we continued gaining market share in our core business. Our like-for-like growth benefited from a positive impact of 1.1% due to the hyperinflation adjustment of the Argentine peso as anticipated. In 2023, we had a negative impact, whereas in 2024, we had a positive impact, which has, therefore, resulted in a favorable comparison. The strong growth in Fragrance was partially offset by the low single-digit percentage negative performance for the year in the Makeup category. This was a result of specific sell-in/sell-out dynamics, which slowed the segment over the course of the year and the voluntary withdrawal of the Airbrush Flawless Setting Spray as we have previously disclosed. Further, we saw incremental organic growth from our Skincare segment in addition to the contribution from Dr. Barbara Sturm. If we look -- if we have a look at the evolution of growth of this year, we saw a clear acceleration in Q4 versus the first 3 quarters of 2024. This last quarter, we delivered 14.1% like-for-like growth. The change of perimeter contributed an additional 1% increase, partially offset by a negative foreign exchange impact of minus 0.9% resulted in reported growth of 14.3%. The hyperinflation adjustment due to the Argentina resulted in 4% favorable uplift to the like-for-like growth for the quarter. Let me share some more color on the performance of each of our business segments. The Fragrance and Fashion segment continued its strong momentum in the fourth quarter with revenues up plus 21%, driven by EMEA and the Americas. Excluding the impact of the hyperinflation adjustment due to Argentina, growth for this segment was 15.3%. Prestige continued to drive double-digit growth. This was complemented by double-digit growth across all of the niche Fragrance brands as well. We're pleased to see the successful acceleration of Byredo, which further led growth within niche. For the full year 2024, Fragrance and Fashion, which remains our largest business segment, generated net revenue of EUR 3.538 billion, representing 73% of Puig net revenue. This is an increase of plus 13.6% on a reported and constant perimeter basis versus 2023. Among the '24 highlights, Jean Paul Gaultier, Puig's fastest growing brand, completed an outstanding year. In 2024, it entered the top 10 Fragrance line rankings for the first time in its history, while it is estimated that Le Male has become the #3 Masculine Fragrance line worldwide. Good Girl, Carolina Herrera had a consistently strong performance throughout the year and we estimate that it has maintained its status as the second feminine fragrance line worldwide. And we are delighted to see that Good Girl, for the first time, has achieved the significant milestone of becoming the #1 feminine fragrance line in the U.S. Niche brands continued to show compelling growth with particularly strong performances from Penhaligon's, L’Artisan Parfumeur and Dries Van Noten which showed double-digit growth over the course of the year. Our Fashion business, which remains a lighthouse of creativity for our brands continue to perform well while still representing less than 5% of net revenues for 2024. For the full year, 2024, the Makeup segment represented 16% of Puig's net revenue in the period and recorded net revenue of EUR 763 million. This is a decrease of minus 1.3% on a reported and constant perimeter basis against 2023. Our largest contributor to Makeup, Charlotte Tilbury posted a flat performance in the segment versus '23. This was the result of several factors, including a tougher comparison with a strong '23 performance, further impacted by specific sell-in/sell-out dynamics. But in spite of softer net revenue growth, Charlotte Tilbury maintained its #1 ranking in the U.K. and achieved #3 ranking among Makeup brands for the full year in the U.S. having gained 2 positions versus 2023. The brand continued to drive innovation in the category with successful launches such as the Unreal Skin Foundation Stick. The segment was also impacted in 2024 by a quicker performance across some of our some of our smaller Makeup offerings. In Q4, Makeup revenues fell by 7.2% affected by the voluntary withdrawal of select batches of Charlotte Tilbury's Airbrush Flawless Setting Spray in December. This had a mid-single-digit percentage negative impact. Importantly, the situation has been managed and Charlotte Tilbury have begun reshipping the product to retailers. As anticipated, the segment was also affected by the sell-in pipeline related to the entry of Charlotte Tilbury into Ulta at the end of 2023. In December, Puig also announced the extension of its partnership with Charlotte Tilbury. While Makeup performance this year has been muted, we remain excited by the prospects for the Charlotte Tilbury brand for the long term. Together with Charlotte, we are committed to continue growing this beauty brand. It has been nearly 5 years since the beginning of our partnership, and we have created significant progress together, including growing the brand to over 3x its size at the beginning of our partnership. We have now extended our strategic agreement until the end of 2030. She will continue playing an active role in driving the brand's long-term success and will retain a minority stake. Puig will progressively assume full ownership until the beginning of 2031. For the full year, '24, the Skincare segment delivered EUR 516 million in net revenue, representing 11% of Puig's net revenue. This represents an increase of plus 19.8% on a reported basis and plus 7.4% at constant perimeter against the same period of 2023. In particular, Dermo-Cosmetics continue to perform strongly, with Uriage delivering double-digit organic growth, supplemented by successful launches and hero franchise accelerations. Puig continued its expansion and diversification in the segment, with the incorporation of Dr. Barbara Sturm, which reinforces Puig's ultra-premium Skincare offerings. In Q4, Skincare showed plus 11.7% sales growth on a reported basis and plus 2.1% at constant perimeter compared to the same period in 2023. As anticipated, the Skincare segment faced a tougher comparative base primarily due to the impact of the pipelining of Charlotte Tilbury into Ulta and meaningful launches in H2 2023, such as Charlotte Tilbury Magic Water Cream. In 2024, the EMEA region achieved net revenue of EUR 2.620 billion, up 12.8% reported and plus 11.6% at constant perimeter compared to '23. This remains Puig's largest region, representing 55% of our net revenue in the full year. This performance was driven by strength across all business segments. EMEA also represented Puig's largest region in the fourth quarter, up 13.1% on a reported basis and plus 12.4% at constant perimeter. The Americas achieved EUR 1.715 billion in net revenue for the full year 2024, up 11.1% reported and up plus 9.5% at constant perimeter compared to the same period in 2023. The region presented 36% of Puig's net revenue in the period. The Americas also delivered a standout performance in Q4 with plus 18.1% reported growth and plus 16.1% growth at constant perimeter, fueled by a continued strong momentum in fragrances. As anticipated, we saw 2 impacts in this region with opposite effects. Reported growth in Q4 benefited significantly from a positive impact of 13.3% due to the hyperinflation adjustment of the Argentine peso. As anticipated, this provided a favorable comparison versus 2023 when the impact was negative. This was offset by the tougher comparable yield to the pipelining of the Charlotte Tilbury into Ulta in Q4 2023. In APAC, Puig's smallest region in terms of revenue contribution, representing 10% of net revenue in 2024, sales increased by plus 3% -- plus 3.7% for the year amid continued market challenges. In Q4, APAC posted strong overall performance with plus 10.2% reported and constant perimeter growth versus 2023. While China remains subdued, Puig benefited from the newly created subsidiaries in Korea, Japan and India. Closing remarks, we manage a diversified and created portfolio of brands. And our first priority is to continue maintaining their desirability for their long-term success. We continue to feel encouraged by our consolidated performance across our complementary brands and segments, which balance different and evolving market dynamics. Overall, our business has delivered an excellent performance in 2024, led by outperformance in our core business with good momentum through the holiday period. Based on our preliminary estimations, the Christmas campaign sellout for the overall market was healthy, although it represents some moderation in growth versus the rest of 2024. Our brands showed strength through this period with their outperformance. While this year, we have had some challenges in Makeup, we have also had an outstanding performance in Fragrance, and we have seen good growth in Skincare. This has allowed us to deliver on our promises and we remain very confident in our ability to deliver for fiscal year 2024 in line with our midterm guidance.

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

The next question comes from Celine Pannuti from JPM.

Yes. Thank you very much. So my first question is on growth acceleration in fragrances. If you could give us a bit of a flavor of where was that coming from. You also mentioned, Marc, that growth moderated during Christmas. Is it possible to have an understanding of what is your estimate of market growth maybe in the fourth quarter versus the rest of the year? And what does that mean in terms of potential weakness or return in the first quarter of 2025. That's my first question. My second question will be on Charlotte Makeup. Clearly, you mentioned the issues that were faced in the fourth quarter. Can you talk about the sellout data for Charlotte Tilbury in the U.S. and in Europe, if you have it? And are we now past all those issues of sell-in/sell-out from Q1 of 2025?

Thank you, Celine. In terms of -- you mentioned group acceleration. It's true that when you see the evolution of the different quarters, we have seen versus the second, third and fourth quarter an acceleration. We believe that it's a result of some of the good performance of some of our brands. When we've seen Good Girl for instance in the U.S. becoming #1 feminine fragrance line for the first time ever in our history, that -- in Christmas, the most important time of the year, it has helped us accelerate sales for the quarter. You also mentioned whether expectations for cost of return given stock levels in the retailers in the channel. Our projection at this point is that we have adequate stock levels and so we shouldn't see surprises in that sense. And regarding Makeup, during the third quarter call, we did mention that our scenario was that by the end of the year would have better gap -- we have to close the gap between sell-in and sell-out so that the stock levels would be in line except maybe in some markets in Asia, but they were not as material. And the only thing has happened is given the challenges we have had with Setting Spray, we may have a little delay in this -- in closing this gap. So that's our expectation at this point. I hope I answered your question.

Can I just ask a follow up -- yes, just want to clarify, is it possible to have an understanding when you mentioned a bit of the slowdown in Christmas, what it means for the market? And am I right to understand that Puig has really driven more market share gain during that period.

Yes. We look at the -- our sense is that we don't have yet the final numbers for the Christmas season. But our understanding at this point is that the market has -- continues to be strong and healthy. But if anything, there has been a deceleration on the growth rate during the year. And given that in our case, seems to have gone the other way around, we probably have gained market share. And when we have better understanding probably in the next weeks, hopefully, during the end of February when we present the results for the year, we'll be able to give a little bit more clarity in what's our position there.

The next question comes from José Rito from CaixaBank. The next question comes from Danping Liu from Citi.

My first one is a quick follow-up on the inventory level. Marc, I think you mentioned that you see adequate stock level with resellers at this moment. My question is, do you see a potential destocking in the first half of 2025 if, let's say, the sellout of the fragrances during Christmas wasn't as fast as we would expect. And also related to that, have you seen -- how are the performance of the new launches in Rabanne and I think the Nina Ricci that launched in quarter 3. Have you seen much repeat purchase during Christmas or in January post the holiday season? So that's my first question. My second question, just a bit clarification on the Charlotte Tilbury Spray product withdrawal. Is it right from the prepared remarks, Marc, that you mentioned that shipping has been back to normal? Sorry, I think I didn't fully capture your remark there. So I -- basically just could you give us an update on the progress of this withdrawal and the potential headwind we will see in the first half of 2025? If I can add one more question on the Americas performance. So if we remove the hyperinflation benefits, we see a 3% constant perimeter growth in Americas. And I think you mentioned in the press release, U.S. was really strong. Could you comment on LATAM? I don't know whether you guys quantified the lapping the headwind. So just give us a little bit of flavor in terms of -- apart from U.S. how the rest of the markets in Americas performed in quarter 4.

Thank you, Danping. I'll try to please respond to all the questions. First one, inventory level in the stores, as we said, when we said adequate inventory level, is because we believe that the sell-out was in line with the expectations and that we have ended the campaign with the appropriate, adequate stock level. So we will -- there should not be any impact on the first half due to that. That's our best read at this point. When we mentioned the new launches for Rabanne and Nina Ricci, they have performed according to plan. And we don't see -- normally, it takes a few months for usage of a fragrance before you start seeing repeat business. And so at this point, we cannot -- we have not seen according to plan, that's how it's -- we can best assess the evolution of these 2 launches. Regarding the Setting Spray withdrawal at Charlotte Tilbury, yes, we have started to ship normally which means because the challenges we have now, we know that the products we ship do not have that problem anymore. The only comment is that in some cases, when in some of the U.S. retailers or you go to -- Oceania, because it takes some time for the product to reach the point of sale, we may have some weeks of empty shelves before those products reach the point of sale, which is not the case in Europe, and it's not the case in -- closer to where we start shipping. So in that sense, overall, the shipping is back to normal. There may be some delays on filling all the point of sale that have been left without product. And regarding Americas and LatAm, in Latin America, we have seen more commercial competition and aggressiveness than we had expected. We have a very high penetration of our market share, is the highest that we have in the world. And the business has been not as strong in terms of growth than we've seen in the U.S. But overall, we continue having a very strong position in that territory. I hope I answered those different questions.

The next question comes from Molly Wylenzek from Jefferies.

Can I follow up on the Americas question with the 3% underlying growth, but more from a category perspective, so we understand that Makeup and Skincare were impacted by both the launch or pipeline fill last year. Sort of underlying Fragrance's growth, if you can give us any sort of color, mid-single digit, high single digits, something like that would be really helpful.

Yes. Thank you, Molly. If I understand well, it's true that given the -- in the Americas, given the impact that we mentioned, we were expecting to have because of the comparison of this -- of the Ulta launch in 2023, both Makeup and Skincare growth has been impacted, which means that most of the growth comes from the Fragrance category, which clearly you have had a very strong season, yes.

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

And I appreciate this question may be a little bit premature because you still have limited data, but you commented on the Fragrance category slowing down somewhat over Christmas? And I just wondered if you could shed any color on why you think that may be the case, what may be changing?

Well, we don't have yet, Jeff -- we don't have yet the full disclosure of and granularity of the evolution of the sales during Christmas. Clearly, I have seen -- or we have seen some reports from some of our peers. We still don't have the full picture. And it seems that the growth rate that we have been seeing since COVID is somehow slowing down still in very healthy and attractive rates, but maybe it seems to be slowing down a little bit. Now in terms of relative growth may be slowing. But when you see our evolution, we have -- we seem to follow the contrary because if anything, we have been accelerating during the year. So that's why you have some contradictory information. But our best guess at this point, without having the hard numbers yet is that the growth rate may have been slowly diminishing over the year.