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

Good evening, and thank you for joining us as we discuss our results for the first half of 2026 that ended on the 30th of June. Today, we have with us our Chief Executive Officer, Jose Manuel Muniesa; and our Chief Financial Officer, Miquel Angel Serra. They 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, where you will also be able to access a replay of this recording shortly after the call concludes. Jose Manuel, the floor is yours.

Thank you, Varenya, and good evening, everyone. It is a pleasure to be with you today and to discuss our latest results. We are pleased to report a strong first half of 2026. Once again, we outperformed the premium beauty market, gaining market share across categories and geographies and further strengthened the foundation of our business. Particularly after the recent dynamic months, we have greater confidence than ever in our stand-alone story. We remain laser focused on delivering our strategic priorities. And we look forward to sharing more about our strategy at our Capital Markets Day on October 28. In the first half of 2026, Puig delivered record of net revenues of EUR 2.35 billion, representing a strong like-for-like growth of 4.4%, continuing our track record and consistent with our ambition of outperforming the premium beauty market on a like-for-like basis. We are pleased to share that the last 6 months also represented a period of market share gains across categories. Gross profit margin remained resilient at 75.5%, declining by 30 basis points year-on-year. The positive impact of our mix evolution was offset by foreign exchange headwinds during the period. Adjusted EBITDA reached EUR 460 million with a margin of 19.5%. This reflects an improvement of 15 basis points and puts us on track to deliver our guidance for this year. Adjusted profit of EUR 260 million represents a margin of 11.1% or EUR 0.46 per share. Net debt to adjusted EBITDA stood at 1.5x, comfortably below our threshold of 2x. Looking ahead, we remain confident in the strength of our business. And we are reaffirming our full year 2026 outlook, continuing to expect Puig to outperform the premium beauty market on a like-for-like basis, while maintaining stable adjusted EBITDA margins in line with 2025. In the first half of 2026, growth remained attractive across business segments. All business segments and geographies delivered growth in H1 2026, led by Fragrance & Fashion and Makeup. Currency movements had a minus 2.1% impact on reported net revenue during the period, primarily due to the U.S. dollar. The impact of the ongoing situation in the Middle East is estimated to be approximately EUR 14 million in the first half of 2026 or 0.6% of total revenues for the period, slightly better than we had initially expected. The local markets have showed healthy recovery, while it was the travel retail channel where we saw continued impact. Turning to the second quarter. Growth trends remain broadly unchanged for those seen in the first quarter. With net revenues of EUR 1.14 billion, increasing by 4.1% on a like-for-like basis, driven by the continued strength of Fragrance & Fashion and excellent momentum in Makeup and Derma brands. In this quarter, like-for-like growth was aligned with our reported growth as we saw the foreign exchange headwinds disappear. Let's take a closer look at the business segments. Let me start with Fragrance & Fashion, which accounts for 73% of total sales. In the first half, the segment generated EUR 1.7 billion in net revenue. This represents like-for-like growth of 3.8%. This above-market performance supported Puig value market share growth to 11.1%, representing a gain of 0.3 percentage points over H1 2025. Asia Pacific, Travel Retail and North America were the strongest contribution during this period. Growth was driven by the continued strength of our Fragrance portfolio across both Prestige and Niche. In Prestige, Carolina Herrera delivered double-digit growth, supported by the growing success of La Bomba and the continued strength of Good Girl. In Niche, we continue to outperform the market with double-digit growth, led by a strong performance from Byredo and Dries Van Noten. In 2Q, net revenues reached EUR 819 million with like-for-like growth of 3.7%. Trends across regions remained broadly consistent with what we saw in the first quarter. Innovation during the period was weighted towards Niche, including new body mists launches from Byredo and Penhaligon's, extending our brands into formats that enhanced discovery and broader consumer reach. This was complemented by Prestige innovation in the form of range extension, including La Bomba Intensa from Carolina Herrera and Gaultier Divine Belle. It's also worth noting the launch of Gaultier Divine, which is a Niche extension from our Prestige brand, building towards continued brand elevation and expanding the consumer base. Moving to Makeup, which represented 15% of total net revenue in the first half. The segment delivered EUR 359 million in net revenue, representing like-for-like growth of 9.1%. This once again reflects the outstanding performance of Charlotte Tilbury, which continues to build on its market leadership position in premium makeup worldwide, where we have increased market share by 0.4 percentage points. The brand maintains impressive rankings in its key markets, including #1 in the U.K. with healthy sell-out growth. In addition, the brand delivered double-digit sell-out growth in the U.S. Latest market data also suggests that the brand continued to strengthen its market position in core European markets, maintaining ranking of the top 3 position and is continuing to build its presence in newer markets. In Q2, Makeup generated net revenues of EUR 188 million, growing also at 9.1% like-for-like, supported by strong sell-out growth trends in Charlotte Tilbury and ongoing expansion of the brand's distribution footprint at Boots U.K. at the end of the quarter. This expansion in Tilbury selected Boots location, around 30 of them should start reflecting in sellout trends Q3 onwards. Globally, but even in the U.K., which is Charlotte Tilbury most mature market, it still remains relatively under-distributed compared to our closest peers. Product innovation continued to support brand performance during the quarter with new launches in the highly successful Pillow Talk and on real franchises. Turning to Skincare, our smallest segment, which represented 12% of Puig's net revenues in the first half. The segment generated EUR 279 million in net revenues, growing 2.3% on a like-for-like basis. Uriage, the largest brand in the segment, was the largest contributor to segment growth in the first half and continued to outperform the dermo-cosmetics market, thanks to a double-digit growth across key markets. Latest market data suggests that Uriage continue to be one of the fastest-growing dermo-cosmetics brands in 2026, with the brand gaining 0.2% in points of value market share to reach 2.6% in 6 core European markets. We continue to see the opportunity for growth. In Q2, the Skincare generated net revenue of EUR 132 million and represented a moderate like-for-like decline of 0.3%. While dermo-cosmetics led by Uriage continued to deliver double-digit growth and local skincare wellness brand continued to gain share. The performance this quarter was offset by softer trends in premium skincare. We have been seeing more moderate growth in the premium skincare market as consumers have been exploring efficacy and value-focused proposition. And specific to our portfolio this quarter, we also saw the impact of product line adjustment at Charlotte Tilbury skincare. In terms of what is new, we continue innovating across core franchises. And Q2 saw the expansion of Xemose from Uriage and [ newborn ] sun drops from Barbara Sturm. Moving to our performance by the region. We continue to see healthy growth across our geographical footprint with Asia Pacific once again delivering an outstanding performance. Starting with EMEA, our largest region at 52% of group revenues, EUR 1.2 billion were generated in the first half, growing at 2.6% like-for-like. Performance reflected positive dynamics across Europe, supported by continued strength of our fragrance portfolio and broad-based growth across key markets despite some impact on the ongoing situation in the Middle East, as we have discussed. Fragrance market share in Europe reached 11.2%. In Q2, EMEA generated net revenues of EUR 565 million, growing at 2.1% like-for-like, reflecting underlying dynamics consistent with Q1. The Americas represented 37% of group revenues, delivering net revenue of EUR 859 million in the first half with like-for-like growth of 2.6%. Performance reflected the strength of our North America, where we continue to outperform the market, gaining 0.3 points to reach 8.3 percentage in fragrance value market share and supported by a strong makeup sellout where we also gained 0.3 points. Latin America remained resilient, maintaining the top 1 ranking in the fragrance market with market share above 20% in a competitive and highly promotional environment. In Q2, the Americas generated net revenue of EUR 431 million, growing at 3.2% like-for-like. Finally, Asia Pacific, which represented 12% of group revenues, once again delivered the strongest regional performance. The region generated EUR 273 million in net revenues during the first half, representing like-for-like growth of 20.9%. This outstanding performance was driven by exceptional momentum in Niche fragrance and continued strong consumer demand across the region. Fragrance value market share continued to grow in the region as we see plenty of white space before we can convert towards our global levels. In Makeup, Charlotte Tilbury also maintained its excellent trajectory, further strengthening its position across key markets. In the second quarter, Asia Pacific generated net revenues of EUR 142 million, growing at 16.1% on a like-for-like basis and maintaining positive momentum across all categories. Miquel Angel will now walk you through the financial highlights.

Thank you, Jose Manuel. We would now like to spend more time on Puig's financial performance during the first 6 months of the fiscal year 2026. Now let's get into the details. I would like to start by providing you with an overview of our income statement for the first half of 2026, highlighting the key following points. We already discussed the net revenue evolution. Our top line like-for-like growth of 4.4% was accompanied by a gross margin of 75.5%, maintaining a best-in-class levels in the industry. We delivered adjusted EBITDA of EUR 460 million, which at a 19.5% margin represents an improvement of 15 basis points compared to last year and puts us on track to deliver our full year 2026 outlook of stable margins versus last year. While operating profit margin remained stable year-on-year, adjusted net profit is up 5.2%. The improvement is a result of improved financial results and income from associates despite a higher effective tax rate during the first half of 2026. Our key indicator for operational profitability, the adjusted EBITDA margin has increased to 19.5%, improving 15 basis points year-on-year. To give you some more color on the building blocks of this result. First, gross margin maintained at best-in-class levels in Premium Beauty at 75.5%. Despite a 30 basis point decrease year-on-year, the positive contribution from portfolio mix evolution and lower inventory losses were offset by adverse foreign exchange impacts, an effect that will ease in the second half. Our distribution costs increased by 26 basis points as a percentage of sales, impacted by increased transportation costs as a consequence of the disruption in the Middle East. SG&A expenses on sales increased by 22 basis points year-on-year, affected by the FX impact on growth. Current level still represents an improvement of 120 basis points over 2 years as we continue to balance consistent efficiency with supporting the growth of the business and strengthening our organizational capabilities. As we have continued to invest in CapEx over the recent years and our own store count has increased, our D&A as a percentage of sales increased by 16 basis points. These effects were more than offset by lower A&P investments during the first half of the year, which declined by 77 basis points as a percentage of sales. This reflects the phasing of A&P with investments weighted towards the second half of the year, in particular, in the Fragrance & Fashion segment. For full year 2026, we expect A&P investments to be relatively in line with those of last year as a percentage of sales. Turning to operating profit. Our total operating profit reached EUR 340 million, an increase from EUR 332 million in the prior year, with profit margin stable year-on-year at 14.5%. Profitability trends varied across business segments during the first half, reflecting differences in category mix, investment levels and operational leverage. Our core Fragrance & Fashion business showed an increase in operating profit to EUR 329 million in the first half of 2026 compared to EUR 299 million during the prior year. Operating profit margin improved by 143 basis points, driven by operational leverage, disciplined cost management and the phasing of investments behind Puig's brand portfolio weighted towards the second half of the year. The Makeup segment generated operating profit of EUR 7 million during the first half compared to EUR 12 million last year. This resulted in an operating profit margin of 1.8%. This reflects a planned increase in A&P investments behind Charlotte Tilbury during the first half of this year. Skincare operating profit was at EUR 4 million during the first half compared to profit of EUR 21 million last year. This decrease primarily reflects the flow-through from moderate revenue growth in the premium skincare, combined with sustained investments across brands as part of their long-term growth strategies. Building on Jose Manuel's comments, in addition to the reformulation of the Magic Cream, the product line adjustments at Charlotte Tilbury skincare reflected the discontinuation of specific SKUs in skincare, which impacted growth and near-term profitability in the segment. Focusing on the bottom line. We delivered a solid performance in our adjusted net profit, which increased by 5.2%. Margin expanded by 30 basis points to reach 11.1%. This improvement was driven by stronger financial results and higher income from associates, partially offset by higher tax expenses incurred during the first half of the year. Reported net profit for Puig during the first half reached EUR 263 million, reflecting the impact of one-off transactions-related costs incurred during the first half of 2026 and an unfavorable comparison with extraordinary incomes during the first half of last year. Moving on to cash flow. As we 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 typically requires an increase in working capital during the first half. During this first half of this year, our free cash flow from operations outflow increased from EUR 116 million negative in the first half to EUR 196 million negative -- million during the first half of this year. This was a result of unfavorable movements in working capital during the first half of 2026. This movement was caused due to a temporary increase in inventory levels, which were conservatively maintained at higher levels against the macro backdrop. We expect this to partially improve over the second half of the year. With the current dynamics, we expect free cash flow conversion on adjusted EBITDA levels will be around 50% this year. The increase of EUR 72 million in cash flow adjustments was primarily driven by long-term provisions and fair value adjustments. Our CapEx levels increased slightly to 3.3% of net revenues, but comfortably in line with our expected range, which will be between 4% and 5% for the full year. Net debt was EUR 1,589 million at the end of the first half of 2026. And this reflects, first, the seasonality of our operating cash flow, the payment of EUR 226 million in dividends with another EUR 11 million in tax liabilities, which will be paid at the end of the year. During the second quarter, we acquired an additional 6.5% stake in Charlotte Tilbury, which amounted to EUR 260 million, where we would now hold 85%. Also with respect to Charlotte Tilbury, we executed the earn-out payments of the original transaction of 2020, which amounted to EUR 112 million. And finally, we had an impact of EUR 78 million from financial flows and leases. Our net financial leverage currently stands at 1.5x net debt over adjusted EBITDA, 0.1 turns above where we were at this time last year and still comfortably below our 2x threshold, allowing us to maintain both operating and financial flexibility. Liabilities for business combination decreased to EUR 558 million at the end of the first half, a reduction of EUR 430 million compared to year-end of 2025. This decrease was primarily driven by the already mentioned acquisition of the additional 6.5% stake in Charlotte Tilbury, where we now hold ownership of 85% and the payment of the earn-out obligations, out of which EUR 80 million were liabilities through business combinations. The final EUR 90 million reduction corresponds to foreign exchange movements and the periodic reassessment of future obligations. I now pass it back to Jose Manuel for a few closing comments.

Thank you, Miquel Angel. Turning now to our outlook. Our first half performance reinforced our conviction in the attractiveness of our brands. The relevance of our innovation pipeline and the attractive long-term fundamentals of our end markets. Our business continues to demonstrate agility, executional flexibility and the diversification required to navigate the current environment. As a result, we reaffirm our full year 2026 outlook. We continue to expect Puig to outperform the premium beauty market on a like-for-like basis. We remain focused on strengthening our competitive positioning and investing behind the long-term health of our brands. From a profitability perspective, we continue to expect our adjusted EBITDA margin to remain stable in line with 2025 levels. And our first half performance reinforces our confidence in achieving that objective. From a capital discipline allocation standpoint, our leverage threshold and dividend policy remain unchanged. Similarly, we continue to evaluate M&A opportunities that align with our long-term strategy. The premium beauty market category continue to offer attractive structural growth. And we believe Puig is uniquely positioned to capture this opportunity. Looking towards the rest of the year, particularly after a strong Carolina Herrera semester, we wanted to give you a preview of some of the initiatives that we are excited about from our other brands as well. We are building on the side of Jean Paul Gaultier with Le Male, our masculine fragrances where it currently stands at top 3 in masculine fragrances. And with the playbook we have developed with La Bomba, we see the clear opportunity to build upon these successes to do feminine further with this brand. We will be launching a new feminine fragrance franchise from Jean Paul Gaultier, La Favorite. This is the brand's first major feminine pillar in a decade, translating [indiscernible], 1 of the top 10 fragrance brands worldwide to the feminine side. This fragrance is a powerful example of how operational excellence makes creativity a reality and impossible possible. Bringing this iconic bottle to life requires a significant manufacturing accomplishment by combining technical expertise with exceptional craftsmanship. Our teams transform an ambitious technical design and dream into a reality that we believe consumers will love. This launch comes at the defining moment also at the Gaultier fashion. The brand codes are also being reinterpreted by Duran Lantink as the first permanent creative director, Jean Paul Gaultier retirement. A few weeks ago, we saw Duran's Haute-Couture debut collection at Paris Fashion Week in June, which was inspired by Marie Antoinette, a win to the French Royal core that is well aligned with the name of the new fragrance as the press has signaled and that revisit the Gaultier legacy with originality, keeping alive the rigor and the spirit of the brand. After several years of exponential growth, we saw performance at Rabanne reaching a plateau. In this scenario, we see a great opportunity to reinvigorate the brand through invention. We are excited to present 1 million Black, a launch that we believe will bring renewed momentum to the franchise. Renewing the storytelling with a great advertisement that takes it back to the core narrative, the audacity and luxury that what Million has always stood for. It's worth reiterating that Rabanne is the top 10 fragrance brand worldwide and that Million launched in 2026 continues to be one of the most covered masculine fragrance franchise worldwide. Reinforcing this Rabanne renaissance recognition, we are pleased to welcome Olivier Rousteing as creative director of the brand. Rousteing combines a strong cultural resonance with a track record of building brand desirability. And under his creative direction, the house will deepen the dialogue between fashion and beauty that makes Rabanne distinctive. We are looking forward to this first show in March 2027. We will continue with the signature creativity that Charlotte Tilbury has always been known for. The second half of the year, we'll see the introduction of Charlotte next-generation complexion innovation, expanding its iconic Airbrush Flawless franchise with a new launch that marks the next chapter for one of the brand's most iconic beauty categories. In addition, the brand is set to unveil its highly anticipated seasonal holiday launches. In skincare, we will continue expanding franchises to build upon the incredible momentum with Uriage. In the second half of 2026, we will continue with efficacy focused launches addressing anti-aging and skin repair formulation. Within skincare, we expect innovation to continue across Dr. Barbara Sturm with exciting new launches in the iconic super antigen franchise with an upgraded serum and a new face mask reach. While we continue with our collection-based launches in Niche, we will also be celebrating 50 years of L'Artisan Parfumeur in the second half of the year with some exciting new products, including the [indiscernible] in September, building upon a more nuanced version of a [indiscernible] fragrance. We will also be building upon our home collection. With Byredo, we will be expanding our night-based collection and making selective launches in makeup. Across our brands, we have delightful holiday season offerings in the pipeline. Lastly, we look forward to sharing with you all our next vision plan, which will guide our strategic priorities when we convene on October 28 for our Capital Markets Day. We will be holding this event at iconic Museo del Prado, a testament to our commitment to the arts and our identity as a home of creativity. We'll be sharing the entire presentation through a live webcast. With that, I'll hand it back to Varenya.

Thank you, Jose Manuel. With that, we conclude our prepared remarks and we'll now open the line for questions. We kindly ask that you limit yourself to 1 question initially and we will return for follow-up questions if time permits.

The next question comes from Molly Wylenzek from Jefferies.

Molly Wylenzek from Jefferies. Just on fragrances, I'm sure you'll be aware that L'Oreal was talking about 5% market growth this morning. I'm struggling to sort of reconcile that with your comments about market share gains or market outperformance. Do you think you're measuring market in a different way due to the different geography mix that you have? Or just any comments you have on that would be great.

Thank you for your question. Well, our estimate for the first half of the year is a market growth of close to 4%. In our case, our sell-out is growing faster than our first sell-in and the sellout of the market. We are growing 2 points ahead. We see a reduction -- first 2 things. First, there's a reduction of inventories, less inventories where we think they are now at the right level. And second, a gain of market share in the case of fragrance of 0.3 points. In the case of Makeup, we see the market growth at middle, at low middle single digit with Charlotte Tilbury growing at 9.1%. And in the case of dermo-cosmetics, we see a middle single-digit growth with [ OES ] growing at double-digit growth.

The next question comes from Celine Pannuti from JPMorgan.

Can you hear me?

Yes, perfectly. Celine, we can hear you.

Yes, great. My question following up on Makeup. So you said that Charlotte Tilbury is growing at 9.1%. So that you think is the sell-out data on H1. I'm asking because I wanted to know what kind of help you've seen in the quarter from the sell-in into boots. And obviously, it's a bit of a very tough comp and very bumpy. But are you -- if you think that the sell-out is growing at high single digits, are we therefore expecting such growth rate to continue despite the tougher comps that we are looking at in the second half of the year?