Coty Q4 2023 Prepared Remarks Earnings Call Transcript

Quartr
Provided by Quartr
August 22, 2023

There are 4 speakers on the call.

Operator

Good morning and good afternoon, everyone. This is Olga Levinson, CODI's Senior Vice President of Investor Relations. Thank you for joining us today for the prepared remarks portion of Coty's Q4 fiscal 2023 earnings. Later this morning at approximately 8:15 a. M.

Operator

Eastern Time, we will hold a separate live Q and A session on today's results, which you can access via our Investor Relations website. Joining me this morning for our presentation are Sue Nabi, Coty's CEO and Laurent Mercier, Coty's CFO. Before I hand the call over to Sue, I would like to remind you that many of the Comments today may contain forward looking statements. Please refer to Coty's earnings release and the reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward looking statements. In addition, except where noted, The discussion of CODI's financial results and CODI's expectations reflect certain adjustments as specified in the non GAAP Financial Measures section of the company's release.

Operator

Thank you. I will now turn it over to our CEO, Sue Nabi.

Speaker 1

Thank you, Olga. Welcome, everyone. I'm very happy to share that today's fiscal 'twenty three results mark the 3rd Consecutive year of Coty delivering strong financial, operational and strategic performance. This is also the 12th consecutive quarter of the company reporting results in line to ahead of expectations. These accomplishments are the result of the focus and agility across the full Coty organization as we continue to amplify our strengths, Adjust to avoid market conditions and capture new opportunities.

Speaker 1

In fact, our Q4 and fiscal 'twenty three results are again amongst the best In our competitive set speaking to the power of the Coty business. Looking externally, beauty demand remains resilient Across our key categories and geographies in the midst of the current microeconomic uncertainty With no signs of trade down, while the Famous Fragrance Index we've been discussing for over a year shows no signs of slowing. In fact, the beauty category continues to be a standout in key markets like the U. S. As the only category to grow volumes In the last 6 months, amongst all CPG and general merchandise categories, speaking to the beauty industry's ability To meet consumers' emotional needs.

Speaker 1

This fully reaffirms the message that we have been conveying for some time That Coty and our peers have a key role to play in fueling consumer excitement and generating consumer demand By launching innovative and desirable products supported by meaningful storytelling as well as clean unsustainable formulations and packages. As a result, we continue to target growing our sales Ahead of the beauty market, growing our profit ahead of sales, steadily deleveraging our balance sheet And positioning Coty to continue to succeed as a beauty powerhouse with still significant untapped potential. Let me now summarize the key messages from our results. First, we once again delivered revenue growth Ahead of both expectations and raised guidance, fueled by the strong beauty demand and successful key brand initiatives In both divisions, our Q4 like for like revenues grew 17%, ahead of our updated guidance of 12% to 15% and outlook at the start of the quarter of 10%. We saw particularly strong sales momentum in coupled with double digit growth in consumer beauty.

Speaker 1

Our full year revenues grew 12% on a core like for like basis With double digit growth in both divisions, marking the 2nd consecutive year of double digit growth for the company. 2nd, our fiscal 'twenty three profits were ahead of guidance with adjusted operating income growing 20% year on year And adjusted EBITDA growing 7% despite strong reinvestments in our business And significant ForEx headwinds of over $70,000,000 for the year. 3rd, we continue to execute and make Progress across our strategic growth pillars. Finally, our fiscal 'twenty four outlook is in line Too ahead of our medium term growth algorithm as we are targeting like for like growth at the top end of our medium term 6 to 8% range, moderate growth and EBITDA margin expansion and double digit growth in our adjusted EPS. And I will now take a few moments to cover our revenue trends during the quarter before Laurent takes you through our financials.

Speaker 1

Then I will finish with an update on our strategic progress and of course our outlook. Starting now with our revenue performance. As you can see, our Q4 like for like revenues grew 17%, well ahead of raised guidance. This brings our fiscal year to date core like for like revenue growth to 12%, well ahead of our original 6% to 8% like for like growth guidance and the 2nd consecutive year of double digit like for like growth for the company. In Q4, Our core prestige business grew 21% like for like, resulting in 13% core like for like growth in fiscal 'twenty three.

Speaker 1

The strong sales growth acceleration in Q4 reflected double digit growth across Americas, EMEA and the Travel Retail China And a couple of points of benefit from the China low comparison last year. We are continuing to see robust fragrance demand Across all key markets, at the same time, retailer inventories at the end of Q4 are at healthy levels, Particularly as we are now entering the stronger seasonal demand period. In Consumer Beauty, core revenues grew 10% like Bringing fiscal 'twenty three core like for like growth to 11%. Our Q4 consumer and beauty growth Came from solid growth in color cosmetics and continued strong momentum in our Brazilian brands. Geographically speaking, Like for like revenues continued to grow in all regions for the quarter and for the year.

Speaker 1

Americas revenues grew 13% like for like in Q4 and 10% in fiscal 'twenty three with double digit growth in nearly every market And in regional travel retail, EMEA core like for like sales grew 13% in both Q4 and fiscal 'twenty three. We saw double digit growth across most markets and in travel retail. Asia Pacific revenues grew 40% like for like in Q4 And 13% in fiscal 'twenty 3 with a robust rebound in China and Hainan, particularly given the depressed base period comparison As well as strong momentum in broader Asia and local travel retail. A critical part of our strategy It is our unwavering focus on driving balanced growth. Growth in Q4 and fiscal 2023 Was once again supported by volumes, price and mix.

Speaker 1

In Q4, we saw low single digit core volume growth And mid teens expansions from the combination of price and mix. For fiscal 'twenty three, Core volumes also grew in the low single digits, while price and mix grew approximately 10%. Our intent in the coming quarters years is to continue to drive a balanced agenda with our top line growth Supported by a combination of volumes, pricing and mix. I will now hand the call over to Laurent to take

Speaker 2

you through our financial results. Thank you, Usos. I am pleased to say that we continue to deliver strong financial performance With the Q4 results marking the 12th consecutive quarter of results in 'nine to ahead of expectations. Let's start with an update on how we are navigating the complexities of global supply and inflation. Building on the strong progress made in last quarter in improving our prestige service levels through expanded dual sourcing, Detailed supply and demand planning and building of safety stocks will again improve in Q4, reaching a mid-90s service level exiting the quarter.

Speaker 2

We are confident that we will be able to meet fiscal 'twenty four demand, including during the big holiday period. Turning to the inflationary backdrop. In the Q4, COGS inflation was approximately 2.1% of sales. For the full year, COGS inflation was approximately 2% of revenues. Looking to fiscal year 2024, While cost inflation on certain commodities such as paper and energy are easing, costs on other materials and components are still growing in large part due to labor.

Speaker 2

In the first half of fiscal year 'twenty four, we continue to expect COGS inflation to remain elevated, Driven by the combination of delayed inflation impact based on our procurement negotiations with suppliers As well as the capitalization of the higher COGS we've incurred in recent months, which gets released to the P and L roughly 4 months later. As these two factors are more timing related and the underlying inflation drivers are clearly easing, We expect a significant moderation in COGS inflation in the second half of fiscal year 'twenty four. Our execution on savings, strategic revenue management and pricing is helping us to balance this inflationary impact. We are currently in the process of another round of pricing in the Q1 of fiscal 'twenty four as we continue our portfolio transition to cleaner And more sustainable products, which in turn also drives category value growth, while also closing pricing gaps versus our competition, particularly in consumer beauty. I will now provide an update on our All in to Win program.

Speaker 2

In Q4, we delivered savings of approximately €50,000,000 bringing our fiscal year 'twenty three savings Approximately $180,000,000 ahead of our target of approximately $170,000,000 in fiscal year 'twenty three. Due to our strong project pipeline, we are increasing our fiscal year 'twenty four savings estimate to over 100,000,000 Up from our previous target of approximately $90,000,000 Savings in fiscal year 2024 Will be driven by material value analysis, platforming savings and structural A and CP savings amongst other projects. We continue to target $75,000,000 of savings in fiscal year 'twenty five, reaffirming the savings targets announced in future. In sum, having delivered over €600,000,000 of savings life to date, we continue to optimize all of our processes and expenditures, Thereby, positioning Coty to be both flexible and fully equipped to invest in our strategic priorities. And importantly, we are now in Phase 2 of our transformation as we put in place more enablers for sustainable growth And business acceleration across the brands and markets, supplementing our savings initiatives, which fueled profit expansion and reinvestment.

Speaker 2

Moving to our gross margin performance. Q4 adjusted gross margin of 62.8% Increased by 70 basis points from last year, bringing the year to date adjusted gross margin to 63.9%, Which is up 20 basis points year on year and up by a very significant 3.90 basis points versus 2 years ago. Our Q4 gross margin increase was driven by supply chain productivity, the positive benefits from mix And additional price increase executed at the end of Q3. These benefits to gross margin were partially offset by COGS inflation Of approximately 2 10 basis points of sales in Q4. Despite inflation that was prevalent this year, We delivered gross margin expansion in both Q4 and fiscal year 'twenty three.

Speaker 2

Going forward, we will continue executing on our multi tranche, Multi year gross margin attack plan as we drive our gross margins to the mid-60s and beyond. I'd like to take a moment to discuss our investments in research and development. As we have transformed our business over the last 3 years, Steadily executing on our 6 pillar strategy, we have been steadily reinvesting in our organizational capabilities, including R and D. In fact, our R and D investment is close to 10% higher than it was 2 years ago, with investments Behind skincare growing substantially above these levels. We expect to step change our R and D investments In the coming years, particularly behind skincare, as we pursue our mission to double our skincare revenues in the next few years And position skincare as a key pillar of Coty's business model.

Speaker 2

Let me now walk you through our marketing investment. In Q4, A and CP Investment represented approximately 28% of sales, stable with Q3 levels and with the prior year As we continue to support our key initiatives, this brings the fiscal year 'twenty three A and CP level to approximately 27%, In line with our expectations and relatively stable year over year. As with prior quarters, Our marketing spend was concentrated behind key innovations in prestige and consumer beauty as well as white space opportunities. Moving to our profit delivery for the quarter. Our Q4 adjusted operating income grew 61% to 105,000,000 With our fiscal 'twenty three operating income expanding a strong 20% year on year.

Speaker 2

This delivery was particularly impressive Given strong ForEx headwinds, which negatively impacted our fiscal year 'twenty three adjusted EBITDA by over $70,000,000 The Prestige and Consumer Beauty segments delivered double digit adjusted operating income growth in Q4 and fiscal 'twenty three With margin improvement in both businesses. As a result, our Q4 adjusted operating margin grew 220 basis points year over year This fiscal year 'twenty three margin up strongly by 170 basis points to 13.3%. Importantly, we continue to expect strong income growth and margin expansion going forward. Our Q4 adjusted EBITDA grew 25% year over year to €165,000,000 with 7% growth in fiscal year 2023 to €973,000,000 As a result, our Q4 adjusted EBITDA margin increased 90 basis points year over year, Bringing our fiscal year 'twenty three adjusted EBITDA margin to 17.5%, up 40 basis points versus last year. Now turning to our adjusted EPS, where we reported strong momentum in the quarter.

Speaker 2

Our Q4 Diluted adjusted EPS was 0 point 0 $1 up 0.02 dollars year over year driven by a much stronger Q4 adjusted operating income, Partially offset by higher tax and interest expense. Specifically, the Q4 interest expense stepped up sequentially versus Q3, Driven by a higher cost of debt in the rising interest rate environment as well as a €5,000,000 increase in ForEx costs. There was no material net impact from the mark to market on the equity swap in the quarter. Our fiscal year 'twenty three diluted adjusted EPS Was 0 point 5 3 dollars up 89% year over year and includes a non cash EPS benefit Of $0.15 from the mark to market on the equity swap in the second and third quarters. Our fiscal year 'twenty three operational EPS, Excluding the swap was $0.38 driven by net profit improvement, which reflects very substantial growth of 36% versus last year.

Speaker 2

Looking ahead to fiscal year 'twenty four, I would like to provide some additional details Related to our current expectations for certain drivers of our adjusted EPS. First, we expect depreciation To be in the €230,000,000 €240,000,000 range. 2nd, we anticipate net interest expense for the year To be in the mid-two 100,000,000. 3rd, we anticipate an adjusted effective tax rate for fiscal 2024 In the mid to high 20s. Finally, on fiscal 2024 share count, we currently estimate 1% of dilution, Both similar to fiscal 'twenty three, so quarterly share count will fluctuate based on GAAP anti dilution provisions.

Speaker 2

Moving to our free cash flow. We generated free cash flow of $38,000,000

Speaker 1

in the quarter.

Speaker 2

For the year, we generated €403,000,000 of free cash flow, which was in line with our expectations despite the inventory build Required to increase safety stock and meet anticipated fragrance demand in the first half of fiscal year 'twenty four. In the coming years, we expect steady expansion in free cash flows. Our intent is to continue to use our strong free cash flow And opportunistic asset monetization to actively reduce our debt and advance our deleveraging agenda. Moving to our capital structure. We ended Q4 with net debt of approximately 4,000,000,000 As a result, our leverage at the end of the quarter was around 4.1 times, down from around 4.4 times at the end of Q3 And consistent with our expectations, factoring in our Bela stake, we ended the quarter with economic net debt of approximately 3 billion.

Speaker 2

We remain committed to divesting our balance sheet by calendar 2025. And as a first step in this objective, We recently entered into a binding letter of intent to sell 3.6% of our retained Vela stake For $150,000,000 to IGF West Management subject to customary closing conditions, including concern by KKR. The transaction would reflect a focus on premium to book value of Vela as of March 31. Additionally, as part of our active efforts to strengthen our balance sheet, we successfully issued 750,000,000 Of 20 30 senior secured notes in July. We use a combination of these proceeds and our revolver to fully pay down our Term Loan B, Resulting in approximately 85 percent of our total debt now being fixed right, which is key in the current interest rate environment.

Speaker 2

Looking beyond fiscal 'twenty three, our strong continued progress on deleveraging and debt pay down To put our expectation for our interest expense to steadily decline in the coming years despite the currently rising interest rate environment. To sum up, we are confident in our next major leverage milestones as we continue to target leverage towards 3 times exiting calendar 'twenty three, approximately 2.5 times exiting calendar year 'twenty four And approximately 2 times exiting calendar year 'twenty five. I will now hand it back to Sue to review our strategic progress in the quarter.

Speaker 1

Thank you, Laurent. So let me now share some highlights from our continued execution on our 6 pillar strategy. Starting with our first strategic pillar, which is advertising and growing our consumer beauty business. In the quarter, both The mass beauty market and our consumer beauty business remained very dynamic. As I mentioned earlier, our consumer beauty revenue grew Approximately 10% like for like in the quarter with high single digit to double digit growth across our key categories of cosmetics, Body Care and Mass Fragrances.

Speaker 1

For fiscal 2023, consumer beauty grew 11% on a core like for like basis With more of our leading consumer beauty brands growing in the high single digits to the low double digits like for like during this fiscal. The strength of our consumer beauty portfolio was further reinforced by our recently announced Strengthened a long standing partnership with Adidas, which is perfectly positioned to capitalize on the new well-being And at leisure trend in beauty. As a key part of our strategy to win with Gen Z consumers through clean and vegan formulations And win with AgenX through signified makeup in fiscal 'twenty three, we leaned further into these trends Across our portfolio. As you can see, we continue to lean into the rapidly growing clean beauty trend With the launches of COVERGIRL's Clean Fresh Yummy Glass, which was the number one lip launch of spring 2023 With Avidya's active skin in mind range and of course, Bourgeois HealthMx Foundation. In parallel, we continue to be very active on skinifying beauty With the launches of Max Factor's Medical Fuel Foundation and the extension of the CoverGirl Simply Ageless line.

Speaker 1

Another area where we have also had great success is rapidly platforming key cosmetics innovations across our portfolio. The most recent example of this is our twisted mascara technology from Beaujoir. We first launched it under Beaujoir brand last year, Driving that mascara to be the number one mascara on the French market. More recently, we have launched this technology under the Max Factor brand With the Lashbro 2 in 1 Mascara, you see pictured here. Since the recent launch, Lashbro is now the number one mascara for the brand And the top 10 mascara overall in the launch markets.

Speaker 1

This is a proof that quickly platforming distinctive And superior innovation will be key to further accelerating our consumer beauty portfolio and we have more plans in store in the coming quarters On other key consumer beauty innovations. Entering VISTA24, we are pushing the envelope further On Clean Beauty, starting with CoverGirl. CoverGirl continues to be the undisputed leader of Clean Beauty In the U. S. Mass channel.

Speaker 1

And true to our leadership in Skin Beauty and Mascara, we recently launched CoverGirl's new Lash Blast Cleantopia Mascara, which is the brand's first plant powered clean mascara. Let's take a look at the new video campaign for Cleantopia Mascara Featuring brand ambassador, Cassie Valerini, which has begun airing in July.

Speaker 3

Hey, CoverGirl. There's a new world of mascara out They're introducing the world's first plant powered mascara called Cleantopia, 300% extreme lush volume with 100% plant fibers. Let's go to Cleantopia, new lash blast Cleantopia from CoverGirl.

Speaker 1

So to summarize on consumer beauty, having repositioned our key brands, Having established meaningful and on brand communications and revamped the innovation pipeline for each brand, the next phase of our Our strategy is to fully capitalize on the Gen Z opportunity. We have continued to harness the power of social media influencers And natural advocacy as launches such as CoverGirl, Clean Fresh, Yummy Glass and Ringvet Kinet Free Have both gone viral on TikTok. As we enter fiscal 2024, we will further embrace the full power and reach of social media To drive our brands and build stronger community engagement and fully keeping in step with the evolution of the market and with Gen Z habits. Turning to our 2nd pillar, focused on accelerating our Luxury Fragrance business. We continue to see the fragrance index in full effects and maintaining momentum, driven by strong demand for fragrance across the globe and an ongoing premiumization As consumers seek more concentrated, longer lasting and more sophisticated scents.

Speaker 1

As we have continued to discuss, the Strong demand is underpinned by increased fragrance usage by Gen Z, by men and by Hispanic consumers As well as by social media as a driver of brand discovery and trial. In total, The prestige fragrance market grew over 10% in the Q4 and in fiscal 'twenty three, well above the historical low To mid single digit growth of this market. At the same time, Coty's prestige fragrance revenue grew over 20% like for like in the 4th quarter And in the low teens in fiscal 'twenty three, outgrowing the broader market. Further, all of Coty's top brands So double digit live product growth in fiscal 'twenty three. As we enter fiscal 'twenty four, we see no signs of Slowing in fragrance demand.

Speaker 1

And while we are already a leader in prestige fragrances, We still have ample white space opportunities in this category even within our strong board geographies. This is anchored on 2 areas. 1st, in our core prestige fragrance business, we have historically been the leader In the $13,000,000,000 male fragrance category that have ample room to improve our position in the much bigger female fragrance category, Which is roughly double the size of M. A. L.

Speaker 1

Fragrances at $24,000,000,000 and where we are currently in the top three. 2nd, we are still having limited scale, but are actively strengthening our positioning in the smaller but rapidly growing 4,000,000,000 With our premium fragrance category, whether it's through our Chloe Atelier Des Fleur collection, whose sales have grown by 5 times versus 2 years ago Or through the upcoming launch of our internally developed antinimoncoticarese fragrance brand. In order to fully capture this wide Space opportunities in addition to our ambitions in prestige skincare and prestige cosmetics, we are continuing to strengthen the organizational structure in our prestige business. And that brings me to a key milestone in our strategic ambition to elevate our share in female Fragrances, which is our newly launched Burgundy Goddess eau de parfum female fragrance, which is now appearing across global Distribution. Burberry Goddess is a unique, gourmand premium fragrance led by a powerful trio of distinct vanillas Bottled in Burberry's 1st ever refillable bottle.

Speaker 1

Let's take a look at the video campaign Featuring British French actress and new ambassador for Burberry Beauty, Emma McKay. While we are still very early in the Burberry Goddess launch, the initial results are outstanding. 1st, Burberry Goddess is already a top 3 fragrance at leading airports. 2nd, Sellout is 1.5 to 3 times Higher than recent Coty blockbuster launches. And third, the Burberry Goddess launch is having a strong Hello, effect on the men's fragrance, Burglary Hero, as well as on Burglary Her line.

Speaker 1

We are very Excited about the early success of this innovation so far, which we believe positioned Beverly Godess to be a blockbuster launch this year and next year. Underpinning the strong foundation of our Fragrance business is the extended duration of our licensed With the average remaining duration of our top 7 prestige brands now averaging 13 years, The renewal and expansion this past year of multiple key licenses, including Hugo Boss, Gabi Duff And Jake Sander reinforces Coty's position as a go to partner for global fashion houses. I am particularly excited about yesterday's announcement of the expansion of our partnership with Marc Jacobs To include the creation of a new makeup line, which we intend to launch in the next few years, coupled with the extension of the license for over 15 years. I believe the Marc Jacobs brand is perfectly positioned between Couture and Indi And we'll become a great and differentiated addition to our Prestige Makeup Businesses. In Q4, our Prestige Makeup revenues grew over 25% like for like.

Speaker 1

Trends have been improving sequentially with the reopening of the China economy and the strong launch activations behind Gogury And behind Gucci. As you may recall, last quarter, we launched new longwear foundations under both Dobre And Gucci in China as part of our strategy to enter the higher loyalty complexion subcategory. The Burberry Beyond Worth Perfecting Matte Foundation is inspired by the iconic fabric of Burberry's trench coat And he is already ranked at number 5 in premium long lasting foundations on Tmall. On Kylie Cosmetics, the brand's makeup sales Grew by a strong double digit percentage globally in both the Q4 and fiscal 'twenty three, fueled by an expanded distribution and new exciting launches. Shifting now to our 3rd Strategic pillar, which is building our skincare business.

Speaker 1

In the last few months, we have ignited our comprehensive strategy as planned With exciting initiatives across each of our key skincare brands, Lancaster, Aveda and philosophy And many more to come in the coming quarters and years. Let me start with L'Oreal, where in mid March, we launched the ultra premium skincare line Called, MINUTRANSIERE. While the brand relaunch and MINUTRANSIERE line have been concentrated only in China, mainly in Hainan, I'm very encouraged by the initial results with the overall Lancaster brand revenues in Q4 growing over 18% year over year. Since the beginning of the launch of Intranciare in China, store sales are growing 20% to 30% Month over month, the conversion rate at new counters in China, especially in Hainan, is exceeding leading beauty peers With non Castellini Concier driving the majority of sales. Overall feedback on the brand and products is very positive.

Speaker 1

And importantly, repeat intent of purchasers is over 40%, which I have to say is absolutely a very proud moment For Coty scientists and the entire Coty Scindia teams. With such strong fundamentals for the brand, The focus now is on increasing consumer traffic to be fueled by mastering the Chinese digital ecosystem. In parallel with igniting of Lancaster in China, we have been executing the reform of philosophy In the spring across all touch points in the U. S, philosophy announced the new brand formulation principle, Dermatologic Wisdom and launched its latest product innovation, Dose of Wisdom, Bonsisti Reactivating Serum. Those of Wisdom sales are ahead of our targets and had an average 4.7 start rating.

Speaker 1

And here again, the initial results Very promising with philosophy's brand revenues up over 10% during the quarter. As you can see, Our skincare acceleration has begun in earnest over the last few months spanning new innovations, Medicated online and offline merchandising, unique storytelling and brand equity building. Moving to our 4th strategic pillar, digital and ecom. We continued here our broad based momentum across e commerce, social commerce and Consumer Advocacy. Live streaming has been a key pillar in growing Doncaster's brand awareness, Storytelling and trial in China and this is just the beginning.

Speaker 1

And as we've steadily stepped up our live streaming in China, Whether with KOLs, our beauty advisors or even our very own Prestige Chief Commercial Officer, Caroline, As you can see on this slide, our noncashier live stream sales are growing month over month. In fact, KOL live streaming and the yield That took place in the quarter generated over $300,000 in sales in only 3.5 hours. On ecom, we are building on our digital success with the opening of the Marc Jacobs flagship store on L'Aissement, The leading e retailer in the highly promising Southeast Asia region with a reach of over 90,000,000 consumers. It's encouraging to see that Marc Jacobs, which is the number one fragrance rank on last vote in April. Finally, as mentioned earlier, We are fully focused on step changing our reach with micro and micro influencers to drive advocacy for our brands.

Speaker 1

A prime example of the success of this strategy is CoverGirl's Yummy Glass, which has become a viral hit with Gen Z consumers, Reaching over 120,000,000 views on TikTok and driving over 8,000,000 unit sales to date, Which is 3 times higher than our original target. Moving now to our 5th Strategic pillar building our presence in China. Since the lifting of COVID restrictions at the end of calendar 2022, We have seen our China sales rebound as we expand our local presence. It's worth highlighting that in Q4, Our revenues in China, including Hainan, have increased over 15% versus 2 years ago, though the monthly trends remain and even given the Changing government regulations and gradual macro recovery. In the meantime, we continue to expand awareness and reach of our brands In the country.

Speaker 1

For example, Burger Hero has now become the number 3 male fragrance in China Right behind Le De Chanel and Georg Sauvage. And with the imminent launch of Burberry Goddess in China, we are very excited about the potential Of the overall Beverly brand. On the Ultra Premium Fragrance side, you can see pictured on this slide a recent event we hosted in Hainan Where Chloe Fragrance, Ambassador of White Child Tone, introduced the new Sun Devil and Violet's Atelier Diverse SENSE To a huge audience. In sum, we firmly believe in the significant potential of the China market for Coty Where our brands are highly desired, it's still limited in distribution and scale. The continued strong beauty demand in China Despite macro fluctuations and our expansion opportunities in this market, both position China as an incremental addition to our medium term outlook rather than a key building block.

Speaker 1

Finally, we are continuing to see incredible momentum In our travel retail sales, both in the quarter and in fiscal 'twenty three, our travel retail sales grew over 30% like for like. As a result, our travel retail sales are approximately 8% of our overall business. This is consistent with our travel retail penetration in 2019, even though international travel is still Below pre COVID levels. We've continued to gain share in the high growth and highly profitable travel retail channel, Particularly in E and A and in the Americas, fueled by distribution expansion, travel retail exclusivities, Successful innovations and our growing multi category presence. And with no signs of slowing in global consumers' Appetite for travel coupled with the return of Chinese travelers in the coming quarters, we remain highly optimistic about the growth potential of this channel, Prokuti.

Speaker 1

Turning now to our 6th and final strategic pillar, which is becoming a leader In sustainability, we have several ESG milestones over the last few months. First, we are continuing to strengthen the ESG governance within the organization as we've expanded the Sustainability Office Under Doctor. Shin Eifan. And second, in our ongoing efforts to reduce our packaging related carbon footprint, We continue to expand our lineup of refillable products in Burberry Goddess becoming the latest launch to offer refillable packaging. This follows on the footsteps of Chloe Naturale and Tonsseau De Parfas as well as our recently launched Adidas, Active Skin and My New Line.

Speaker 1

And that brings me to our outlook for fiscal 2024. We expect fiscal 2024 core like for like revenues to grow at the top of our medium term target A trend of 6% to 8% like for like without performance by Prestige. Fiscal 'twenty four reported revenues are expected to include 0% to 2% benefit from ForEx, primarily in the first half fiscal 'twenty four And 1% to 2% stock headwind for year from the divestiture of the LACOS license concentrated in the second half. We expect modest fiscal 'twenty four gross margin expansion year on year, consistent with our growth algorithm. There are a number of timing related factors which are driving some pressure on our gross margins in the first half, Primarily elevated COGS inflation as well as a return to the historical weight of fragrance gift sets, Which had declined in the mix last year due to significant supply constraints.

Speaker 1

But more importantly, Based on everything we see today, all of these timing elements should significantly moderate in the second half And we continue to expect modest gross margin expansion in fiscal 'twenty four, driven by strong year on year improvement in gross margins in the second half of the year. We are targeting fiscal 'twenty four adjusted EBITDA margin expansion of 10 to 30 basis points, Employing adjusted EBITDA of $1,065,000,000 to $1,075,000,000 based on current ForEx rates And inclusive of the profit headwinds from the divestiture of the Lacoste license. We are estimating total fiscal 'twenty Adjusted EPS excluding equity swap of 0.44 to 0.47 Implying a strong plus 16% to plus 25% growth. And we continue to target further reduction in leverage Towards 3 times exiting calendar 'twenty 3, approximately 2.5 times exiting calendar 'twenty 4 Approximately 2 times exiting calendar 2025. Let me also share some context on the first half outlook.

Speaker 1

Given the very strong revenue growth momentum we saw in Q4, which is continuing into the current quarter, we expect first half Like for like says growth of 8% to 10% with outperformance by Prestige. For reported revenues, We expect the ForEx benefit to revenues in the first half of 1% to 2%. On the profit side, We expect first half twenty twenty four adjusted EBITDA margin expansion of 10 to 30 basis points, which is consistent With the full year picture. And we estimate first half adjusted EPS of $0.35 to $0.38 Now to sum up, the beauty market remains strong and outperforming category with ongoing premiumization trends. In this attractive backdrop, we are successfully executing on the strategy we laid out 3 years ago With momentum across our core categories and early wins in the white space opportunities we are pursuing, Including female fragrances, ultra premium fragrances, skincare, prestige cosmetics, China And Travel Retail.

Speaker 1

And we are delivering the best in class medium term growth algorithm, including a mid-20s percentages EPS CAGR, Active deleveraging and capital returns as we propel our growth story and strengthen our position as a beauty powerhouse. With that, let me open up the call for your questions.

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