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Forget the Lipstick Effect, It’s the Fragrance Effect at Coty

"Fragrances speak to everyone — whatever the age, whatever the gender," said chief executive officer Sue Nabi as it released its Q4 results.

First there was the lipstick effect. Now Coty Inc.’s chief executive officer Sue Nabi is all about the fragrance effect.

Despite recession fears and sky-high inflation, Coty’s prestige fragrances have been flying off the shelves, with particularly strong performances from Hugo Boss, Burberry, Chloé, Calvin Klein and Gucci Beauty, which delivered 20 percent growth in the fourth quarter and helped the overall prestige sector to grow of 16 per cent year-over-year, to $662.8 million.

“Fragrances speak to everyone – whatever the age, whatever the gender ,and what we have seen, which is the reality of the data and statistics, is that this beauty market is lifted by the fragrance consumption and this is not female or male. It’s both and it’s mainly also Gen Z,” Nabi said in an interview with WWD.

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Nabi added that Coty is not seeing signs of trade down and is instead seeing the premium category outperform, specifically on fragrances, while the premium part of the mass side is the one that’s doing the best.

“What we call premiumized beauty is the path that’s doing the best versus what we could call entry-price beauty. That’s probably more challenged and the work we have been doing for two years at Coty is clearly to strongly premiumize all portfolios, specifically the consumer beauty one, but also of course, taking advantage of the super-premium or ultra-premium brands we have in the portfolio,” Nabi continued.

Consumer beauty revenue rose 3 percent to $505.5 million, with growth across all product categories and nearly all key brands. CoverGirl’s share performance improved exiting the quarter, driven by the very strong in-market performance of the recently launched Exhibitionist Stretch & Strengthen Mascara and as its temporary supply constraints on key products subsided. During June, Rimmel and Max Factor both gained global market share.

Travel retail, meanwhile, recorded triple-digit growth across EMEA as consumers respond to the premiumization of the channel and the addition of makeup and skin care portfolios to the category.

Asked about Kim Kardashian’s pricey SKKN by Kim launch earlier this year, Nabi said: “Kim’s skin care line is doing well. It’s above our expectations. One of the best-selling products is in fact not a product, but the full line. It went out of stock almost a few days. Every time we are back in stock it goes very quickly to out of stock.”

As for Kylie Cosmetics, that too is performing well, according to Nabi, launching in Brazil and Mexico. “Today I can tell you that Kylie business is 50 percent above the levels of fiscal ’21 so clearly the brand is continuing to grow, specifically in brick-and-mortar.”

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But while prestige continues to perform well, there are headwinds on the horizon, especially inflation, although Nabi insisted the company was well prepared.

“We have implemented low-single-digit price actions during this second half of fiscal ’22. And we are implementing right now, mid-single-digit price increases across the two divisions during this summer in fact … that’s the way we are tackling this inflation.”

Fourth-quarter net revenues increased 10 percent to nearly $1.17 billion, higher than analysts’ estimates of $1.145 billion. Coty posted an adjusted loss per share of 1 cent, an improvement from 8 cents last year, and in line with analysts’ estimates.

Even with the potential headwinds, Coty maintains a positive outlook and expects fiscal year 2023 to be a year of continued expansion, in line with their medium-term growth targets.