Coty Inc. Class A

Good morning and afternoon, everyone. My name is Margo, and I'll be your conference operator today. At this time, I'd like to welcome everyone to COTI's second quarter fiscal 2025 question and answer conference call. As a reminder, this conference call is being recorded today, February 11, 2024, at 8 a.m. Eastern Time or 2 p.m. Central European Time. Please note that on February 10, at approximately 4.05 p.m. Eastern Time or 10.05 p.m. Central European Time, Cody issued a press release and prepared remarks webcast, which can be found on its investor relations website. On today's call are Sue Nobby, Chief Executive Officer, and Laurent Mercer, Chief Financial Officer. I would like to now remind you that many of the comments today may contain forward-looking statements. Please refer to Cody's earnings release and the reports filed with the SEC or the company list factors that could cause actual results to differ materially from these forward-looking statements. In addition, except where noted, the discussion of Cody's financial results and Cody's expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. With that, we will now open the line for questions. If you would like to ask a question, for a question please press star then 1 on your telephone keypad. If you would like to withdraw your question, please press star then 2 on your telephone keypad. And again, that is star 1 for a question. We'll take our first question from Oliver Chen with TD Cowen. Please go ahead.

Hi, Sue and Laurent. Thank you. On your commentary about a sell-in relative to sell-out, what are your thoughts about when retailers might undergo replenishment as that's an issue you're seeing? Also, on your comments on China, travel, retail, Asia, Australia, and consumer beauty. I mean, how would you characterize the magnitude of the issues relative to what you mentioned? China's not a large percentage of total, but it sounds like things are more cautious there. Thank you.

Yeah, thank you, Oliver. Thanks for the question. So just to give you, I would say, some, as you say, some magnitude. Indeed, as we flagged, indeed, during the last quarter, I mean, we discussed that we were seeing, you know, some pockets of the business, okay, where there were some challenges, and we were expecting that these pockets, I mean, would stabilize. And, in fact, we see that there are worsening in the Q2. In fact, we are talking about 20% of our business, which is China, but also travel retail Asia, Australia, ANZ, and also consumer beauty. So this is really the scope we are talking about. And indeed, so if combination of China, travel retail Asia, and Australia, are impacting your prestige business in terms of selling by roughly three points. This is really what you need to have in mind. And if we look at the consumer beauty side, indeed this is really on the US consumer beauty challenges, which is also impacting by three points. So these are really the two areas of disruption, if I can call them this way. At the same time, so indeed about retailers, indeed, I mean, we are good, you know, especially in prestige, especially in fragrance. I mean, we have good sellout. during the holiday season, but we are seeing low replenishment from retailers. So we are seeing that there is a global pattern that they are very cautious on their inventory management and indeed managing their inventories very, very cautiously. And this is indeed creating also the gap between the sell-out and the selling. And if I just take concrete example on fragrance, where indeed we have, I mean, the fragrance as a whole is performing well. I mean, we see our sellout, you know, being, you know, between the mid to high single digit, but indeed we are seeing selling below due to this very cautious behavior by the retailers. The sellout is very healthy.

And, Oliver, this is Sue, just to complement on Laurent's answer. We don't see this replenishment happening in H2. That's what explains our prudent guidance, and we hope that this will happen at the moment or another, especially given what Laurent just described, which are the very strong sell-outs we saw during the early season, and we continue to see behind our fragrances in both divisions.

Our next question comes from Rob Otenstein from Evercore. Please go ahead.

Great. Thank you very much. You obviously touched on it in the release. I was wondering if you could go into a little bit more detail on both the structural challenges that you're seeing in U.S. color cosmetics and the competitive challenges and, you know, how you look to combat those going forward. Thank you.

Yeah, good morning. So, indeed, you're right. You mentioned some structural challenges. Some of them are also, I would say, challenges of the moment, specifically when it comes to the closures we are seeing in the pharma drugstore environment. So, it's not just structural. But a bit of these challenges is indeed structural. I believe, and this is one thing that I addressed in the earnings call, during the earnings script, sorry, that what makes the color cosmetics category, because this is the category we are referring to much healthier in prestige, is the combination of both heritage couture brands, if I may call them like this, and indie brands, which is not what we are seeing today in the consumer beauty color cosmetics space. where only new brands are favored, and these new brands are not able to make up for the decline of the market. So I think it takes two to dance, and this is what I believe is the strength of any market. And the heritage brands, by the way, are still doing the biggest chunk of the sales. So I believe that the color cosmetics market, specifically in the U.S., but also elsewhere, would highly benefit from a same exposure between heritage brands that are doing an exceptional job. I'm thinking about CoverGirl that is among legacy brands, the one that is the best among heritage brands. I'm thinking about Rimmel outside of the U.S., together with, of course, entering new brands, new indie brands, which are going to give, you know, a kind of excitement, trendiness, et cetera. So it really takes both to grow the market. So if this, and this is part of our discussions with our partner retailers, if this is, you know, what is going to happen, I believe that there is no reason for the color cosmetics market not to be back to its traditional low single digit growth. Thank you.

Our next question comes from Filippo Filorni with Citi. Please go ahead.

Good morning. Good afternoon, everyone. You talked about some of the weakness coming out of fiscal 25 persisting potentially in the first part of fiscal 26, but at the same time you're expecting an improvement in sales growth in fiscal 26. So can you comment on kind of the levers that you have in fiscal 26 and you entered fiscal 26 to kind of accelerate organic sales growth and in terms of like how should we think about the year relative to your medium-term outlook of 6% to 8%? Thank you.

Thank you very much, Philippe. So first, let me just remind everyone because I think this is an important element. But this first half and the second half, by the way, too, is in front of our best year ever. Fiscal 24 was a year where the company has grown with the highest growth potentially in prestige, 18%, and the highest growth ever in the consumer beauty division, which was around 7%, if I recall well. So this is really what explains, in a way, how much the comparative has been high for us when it comes to Fiscal 25. In fiscal 26, we believe that, one, hopefully the good news would be that retailers will come back to more, I would say, classical or normal inventory levels because they cannot forever stay at this level of inventories. I think this was an overreaction following the stocking post-supply chain crisis a year and a half ago. So hopefully there will be a kind of stabilization. Second thing, you know, our market is a market that's driven by offers. You know, some competitors speak about stimulus. We speak about an offer-driven market. And it's all about this. So we will contemplate for fiscal 26. Two very big blockbuster launches. May I remind people that Coty has been putting on the market and still today some of the best-performing launches of the industry, thinking about Burberry that is continuing to grow by double-digit growth between 20% and 30% year on year, which is really unprecedented. Tidy Cosmic, the number one volume launch in the U.S. and in U.K., Mark Jacobs, Daisy Wild, Hugo Boss, which has become the number one brand of the division and of the company, by the way. So it's really an offer-driven business. So we have a big innovation in the first half, same thing in the second half. We are also accelerating our distribution gains when it comes to some of our key pillar brands in the prestige division. Some brands, and for example, Chloé was really not a brand we were playing with in the U.S. market. We decided to do so in the first half and with very strong results, so we will expand this. So the conjunction of big launches together with the distribution expansion of some of our key prestige brands in the U.S., but also in other emerging markets, It will help us to, you know, be back to growth in fiscal 26. This together with anything that is not in our control, such as back to more classical retailer inventory levels, and hopefully travel retail in Asia and China, even if these are low single-digit percentages of our mix, they are still heavily disrupted in the moment we are in right now.

Our next question comes from Corrine Wolfmeyer with Piper Sandler. Please go ahead.

Hey, good morning. Good afternoon. Thanks for the question. I'd like to understand some of the puts and takes of the margin outlook a little bit better. Can you just describe a little bit on the fixed versus variable cost structure you're dealing with for the back half? How much do you leverage your baking in with the guidance and how much reinvestment in A&P and innovation and things like that? And then also, I believe in the prepared remarks, you discussed some softer promotional activity last quarter. Is that something that you might decide to pull on a little bit more here in the back half to help drive volume performance? Or are you committed to other forms of volume activation? Thank you.

Yeah, thank you. Good morning, Corinne. So, first of all, what I want to highlight is really that we are showing in this fiscal 25 and EDH1 that we have a very healthy P&L and a very healthy balance sheet. So, the result is really that with, I mean, gross margin expansion in the In H1, I mean, which is, you know, close to, you know, close to 200 basis point. And we are close to 67% gross margin and end of Q2. So it shows really that all the work we are doing, really managing the full equation, we do it in a very disciplined manner. And we keep focusing on this gross margin expansion, which for us is really the strong KPI because, of course, this is really what's fueling our investment behind the brands. And really, we keep this very, very strong discipline. So now looking ahead. talking again about gross margin. As you remember, last year we had also, I mean, very strong gross margin expansion in the H2, which was, you know, around 160 basis points. So now we are going to rebalance the seasonality effect So that our H2 gross margin will be slightly lower versus last year due to this high base, but it will remain 100 basis point above fiscal 23 gross margin. So it means that our full year gross margin will land at about, you know, 100 basis point improvement. Now, of course, starting from this gross margin expansion, and I can detail later, but it's really the combination of productivity. We still have some pricing effect. I mean, stronger in H1 because we have the carryover from the previous year, but we will have still some positive impact in the H2, also benefiting from the mix. Then we make sure that we keep our INCP in the high 20s, as you saw in the H1, and we continue in the H2 to support the initiatives that Sue has just described and really to continue to fuel the sell-out. Then, as you know, we are putting in place very strong savings initiatives. We confirmed 120 million this year. So it's a combination of short-term actions, but also more medium, long-term actions, which will keep fueling the margin for next year. So that's really all this that we are showing that we have this discipline, but also agility. to manage and to continue EBITDA margin improvement, even in a context which is more uncertain and volatile than before. So that's really, and that's why we confirm really that we see our EBITDA margin growing, you know, from 70 to 90 basis point fiscal 25, which means that our EBITDA margin will be close to 19% at the end of this fiscal.

Our next question comes from Olivia Tong with Raymond James. Please go ahead.

Great. Thanks. Good morning. Good afternoon. I was wondering if you could talk about why you think Prestige Fragrances has been able to hold on better, you know, with respect to growth versus other categories. And in terms of the other categories, particularly masks, what you can do with respect to innovation to help offset the externals. Thank you.

Thank you for your question. This is Sue speaking. So indeed, it's a very interesting question, if I may say, because this is really what is the key element of the growth of the market. I believe that prestige fragrances are holding much better because they are not easily replaceable. You know, when you like a scent. you're going to buy this scent. And anything closer is not exactly the scent that you like. While on other categories, specifically, for example, on color cosmetics, if you like, you know, I don't know, the latest big color or a primer or whatever, you'll always find something that's very close, and it's fine to buy something closer. So I believe that the entry barriers of prestige fragrances are higher because of the uniqueness of the creation, because of the quality of the juices, and also because of putting inside these bottles things that have been crafted for two, three years that are really creations together with science know-how. I'm thinking about what we've been doing recently by adding molecules that act on the longevity of a fragrance. So these are barrier to entry to the category that explain why fragrances, specifically prestige fragrances or fragrances with a cool, I would say, vibe are really resisting better than other categories. So what can we do in terms of innovation and other categories to fuel the growth? Well, the answer is in the first part, in fact. It's about creating entry barriers. I believe that the color cosmetics world have given up on real innovation. It has become a world of TPMs. where everyone is buying from the same TPM, the same kind of innovation, and you end up buying the cheapest option. So, it's really this that is missing today in this market, and that we are fighting against, that we are working on through agile innovation that we put in place recently. It's to be able, of course, to be on trend and to launch the latest buzz of the moment, but also to be able to put on the market High entry barrier innovation, something difficult to copy, something that's worth the price that you're putting on it, and something that will grow back the market by reattracting consumers who decided that it's worth it only if it's the cheapest option.

Our next question comes from Ashley Helgens with Jefferies. Please go ahead. Hey, thanks for taking our question.

So last quarter, you mentioned some upcoming kind of product introductions. Just curious if maybe you held off on some of those, given the environment, or maybe if they didn't perform as expected. And then just following up a little bit on Olivia's question on fragrance, you know, being such a strong driver, what's embedded in your underlying assumptions for the second half about the fragrance industry? And then anything you can tell us on fragrance quarter to date, that'd be helpful. Thank you.

Okay, so let me take the question part by part. So last quarter we mentioned some upcoming launches. Indeed, we released them. One of the biggest highlights was indeed the Gucci Flora Orchid, which is really one of the biggest successes of the fall, you know, Q1 and Q2. This is really something that was part of the agenda. Yes, to a lesser extent than what we did with Burberry Goddess two years ago, but still it's something that is really part of the best-selling innovations in the US and we started that's why probably you did not see we didn't see an effect that was so high we started with an exclusivity at one key retailer globally which in a way didn't allow us to take a benefit from all the impact of this launch now it's the case it's rolled out everywhere and we can really see that this Flora innovation is doing very very well so that's number one number two we are continuing to do key innovations on bus specifically on both the scents and the elixirs and the eau de parfum we have launched. This is what explains that Boss has become the number one brand of the company with a stellar growth which is close to high single digits. So this is really also something that explains the two key launches that we have done in the first half. So, what are we assuming on fragrance category growth in the second half? We are also going to continue to have launches without revealing what are going to be these launches. We will continue some of the key initiatives we started in fiscal 24 in the second half by anniversaring these initiatives. Last year, we launched the Kylie Cosmic and Marc Jacobs Daisy Wild, which, by the way, for Daisy Wild has become the number one SKU in terms of innovation in the U.K. market. So these two innovations will be anniversarized. Last but not least, as you've heard it during the earnings script, we are back also to key innovations behind entry prestige brands. I'm thinking about Davidoff. who will see for the first time a very strong innovation represented by a Gen Z favorite, Charles Melton, which you will see during the second half of the year.

Our next question comes from Patty Cannata with Goldman Sachs. Please go ahead.

Good morning. Good afternoon. Thanks for taking my question. I just had one on Asia travel retail and just travel retail in general. So we've been dealing with pressures there for a while now. So wondering if you could talk about, you know, travel retail outside of Asia and how you're performing there and, you know, And related to that, are there opportunities to perhaps resize or reshape your strategy by rebalancing toward non-Asian regions where maybe there's less volatility and more growth opportunity? I would love your thoughts there. Thank you.

Yeah, good morning, Patty. This is Sue. And this is a good question. You know, we started to do this, in fact, in the second half of the first half of this year, meaning October, November, and December. We've shifted significant resources from, you know, Asia markets, specifically China. but also the Asian travel retail to the U.S. and to European market, but mainly to the U.S. That's the reason why, even if we do not communicate on this, but we saw our sellout reaching some weeks at 50, 60 percent of growth in terms of sellout prior to the holiday season. So this was really the result of shifting resources from these regions, to regions, specifically the US, where there is growth, where the momentum behind the fragrance category continues. The prestige fragrance category is still growing in the high single digits, and it's still continuing to premiumize. And I would say the adjacent categories of fragrances, such as body mists, are also booming there. So it's something that we've done and that we will continue to do to answer the second part of your question. Now, regarding the first part, which is around Asia travel retail, you're totally right. to say that the Asian travel retail is the one that is really lagging behind the other regions. America and Europe are doing very, very well, which is something that is better than what we saw in Asia. But travel retail in Asia, I can tell you that it's really behind one key category, which is prestige color cosmetics. It's really the restrictions that happened between Korea and China with the regulations on both sides that really stopped literally a key stream of the sales between these two regions that was mainly focused when it comes to Coty and our color cosmetics prestige category. So the rest of the categories, be it fragrances or even skincare, are continuing to grow much better than what we saw on this color cosmetics. So it's really the color cosmetics category that is hurting us, which is, I think, a difference versus what our competitors are seeing in this region, where it's a lot behind skincare.

Our next question comes from Anna Lizult with Bank of America. Please go ahead.

Hi, good morning, good afternoon. Thank you so much for the question. I was wondering if you could discuss the retailer channel shift you mentioned in your prepared remarks, particularly in the U.S. It seems like some online platforms like Amazon are gaining market share here and just wondering how you're adjusting to this environment. And then also if you can comment on the different parts of your business, consumer beauty versus prestige, and just how they're performing on this channel. Thank you.

Yeah, thank you very much, Anna. Good morning. So, indeed, you're totally right, and this is one of the reasons why I believe this fierce competition between online players, offline players, of course, e-retailers, who are usually offline players too. It's this fierce competition that is probably also explaining why all these retailers are are really, really pressuring their cash management through inventory management. So that is one of the key explanations, and which also explains a lot of door closures we are seeing in the country, be it behind department stores, but also behind pharma drug channels when it comes to consumer beauty. So indeed, you're right to mention Amazon. They are gaining market share in the beauty industry. You've seen a lot of players, including some of our brands, going to to Amazon. I have to remind everyone that we were the first to be partnering with Amazon maybe six, seven years ago with brands such as Boss or such as Calvin Klein. And this has created a very special relationship between us and Amazon. The other element I can tell you when you ask me about CB and Prestige performing on e-com and Amazon, indeed, the growth of our e-com is stellar on both divisions. And if you think about a brand like CoverGirl, if I take the U.S. market and consumer beauty brands, CoverGirl is growing faster than the e-com market on color cosmetics in the U.S., and therefore gaining market share, which omni-channel-wise gives us this possibility to say that CoverGirl is almost stable in the U.S., since we are growing very, very fast on this channel. I can say the same thing about our prestige brands. They are really doing wonders on Amazon, growing very fast, much faster than in the Brick and Mortar, which is also a very good indicator of the health of the brands. Because, you know, when you look at the health of a brand online, You really have the pure equity of the brand in front of consumers, while when you think about Brick and Mortar, there is a lot to do with how the store looks like, how your shelves look like, et cetera. So for us, it's a strategic channel that we've been outperforming and that we are continuing to outperform in both divisions.

Our next question comes from Susan Anderson with Canaccord Genuity. Please go ahead.

Hi, good morning. Thanks for taking my question. I was wondering if maybe you could talk about your plans around pricing, given the higher FX impact for fiscal 25 now, and I guess where you're expecting pricing to land out versus units for fiscal 25?

Yeah, good morning, Susan. So, indeed, as you know, I mean, we shared many times last year that, okay, with high inflation, we put in place a price increase, which was a mid-single digit, and even, you know, at some moment, you know, We even push to have price increase during the year. So now, of course, looking ahead, we are now seeing inflation slowing down. And so, of course, we will continue price increase, more moderate, so it's going to be low single-digit. Because, again, with innovations and all that we are bringing to the market, we have a pricing power. And, again, that's really all the power of our technologies, innovations. So we will continue. And we keep monitoring in a very precise manner, managing also versus elasticity, so that it's not going against volumes. And fragrance is a clear demonstration that we are really well in control. We keep working on pricing in fragrance on both segments, on both divisions, by the way, prestige, but also mass. We keep improving the mix, and volumes keep growing. So it shows really that we are really well in control of this equation.

Our next question comes from Andrea Texaria with J.P. Morgan. Please go ahead.

Hi, this is Shabana Chowdhury on behalf of Andrea. Thanks for taking our question. Can you comment on the inventory levels at wholesalers and retailers? I'm just trying to decompose the sell-in versus sell-out. Just trying to understand if you're still seeing positive sell-in for fragrances and your outlook is flattish to negative even in fiscal 26, or entering rather, wouldn't retailers run out of inventory in like six months or so? And also more near term, can you please comment on the most recent trends from exiting the quarter and if February has improved? Thank you.

Yeah, hello. Good morning. So, indeed, inventory at wholesalers and retailers, this is really what we flagged. And, indeed, we are still seeing some adjustments. And, again, as we just shared, there is also this fierce competition between brick and mortar and e-commerce, which is also, in a way, creating some additional tension. Now, when you were raising the question about fragrance, Again, fragrance is really by far where we are seeing, I mean, really, you know, good sell-out. Indeed, the category keeps growing, and this is the case in prestige fragrance, and this is also the case in mass fragrance. So, category is growing. We are growing our sell-out. We are bringing some new initiatives. So, indeed, we are expecting some improvement, really, in our selling fragrance. And this is also added, you know, with what Sue has just described. So, you know, big launches next year. And we have also some pockets of opportunities. Of course, we will name in the U.S. where absolutely we have some potential. But also we have still some upside in the e-commerce where there is also great upside. And last but not least, also in the growth engine markets where we have also some promising plans.

Our next question comes from Chris Carey with Wells Fargo. Please go ahead.

Hi, everyone. I have two questions. So number one, what is your thought process around long-term algorithm? I think this has been a discussion in this forum For the past few quarters, there was clearly some commentary in prepared remarks about adjustments. I think you had talked about best-in-class total shareholder returns, but have avoided the prior targets that you put out there, clearly, which makes sense given the evolution of the category. I think we could hear more next week, but it feels like an important shift to recalibrate expectations more appropriately for the longer term. I'd love your thoughts on what the business is effectively trying to accomplish in the coming years with a longer-term perspective. The only second one, which I'll add on, is, can you explain what's going on with the swaps and the prepayment that you have to make in Q3? Mostly, I'm curious on the first question, but I'd love a little bit on the second question as well. Thanks.

Good morning, Chris. This is Sue speaking. So yes, indeed, this is a very important question. So let me start sharing with you our thoughts. First, this year, the beauty market growth, as we've seen it all, is normalizing to a steadier growth level. But I have to say that this low to mid-single-digit growth is broadly consistent with what we have estimated several years ago, even if the market was much higher. But this is the assumption we made years ago. And the growth algorithm was based on a market that was growing between plus 3% and plus 4%. As before, our goal is to outperform the beauty market. This is very, very important. However, in this, you know, various macro environment, retailer environment, regional uncertainties, now there are potentially tariff wars that could happen here and there, which are honestly at a level that has not been seen in decades, many, many disruptions. I think and we think that it is no longer prudent to put specific sales growth targets. And we are therefore committed, like some of our peers, to outperforming the market, whatever the level of growth we see in our core markets and specifically in our core categories. So how would we support this outperformance of the market I believe that we have several drivers in our hands. First, a robust fragrance category with still penetration and usage that are still increasing structurally and across many markets around the world. Second, the company is expanding its offering in fragrances now to mass, so we are really leading and we are the global leader worldwide when it comes to premium fragrances, up to mass fragrances. Number three, we are expanding our businesses in categories where we are currently under indexed. I'm thinking about prestige color cosmetics category, including the launch of the new Marc Jacobs color cosmetics line, but also I'm thinking about skincare. And this gives me the occasion to really say that one brand at Coty is doing wonders in China, fastest growing skincare brand of the market is indeed Lancaster during this quarter. It's growing on the market that is minus 10 at almost 200%. And some key skews have become part of the top 20 of the Chinese market. So this is really the start of our first green shoots when it comes to skincare on the most difficult market at the moment, but the biggest market when it comes to skincare. to grow our penetration and market share online, hence the question I've been answering a few minutes ago. This is really an area where we are growing faster than the rest of the market, and we reached the billion-dollar threshold a year ago when it comes to online sales. And number five, we'll continue to strongly grow our business in growth engine markets. I'm thinking about, you know, South Africa, to take one example, where the company has become the number one prestige fragrance maker. I'm thinking about Saudi Arabia. I'm thinking about Southeast Asia growing by 15%. I'm thinking about Mexico, where the company is doing also wonders. So, clearly, the addition of these five growth drivers is really what will allow us to grow our sales above the market, And at the same time, our target remains to continue to grow our gross margin. You've seen our gross margin reaching a record level this quarter at almost 70%, 68% to be precise. And of course, this will allow us to continue to grow our EPS and free cash flow.

Laurent, you can do the SWAPs question. Yeah, absolutely. Good morning, Chris. So, indeed, on the SWAPs, first of all, I mean, I really want to remind that, as you notice, I mean, for the first time ever over the last eight years, I mean, we are reaching now leverage ratio below three times. And we made very clear that at some moment, I mean, we will resume return to shareholders, either through share buyback or dividend. So swap is really a mechanism we put in place, indeed, to reserve for share buyback. So it's about, you know, 48 million shares. So now the mechanics currently that is happening, as we are seeing, you know, some pullback in our stock price in the recent quarters. So there is a mechanism that we need to have a – to give a cash payment to the banks according to the current stock price. So, in a way, this is really an anticipation, but it's also the confirmation that at some moment, indeed, we will operate this share buyback.

Our next question comes from Mark Astrochan with Stifel. Please go ahead.

Yeah, thanks. Hi, everyone. So I guess first on retailer stock levels, what gave you confidence that they were turned back to levels over the last couple of years? Maybe you could comment on whether the inventory levels prior to the recent slowdown, especially in prestige fragrance, which had accelerated coming out of the pandemic, was elevated or not relative to historical levels for fragrances just from a retailer perspective. And then Secondly, in the press release, you talked about evaluating the operations to fuel long-term success. You're obviously talking about an increasing focus on reducing leverage. I guess what are you thinking in terms of the business footprint today versus maybe three years ago? It does seem like consumer beauty is a bit more challenged. You talk about it. more heritage brands, not being the focus of customers at this point, is the portfolio you have today the right one? Would you consider divesting that business? Would you consider M&A to increase exposure to faster-moving categories? Just any sort of color there would be helpful. Thank you.

Yeah, so hello, Mark. So on retailer stock levels, I think this is what we have explained and indeed that we are in a transition year. I mean, so I think it's important to step back a little and really to understand that indeed over the last two, three years, there were a lot of, I mean, disruptions on the market. So, of course, it started with COVID. And then there was all the supply crises. And at that moment, indeed, there were some shortage of products, components, Then retailers also rebuilt some inventory. And now, indeed, we are seeing that they are going the other way around. So difficult to tell you how long it's going to take, but there will be a moment where I think, I mean, the behavior, the retailers will be back also to healthy inventory, and then we can really be back to a normal combination and more closer connection between the sell-in and the sell-out. Again, assuming that the pocket of disruptions that we are seeing, again, in Asia and also as we explain in the consumer beauty business in the U.S., of course, are getting stabilized at least, which is not the case today. So that's really what I can tell you on the inventory for retailers.

So, Matt, this is Sue. On the second part of the question, which is around evaluating operations to fuel long-term success, so you were referring to our consumer beauty color cosmetics brands. Again, in this area, first let me start by saying that it's very encouraging to see that our cosmetics brands, specifically in the U.S., but not only in Europe too, they continue to outperform most legacy players. And this is very important because it means that despite having much less means than some legacy players. We are doing a very good job by putting in place the right innovation, powered by the right advocacy strategy in the different markets, and we are activating even more and more agile beauty innovations that are supposed to put on the market innovations as quickly as every six months. So this is on one side. And we continue, I have to say, to see the benefit of operating across multiple beauty categories in multiple markets, and, of course, in multiple channels. At the same time, like, I guess, most of the corporations, we are always evaluating our portfolio, and this is very important. We're looking very, very closely to the portfolio of the company and to, of course, where are the long-term opportunities and return on investment presented by each category, by each brand in the different divisions, the different categories and the different markets. So it's really both options that are on our minds, continuing the site while at the same time looking at what could be done better in the future and what could be pivotal for the company.

And our next question comes from Carla Casella with J.P. Morgan. Please go ahead.

Hi, just two quick ones. One, you've got a couple of bonds maturing in 2026, and I'm wondering if that's something that you want to get ahead of a year before maturity so they don't go current, or does that matter?

Hello, good morning, Carla. I mean, of course, you know, this is really a great improvement now with this deleveraging that we constantly work on our debt maturity so that we can really be in a healthy place. So, of course, I mean, these are always, you know, bond maturity is always the option that we are looking at.

Okay, great. And then the well-estate declined by about 3% sequentially. Can you give us any update on the performance of that business or maybe the timing of a potential sale of it?

The business is performing well. So the value that you can see in the books is just, you know, some, I would say, accounting methodology and, you know, strongly driven by the work or interest rate which need to be used. So it's really not... you know, reflecting really the performance of the company. Then on second part of your question, as, you know, we reminded in our last earnings call is that, you know, end of November was the end of the standstill period. So, you know, in this context here, I mean, we remain opportunistic and pragmatic, of course, to monetize these assets, which is a great asset in our books.

Great. That's super helpful. Thank you. Thank you.

Thank you.

I would now like to turn the call back to our speakers for any closing and final remarks.

Thank you very much. So again, thank you everyone for attending this earnings call. Again, to conclude, of course, as we said during the earnings call, we are not satisfied by the current sales trend. But at the same time, we continue to believe that this beauty category, both historically and even now in the future, specifically behind the fragrances, whatever is the price of the fragrances, will continue to be a key driver of growth of this market. We are very happy with the improvement of our fundamentals throughout the last four years, specifically this year. You've seen our gross margin, our EBITDA growth, our EPS double-digit growth, and Laurent just mentioned our deleveraging, which is the lowest since eight years under three times. And last but not least, we continue to outperform the market categories we are playing in. Sellout is the ultimate indicator of the health of our brands, and this one continues to be very good. Thank you very much.

Thank you. And ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.