Good morning. My name is Brittney, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's Fourth Quarter Fiscal 2021 Results Conference Call. As a reminder, this conference call is being recorded today, August 26, 2021. On today's call are Sue Nabi, Chief Executive Officer; and Laurent Mercier, Chief Financial Officer. 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 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 Coty's financial results and Coty's expectations reflects certain adjustments as specified in the non-GAAP financial measures section of the company's release. I will now turn the call over to Ms. Nabi.

Ladies and gentlemen, with the conclusion of our fiscal '21 year, I’m very pleased by the progress we have made over the last 12 months, and even more excited about the opportunities and momentum still ahead. This has truly been a transformational year for Coty. Over the last 12 months, we have built a leadership team of beauty and transformation experts, unveiled and began executing on our multi-year strategy, completed the divestiture of Wella, significantly improved our leverage profile, and over-delivered on our savings, revenue, and profit objectives. It's clear that Coty is emerging as a much stronger and more nimble organization. At the same time, Coty has clearly stepped up its beauty expertise and willing to take risks to shape the future of the beauty industry. There are a number of key points that I want to highlight today. First, our fourth quarter revenue growth was ahead of expectations, fueled by double to triple-digit growth in each region and triple-digit growth in our prestige brands as we continued to see robust prestige fragrance demand in the U.S. and China, coupled with continued expansion of our prestige cosmetics footprint. At the same time, our consumer beauty brands grew close to 40%, driven in part by the turnaround in CoverGirl and the renewed consumer migration towards trusted brands, a trend that are underpinning the rebuilding of our consumer beauty portfolio. As a result, our fiscal '21 revenues of $4.63 billion and above the high end of our guidance range. Second, by accelerating our savings delivery in fiscal '21 and being at over $330 million, or over $100 million higher than our original target, we were able to fuel both profit delivery and reinvestment in our business to accelerate our growth. In fact, we ended fiscal '21 with adjusted EBITDA of $760…

Thank you, Sue. Our fourth quarter maintained our base of strong profit delivery allowing us to exceed our full year adjusted EBITDA target. I am pleased to say that this Q4 profit was driven by both gross margin and cost reduction, allowing us to meaningfully step up marketing investments behind our brands. Starting with our gross margin performance, our Q4 adjusted gross margin of 60.9% improved by over 20 percentage points from last year, which was significantly depressed due to the COVID crisis. This marks our second consecutive quarter of gross margins above 60% as we delivered on our strategic framework. For fiscal '21, our gross margin reached 60%, an increase of 190 basis points from fiscal '20 and in line with the gross margin of the RemainCo business in fiscal '19, despite a lower sales base. Our fiscal '21 gross margin benefited from the positive mix shift towards prestige brands, e-commerce and skincare as well as material cost savings enhanced by supply chain productivity and improved excess and obsolescence. We remain laser focused on further driving gross margin expansion in fiscal '22 and beyond. We have a multi-pronged, multi-year gross margin attack plan in place, while we also expect to benefit from positive channel, category and regional mix shifts. This will in turn allow us to continue reinvesting behind our brands and simultaneously deliver strong profit expansion. As we mentioned during your last earnings call, we continue to step up our marketing investment during Q4. A&CP was approximately 26% of sales in the quarter, which is a sequential acceleration from Q3 as well as the first half of fiscal '21 with working media increasing more than 30% from Q4 '19 levels. I want to emphasize that while we are reinvesting behind our brands, our philosophy remains fewer, bigger and…

Thank you very much, Laurent. So in addition to our financial delivery in Q4 and for the year, the Coty organization has been moving at top speed to execute on the six strategic pillars we unveiled at the end of April. We’ve made good initial progress with even more still to come, so let me spend a few minutes on some of the tangible milestones we have achieved already in our journey to transform Coty into a beauty powerhouse. The recent appointment of Constantin Sklavenitis as Coty’s new Chief Prestige Brands Officer is integral to our plans as Constantin’s background at MAC Cosmetics, Urban Decay, IT Cosmetics and Kiehl’s makes him the ideal leader to take our prestige make-up and prestige skincare footprint to the next level, while further building on our fragrance momentum. Starting with our first strategic pillar, you know it's stabilizing our consumer beauty brands. Our first area of focus was the largest brand in the consumer beauty portfolio, CoverGirl, and we did not lose any time; unveiled a new brand repositioning campaign, disruptive advertising, and a highly successful launch of the clean vegan mascara in early spring. The results speak for themselves. In the June quarter, CoverGirl grew sell-out in brick and mortar by 24% compared to the broader color cosmetics category growing 16% with the highest brand share in five years. The growth was fueled by new advertising creatives [ph] and fewer bigger, better investment across media, promotion, and display on CoverGirl’s key magnificance age [ph] franchises. In particular, Lash Blast Clean Mascara is our largest mascara launched in over five years, while the Simply Ageless franchise is booming, driven by the viral TikTok craze for Simply Ageless Wrinkle Defying Foundation and media support behind the high performing creative asset starring Niki Taylor. The overall…

[Operator Instructions]. In the interest of time, we do ask that you limit yourself to one question to allow everyone an opportunity. And we will now – we will take our first question from Rob Ottenstein with Evercore. Your line is now open.

Great. Thank you very much and terrific progress. I was wondering if you can help us maybe just focus a little bit more on the first strategic pillar, which is stabilizing the consumer beauty business. Obviously, given the comps, it's a little tricky and difficult for us to judge your progress. You gave us some good market share data, which is certainly indicating significant progress. But I was wondering if you could go maybe a little bit deeper in terms of repeat purchase or brand equity scores or any other metrics to support confidence that the stabilization and the trends that you're seeing are likely to continue in the future? Thank you.

Hi, Rob. Thanks very much for the question. That gives me a great occasion to really speak about this. I would say a big success that we're having on CoverGirl. This was really not something that was easy to achieve. As you can imagine, the brand has been losing market share for years and years. And in fact, we made the bold decision to bet on one key area of the business. That's by the way the key area that's growing back the American cosmetics business, which is Clean Beauty. Clean Beauty is clearly over indexing the recovery of the beauty category, specifically in the U.S. market. And CoverGirl, as you know, it is not only the inventor of Clean Beauty 60 years ago, but was the brand that was launching innovation in this area with Clean Fresh line launched last spring, followed by Lash Blast Clean that became CoverGirl biggest mascara. And again, we've decided also to come back to another asset of the brand, which is what we call today, make-up meet skincare with Simply Ageless, which is, by the way, the best-selling anti-aging foundation in the U.S. And when you add these two together with a new way of doing advertising, you clearly see that the brand is re-attracting consumers that are the ones who left the brand in the past, namely Gen Z, millennials, but also people who are Hispanics - from Hispanic community. So when you add all these together, you can understand very easily why the brand is growing again, because these demographics are those who are the biggest consumers of make-up. We are also progressing, I would say, on people who are older than 40 years old, which is a key category for categories such as foundation and mascara, too. When it comes…

And we will take our next question from Steve Powers with Deutsche Bank. Your line is now open.

Yes. Hi. Thank you very much. I guess, my question just wanted to dig into and just frame your outlook a bit more for fiscal '22. Starting with the first quarter, you talked about strong double-digit growth in July and August. And then obviously the high-teens outlook for the first quarter, which I think implies just September deceleration. So just maybe you could just frame that for us and any key drivers you'd call out? And then similarly for the full year, while I do appreciate the base year comparisons get progressively more difficult relative to a clean sort of '19 base adjusting for the Wella sale. I'm not sure that they do, but anything they make it a bit easier. So maybe just better frame the drivers there and any implied deceleration versus that pre-COVID base. Thank you.

Thank you, Steve. So again, when it comes to the first part of your question about what you think would be a deceleration in September, it's not a function of slowing and demand. Comps do get more difficult by designation. But what we can tell you is that the start of the new initiatives and the pipeline we have on the market today with Gucci Flora Gorgeous Gardenia, with Burberry Hero, with the re-launch of Kylie Cosmetics, honestly, the figures are absolutely outstanding. If I can give you one or two figures that we commented during the speech, Gucci Flora, for example, in Canada, we just received the information that it was the number one best-selling fragrance in the market, top three in the U.S. Kylie Cosmetics, again, the momentum has been huge and it's continuing. CK Defy that we launched everywhere in the world is having the same kind of outperforming our best, I would say, estimates. So, again, I don't see this -- I wouldn't describe it the way you described it. We are just having still watch out just to make sure we are ready for any kind of things that could happen. But we are super confident. That's the reason why we have laid out this low-teens growth for the fiscal '22 year, because these launches are going to be, of course, outperforming the market hopefully for the remainder of the year. So, in fact, what I can tell you when it comes to how we are building fiscal '22, the good news is that we are delivering on our six-pillar strategy. So again, stabilizing consumer beauty, I just said a few words about CoverGirl, but I could say words about Rimmel having its highest market share for the last 10 months. I could say that -- which stabilized consumer beauty business in Europe for the first time in five years. Max Factor has gained market share for the first time in four years. And this is prior to the big re-launch that's starting honestly right now in stores. So stabilizing consumer beauty was the number one, I would say, requirement to allow us to take full advantage of the huge potential and the huge growth we are already seeing on the prestige part of the business, be it in the U.S., in China, but also in Europe. So these two together coupled with a strong I would say e-comm expertise and capabilities that we've been building during the last year is clearly giving us strong confidence about the commitment of high-teens growth for fiscal '22.

And we will take our next question from Chris Carey with Wells Fargo.

Hi. Thanks for the question. Just on -- following up on that just a little bit. The bridge for fiscal '22 or excuse me, fiscal '21 revenue had included about $1.2 billion from COVID impact on the core business. And I wonder if you can just talk to the concept of recovering some of those sales, and this is after accounting for M&A with unique [ph] and Kylie and the low quality reductions and -- reductions in low quality channels in prestige. So can you just talk to that impact of the business from COVID, how much maybe you expect to recover, how much you had done to, say, streamline the portfolio, improve the quality of the portfolio, exit businesses further, or would you expect to over time get those sales back that had kind of come out of the base? And if I could just -- a quick question just on the fiscal '22. What are you implying for A&CP spend in your outlook? So thanks very much for those.

Thank you, Chris, for the question. So let's start with the end of the question. When it comes to the A&CP, as Laurent laid out during his presentation, there is a sequential acceleration of our working media which is clearly the key part of A&CP, 26% of growth during the last quarter. And, of course, we are going to continue to invest behind the huge and early successes we are seeing today behind Gucci, behind Burberry, Calvin Klein, Kylie Cosmetics, but also CoverGirl, Rimmel and Max Factor just to name a few. So clearly we are going to continue to step up the investment in fiscal '22, particularly on working media. Three things I can tell you around fiscal '21 compared to fiscal '19. You were talking about sales, recovery, et cetera. The first one is when we compare the cities and the sell-outs we are seeing on the market, cities that we just shared with you and sell-outs on a six-month basis, which is clearly when we started the acceleration of the company starting in June of this calendar year, you could see that Coty prestige business is growing 2x faster than the market. So that's also an indicator about how the health of the prestige business at Coty is compared to peers. This is the first thing. The second thing, even if we look at consumer beauty, we have seen that our consumer beauty for the last six months has grown by 7% which is slightly ahead of what the market is doing. So in both divisions, we are seeing a strong I would say outperformance busters [ph] the sell-outs of the market, which is for me the best way to assess what the market is doing and therefore what the competitors are doing. Another thing I can tell you compared to fiscal '19 is the improvement in our EBITDA again. The EBITDA margin has been growing by 300 basis points versus 2019, and this on lower days of sales. So again, as you can see on all metrics, specifically sell-out, a progression of sales, EBITDA and working media versus '19, we are clearly recovering much faster than what we thought at the beginning of last year in fact.

And we will take our next question from Steph Wissink with Jefferies. Your line is open.

Thank you. Good morning, everyone. I have a follow-up question on the A&CP. I guess maybe this is two-part, tactical and philosophical. But on the tactical side, as you do invest a bit more in A&CP and demand activation, what are the two or three key metrics you're looking for beyond sales, maybe more in terms of sales quality that will continue to reinforce that investment? And then, Laurent, for you maybe as you think about upside in the year, is your plan to reinvest the upside into incremental working media? Or are you at a point where you feel like you can start to see some of that upside balance through and drop through to the bottom line? Thank you.

Thank you. So I will start on the second part on your question. So, basically, what we and this is what you are seeing already in Q4, what we explained that our level of A&CP H1 '21 was 20%, Q3 grew up to 23% and at Q4 is 26% of the A&CP on net sales. So we are not giving any guidance on A&CP for fiscal '22, but you easily understand that the savings we are delivering next year that we are really using the savings on fixed costs and on gross margin to refuel the growth and to support the strategic initiatives that Sue has just explained. Now to go deeper in this level of A&CP is really in these buckets, there are different plans. So you have working media and the other in A&CP. We keep very strict discipline on other in A&CP where we can see -- if I take the example of samples, testers and in all these lines we keep optimizing and it is part of our productivity plan and at the same time using this knowledge to refuel and really to focus on working media. So when we are actually writing A&CP -- within A&CP, it's even much, much faster on working media and here we are very, very tight discipline on this. On your question if we see any upside? Definitely, and this is a weekly discussion we have together with Sue and the leadership team. Indeed when we see additional upsize in profit, we are making the decisions, okay, where to reallocate this money? This is what we did this year, for example, on CoverGirl and you see now the results. And this is definitely what we will continue in fiscal '22. What we are doing now was a great initiative. Refueling, so it's really a daily and weekly work, again, managing at the same time fueling the growth and creating a virtuous circle and also delivering EBITDA. So that's really what we started to do this year and we continue next year. On the metrics, and Sue gave a few elements, we are getting very, very professional in the way we are spending on working media. So we are testing the copy and we have very strict KPIs, but we are chasing them and we are making clear decisions. We have scores and this is what we are using to make a decision where we are [indiscernible] for consumer beauty, for prestige, for all categories, again, and this is what we are doing as a team. So we have very specific metrics on purchase intent, awareness, and so on, and all these specific KPIs to allocate our resource.

And we will take our next question from Andrea Teixeira with JPMorgan.

Thank you. Good morning. I wanted to go back -- and congrats on the results. I wanted to come back to the Kylie Cosmetics and Kylie Skin launch back in July. And I think you've spoken very positive about that. What is the runway for sales in dollar terms for this brand, so maybe some annual perspective, what is embedded in your guidance? And then if you can, as a follow up on a question before about the rationalization that you included, just so we understand that Calvin Klein is still a pretty sizeable chunk of your fragrance business. I just want to understand how we should be thinking how those fragrances in terms of [indiscernible] portfolio and how we should be thinking going forward? Thank you.

Thank you for the question. So again on Kylie, again, I'm not going to comment on individual brands. But I can tell you that the re-launch that we have done during this summer with the cosmetics lines for the first time sold on the same brand side as the skincare line has really been, I would say, outpacing all the key metrics that we usually see on what we call celebrity led brands. In fact, the number of sales that we've seen, for example, during the first 15 minutes was huge; 300 orders per minute during the first 15 minutes. When Kylie has done the live shopping session that she's been doing during the re-launch, we had KPIs that were 3x higher in terms of basket and conversion versus what we monitor on the rest of the market. And last but not least, in fact, this was not a surprise, because during the last year, even if it was a quiet year for the make-up, I would say, industry that Kylie has been gaining something like 16 million followers on her different social media. And you could also see that in terms of what we call interactions, likes, comments, et cetera, it was more than 19 million of these interactions, comments or likes that happened on the different channels of Kylie, which was a great preparation for the re-launch that we've done during this summer. And today, the feedbacks we are seeing, including qualitative feedbacks, because the line is now 100% vegan, cruelty free, of course, and we've been removing something like 1,000 contested ingredients from the formulations. All the feedbacks are absolutely all outstanding. So when it comes to our fiscal '22 outlook, it embeds broad-based growth across the different brands, the different markets, and, of course, the different channels.

And we will take our next question from Mark Astrachan with Stifel.

Thanks, and good morning or afternoon everyone. Wanted to ask about sales growth progression. So, obviously, strong 4Q sales but really comparison driven. You look at the underlying or two-year stack or CAGR growth I think was a little bit less strong sequentially than maybe some of your peers. Like conversely, your guidance for the September quarter and then for the year would imply a pretty strong acceleration in that underlying growth. So I guess the question is what is really driving that at this point in terms of the strong acceleration? Is it -- if you're done lapping some of the exits of these lower profile channel brands, is it that the A&P is really starting to work? Maybe if you could give a bit more comments there would be helpful. Thank you.

Thank you, Mark, for the question. So again, if I understand your question what's driving our outlook for fiscal '22, clearly the first thing is that we are seeing again strong progress on our pillar. We have multiple strong initiatives, again, being the number one prestige fragrance maker, when on the same year you have the re-launch of what's going to be the biggest launch activity this year, which is Flora Gorgeous Gardenia by Gucci; Burberry, Defy, Kylie Cosmetics re-launch, Sally Hansen re-launch. Also we are seeing that fragrance demand continues to improve very, very strongly be it in the U.S., in China and now in Europe. Again, this gives us confidence that there is something happening behind the brands prior to quarter one. But also these launches add a new layer of confidence that they are going to probably be best selling launchers. Again, I come back to Flora by Gucci, the figures we got from Canada one day ago show that this is 2x or 3x bigger than what we had one year ago with Perfect by Marc Jacobs, which you can, of course, remember was the best selling fragrance last year in the U.S. and Coty’s biggest launch in the last 10 years. So we're building a momentum on a momentum that we started during the second half of fiscal '21.

And we will take our next question from Olivia Tong with Raymond James.

Great. Thank you. I wanted to revisit your comment in the press release about always being on the lookout for value creation. So first, can you just talk about the genesis of your decision to IPO part of Brazil? And if there's any P&L impact of that, and whether that's incorporated into your sales outlook? And then just thinking about the rest of the -- are there others brands or geographies in your view that may not fit in a traditional sense in your portfolio? And we've obviously discussed quite a number of brands on the call. So should we assume that if you didn't mention the brand in your prepared remarks, that maybe those are more likely to be potential candidates for strategic alternatives? And then I have a follow up. Thank you.

Okay. So let me comment on first question on partial IPO. So first of all, we made clear that we keep the control and we keep the majority. There is no consolidation of these operations. So it's definitely a decision with a goal of supporting the growth of the Brazil business and Coty’s personal care brands. And so it's really an important strategic decision we are making. Then I will not comment more on the P&L and also elements considering the local regulation. If you want more information about this operation, you can refer to the CVM Web site in Brazil.

And we will take our next question from William Reuter with Bank of America.

Hi. I just have one. In terms of -- I'm wondering where travel retail was as a percentage of historical levels in the prestige segment. I guess I'm wondering what type of a tail end we would still have in this segment as travel returns to pre-pandemic levels.

So again, on travel retail, clearly the bright spot has been what we call domestic travel retail, namely Hainan. And even with the most recent restrictions, we haven't seen any slowdown in this kind of distribution when it comes to our brands. More globally in terms of travel retail, now they are in low single digits. It used to be high single digits. Of course, there is more growth to come, as you said, restrictions around travel ease more and more. But the great news for us is that we've used this key location such as Hainan in China to test and re-launch some key brands, specifically in skincare. As you can imagine, skincare is a key segment for travel retail and moreover in APAC and in China travel retail. And again, we got great news. We've seen that the line is a top three skincare line in Hainan now. It's a top 20 skincare line in front of big brands that have been there for decades, et cetera. This gives us great confidence that we are going to add a new growth engine to our travel retail growth, namely skincare and specifically high end skincare in the region where we were relying mainly on fragrances.

Thank you.

And we will take our next question from Carla Casella with JPMorgan.

Hi. So you mentioned the Brazil potential listing. I'm curious, you mentioned that that could partially help you delever. Have you or at what point do you revisit Wella and whether you sell additional stake in that to either help delever or use for growth in that core business? And are there any restrictions on that? And then one follow up just in terms of the leverage.

Thanks for your patience. First of all, I want to remind that indeed we see really some value increase into Wella stake, as you remember. So from 1.2, we are now 1.217. So there was a 50 value increase in country and now 10 on top in Q4. So this 40% in our balance sheet, we see value increasing and this will continue. Second, this is why we explained that indeed in our leverage, so we are indeed financial net debt. But this is really an asset where we show our economic net debt. And our economic net debt with this rate is now about 4 billion. To answer your point, there is no specific agenda. But definitely we are contemplating that if there is opportunity, which will be interesting in terms of value, this is something that we will be ready to explore. But at this stage, there is no specific agenda on this.

Okay. And then you gave your net debt to EBITDA in your guidance. Where does your current covenant net debt leverage stand?

Yes. So, today, our covenant net debt is, we are in very good situation. So we keep things under control. So increasing our roadmap and EBITDA and our roadmap on our leverage, our net debt [indiscernible] calculation under very good --

We have no further questions on the line at this time. I will turn the call back over to Sue for any additional or closing remarks.

Thank you, everyone. Again, we are all super proud of our great performance delivered by an amazing team, and I take this opportunity to say thank you to everyone at Coty. Thank you very much.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.