Coty [COTY] Conference call transcript for 2021 q3
2021-11-08 11:47:07
Fiscal: 2022 q1
Operator: Good morning, ladies and gentlemen. My name is Please standby, your program about is about to -- At this time, I would like to welcome everyone to Coty's First Quarter Fiscal 2022 Results Conference Call. As a reminder, this conference call is being recorded today November 8, 2021. On today's call are Sue Nabi, Chief Executive Officer, Laurent Mercier, Chief Financial Officer. I'd 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 list 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.
Sue Nabi: Ladies and gentlemen, with our Q1 now complete, I'm very encouraged by the success we are having, further building on the strong foundation we put in place last year. The results we have delivered this quarter truly exemplify the virtual circle that we have set out to create. It's a simple one with strong revenue growth combined with growth margin and cost initiatives, synergy profit expansion and strategic investments, which in turn drive future growth momentum. That's some key takeaways that I would like to first highlight. First, our Q1 revenue growth surpassed our expectations and guidance with growth coming from both our Prestige and Consumer Beauty segments. We continue to see a very strong demand for Prestige products, particularly fragrances in the U.S. and China, with an impressive rebound in travel retail. This was further supported by our exceptional lineup of fragrance launches. Meanwhile, we continue to see a recovery and improvement in Consumer Beauty with particularly strong trends as at both CoverGirl and Max Factor. This resulted in like-for-like revenue growth of 21% above our guidance of high-teens growth. Second, we reported very strong profit growth during the quarter. This was fueled by a significant gross margin expansion of nearly 500 basis points, as well as further cost reductions. The substantial gross margin expansion we have seen, is a true testament to the strength of our business model as we double down on a creative innovation and continue to preimmunize our portfolio. Importantly, we continued to step up our investments in marketing. In fact, our working media doubled versus last year. Despite this, our adjusted EBITDA increased almost 70% equating to 550 basis points of margin expansion. Evidence that our virtual circle is now in motion. Third, we continue to execute and make progress across our strategic growth pillars. I will, of course, be sharing some milestones with you today. However, I'm even more so excited for our Investor Day next week, when I will be joined by additional members of the Coty leadership team to provide a more in-depth update on the progress we have made on our strategic pillars, as well as our medium-term trajectory. Fourth, we see the momentum continuing into the year. We are on track for a great fiscal '22. Our growing confidence in the momentum drives our increased sales guidance for the year, supported in particular by our initiatives across fragrance and cosmetics. I will now take a few moments to cover our revenue trends during the quarter before Laurent takes you through our financials. Then I will finish with an update on our strategic progress and our outlook. Our Q1 revenues increased 21% like-for-like. The prestige segment grew 34% on a like-for-like basis. Even as we continue to reduce sales in low quality channels, which represented a low single-digit negative impact in the quarter. We continued to experience very robust prestige fragrance trends, particularly in the U.S. China and travel retail with nearly all brands exhibiting strong growth in the quarter. Our growth was further aided by our very strong launch calendar in the first quarter. This included Gucci, Sephora, , Burberry, Hero, Calvin Klein, , and the relaunch of Kylie Cosmetics. Meanwhile, our prestige, cosmetic sales more than doubled in the quarter. Our Consumer Beauty segment increased 3% like-for-like as the global mass beauty category return to growth and we are seeing stabilization in our market share. Q1 growth was led by CoverGirl and Max Factor as both brands continue to benefit from the new brand positionings. Moving to sales by region. We saw growth across all regions, though the U.S. and China continue to be standout performers. And travel retail saw a true resurgence. The Americas region grew 23% like-for-like in the quarter, supported by double-digit growth in the U.S. as well as growth contribution from Latin America, Canada, and Brazil. EMEA sales rose 17% like-for-like, with the most impactful contributors being the UK, Russia, as well as local travel retail. The Asia-Pacific region increased 29% like-for-like, with local travel retail tripling year-on-year and China seeing nearly 50% growth in the quarter, proving our efforts in turning this market into a powerhouse are bearing fruits. We are particularly pleased with these results in China and the broader markets particularly, given some incremental restrictions that occurred in the quarter due to COVID. I will now hand the call over to Laurent, to take you through our financial results.
Laurent Mercier: Thank you, Sue. I am very pleased with our first quarter results, which continued our very strong pace of profit growth. Importantly our cycle of growth is now in motion. Our profit was driven by strong gross margin improvements, allowing us to continue to reinvest in our strategic growth initiatives, thereby further fueling top line growth momentum. Starting with our gross margin performance, our Q1 adjusted gross margin of 63.4% increased by nearly 500 basis points from last year, and 250 basis point from last quarter. These marks our third consecutive quarter of gross margin above 60%. Our gross margin performance was driven by favorable mix, both from the outside growth of Prestige, as well as favorable product mix within the categories, lower excess and , fixed costs absorption on increased sales, pricing and revenue management, supply chain productivity, and material cost reduction program. We continue to be very focused on further driving gross margin expansion, both this year and in the years to come. As such, we have a very clear, multi-pronged, multi-year gross margin attack plan in place, while we also expect we will continue to benefit from positive channel, category, and regional mix shifts. The growth margin expansion is key towards the 2 cycle we have created of sales and profit growth. While the topic of inflationary pressure, supply chain bottlenecks and component shortages are dominating conversations across all industry, I am pleased to say that so far Coty is navigating through uncertain environment quite well. This is a result of both the agility of our supply chain and procurement teams, as well as our structure and drivers of our business model, where we are over driving gross margin accretive channels, categories, and innovation. While we have seen isolated constraints in certain components, such as fragrance pumps, silicone, and paper, our teams proactively increase safety stocks to protect our key consumption periods, as well as implemented dual sourcing initiatives, all of which is proving to be effective. On freight, the vast majority of our freight is under contract, rather than spot market which has largely protected us from the excessive price highs of recent months. At the same time, our teams proactively increased transportation lead time and secured freight capacity in advance to avoid potential freight constraints. And in the context of global supply chain bottlenecks and port congestion, it is important to note that the majority of our inventory is manufactured in the region when -- where it is sold, which likewise protects our business. The net result of all these proactive effort and business design decision is that our service level in Q1 was very strong in the mid '90s and actually higher than the prior year, which has allowed us to both over-deliver on our sales guidance for the quarter and deliver close to 500 basis points of growth margin expansion year-on-year. And our outlook for Q2 service labels is in a similar range despite higher than initially anticipated demand, which is also enabling us to raise our full-year sales guidance. While we do expect the impact from inflation in materials and freight to be somewhat higher in H2 '22, the impact is quite manageable, and we continue to expect our gross margin to expand in fiscal year '22. Fueled by revenue management initiatives in both Prestige and Consumer Beauty, submit benefit of Prestige expanding as a proper option of the mix, improved absorption from higher production volumes, and broader productivity efforts. During Q1, we maintained our stepped-up marketing investments. A&CP was approximately 26% of sales consistent with the level of Q4 and significantly above the 20% level a year ago. The year-over-year increase was primarily driven by working media, which more than doubled year-on-year. Importantly, we remain vigilant in investing in the highest ROI opportunity and being nimble in our resort deployment. You will hear more from Sue regarding the details of our success and progress in driving growth during the quarter. However, let me highlight a few areas where we were putting our marketing dollars during the quarter. First, we had a very busy launch calendar in the quarter, particularly within Prestige. We launched Gucci Floral Gardenia, Burberry Hero, Calvin Klein Defy and the relaunch of Kylie Cosmetics, among others. These launches showed tremendous success in the quarter and contributed to our strong performance. We continue to fuel our expansion into new categories and markets, including Prestige makeup and overall, Asia. Finally, we continue to invest behind to repositioning of CoverGirl, Rimmel, and Max Factor, which also promise results supporting Consumer Beauty business stabilization. In Coty our marketing investment and drive profit growth through further cost production. During Q1 our fixed costs declined by 8% year-over-year. We achieved approximately $60 million of cost savings during the quarter with a front-loaded delivery of our fiscal 22 savings target to enable sufficient flexibility in the P&L to deliver profit, yet reinvest in our brands during this critical holiday period. The primary drivers of these were cost savings, lower fixed costs, and trade investments. We remain well on track to achieve over $19 million of savings in fiscal '22. Recall it, we see net of cost inflation, reinstating bonuses, and structural organizational reinvestment behind our growth pillars. So, it's important to note that this does not include our intended reinvestment in A&CP. We have now achieved nearly $400 million of total savings. And we remain well on track to reach our fiscal '23 target of a total of $600 million of savings, while we also continue to identify savings projects beyond fiscal '23. Moving to profit delivery in Q1. Our adjusted EBITDA performance was exceptionally strong in the quarter, increasing 67% year-over-year to $279 million. This resulted in a margin of over 20% up 550 basis points above our first quarter last year. This significant improvement was driven by strong sales growth, robust market -- gross margin expansion, and fixed cost leverage. We believe the seller performance this quarter is further evidence of the strength of both our strategy and business model. And we continue to target both revenue and profitability growth in the years ahead. Turning now to our EPS which included the following drivers, adjusted EBITDA for Q1 of $279 million, depreciation of $78 million, income tax expense of $40 million, which equates to a tax rate of approximately 29% in line with our expectations. As we previously noted, we expect a higher tax rate this year given our global principal jurisdictions are now in Amsterdam and in the U.S. $8 million of those are item and $29 million of adjusted preferred dividends. Please note that the preferred dividends were higher than typical in Q1. At a very high level, this was due to accounting role requirement associated with KKR conversions of accrued dividends into common shares as part of their first transaction in September. As a result, our Q1 diluted adjusted EPS ended at $0.8. While not included in our adjusted EPS, during the quarter, Wella's fair market value rose by $390 million. Looking ahead to Q2 and fiscal '22, I would like to provide some context of the different drivers of our adjusted EPS. First, consistent with what I said last quarter, we continue to expect interest expense in the mid $200 million for fiscal '22 reflecting a lower net debt balance offset by somewhat higher cost of debt post the recent refinancing. Second, as I previously mentioned, we anticipate an adjusted effective tax rate for fiscal '22 in the high 20s percentage. However, we know there is a high degree of uncertainty with effective tax rates projections in the current environment. Third, on the preferred dividends following today's announcement actions with KKR, we anticipate a roughly $7 million quarterly run rate going forward following this transaction and assuming no further conduction of preferred shares. Now moving to free cash flow for the quarter, which was strongly positive despite Q1 typically being a seasonally weaker cash flow quarter as we build inventory for the key holiday consumption period. Importantly, working capital improved significantly in the quarter. We also continued strict management of CapEx and one-time costs. As a result, our Q1 free cash flow was $241 million. As we head into Q2 and beyond, we remain intent on further bolstering our cash flow, as well as driving this steady reduction in our net debts. Turning to our capital structure, we ended Q1 with a financial net debt balance of approximately $4.96 billion, which is a decrease of over $200 million from Q4. This is largely, the result of our strong free cash flow, factoring a 40% stake of Zeta at quarter-end, valued at approximately $1.65 billion. We ended the quarter with economic net debt of around $3.3 billion. Please note that with the completion of the sale of an approximate 9% stake of Zeta to KKR in October. And today's a non-sale of an over 4%. We now own 26% of the Zeta business. Based on our current ownership stakes in Zeta, our economic net debt at the end of Q1 '22 would have been closer to $3.9 billion. We continue to view our retained 26% stake in Zeta as a financial stage. The recent transactions prove a valuation upside in this business, as well as the liquidity of the state. We will continue to be active and tactical in the opportunities to monetize these nonstrategic Zeta assets and further reduce leverage. Additionally, we're continuing to make progress in improving the maturity profile of our debt. We have secured commitments to extend our revolver maturity to fiscal '25, and reduce revolver capacity to $2 billion from previous $2.75 billion. This is on the back of our recent successful issuance of over $1.6 billion of senior secured notes, showing our strong progress in minimizing refinancing risk. In fact, we have recently made some tactical decisions by monetizing some non-core assets to help further our deleveraging. During Q2, we are executing several real estate divestitures resulting in approximately $150 million of cash proceeds. So, majority of which will flow in Q2. It's a sizable cash inflow for this transaction, coupled with the expected strong free cash flow in Q1, reaffirm our confidence in ending calendar year of '21, with financial net debt to EBITDA to up 5 times as well, to end calendar '22 with leverage of 4 times. In the meantime, we remain committed to the partial IPO of our Brazil business. In light of the current economic volatility in Brazil, we continue to monitor the market conditions to identify an opportune window to execute our partial IPO. Due to local Brazilian regulation, we cannot offer further details at this time. Before I hand the call back to Sue, I would like to quickly touch on the recent transactions regarding our Prestige share and the simplification they said they're having on our capital structure. For some time now, we have seen straight keys to further unlocking shareholder value at Coty, growing our sales on profits, deleveraging our Balance Sheet, and the last being simplifying our capital structure. We have made great progress on the first 2 of these and have a clear path towards further improvement. During the first half of this year, our capital structure has become significantly more simplified to KKR's conversion of approximately $50 million preferred shares combined with the subsequent redemption. Yet, 2 transactions of around $75 million KKR preferred shares in exchange for a roughly 14% staking data. Make no mistake. These are positive developments for Coty. We understand these events, particularly the secondary offering that took place in early September, lead to questions and volatility. However, these developments were a net positive for Coty, as well as for our shareholders, including significant even further reduce the other hang of KKR's preferred shares ownership. Conformation of the significantly higher value of , with approximately 40% appreciation versus the initial evaluation, while also proving the liquidity of the asset, freeing approximately $65 million of cash on the lower preferred dividend that we can use to further reinvest behind brand or used to have . And the redemption of these convertible shares implied several cents of EPS accretion annually. Let me now turn it back to Sue.
Sue Nabi: Thank you very much, Laurent. So, we continue to make strong tangible progress across our six strategic pillars in the first quarter, with many more milestones plans for fiscal 22 beyond. I will now walk you through some of these key costs of one -- sorry, highlights. And as a reminder, we will be covering each of these pillars and future initiatives in much greater detail next week, November 18, at our Investor Day in New York City. Starting with our first strategic pillar. Stabilizing our Consumer Beauty brands. This is a pyramid we hope many of you recognize. However, we believe it's important to remind each of you of our Core Consumer Beauty brands and where they stand. I'm proud to say that we have a clarified view of the portfolio with each brand position in the clear price tier and competing against a defined, competitive brand. CoverGirl, Rimmel, and the Chloe in Germany, Manhattan brand compete directly against Maybelline. Max Factor and Bourjois compete against L’Oréal Paris, and Sally Hansen holds the unique position of providing an affordable alternative to nail salon services. As you all know, CoverGirl has been our first area of focus within Consumer Beauty and I'm very pleased with the success we are seeing today. CoverGirl is the inventor of key makeup and leads this high growth area in the U.S., which is nicely accretive to our cosmetics portfolio. This has been supported by our strong launch cadence of clean, vegan, and cruelty-free beauty products, including Clean Fresh makeup and Lash Blast Clean Mascara. In fact, we believe this renewed focus on clean makeup is further supporting our gains with key demographics, as well as key retail partner such as Ultra, who is elevating CoverGirl as a leading example of an established mass brand, leading the path to clean beauty. I also want to note that clean beauty has the additional benefit of being margin accretive with these key innovations carrying a higher price point. I'm proud to say that since our reboot of CoverGirl at the end of March, the brand has gained market share in 4 of the last 7 months and we expect the momentum to continue. Importantly, CoverGirl is finally gaining shelf-space in total in the U.S., led by a key retailer where the brand is significantly outperforming the cosmetics category and also improving productivity. And just as we discussed during our strategic update in April, we are reapplying the CoverGirl turnaround playbook to other Consumer Beauty cosmetics brands. We just launched our first clean makeup brands that female called Kind and Free. This makeup line is 100% vegan, cruelty-free, free from fragrance, mineral oils, and animal derived ingredients. On this slide, you can see a brief ad showcasing the manifesto of this recent launch.
Ad: Here is the way I see it. There's a clean beauty out there, and it works. No compromise. Open to all of us, it's our new way of creating makeup that's kind to us and . Kind to skin, free from kind to animal, free from cruelty. We call it Kind & Free. Let's get behind this, the clean face of makeup. We're Kind & Free from Remo, London, where clean works.
Sue Nabi: Kind & Free is our biggest Consumer Beauty launch in fiscal '22. Along with our retail partners, we believe this will truly be a game changing innovation and we have been very excited with the recent test results. While Kind & Free is still only in pre -launch phase with a full national rollout and full media support going live in Jan, we are already beginning to see sales at key retailers picking up in recent weeks. For Max Factor, we are seeing very positive trends as the visuals and new assets have now gone live. Starting in the UK, Max Factor gained 20 basis points of market share in September. Across all customers, Max Factor is stable or gaining market share, which is a first for the brand in years. Similarly, in the Netherlands, the brand gained 50 basis points of share. With the new brand positioning and campaign with Priyanka Chopra Jonas only starting in a couple of months ago, we are really encouraged to see that the brand is already stable, or growing market share in over 75% of its markets. We plan to keep the momentum going in December as we continue to invest in media behind Max Factor. Moving to our next strategic pillar of accelerating luxury fragrances. As previously mentioned, we have some outstanding fragrance launches during the quarter, further supporting our success in this key category. Gucci Flora Gorgeous Gardenia is one of the great launches. Ultimately, our goal is to summon this fragrance within the top 15 global female fragrance icon. And the result of recent month as across geographies, channels, and customers suggest that Flora is on track to reach this. Globally, this is a first for us, with a key innovation seeing such strong immediate success across major geographies. In the U.S. it's already ranking number 1 since its launch across many of our key U.S. retail partners. Similarly, in the UK, the fragrance is number 3 among female fragrances since its launch, and supporting Gucci Flora as the number 8 overall female fragrance line in UK. In two of our key markets in Continental Europe, Germany and Italy, Flora is also very strong, supporting the Flora line to be number 8 in Germany while Gorgeous Gardenia is the number one female fragrance in Italy. The fragrance is also gaining strong traction in China, where it has been renting as a top 10 CMS fragrance and longer our key brick and marked our retail partners, as well as on CML. Within men's fragrances, we launched Burberry Hero during the first quarter, where the fragrance is similarly seeing great success across all key regions and the fragrance remains on track to be a global nail icon. In the U.S. Hero has been the number 1 men's fragrance launch at many of our key retail partners since the launch, with its sellout results far exceeding our initial class. In Italy, Hero has been a top 10 men fragrance launch, ensuring the Hero line is the top ten overall men's fragrance line. In Germany, Hero is already a top 20 men's fragrance line. In China, Hero is also now a top 10 male fragrance since launch as many of our key brick and most our retail partners and on Tmall. It's also encouraging to see that Hero is ranking top 3 in key travel retail locations where the launch is present. Moving on to the acceleration of our Prestige Mega portfolio, we relaunched Kylie Cosmetics during July. Together with Kylie, we updated all of the cosmetic products, ensuring that each product was vegan, currently-free with clean formulations. We have been very pleased with the performance of Kylie both across channels and geographies since this relaunch. In fact, we have had launch at numerous collections that exceeded our initial targets. During the first quarter, the Birthday Collection dropped and was one of the most successful collections ever. The recently launched Nightmare on Elm Street Collection also turned out to be one of the best ever Kylie Cosmetics collections. Kylie also introduced her highly anticipated baby line during the quarter. This collection's so very strong sell-out trends within the first moments of becoming available online, leading to overdeliver relative to our initial plans. Importantly, these launches and drops brought in a very significant amount of consumer who are new to the grand. It's also important to note that with the relaunch, we have made Kylie Cosmetics significantly more productive than the initial range with fewer skews but delivering very high sellout. The success of Kylie does not stop with this recent collection, but can be further extended to the performance in brick-and-mortar both in the U.S. and the growth in Europe. Caddy Cosmetics is performing exceptionally well in the UK at our retail partners, including the recent we launched at . Meanwhile, the recent launch across a number of Scandinavian markets with our retail partner kicks was 1 of their best ever day 1 launches. In U.S. brick-and-motor -- brick-and-motor -- both skin and cosmetic sell-out are up strong double-digits year-over-year. All of these confirms the true omnichannel nature and global appeal of the Kylie brand. Moving to another of our prestige makeup brands, Gucci Beauty. The growth continues to be phenomenal, our Gucci makeup sales in the quarter tripling year-on-year. At the same time, sellout in the U.S. and China continues to grow in the triple-digit trends. As we've continued to build the Gucci makeup assortment phase represents a very important opportunity for the brand. During the quarter, we launched the Gucci cushion foundation with beauty sort and distinctive packaging as you can see on the slide. The launch anchors Gucci Beauty in the most loyal, most profitable, and largest makeup category across Asia. This has proven highly successful as in China, the cushion foundation was 1 of the top-ranking luxury cushions with Tmall and at the key vegan mascara retailer. Moving to our next strategic priority of growing our skincare portfolio. Our rapid revitalization strategy, sorry, for Lancaster remains on track, while we saw some slowdown during in Hainan due to a COVID resurgence in China as cross-border restrictions eased during September, we saw a rebound in both traffic and, of course, sales. I'm also pleased to say that we are seeing a further strengthening of the skincare portfolio, which now makes up the majority of Lancaster sellout in Hainan. We view this as further evidence that the repositioning of Lancaster afterwards the full-fledged skincare brand is taking hold on this all-important Prestige skincare market. Moving to our fourth strategic priority of building e-com and direct to consumer, we continue to experience very strong growth with e-com rising 23% year-over-year. Both Prestige and Consumer Beauty, saw growth exceed 20%. On a total Company basis, eCommerce represented a mid-teens percent of revenue at the end of the first quarter, that from a low-teens percent from last year's first quarter. One of the key ecommerce highlights during Q1 was our performance at Ultra driven particularly by the strength we are seeing on luxury fragrances. Our Prestige Fragrances, sell out growth online. Ultra-rose strong double-digits with penetration in the high . During the quarter, Marc Jacobs Perfect had outstanding performance. This icon was chosen as the fragrance crush in August, still posting triple-digit sellout growth for the month despite lapping last year's launch. As we build on our e-commerce momentum, our multi-pronged focus on fueling growth at few players, brick-and-click, and DTC is clearly bearing fruits. Moving now to our fifth strategic priority of expanding in China. As I previously mentioned, the country did some -- you'd see some resurgence of COVID during the quarter, primarily towards the end of July and August, with improvements in September. I'm pleased to say that despite this mix at backdrop, our China sales grew close to 50% in Q1. And amongst the top 10 Prestige beauty companies in China, Coty sale out was again the fastest growing. This impact is brought by the momentum of Gucci and Burberry on Tmall, which led to a 7 times growth in our Tmall revenues. In addition, Chloe continues to be a standout performer, with sell-out doubling year-over-year, led by the premium fragrance collection, De Fleur This achievement is particularly notable given the limited amount of media support that we have given Chloe attributed flow, however, we remain very committed to further building on this success to become a more significant player within ultra-premium and a seasonal fragrance in China, as well as across the globe. That now brings me to our outlook for the year. Starting with our view on first half of fiscal '22. As we have detailed, we saw very strong Prestige revenue growth in Q1 at 34% like-for-like growth, which in particular was amplified by the shipment of the key fragrance launches I have just discussed. Yet at the same time, we estimate our Prestige sell-out growth in Q1 was closer to the mid-teens. In Consumer Beauty, we estimate sell-in and sell-out were relatively aligned in the low to mid-single-digits. As a result, the total Coty sell-out in Q1 was a little over 10%. Given the strong cost reductions and profitability in Q1, we intend to reinvest more in marketing spend in Q2 to further boost our sell-out during this critical holiday period, capitalizing on the unprecedented momentum our brands are seeing. We therefore expect our Prestige sell-out in Q2 to accelerate to high - teens growth, with selling a bit below sell-out following the Q1 pipe sale. We also expect Consumer Beauty sellout to accelerate to mid to high single-digits with selling in line to better. In total, this should drive low-teens like-for-like growth in Q2 with sellout a bit higher. From a profit perspective, our strong gross margin and profit growth in the first quarter is further enabling us to fuel the growth investment in Q2. As a result, we expect to deliver first half of fiscal '22 EBITDA growth in the low-20s, year-on-year, with EBITDA margins up approximately 100 basis points versus first half of fiscal '21. It's important to stress that our key brands in both Prestige and Consumer Beauty are accelerating and in a unique momentum. Which happens once in a decade and we will not miss this unprecedented opportunity to gain market share and to lead and preempt new businesses in key regions. We therefore, need to invest to secure our near and mid-term growth that will be more and more profitable given the high-margin nature of this new businesses and our outstanding profit delivery in Q1 is allowing us to do just that. Moving to full-year guidance now. We now expect fiscal '22 like-for-like growth, low to mid-teens above our prior guidance of low-teens growth. Please keep in mind our guidance assumes no significant deterioration in regard to a resurgence of COVID and resulting restrictions or lockdowns. As we previously noted, while we have managed inflation and supply chain related headwinds quite well to-date, we will of course continue to monitor this situation. We are confident that our gross margin attack plan, the creative innovations we are introducing, such as Rimmel Kind & Free, or Gucci Flora, and the continued premiumization of our portfolio, which fuel gross margin expansion for the year as compared to fiscal '21. All together, we expect fiscal '22 adjusted EBITDA of $900 million at a minimum. As we are intentionally reinvesting our gross margin gain and cost-savings in our brands to maximize value and drive sustained momentum for the business into second half and, of course, beyond. I'm also very pleased to announce that with significant progress made in simplifying our capital structure, that we are now in a position to provide EPS guidance. We've been very focused on getting a more solid handle on our underlying EPS. And believe providing this level of guidance is an important milestone as we work toward becoming a more simplified Company. With that said, we target adjusted EPS of 0.19 to 0.23 for Fiscal '22. Lastly, we continue to expect to end calendar '21 with leverage towards 5 times and further reduce this to leverage of around 4 times by the end of calendar 2022. To conclude, we entered Fiscal '22 with a goal of further building upon the great success we delivered last year. We ended Q1 with the sales ahead of our guidance, while also delivering very strong gross margin expansion in both sequentially and versus last year in a volatile inflation and supply chain backdrop. As a result, we were able to not only reinvest in our growth initiatives, but also drive adjusted EBITDA growth. Our Q1 exemplifies what we intend to do through this year, as well as the circle cycle we had created with strong sales and gross margin fueling our profit and reinvestment. Of course, we have no intention of slowing down our progress and we remain committed to aggressively executing on our strategic priorities. We intend to continue to demonstrate the tangible strides we are making across each pillar. We believe our brands are in a very unique position, which does not come around often. And we fully intend to invest behind these brands and capitalize on their momentum we are seeing today. And very much look forward to providing even more detail on our strategy and our objectives at our Investor Day on November 18 to be held at the New York Stock Exchange. Thank you very much for your time today. We are now happy to take your questions.
Operator: At this time if you would like to ask a question, . And we will take our first question from Steph Wissink with Jefferies. Your line is now open.
Steph Wissink: Thank you. Good day, everyone. We wanted to just unpack gross margins a bit more, came in quite a bit stronger than we would've expected. So maybe Sue, the question for you is as you look across the portfolio, can you give us a little bit more insight into where you're seeing that margin strength? And then I think as a follow-up Laurent, if you could just talk through some or help us quantify some of the key drivers that can listed 5 of 6 items that were contributing to the strength. If you could just help us contextualize and where the bigger pieces or maybe versus some of the minor pieces. Thank you.
Sue Nabi: So, let's start with the first part, thank you. So again, we're pleased very much with this gross margin performance in the quarter with -- as you've said, it's 500 basis points of improvements year-on-year and up 250 basis points from last quarter. So, these performances were driven by a number of different, I would say factors. Of course, the first one, and it's something that I've been insisting on since me joining Coty one-year ago, a more favorable mix, both from outside growth from Prestige, as well as a favorable product mix within the different categories. If you take the example of Consumer Beauty, we've been operating on makeup, on mascara, which are more accretive and more profitable categories than lip color. For example, we’ve done a good work in terms of lowering ENO and this is clearly in sync with the ability to say, these are the products behind which we're going to put our money in terms of media. So, let's to raise the volumes and we'll meet this new volume raise because we are precisely investing behind what's doing well. The other initiative that helps us a lot is the high era initiatives as Laurent mentioned. Fixed cost absorption on the increased sales, this is another element. Pricing and revenue management, supply chain productivity, and of course, material cost reduction programs. So, all these elements altogether, helped us to do this strong improvement on gross margin. Laurent, maybe?
Laurent Mercier: Yeah, if I can add a few words Sue explained where -- we are very disciplined in this gross margin and in deed there are 2 big categories. So, number 1 is exactly what Sue has explained. So, it's really what we are doing on ENO, on productivity, on fixed costs. And -- and you saw already the result last year, because last year we were already back even better versus Fiscal '19 and above 60%. So, we are really continuing this dream. But where we are really
