After Earnings: 7 Questions With Coty CEO Camillo Pane

Coty Inc. posted increases for its Luxury and Professional Beauty segments Tuesday, while Consumer Beauty continues to struggle.
The business also said that its chief financial officer, Patrice de Talhouët, has resigned to pursue other opportunities. Coty plans to hire an executive search firm to find a successor. Ayesha Zafar, Coty senior vice president and group controller, will serve as interim cfo starting Sept. 15.
For the full year, Coty posted a 22.8 percent increase in sales to $9.4 billion, with a 6 percent increase from the Luxury segment, 1.7 percent bump from the Professional unit, and 4 percent decline in Consumer. The business posted a net loss of $168.8 million, narrowed from the prior year’s $422.2 million loss.
Below, see an edited version of WWD's conversation with chief executive officer Camillo Pane that followed his conversation with Wall Street analysts Tuesday about a new cost-savings plan, shelf space and the relaunch of CoverGirl.
WWD: There was a lot of talk today about shelf space. Can you clarify what specifically is happening with shelf space in the U.S. mass market for Coty brands?
Camillo Pane: In 2018, we didn't lose a lot of shelf space, we lost it in 2016 and 2017, which was at the beginning of our merger when we realized the brands we inherited from the P&G acquisitions had been neglected with lower investment and not strong innovation pipelines. So the retailers, literally at the very beginning of our merger the shelf space for us. But in 2018, actually, we didn't have a lot of that — on the contrary we were able to keep it stable. For 2019, we believe have some shelf space loss on CoverGirl and Rimmel in the U.S., and that is in the context of a couple of things.
First, we did have a temporary supply chain disruption that affected capacity over the last couple of months, which is clearly something we are rectifying…we should be over the majority of this issue by Q1. The second one is there is always a negotiation with our retail partners in terms of shelf space, in terms of productivity, so we do expect some shelf space losses to come in 2019. We are working very hard to rectify it. The innovation on CoverGirl that is coming in 2019 is much stronger than what we had in the past. We're planning to have a much stronger pipeline for Clairol as well. We relaunched Nice 'n Easy and we want to continue this relaunch with further improvements, enhancements in the future.
We need to remember that the North American business on Clairol and CoverGirl is an important part of the business…but CoverGirl is actually a low-teens percentage of our Consumer Beauty business. We will also try to accelerate and invest disproportionately in the emerging markets, e-commerce, and in Younique because we see a lot of opportunities in these areas, and we believe these opportunities can also overcome the headwinds in the U.S.
WWD: When you go into retail talks, is innovation a reason you may lose shelf space or is it competition from newer brands? 
C.P.: Our innovation is very strong and everybody is quite excited about all the things we're bringing out of CoverGirl. Not just from a product point of view, but also from a digital innovation point of view and of course, the way that CoverGirl looks in store and the campaigns we're doing.
There's an element of productivity, and especially in low-productivity doors, and it's fair to say that big brands in low-productivity doors have some slowdown, which retailers always look to work on the best way to use the space. These are negotiations, they are discussions, and it's important that we are transparent, which is what we're doing in the moment. I want to really focus what I just said on really working with our retail partners to improve the in-store experience, the brand interaction and accelerate e-commerce with our retail partners, not just with Younique.
WWD: Can you explain the disproportionate investments behind brands like CoverGirl, Wella, Gucci and Burberry, and not others? 
C.P.: I call global iconic brands, and the others I call high-potential brands. These two groups of brands are the brands we're focusing the disproportionate parts of our investments. It's a strategic portfolio choice. This is not different than what I had mentioned when I became ceo…what I did today was truly to explain that the strategy is working. We're putting in money and when you look at the overall group of brands that I just mentioned, they are outperforming the overall Coty growth, which means the strategy is working. We're putting more investments behind them, and there is a consumer reaction there.
WWD: On CoverGirl, what are the core product franchises you're focused on? And what is a realistic time frame for a turnaround? 
C.P.: In terms of innovation, CoverGirl is such an iconic, big brand that we have to focus on face, eye and lip. The True Blend Foundation franchise is one of the biggest franchises, and now with the launch of 40 shades this becomes one of the core pillars where we are investing. In eye, we launched the Peacock Flare mascara…and in the , which is having some good success.
In terms of the time of the turnaround, this brand relaunch is not a one-year effort. You don't recover brands which have been neglected, not taken care of for many, many years — for CoverGirl we're talking about seven to 10 years of decreasing investments under the previous ownership. And Clairol also had disinvestments over the last few years before us. You can't change this over just one year, so it will take a few years to turn it around. We want to stabilize the two brands…we believe we can do it because we're already seeing improvements. I don't want to be pinned down to a specific year. What is important is to make CoverGirl and Clairol important again for our consumers in their basket.
WWD: Can we dive deeper into the newly unveiled $250 million cost-savings program? Are layoffs part of that? 
C.P.: This is a new program, it's being run separately from the P&G integration. It's a mix of things, a mix of programs. We do have right sizing in specific countries and specific regions, but also we have many other programs we're running inside the company. We want to drive simplicity agility so we want to not to have the cost structure in specific places, and the second one is we want to…invest behind things that will make Coty good for a long time — which is the digital transformation. This will allow us to invest heavily in digital. It means an influx of stronger talent, project management systems, systems for e-commerce, content creation capabilities in-house. We are relying mostly on suppliers to develop our content.
WWD: What are your e-commerce aspirations, and do they run across all business segments?
C.P.: E-commerce in luxury is already in the high single-digits and it's growing very very fast, above 50 percent. We believe we can continue to grow the importance in luxury and we're starting from an already high base. In Consumer Beauty, where we're starting from a more modest base, we are seeing a lot of growth — again above 50 percent — and it's driven by partnerships with Amazon, with Tmall, with It's not just in emerging markets, it's also the U.S. and U.K., we're having great success in Consumer Beauty on Amazon. In Professional Beauty we have OPI and, so we have two direct-to-consumer channels, and we are building a B2B platform called My Wella Store, which is going to allow us to transfer sales from physical to virtual. are big levers to drive e-commerce.
WWD: Coty just bought the Escada fragrance license for 35 million euros — is this an indication the business is going to become hyper acquisitive again?
C.P.: We made the commitment of deleveraging our debt ratio over the next couple years, so by making this commitment it's clear this will become the priority but we have included in our assumptions the possibility of doing some smaller-scale M&A over the next couple years. If you look at the long term, of course we want to come back to be acquisitive and we will do it at the right time. Escada is a very good brand with a lot of opportunities, which we had the opportunity to acquire and own so that we don't have any constraints on creativity, distribution, innovation, ability to expand the brand.
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