Coty raises FY23 adjusted EPS 35c-36c view from 32c-33c

Consensus is for FY23 EPS 32c. Reaffirms FY23 adjusted EBITDA view $955-965M. Coty continues to see strong demand growth across nearly all markets, particularly in Prestige fragrances, with Coty maintaining strong launch activity in both Prestige and Consumer Beauty. At the same time, the component shortages which limited Coty’s Prestige fragrance growth in Q2 have begun to ease, including a sequential improvement in January service levels. The combination of improved service levels and ongoing strength in beauty consumption is driving a sequential acceleration in Coty’s January sales growth. These trends underpin the Company’s confidence in its FY23 outlook, which is inline with its medium term growth algorithm. The Company continues to anticipate adjusted EPS growth of approximately 20% in FY24 and beyond fueled by lower interest expenses as part of its deleveraging efforts, consistent with its medium-term targets. Coty continues to expect FY23 revenues for the core business, adjusting for the impact of the Russia exit, to grow 6-8% LFL, with revenue growth trends in 2H23 consistent with this range. The exit from Russia is estimated to negatively impact FY23 sales by approximately 2%, including an approximate 2% impact in Q3 and none in Q4. Based on current exchange rates, the Company now anticipates FX headwinds towards the better end of its prior outlook of -6-8%. This FX outlook includes a mid-single-digit negative impact on sales in Q3 and a low-single-digit negative impact in Q4. Coty continues to expect modest gross margin expansion in FY23, despite the elevated inflationary environment, aided by savings as well as solid pricing execution, including mid-single-digit pricing increases exiting Q1 and another round of mid-single-digit pricing going into effect exiting Q3. In addition, the Company continues to target leverage towards 3x exiting CY23 and approximately 2x exiting CY25.