Coty Inc

NYSE:COTY

Earnings Call Analysis

Coty Q1 Earnings: Strong Performance, Healthy Outlook

Coty Inc. reported robust Q1 results with Travel Retail growing by 30% in the previous year and continuing to surge at 20%. The inventory is declared healthy despite concerns of deceleration in Q2, attributed to strong sellouts for flagship innovations like Burberry Goddess and Gucci brands. The company sees a leveling gross margin in Q2, expecting an increase in H2 of fiscal 2024. Furthermore, Coty is not observing an uptick in promotional activities as sellouts remain strong with a premiumization trend. Looking ahead, Coty anticipates 5% to 8% organic growth in Q2 and maintains a positive outlook for the fiscal year 2024, enjoying sustained trust from investors and analysts.

A Healthy Inventory and Promising Innovation Drive Q1 Success

The company's Q1 performance was fueled by innovative product launches, including Burberry Goddess, Hugo Boss, and Gucci Manual, leading to a natural increase in inventory - known as 'pipe fill' - as retailers stocked up on these successful lines. This strong innovation pipeline is set to provide a robust platform for growth as the company heads into fiscal 2024.

Solid Demand and Premiumization Mitigate Promotional Pressure

Premiumization trends continue to bolster the company, with strong demand for their high-value, high-priced launches in both prestige and consumer beauty segments. The company is not observing any increase in promotional activity. Last year's inventory and service level issues, exacerbated by component shortages, led to reduced promotional activity, but now with service levels restored, these activities are expected to return to more typical levels without adversely affecting demand.

Forecast for Fiscal Growth Despite Last Year's Lower Inventory Levels

Despite confronting low inventory levels in the previous year due to service-related issues, the company has proactively rebuilt its inventory to ensure they are well-positioned to meet ongoing robust sellout demand. This strategic decision aligns with their aim to maintain operational excellence and continue providing strong service levels moving into the next fiscal year.

Earnings Call Transcript 2024-Q1

[Olga Levinzon, executive]

Hello, everyone. This is Olga Levinzon, Coty's Senior Vice President of Investor Relations. Thank you for joining us today for the prepared remarks portion of Coty's First Quarter fiscal 2024 earnings. November 8, 2023, at approximately 7:30 a.m. Eastern Time or 1:30 p.m. Central European Time, we will hold a separate live Q&A session on our results, which you can access via our Investor Relations website.

Joining me for our presentation are Sue Y. Nabi, Coty's CEO; and Laurent Mercier, Coty's CFO. Before I hand the call over to Sue, 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 the 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 reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release.

Thank you. I will now turn it over to our CEO, Sue Nabi.

[Sue Nabi, executive]

Thank you very much, Olga. Welcome, everyone. I'm very happy to share that today's Q1 results again reaffirm the strengths of Coty's financial, operational and strategic performance. Once again, our sales growth was amongst the best in our peer set and ahead of the beauty market. .

These accomplishments are the result of the focus and agility across the full Coty organization as we continue to amplify our strengthens adjust to evolving market conditions and capture new opportunities. Even in a complex macroeconomic environment, the beauty category remained resilient by offering consumers affordable luxury self-care and confidence boosting.

We continue to see consumers premiumizing in beauty and the fragrance index we have been discussing for over a year remains fully in effect. Once again, we delivered another quarter of balanced growth with like-for-like growth in both divisions and across each of our regions.

As a result, we continue to target sales growth that is ahead of the beauty market, growing our profit ahead of sales, steadily deleveraging our balance sheet and positioning Coty as a beauty powerhouse with still significant untapped potential.

It has been a very exciting and some might say historic quarter for Coty as we embrace our European routes and footprint by listing on the Euronext Paris Stock Exchange to provide new European investors with the opportunity to join our accelerating growth trajectory and success.

And we look forward -- as we look forward, sorry, I'm extremely optimistic and excited about Coty's future. Let me now summarize the key messages from our results. First, we delivered market-leading revenue growth ahead of both expectations and raised guidance, fueled by the strength of the beauty category and Coty's successful icons and innovations.

In the first quarter, our like-for-like revenues grew 18%, which was ahead of our updated first half guidance of 10% to 12% growth and outlook at the start of the quarter of 10% like-for-like growth. We saw particularly strong sales momentum in prestige driven by existing icons and new launches, coupled with strong 10% like-for-like growth in Consumer Beauty division.

Second, we delivered strong profits despite reinvestments in the business and sustained COGS inflation with adjusted operating income growing 21% year-on-year and adjusted EBITDA growing 17%. We remain on track to deliver leverage of 3x exiting calendar '23 and approximately 2.5x exiting calendar '24.

Third, we continue to execute and make progress across our strategic growth pillars. Finally, for the second time this fiscal year, we are raising our fiscal '24 outlook driven by the very strong Q1 delivery. We now expect to grow like-for-like revenues at plus 9% to plus 11%, driven by outperformance in prestige up from our recently raised outlook of plus 8% to 10% in fiscal '24 and ahead of our midterm target range of plus 6% to plus 8%.

Layering in modest gross margin expansion and 10 to 30 basis points of adjusted EBITDA margin expansion, we now expect fiscal '24 adjusted EBITDA of $1.80 billion to $1.90 billion as well as the 16% to plus 25% adjusted EPS growth, excluding the equity swap.

I will now take a few moments to cover our revenue trends during the quarter before Laurent takes you through our financials. Then of course, I will finish with an update on our strategic progress and of course, our outlook. Starting with our revenue performance. Our Q1 like-for-like revenues grew 18%, significantly ahead of our raised guidance range for the first half of plus 10% to 12%.

In Q1, our prestige business grew 22% like-for-like. The very strong sales growth in Q1 was broad-based across all regions and driven, in particular, by our leading fragrance brands as we continue to see robust demand in the fragrance category across all markets with growth further aided by the improvement in service levels.

The momentum in Prestige was fueled by outperformance in volumes, which grew by a double-digit percentage, coupled with pricing and mix. Since we are in a period of strong seasonal demand, it's important to note that retailer inventories in key markets are at healthy levels exiting the first quarter. In Consumer Beauty, revenue grew 10% like-for-like. Our Q1 Consumer Beauty growth came from acceleration in mass fragrances and solid growth in color cosmetics and Skin & Body Care with particular strength in North America and Latin America.

Geographically now all regions contributed to the strong like-for-like growth of 18% in the quarter. In Americas, like-for-like sales grew 17% with double-digit percentage growth in every market and in regional travel retail. In the EMEA region, like-for-like revenues grew 18% with most markets and regional travel retail delivering double-digit percentage growth in the quarter.

In Asia Pacific, like-for-like revenues grew 19% in the first quarter, fueled by strong growth across most markets. In the quarter, our prestige revenues in China grew year-on-year, while Consumer Beauty revenues were lower as retailers work down inventory.

As you know, we are focused on driving balanced growth across the portfolio. A critical piece of this balanced growth agenda is that our sales growth is supported by a combination of volumes, pricing and mix. In Q1, we saw double-digit percentage volume growth in prestige fueled by the success of the core business as well as new launches like Burberry Goddess, Gucci Flora Gorgeous Magnolia and Boss Bottled Elixir.

Volumes in Consumer Beauty remained stable. As a result, for the total company, volumes grew in the low single digits. In addition to strong volume growth price grew an estimated high single digits and mix and other grew in the high single digits. Our intent is to continue to drive this balanced growth in the coming quarters, 10 years fueled by volumes, premiumized mix and complemented by very targeted pricing.

I will now hand the call over to Laurent to take you through our financial results.

[Laurent Mercier, executive]

Thank you, Sue. In the current macroeconomic environment, I am pleased to share that we continue to deliver strong financial performance with the Q1 results marking the 13th consecutive quarter of operational results in line to ahead of expectations.

Let's begin with an update on how we are managing the global supply chain as well as our visibility into the inflationary environment. Last quarter, we reported improving service levels through expanded dual sourcing, detailed supply and demand planning and building of safety stock.

In Q1, Prestige and Consumer Beauty service levels exceeded expectations, reaching approximately 96% in the quarter. Turning to the inflationary backdrop as anticipated, in Q1, COGS inflation remained high at approximately 2% of sales. We have been navigating these inflationary impacts through a combination of our execution on premiumization, mix management and productivity completed -- complemented by targeted price increases.

Importantly, looking to Q2 and second half fiscal '24, we are now expecting COGS inflation to ease significantly benefiting from stabilization in commodities and transportation inflation. I am proud and encouraged by our execution over the past year to achieve service levels ahead of plan and our ability to manage through an exceptional inflationary environment.

I will now provide an update on our All-In To Win program. In the first quarter, we delivered savings of approximately $35 million. Due to our very strong project pipeline, we remain on track to deliver over $100 million of savings in fiscal '24, driven by material cost savings including material value analysis and procurement as well as structural savings. We also reaffirmed our fiscal '25 savings target of $75 million.

In sum, having delivered over $630 million of savings like to date, we are continuing to optimize all of our processes and expenditures which positions Coty to be both flexible and fully equipped to invest in our strategic priorities. And importantly, as we mentioned last quarter, we are in Phase 2 of our transformation as we put in place additional enablers for sustainable growth and business accelerations across brands and markets supplementing our savings initiatives to fuel profit expansion and reinvestment.

Moving to our gross margin performance. Q1 adjusted gross margin of 63.5% was in line with our expectations, decreasing by 60 basis points from last year. Our Q1 gross margin decrease was driven by elevated COGS inflation of approximately 2% of revenues carried over from fiscal '23. A return to fragrance gift sets, which had declined in the mix last year due to significant supply chain constraints and increased excess and obsolescence tied to the inventory buildup in the Prestige business to support strong service levels.

These impacts to gross margin were partially offset by pricing, positive mix management and supply chain productivity in the first quarter. Going forward, we expect significant easing of cost inflation in the second quarter and second half of fiscal '24 to aid the year-over-year gross margin trajectory, which will support gross margin expansion in fiscal '24.

We will continue executing on our multi-branch, multiyear gross margin plan as we drive our gross margin to the mid-60s and beyond. Let me now walk you through our marketing investments. In Q1, A&CP investments represented approximately 25% of sales, increasing 30 basis points from the prior year and in line with expectations as we continue to support our key initiatives.

We targeted our media investments behind many of our most recent innovations, including the highly successful Burberry Goddess, Gucci Flora Gorgeous Magnolia and Hugo Boss Bottled Elixir in Prestige as well as CoverGirl Cleantopia mascara and Rimmel Thrill Seeker line in Consumer Beauty. We are continuing to shift media spend towards digital and social media activation, which now account for a majority of our media spend.

We continue to expect A&CP to be in the high 20s percentage level of sales in fiscal '24. Moving to our profit delivery for the quarter. Our Q1 adjusted operating income grew a strong 21% to $302 million. The Q1 adjusted operating margin of 18.4% grew 40 basis points year-over-year fueled by operating leverage on fixed costs and depreciation expense.

We continue to expect strong income growth and margin expansion going forward. Our Q1 adjusted EBITDA grew 17% year-over-year to $360 million, with the adjusted EBITDA margin decreasing 20 basis points year-over-year. And that brings me to our adjusted EPS. Our Q1 diluted adjusted EPS of $0.09 includes a negative noncash EPS impact of $0.06 from the mark-to-market on the equity swap due to the stock price decline in the first quarter.

Excluding the swap, our adjusted EPS totaled $0.15, which was stable year-on-year. Our Q1 EPS was negatively impacted by a change in the Swiss statutory tax rate, which occurred at the end of the quarter, which resulted in a onetime noncash tax impact of $24 million or $0.03 per share.

Looking ahead to fiscal '24, I would like to outline certain drivers of our adjusted EPS. First, we expect depreciation to be in the $230 million, $240 million range. Second, we anticipate net interest expense for the year to be in the mid- to high $200 million, reflecting the higher interest rate environment and cost of debt on our recent bond issuance.

Third, in light of the change in the Swiss statutory tax rate and the $24 million onetime noncash impact we recorded in Q1, now anticipate an adjusted effective tax rate for fiscal '24 in the low 30s percentage. At the same time, the underlying tax rate, excluding the discrete impact remains in the high 20s going forward.

Finally, on fiscal '24 share count, while our outstanding share count increased by approximately 33 million at the beginning of Q2 due to the Paris share issuance, we plan for it to come down by 27 million by Q4 with the exercise of the first equity swap with further share count reductions anticipated in fiscal year '25 and fiscal year '26.

Turning to our free cash flow. We generated free cash flow of $124 million in the quarter, up 41% from the prior year and in line with our expectations. The increase was driven by higher adjusted EBITDA and lower CapEx. Looking to the full year as we continue to expand our profitability and keep tight control of working capital, we expect strong free cash flow growth in fiscal '24. I would like to take a moment to discuss Coty's historic dual listing.

As a reminder, we made the decision to pursue a dual listing on Euronext Paris as this was a natural progression for Coty, aligning with our heritage, reflecting our substantial business presence in Europe and attracting European investors who are very familiar with the beauty and luxury sectors.

As of September 28, Coty shares have been trading on both the New York Stock Exchange and the professional segment of Euronext Paris. And in order to facilitate ownership by European investors and to build liquidity in Europe, we issued 33 million shares at a price of $10.80 or EUR 10.28 in a well oversubscribed transaction.

Importantly, in Q3, we expect to exercise a 27 million share buyback through the first phase of our equity swap, which will largely offset the Paris share issuance resulting in negligible dilution exiting fiscal '24. We are targeting a further reduction in our share count through a 23 million share buyback in fiscal '25 using our second equity swap.

In sum, we remain committed to managing our diluted share count toward approximately 800 million shares by fiscal '26. Moving to our capital structure. We ended Q1 with net debt of approximately $3.9 billion. As a result, our leverage at the end of the quarter was around 3.8x, down from around 4.1x at the end of Q4 and consistent with our expectations.

Factoring in Wella stake, we ended the quarter with economic net debt of approximately $2.9 billion. Specific to Wella, in light of Coty's strong free cash flow trajectory in the first half fiscal '24, our successful Paris dual listing and given misalignment on final deep terms, Coty and the counterparties have decided to enter a partial sale of our Wella stake. It is important to emphasize that we remain committed to reaching an investment-grade profile, targeting leverage 3x exiting calendar '23, approximately 2.5x exiting calendar '24 and approximately 2x exiting calendar '25.

We also continue to target divesting our full Wella stake by end of calendar '25. Focusing on our balance sheet, in September, we successfully issued EUR 500 million of 2028 senior secured euro notes further extending our debt maturity profile.

Following this insurance, close to 100% of our total debt is now fixed rate, which is important to the current -- in the current interest rate environment. Today, we are also announcing the launch of a tender to retire up to $400 million of our outstanding 2026 U.S. dollar bonds based on our strong cash inflow in the first half fiscal '24. This speaks to our strengthening balance sheet and our financial flexibility as we continue to actively reduce our debt. Looking ahead, our strong continued progress on deleveraging and debt paydown support our expectation for our interest expense to steadily decline in the coming years despite the currently rising interest rate environment.

I will now hand it back to Sue to review our strategic progress in the quarter.

[Sue Nabi, executive]

Thank you, Laurent. Let me take a few minutes to discuss the progress we continue to make on our 6 strategic pillars. Starting with our first strategic pillar, which is stabilizing and growing our Consumer Beauty business. Building on the momentum we saw in our Consumer Beauty in fiscal '23, the business once again delivered strong growth. In Q1, our Consumer Beauty revenue grew 10% like-for-like, in line with the global mass beauty market, which remained very resilient in the macro volatility.

The global and multi-category footprint of our business continues to be a great strength as short-term fluctuations in a given category or market is compensated by strength in other areas. During the quarter, we saw growth acceleration in our mass fragrance business, coupled with solid growth in Color Cosmetics and mass skin and body care brands.

And it's important to highlight that in our core cosmetics category, the market continues to premiumize as products with price points well above the category average outperform the broader category. We see this trend across our core markets such as the U.S., U.K. and Germany, which reinforces our view of the limited price elasticity in beauty, including mass beauty, provided that the products are desirable, cool and good quality.

Against this backdrop, we are continuing to elevate the desirability of our brands with a relevant communication strategies and always on innovation. Following on the tremendous success of CoverGirl Yummy Gloss, which went viral on TikTok, fueling unit demand that was several times higher than our initial expectations we have platformed this winning innovation and brought it to our second biggest cosmetic brand, Rimmel. We've recently launched the equivalent, Rimmel Glossy Gloss over the past month and the results in the U.K. look equally promising.

Rimmel is now the #1 lip gloss brand in the U.K. with Glossy Gloss significantly over-indexing with Gen Z consumers and premiumizing the Rimmel portfolio. At the same time, while U.S. Nielsen brick-and-mortar trends have been sluggish in recent months, CoverGirl is strongly outperforming online with double-digit percentage sellout growth in e-comm supporting solid growth in overall brand sales.

The strength of the CoverGirl brand is also reinforced by the latest household panel data, where CoverGirl remains the second brand in terms of household penetration and the only brand amongst the top 3 growing repeat purchasers. As we discussed on the last earnings call, having positioned -- repositioned our key Consumer Beauty brands and revamp the innovation pipeline for each brand, the next phase of our strategy is now to fully capitalize on the Gen Z opportunity.

Our focus for fiscal '24 is, therefore, to step change our social media reach in order to drive our brands and build stronger community engagement fully keeping in step with the evolution of the market and with Gen Z habits. We've kicked out multiple initiatives in this area. For our key Consumer Beauty brands, we have increased our paid and unpaid influencer partnerships from several dozen to now many hundreds with a short-term goal to reach thousands of influencers for each of our key brands like CoverGirl and Rimmel.

We've set up dedicated TikTok studios in 15 countries, including the U.S. and U.K., inviting up-and-coming TikTok influencers to collaborate with our brands and generate creative content while utilizing our top-notch facilities and equipment. The video playing on the side was filmed by 1 influencer at our newly established CoverGirl TikTok studio in New York City.

In the U.K., which was one of our first markets to fully embrace the Gen Z Tiktok playbook, we are already seeing great results. In the past quarter, 2 of our cosmetic brands ranked in the top 10 in terms of earned media value and visibility impact and trust, which are 2 measures of brands, consumer reach and engagement on social media. With Rimmel ranking at #4 and Max Factor at #6 and tripling the earned media value year-on-year, we are very proud that our brand are resonating with consumers of all ages on social media, even surfacing the scores of leading Gen Z cosmetics brands.

And we are expanding our influencer engagement further with the recent announcement of Rimmel's creator crew, a group of 9 global influencers will not only partner with Rimmel on new campaigns that will also be co-creating new products and launches.

In short, Coty is moving quickly in this dynamic part of the market and we look forward to sharing further updates on our key initiatives in this area. Turning now to our second pillar, focused on accelerating our luxury fragrance business. The fragrance index maintained momentum, driven by strong demand for fragrances across the globe and ongoing premiumization as consumers are seeking more concentrated longer-lasting and more sophisticated scents.

In Q1, the prestige fragrance market grew over 10%, which was consistent with the growth levels we saw last year. At the same time, Coty's prestige fragrance revenues grew approximately 25% like-for-like, outperforming the market by 2.5x. These very strong results were driven by momentum in our core fragrance lines, the outstanding results for our recent innovations and improved service levels, a testament to the success we are driving in our portfolio sales for our top 7 prestige fragrance brand grew in the high 20s percentage.

Let me now take a minute to highlight the outstanding in-market results of our prestige fragrance brands and in particular, Burberry. I'm incredibly proud to share that the recently launched Burberry Goddess Eau de Parfum has become the #1 female fragrance launch in key markets becoming one of the only fragrances on the market to resonate strongly across all global regions.

And although it's still new, Goddess is now ranking amongst the top 6 fragrance lines across key markets when compared against both new launches and existing icons, which is particularly impressive, given Goddess is currently a single SKU compared to the multiple SKUs under other leading fragrance lines.

Importantly, the tremendous success of Goddess is elevating the sales of other Burberry fragrance items, including Burberry Hero and Burberry Her, resulting in total Burberry fragrance revenues in Q1, nearly doubling year-on-year. The strengthening of our fragrance items was also evidenced by 3 franchises Burberry Goddess, Gucci Flora and Burberry Her, reaching the top 10 small fragrances in the U.S. for the first time in the company's history.

Coty is now the only company to have 3 fragrance lines in the U.S. top 10 female fragrances. All of this reaffirms Coty's position as a leading fragrance expert with best-in-class end-to-end capabilities from developing a winning stand, which resonates with consumers across all regions, to activating distinctive marketing campaigns and finally, to disruptive in-store and online activations.

Complementing our expensive strategy in our core prestige fragrance businesses, we are continuing to strengthen our prestige makeup business through both assortment and distribution expansion. For Kylie Cosmetics, where lead products have historically been at the center of the brand, we have begun to actively expand the assortment. The Kylash Mascara, which we launched last spring, has now become the second franchise for the brand while also boosting door productivity.

We are building on this momentum with the recent launch of the Power Plush concealer, which you see pictured here, further solidifying Kylie as a full range makeup brand. In Q1, we also delivered double-digit growth in Burberry Makeup. Burberry has recently launched Beyond Wear Foundation, continues to resonate with consumers in Asia. And we therefore intend to expand our distribution in the region led by our 2 leading Burberry franchises Burberry Goddess fragrance and Burberry Beyond Wear Foundation. And while Chinese retailers are still working through some inventory, the China sellout of both Gucci and Burberry Makeup grew strongly in the quarter.

Shifting to our third strategic pillar, building our skincare business. We kicked off our skincare acceleration strategy in the spring with brand relaunches and exciting initiatives across each of our key skincare brands, Philosophy, Lancaster and Orveda. Philosophy announced the new brand formulation principle, dermatologic wisdom and began upgrading its presence in both online and in store, including in over 1,000 doors. The resonance of this new brand equity and our activations have resulted Philosophy being #1 the U.S. skincare brand in terms of advocacy.

And importantly, this has fueled double-digit percentage revenue growth in Q1 and in the last 6 months. In fact, we are seeing strong momentum in both the Hero skincare lines like micro delivery and Miracle Worker as well as the newly launched of dose of wisdom bouncy skin reactivating serum, which was recently awarded the 2023 Opera Daily Beauty award.

Moving to our second key skincare brand, Lancaster. As you recall, in early spring, we launched the ultra-premium Lancaster skincare line called Ligne Princière with a launch initially focused on the Chinese mainland and Highland markets. Having presented in Lancaster's superior technology formulations and winning textures to China's leading influencers, beauty editors and consumers, I am incredibly proud to share that these key opinion leaders are now recognizing Lancaster as one of the most advanced and effective skin care brands on this very competitive market.

As you can see pictured on this slide, in Q1, both China named Lancaster as the best anti-aging cream on the market, while China named Lancaster as a beauty start of 2023. These awards by the leading beauty publications in China raised Lancaster's brand awareness and scientific credentials with a very discerning Chinese consumers.

Now while starting from a smaller baseline, our amplification of our skincare brand, Orveda, is also in full swing. In Q1, we launched the breakthrough omnipotent concentrate serum with a market-leading 24% concentration of active ingredients, which do not irritate the skin due to their biocompatible formulations. With the ultra premium pricing and positioning of our Orveda, our focus has been on building a campaign around the brand amongst the targeted ultra-high net worth individuals.

We are continuing to drive brand trial education and awareness as Orveda partners with the leading earth and fashion today while also welcoming celebrities at key events such as the Met Gala and the Cannes Film Festival. And these activations are beginning to translate into reimburse. As some of you may have seen during the recent Paris Fashion Week, Pamela Anderson made the beauty statement by attending the fashion show without makeup. In a purely authentic and unpaid endorsement for the brand, she shared with Board that she relies on Orveda skincare to achieve natural glow skin strong global PR coverage and multiple industry awards that Orveda has already garnered translates into close to 1 million in earned media value as the best and excitement around Orveda continues to grow, we are seeing this translate into first business results.

For example, in recent months, the sales productivity at leading Orveda counters such as the Saks Fifth Avenue flagship in New York has more than doubled year-on-year. Our focus is, therefore, to continue this Whisper campaign while simultaneously accelerating the opening of new doors and counters.

Moving now to our fourth strategic pillar, which is digital and e-comm. In Q1, both divisions delivered very strong e-com sales momentum with growth of over 25% like-for-like in both Prestige and Consumer Beauty. As a result, the e-comm penetration in both businesses expanded by approximately 140 basis points, resulting in total e-comm penetration of close to 20%.

It's worth highlighting that our e-commerce growth in both businesses was ahead of the underlying e-commerce trends with both our Prestige and Consumer Beauty businesses expanding their online market share.

We've achieved this momentum through best-in-class online launches, the success of our digital advocacy strategy, active participation in key online shopping events while at the same time, premiumizing the portfolio and increased digital media competitiveness. And expanding on my earlier comments regarding building on Lancaster's momentum in China, I'm happy to report that as we are building Lancaster presence in China, e-com, the brand Q1 sales on and were 1.5 to 3x higher quarter-over-quarter.

Moving to our fifth strategic pillar, building our presence in China. While the overall China market recovery has been somewhat slower than many expected the white space opportunity for Coty in China remains intact and immense. And we have, therefore, continued to outperform the Prestige beauty consumption. In Q1, our Prestige revenues in China grew year-on-year, led by Mainland China with strong momentum in Gucci, Burberry, Chloe and Marc Jacobs retail sales. On the Consumer Beauty side, which accounts for a fraction of our China sales, revenues declined due to elevated trade inventory.

Importantly, the sell-out growth in our Prestige business far exceeded the underlying market growth in Q1 with Coty sellout growing double-digit percentage in Mainland China and triple-digit percentage in Hainan while the beauty market was modestly positive. In sum, we are continuing to expand our presence in China, which remains one of the several significant opportunities for us in both the short and of course, the mid and long term.

Finally, we are continuing to see very strong momentum in our Travel Retail channel. In Q1, our Travel Retail sales grew over 20% like-for-like coming on top of over 30% growth in fiscal '23. Importantly, we are seeing this momentum across all regions with double-digit percentage Travel Retail sales growth in Europe, the Americas and Asia Pacific.

We have continued to gain share in the high-growth and highly profitable Travel Retail channel, particularly in EMEA and the Americas fueled by distribution expansion, Travel Retail launch exclusivities, successful innovations and our growing multi-category presence.

In fact, on Lancasters, sellout in Asia Travel Retail is now growing triple digits. And looking forward, we do not see any slowdown in consumer travel, particularly when taken into account that international travel by the Chinese core is beginning to recover, but is still roughly half of pre-COVID levels. Turning now to our sixth and final strategic pillar, becoming a leader in sustainability.

We will be providing material updates and commitments in our upcoming 2023 Sustainability Report, which will be issued at the end of November. However, I'm very happy to share that we are continuing to make good progress on our ESG framework.

On the environmental side, 3 of our factories are now carbon neutral, including in Spain, Monaco and Brazil. Our teams achieved this primarily through a transition to renewable electricity and reducing remaining emissions as much as possible, while only a small portion offset by high-quality credits.

On the social side, we are continuing to deliver on our gender equity commitment across key metrics, and we will share more in the coming months. And finally, we are strengthening our resources and governance of sustainability matters as we expand our sustainability office.

That brings me to our outlook for fiscal '24. First, let me share some updates to our outlook for the first half. Given the very strong revenue growth momentum we saw in the first quarter and strong progress in Q2, we now expect the first half like-for-like sales growth to be plus 11% to plus 13% which is up from our recently raised guidance of plus 10% to plus 12%.

The increase is supported by outperformance in the Prestige segment. For reported revenues, we are still expecting a ForEx benefit to revenues in the first half of close to 2%. On gross margins, the significant easing in inflation should drive improving year-over-year trends for our adjusted gross margin.

More specifically in Q2, we expect gross margins to be flattish year-over-year. On the profit side, we continue to expect first half '24 adjusted EBITDA margin expansion, 10 to 30 basis points, consistent with the full year, and we estimate first half adjusted EPS of $0.32 to $0.34, including the onetime impact from the change in the Swiss statutory tax rate.

For the full fiscal '24 year, we are now expecting revenues to grow 9% to 11% like-for-like, which is up from our recently raised guidance of plus 8% to plus 10% supported by outperformance in Prestige. Fiscal '24 reported revenues are still expected to include a 0% to 2% benefit from ForEx, primarily in first half '24 -- fiscal '24 and a 1% to 2% scope headwind for the year from the divestiture of the license concentrated in the second half.

We continue to expect modest fiscal '24 gross margin expansion year-on-year, consistent with our growth algorithm driven by strong year-on-year improvement in gross margins in the second half as the Q1 gross margin pressures abate. We are targeting fiscal '24 adjusted EBITDA margin expansion of 10 to 30 basis points implying adjusted EBITDA of $1.80 billion to $1.90 billion based on current ForEx rates, which is above the previous guidance of $1.75 billion to $1.85 billion.

We still estimate total fiscal '24 adjusted EPS, excluding the equity swap of $0.44 to $0.47, implying a strong to plus 25% growth. The EPS outlook incorporates the stronger EBITDA outlook, balanced by the onetime noncash tax impact in Q1, which is driving our fiscal '24 tax rate to the low 30s, even as we expect the tax rate to return to the high 20s going forward as well as incrementally higher interest expense.

And we continue to target further reduction in leverage to 3x exiting calendar '23 fueled by cash inflow approximately 2.5x exiting calendar '24 and approximately 2x exiting calendar '25. To sum up, the beauty market continues to be resilient holding a prioritized position with consumers all over the world while also benefiting from ongoing premiumization trends in this attractive backdrop, we are successfully executing on the strategy we laid out 3 years ago with momentum across our core categories and early wins in the white space opportunities we are pursuing including shipment fragrances and ultra premium fragrances, skin care, prestige cosmetics, China and Travel Retail.

And we are delivering a best-in-class medium-term financial growth algorithm, active deleveraging and capital returns. As we provide Coty's growth momentum, we are strengthening our position as a beauty powerhouse.

Thank you for joining our prepared remarks for today. As a reminder, we'll be hosting a separate question-and-answer session on Wednesday, November 8 at 7:30 a.m. Eastern Time or 1:30 p.m. Central European Time.