Coty Inc (COTY) Q1 2023 Earnings Call Transcript

Coty Inc (NYSE:COTY) Q1 2023 Earnings Call dated Nov. 08, 2022.

Corporate Participants:

Sue Nabi — Chief Executive Officer

Laurent Mercier — Chief Financial Officer

Analysts:

Ashley Helgans — Jefferies — Analyst

Anna Lizzul — Bank of America — Analyst

Nik Modi — RBC — Analyst

Olivia Tong — Raymond James — Analyst

Steve Powers — Deutsche Bank — Analyst

Robert Ottenstein — Evercore — Analyst

Chris Carey — Wells Fargo — Analyst

Lauren Lieberman — Barclays — Analyst

Carla Casella — JPMorgan — Analyst

Presentation:

Operator

Good morning ladies and gentlemen, my name is Catherine and I’ll be your conference operator today. At this time. I would like to welcome everyone to Coty’s First Quarter Fiscal 2023 question-and-answer conference call. As a reminder, this conference call is being recorded today, November 8, 2022. Please note that earlier this morning, Coty’s issued a press release and prepared remarks webcast, which can be found on its Investor Relations website.

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 their 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.

With that, we will now open for questions.

Questions and Answers:

Operator

[Operator Instructions] And we’ll take our first question from Ashley Helgans from Jefferies.

Ashley Helgans — Jefferies — Analyst

Hey good morning and thanks for taking our questions and congrats on the quarter, so to start, it was nice to see China return to growth, can you just talk about some of the drivers in the region and your expectations for recovery for the balance of the fiscal year? Thanks

Sue Nabi — Chief Executive Officer

Yes, good morning Ashley, this is Sue speaking. So yes China is slightly positive which is in a way a good news for us even if this region of the world and this country is only 4% of our net revenue, so in a way we are protected against all these lockdowns that we’ve been seeing since a few months now that are continuing and that we do not see improving in the coming quarter and probably a quarter, if I may.

But at the same time, starting from a small sorry Gucci is seeing a lot of potential upside in this country of course with the fragrance business. Again, I’d love to remind everyone that this business in this country is only 3% penetration and our brands, if you think about Chloe that’s the number-one new brand Atelier des Fleurs, Gucci, Burberry, Calvin Klein Hugo Boss, all these brands that are doing fabulously well globally are growth engines for the near-future and I would say for future for the company of course as you can imagine.

On makeup, again we started with Gucci makeup and Burberry makeup and both brands had a fantastic start before lockdowns and this is the category I would say that the most impacted by the recent series of lockdowns and last but not least, skincare, 70% of the Chinese market of beauty, huge, huge potential for the company as you can imagine and there we are starting with the first brand which is Lancaster, as you see during the presentation Lancaster and Hainan so its sales multiplied by 5 year on year which is a great demonstration of the desirability of the brand towards the most demanding Chinese consumers. This is one.

Second, Lancaster which is at Sephora as a niche exclusive brand and recently is the number one new skincare brand at Sephora in China and this gives us a great confidence specifically after the Investors Day that we have done one month and a half ago, to start with this brand as the first, I would say foray into the big huge skincare market in China. So this is the way I would describe the situation in terms of how we are in a way doing quite okay in China despite all this very difficult environment.

Ashley Helgans — Jefferies — Analyst

Great. Thanks and if I could just throw in one more, we’re starting to hear about some trade-down in some beauty categories, we’re curious if you’ve seen any of these trends within your consumer division and overall expectations for the Consumer division if you go into a recession?

Sue Nabi — Chief Executive Officer

Yes that’s a good question that we hear a lot and honestly we don’t see any kind of trade-down nor slow down by the way. No trade-down at all, if you see our Prestige division in a way we are running after supply because the market is booming, this is what we love to call the fragrance index, because our innovations are doing fantastically well and we see it also in the way retailers are ordering from us, including sometimes ordering in advance during Q1 for the Q2 season, so on this part, we don’t see this and the second element is that our consumer beauty business as you’ve seen in the figures plus 12% like-for-like is doing also fantastically well and this is thanks to the great work that the teams at Gucci have done behind the different brands making sure to take these brands from large heritage brand that people trust into still the same qualities, but not on-top of this what we call cool brands and I’d love to talk about smart shopping also.

A lot of consumers are also shopping, they’re saying this brand is a cool brand and it proposes products that are the quality of other products that are more expensive and therefore you can see that in both divisions the premiumized beauty, be it the desirable one from luxury or the cool, smart purchase in consumer beauty these two premiumized part of the business are doing great and this is what explains in a way the results that you see across both divisions.

Operator

Our next question comes from Anna Lizzul from Bank of America.

Anna Lizzul — Bank of America — Analyst

Hi, good morning and thank you so much for the question. On the mass beauty side, some of your competitors are gaining shelf-space, key retailers domestically such as Walmart and Target and the drugstores. Just as you’re continuing to stabilize and gain market-share, can you talk a bit about your distribution of brands such as CoverGirl and are you happy with their current shelf-space of the brand and also is there any opportunity to gain shelf-space from sterling [Indecipherable]? Thanks.

Sue Nabi — Chief Executive Officer

Yes, hi Anna good morning so thank you for your question. Again when it comes to the shelf resets for the consumer beauty division I would say that for Spring 2023 which is the next I would say slot, we expect to maintain a stable shelf-space for our consumer beauty business globally. We also expect that at the same time pockets on incremental shelf-space gains particularly in the UK driven by the outstanding success behind Rimmel Kind & Freenew new vegan and sustainable line of makeup and mascaras and powders, also behind Sally Hansen that’s seen in many, many markets as the undisputed leader of the nail business and therefore many countries are now giving more space to Sally Hansen.

And last but not least Bourjois, which we have very successfully repositioned recently remember because Bourjois has the number-one selling mascara in a very competitive country like France and Bourjois is re-entering several markets, including recently UK where the brand is exclusive to Superdrug and doing very-very well over there. We also expect incremental gains of CoverGirl in a mix of tracked and non-tracked channels, so this is I would say the overall picture that I can share with you when it comes to there shelf-space — future movements.

Anna Lizzul — Bank of America — Analyst

Thanks, very much.

Operator

The next question comes from Nik Modi from RBC Capital.

Nik Modi — RBC — Analyst

Yeah, hi good, morning everyone. Two questions, one is just more of a housekeeping item and trying to understand what’s actually happening with glass. I mean if you can just provide what’s actually the derivation of the supply shortages and then the bigger-picture question and so I’d love your kind of big-picture thoughts on this, it looks like the fragrance category is shifting away from gifting and more towards kind of self-consumption at least from what we can see. I’m just curious how — is that certainly — do you agree with that statement number-one and how does that change your strategy as you move forward to kind of keep the momentum going?

Sue Nabi — Chief Executive Officer

Yes Nik, thank you so much. These are two indeed very important questions that we are asking ourselves on a daily basis and let me share with you the way we see it at Coty. On glass this is quite factual in fact, it’s really about the reduced number of suppliers doing quality glass and they are not a lot and mainly European based, so this is what explains in fact the tension that we are seeing today and this tension in fact is exacerbated by the fragrance indexing factor, so for Gucci by the big success behind our innovations from 2021 — this is I would say, very simply said the overall picture, small number of suppliers, booming category worldwide and booming innovations at Gucci far above our best expectations from last year.

So, this is what explains this I would say tension around glass. When it comes to the fragrance business and the shifting away from listing to self-consumption, this is absolutely true and this is great in a way for our business because as you can imagine our self-consumption of fragrances is much more dilutive for us than gifts which are dilutive in general, so that’s a great I would say sign of a category whose penetration is increasing.

So we are less into, I would say the classical consumption of gifting which people do automatically year-over-year and we are more into and buying something for me and buying something if I am young Gen Z that I’m going to show on social media or if I am any other consumer, I’m going to wear hopefully for the remainder of the year or for many, many years and this shift is clearly a structural shift that we are seeing and the best demonstration is the fact that people are buying more-and-more I would say expensive items.

They’re moving strongly from Eau de toilette to Eau de parfum, Eau de parfum in larger sizes which is clearly another demonstration of self-consumption and second a lot of them are moving from the Eau de parfum into what we used to call the niche category which I do believe is not anymore a niche category given the growth and the size this category is starting to have in many, many areas around the world and this is clearly what is at play behind the same as fragrance index and you can relate this to, of course social media.

But I have to say to also heightened quality from suppliers of fragrances, there used to be years and years where the beauty industry including Prestige was launching fragrances honestly not at the right level of quality and since maybe 7, 8 years this has been corrected, probably because of niche brands showing the way to most of the other brands and today the Heritage brand catched up totally and very strongly and this is what we are seeing today, in terms of fragrance index. At some call, they are way being indexed and I think it’s totally right.

Operator

Our next question comes from Andrea Teixeira from JPMorgan.

Unidentified Participant — — Analyst

Hi, good morning this is from Shabana [Phonetic] speaking on behalf of Andrea. I was wondering with above like low-single digit pricing in the beginning of calendar year 2022, mid single pricing across the portfolio in like late-summer and another round of like planned low-single digit price increases in for fiscal quarter third, are you assuming volumes will be declining in the current guidance? Thank you.

Laurent Mercier — Chief Financial Officer

So hello. Absolutely so it’s important for me to remind that we anticipated and we see some things that we built more than a year-ago, we did a pricing of this exactly to be able to implement price increase and this was of course absolutely needed to mitigate to offset inflation and you’ve seen tangible results, as we are growing gross margin by 70 basis-points, so indeed we did — looking mid-single-digit recently and we continue. We are not seeing volume decline and definitely when we are doing this price increase, we do it at a very granular and we are taking opportunity also of the great momentum that we’re having on our brands and the support that we are putting on our brands and also great innovations.

So, it’s really a part of all these equation that we are doing and the tangible result is that our volumes fragrance are growing and volumes in consumer beauty are growing.

Unidentified Participant — — Analyst

Thank you.

Operator

The next question comes from Olivia Tong from Raymond James.

Olivia Tong — Raymond James — Analyst

Good morning, thank you. Wanted to talk a little bit about the shortages hitting fragrance and where you stand relative to the past in terms of the glass quality and what have you and to what extent you think it could impact holiday, your ability to supply gifts during what is obviously an important period? Thanks.

Sue Nabi — Chief Executive Officer

Hi Olivia.Definitely, so we confirm our guidance of 6% to 8% so you see that there is no change on our guidance either for H1 6% to 8% excluding Russia or full-year we confirm the 6% to 8% growth excluding Russia, so and this is following a strong Q1 as we just published. The demand is very strong, at the same time we are monitoring very closely all the tension that we are facing on components, fragrance yes is a number-one tension that we are seeing, but we are seeing also as all our peers also tension on gaps [Phonetic] and to some extent on trends [Phonetic].

So we are monitoring tightly, but despite these tension on components we are confirming our guidance H1.

Olivia Tong — Raymond James — Analyst

Got it, thank you. Can you give any color into what you think the impact of the of the glass shortage had on the results this quarter and then broadly just in terms of SG&A — I mean this is the best performance — lowest SG&A we’ve seen in several years even prior to COVID, so can you just talk about the SG&A opportunity in front of you, what’s driving that improvement this quarter particularly against what’s arguably a bit more of a challenging comp for you guys. The comps obviously get a fair bit easier as the year progresses, so just if you could talk a little bit about the SG&A opportunity in front of you, that would be fantastic. Thank you so much.

Sue Nabi — Chief Executive Officer

Yes hi good morning Olivia, I’m going to take the first part which is around the impact of the shortages on the results in Q1 again our mass service level is in the low 90s which is quite good compared to what we are seeing around us, on Prestige it’s roughly under 80% which is not good if, I may say albeit in the same level of our peer set and so we are not worse than the others but we’re not better than the others. But I can just give you, how much, the potential of our Prestige cost would have been if we didn’t face this kind of I would say limitations.

The sellout for Prestige in the cost was in the low-teens and the performance of the division was 7% like-for-like excluding Russia, this gives you an idea of how strong is our fragrance business at the moment.

Laurent Mercier — Chief Financial Officer

Thank you. So Olivia on your second question on SG&A, there is one specific element you need to consider which is a forex. As I highlighted during my presentation and a few times, we have, of course — there is significant forex headwind on top line and we say it’s about 6% to 8% but on P&L side I shared the results that we have natural hedging in Coty because we have cost of goods which are sitting in Europe — we have factories in Europe.

But it’s also the case on A&CP and SG&A because we have seen in Europe, so to be more specific on the SG&A we have HQ in Amsterdam, we have also a team in Paris and we have also a sizable team in UK, so there is a mechanical effect of currency which is lowering SG&A in reporting numbers to date. Having said that, we keep working of course on SG&A reduction, this is completely part of our [Indecipherable] agenda so we keep this word, we continue and definitely we amplify and we have some additional initiatives, especially on support function to continue how to have a nimble organization with Coty and to manage our equation.

Operator

Your next question comes from Steve Powers from Deutsche Bank.

Steve Powers — Deutsche Bank — Analyst

Yes hey, good morning thank you. Just on the full-year reaffirmation of guidance, it sounds like you’ve assumed more or less current consumer demand conditions remain intact. I guess within that I’m wondering if you have any allowances embedded for even modest demand slowing or allowances for retailers to potentially pull-back in inventory if they foresee potential slowing or alternatively what levers you have at your disposable should those conditions arise. Thank you.

Laurent Mercier — Chief Financial Officer

Hi Steve. So indeed, we confirm our full-year on guidance, topline 6% to 8% and EBITDA guidance $955 million to $965 million and obviously we confirm our roadmap towards 4 times leverage ratio by end of calendar 2022, so indeed we are, as Sue shared and mentioned and you see confirmation in the number, we are not seeing any slowdown in the demand. And even in Q1, as we just shared, the demand and the sell out is even stronger. So definitely we see — there is good momentum on consumer beauty and Prestige, we are not seeing any slowdown on all the plans that we have in place that give us full confidence about this momentum and this dynamic.

At the same time, definitely we are — I am monitoring. We are monitoring really all the actions that we have in order to win are giving us some ammunitions to manage and to mitigate the equation, so this is really the way we monitor and also to — on your specific question about retailers destocking and so on, what we are seeing definitely — we are not seeing any destocking. I mean, even in the context of a supply chain pension we are seeing more need really to fulfill and really to push for selling, this is what we are seeing in Q1 and we see currently.

Steve Powers — Deutsche Bank — Analyst

Okay, that’s very helpful. And then if I could, I have to ask on Gucci because while you and Kering at this point have both acknowledged that license has a number of years left remaining. Kering is I’m sure you know continues to talk pretty openly about work they’re doing to potentially take that license — that business back-in house over-time even if years down the road. And I guess, I’m just wondering if there’s anything you can additionally offer on the Kering’s standing about a relationship, whether renewal ultimately is at your discretion or Kering’s and if it’s at theirs, the question I keep getting from investors is how that impacts your willingness to continually invest in a franchise that has been central to your ambitions, especially in Prestige makeup etc. Would the risk of that portfolio may one day revert back to the original brand owner, just how you’re thinking about that? Thank you.

Sue Nabi — Chief Executive Officer

Yeah, thank you Steve for these question. Again, first of all — again what we have heard is that beauty is a very attractive category and this we see it of course even more today, given what’s happening around us and specifically the fragrance index and it makes sense that others would do some initial work on that space.

What we have heard has nothing to do with Gucci, if I’m not wrong, we hold the license for the long-term as confirmed by Kering themselves and there is also a new mechanism for an early exit. The other thing, I want to share with you is that, this is one of the growth engines of the company, certainly not the only one. I can tell you that the success we are seeing behind our Prestige division is clearly widespread across the different brands and every quarter, we have a new brand, thanks to the work we are doing that’s joining the pack of growth drivers into the company without even talking about skincare — that’s the biggest upside potential for the company I would say in the coming in coming years.

Last but not least, I can tell you that the relationship between us and Gucci is fantastic, I have to tell you the results we got behind Gucci Flora Gorgeous Gardenia last year and Gorgeous Jasmine this year are unprecedented as you’ve seen it during the presentation today and I was last week-in Singapore and together with Marco Bisari [Phonetic] and we made the opening of a beautiful, fantastic new boutique in the middle of Singapore.

Operator

Our next question comes from Rob Ottenstein from Evercore.

Robert Ottenstein — Evercore — Analyst

Great, thank you very much and apologies if you covered this, this morning, but you said you’re not really seeing any weakness, can you kind of bear that down into Europe given everything we hear right about increasingly strained consumer, maybe touch on a little bit more on Max Factor and Rimmel, what you’re seeing there and then also if you can touch on travel retail, your initiatives in travel retail — everywhere I travel I do absolutely see more-and-more of your brands so maybe talk a little bit about that and how they see the December quarter outside of Hainan, in terms of increased traveling and the impact on your business? Thanks.

Sue Nabi — Chief Executive Officer

Good morning Rob. Thank you for your question again, I confirm that we are not seeing any weakness including in EMEA, you’ve seen that EMEA is growing double-digits, part of it is of course travel retail, that’s doing fantastically well and I will come back on this path later in my answer but on the fragrance part, Europe is doing also very well, our brands are doing very well recently we even saw France that used to be an entry Prestige market mainly moving towards premium ultra-premium/luxury fragrances which is a first and says a lot about where consumers are going, including in the biggest country in Europe which is France.

When it comes to our consumer beauty business you’re right to point out that Max Factor and Rimmel these are the two brands that are in a way strongly taking our market-share up. Rimmel again we’ve presented to you the plan of Rimmel which was first to lead on clean beauty which has done fantastically well, thanks to Kind & Free which is today representing more or less 10% of the net revenues of the brand and a big success in many, many parts around the world opening the brand to the younger generation in a massive way, I have to say.

And remember I spoke to you about how we are learning quickly, how to create products that can become TikTok sensations and Thrill Seeker the latest mascara from Rimmel is exactly the embodiment of all of this, it was created with TikTok in mind, by TikTokers that we have in-house and with TikToker in-part of the TV commercial as you’ve seen a few minutes ago.

And the result is that the Thrill Seeker is the second mascara of the UK market and the biggest mascara launch for Rimmel since many-many years. On Max Factor, the brand is gaining market-share consistently and globally and this is thanks to a strategy that’s very well developed between base business and new innovation and this brand once it has been repositioned towards late millennials and Gen X is doing fantastically what its job which is to capture this audience that has the spending power, that is more sophisticated and that is looking for products that stand the test of time and this is exactly what Max Factor is all about today.

And last but not least, the last part is about travel retail, even if travel is still 20% to 30% below the levels of 2019 we see this part of the business booming at plus 30% of growth and this is thanks of course to our fragrance dynamism. The dynamism of our brands, the fragrance index, but also because we added two new legs to this business, the first one is Prestige makeup, think Kylie Cosmetics, that is doing very, very well everywhere we are opening this brand, but also skincare thanks to Lancaster that’s again booming in Hainan which is this. I would say a central place now when it comes to travel retail in the Asian region, but also elsewhere.

So, in a way, we do not see this weakness happening and at the moment we are really running after rebuilding the stocks behind our fragrance products.

Operator

Your next question comes from Chris Carey from Wells Fargo.

Chris Carey — Wells Fargo — Analyst

Hi, good morning. Can you just expand on what you mean by modest gross margin expansion in Q2 and for the full-year and Laurent just some of the key puts and takes that we should be thinking about as far as tailwinds and headwinds?

Laurent Mercier — Chief Financial Officer

So hi, Chris. I mean first of all — I mean we are very proud the results we delivered in Q1 but with 70 basis-points gross margin expansion and this is definitely a testament to all the actions that we have implemented so, let me give you a little more color and this is what you are calling tailwinds under headwinds. So, definitely the headwind is inflation, it’s about 2 points net revenue — it’s in-line with what we shared, last quarter so there are some positive and negative, but all-in all this is quite in-line.

So how we mitigate and we more than offset this inflation, but we continue to work on cost-reduction — cost of goods reduction, clear example is we announced more than a year-ago closure of factory — Prestige factory in Germany, this is now implemented and this is a way to increase utilization rate of fragrance and this is definitely helping for fixed-cost absorption and helping gross margin. We are working also on market value analysis, so is really to reduce to simplify components, platforming of our products and this is a powerful way also to reduce costs and to improve efficiency, so this is really on the cost side.

There is big, big element which is mix, we continue — this is what we kicked-off two years ago and all the initiatives also work we are doing is always focused on mix and the gross margin accretive, this is valid for Prestige but this is also valid within consumer beauty all the new initiatives that we are launching, Sometimes some of these initiatives are even gross margin equivalent to Prestige and number three which is absolutely key is pricing. We did low-single digit beginning calendar 2022, we just implemented a mid-single-digit price increase during summer September and we are implementing a new price increase mid-single-digit or so beginning calendar 2023. So, you see that all these elements — thanks to all these elements, we are able to confirm modest gross margin expansion within fiscal 2023.

Operator

Your next question comes from Lauren Lieberman from Barclays.

Lauren Lieberman — Barclays — Analyst

Great, thanks good morning. I know in the press release you had mentioned that I think it’s the hundredth month for market-share gains for CoverGirl but I was hoping we could get a little bit of an update on performance there through additional thoughts on skincare launch, how that’s progressing or really how you look to migrate that to an even stronger performance in 2023 because a lot of the prepared remarks, they focus on some the other brands. Thanks.

Laurent Mercier — Chief Financial Officer

Good morning Lauren, thank you for your question around CoverGirl, so on CoverGirl it’s interesting to give you I would say the other picture and the way I see it. Remember when we started to talk about the brand, it was somewhere around September 2020 we were in a way listing the difficulties this brand has been facing for years and years and years and the work that we have done that Gucci since September 2020, until very recently was to reposition the brand, to reinforce the brand equity, to make this brand the industry-leading brand when it comes to selling clean, sustainable healthy beauty to American people and this has been delivering fantastic results as, you’ve seen it until recently.

And then, we got into the constraints — supply constraints when it comes to the LashBlast line which is big, big, big net revenue maker into CoverGirl which we went out, let’s say, recently just at the end-of-the summer and recently we are back in stock with CoverGirl — with the LashBlast sorry. In the meantime what we’ve done is, of course, we’ve continued to invest behind the brand and we invested behind a younger line called Exhibitionist Mascara, which is doing fantastically well by the way — strong market-share etc, but this line is not having the same halo effect on the overall CoverGirl market-share as LashBlast used to have.

So what we are doing now is now that we sold the supply constraints, we still have a few little ones here and there, but let’s say that overall these are behind us, we are fine tuning the media mix behind CoverGirl which is very, very specific and there it’s really test, learn, re-test, learn implement and we understood what needs to be done, so hopefully by Q3 and already starting a little bit now, we are playing the playbook of Thrill Seeker, leveraging the power of TikTok behind LashBlast line, but the real I would say comeback of LashBlast into media would happen somewhere around the next quarter. So that’s overall the big-picture I can share with you around CoverGirl.

The big news and the good news is that all the fundamentals such as the demand, the penetration among Gen Zs, the penetration among Hispanic consumers has increased dramatically versus just two years ago. When it comes to skincare, skincare has done its job and the part of skincare that we launched a year-ago is as you know is stocked in makeup aisle, so by definition it was for us a place where we could test, learn fine-tune again etc and we learned a lot of things that we intend to continue to implement and progress on this part of the business of CoverGirl, probably here again in-quarter three and quarter-four. So, everything is on-track when it comes to CoverGirl and the brand dynamics and the health of the brand is intact.

Operator

And our last question comes from Carla Casella from JP Morgan.

Carla Casella — JPMorgan — Analyst

Hi, I had a question on the debt structure. You’ve got a lot of debt maturing in 2025 and 2026 so I know it’s not imminent that you need to do anything and the rate markets aren’t great but any sense for how far advanced the maturities you feel you would need to address or lengthen your debt structure?

Laurent Mercier — Chief Financial Officer

First of all, as you rightly say Carla, we made the right things over the last two years, is it to expand debt maturity 2025 and 2026 so we have many years to go and we will continue to pay down debt and just the confirmation, is that our deleveraging agenda is perfectly on track delivering $400 million in free-cash flow at a minimum per year in 2025 and on top of this we have know Wella Stake reserve value which is $1 billion at a minimum, so all these elements — with all these elements I mean we are in-full confidence in our deleveraging agenda. With debt maturity 2025 2026 we are in a very good place. Sorry Carla please go ahead.

Carla Casella — JPMorgan — Analyst

Just one business follow-up, you’re doing so well in the Prestige cosmetics you meant Gucci and Burberry and Kylie, what percentage of sales of those today?

Laurent Mercier — Chief Financial Officer

This is part of the business is in the low-single digits and so it’s still a small portion of our business growing good, but a small portion of the business.

Carla Casella — JPMorgan — Analyst

Okay great, thank you.

Sue Nabi — Chief Executive Officer

Thank you Carla. Thank you Laurent. So thank you everyone. I would like to close this Q&A session with some closing remarks, if you allow me. The first one is that again we have shown how much we are all about consistency since nine quarters in a row now which is a very important element for us and for you of course. The second thing is that we will start — you will start to hear us talking about the leverage that’s going towards 3 times by the end of next calendar year, this is a big step-change for Coty as a company and the third element as a closing remark is the one-off ESG, you’ve seen recently because we’ve been questioned a lot by a lot of around this element, you’ve seen that the company has been rated by Sustainalytics in the top-quartile of personal products company which is great news, but this is just the beginning of what this company is doing around the sustainability and ESG topic. So I do believe that again and again, this is the best and the right moment to enter Coty’s investors base. Thank you very much for your attention.

Operator

[Operator Closing Remarks]