Coty Inc (COTY) Q3 2023 Earnings Call Transcript

Coty Inc (NYSE: COTY) Q3 2023 Earnings Call dated May. 09, 2023

Corporate participants:

Laurent Mercier — Chief Financial Officer

Sue Y. Nabi — Chief Executive Officer and Director

Analysts:

Steve Powers — Deutsche Bank — Analyst

Anna Lizzul — Bank of America — Analyst

Rob Ottenstein — Evercore — Analyst

Filippo Falorni — Citi — Analyst

Korinne Wolfmeyer — Piper Sandler — Analyst

Sidney — Jefferies — Analyst

Chris Carey — Wells Fargo Securities — Analyst

Lauren Lieberman — Barclays — Analyst

Olivia Tong — Raymond James — Analyst

Andrea Teixeira — JPMorgan — Analyst

Presentation:

Operator

Good morning, and welcome, everyone. My name is Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty’s Third Quarter Fiscal 2023 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, May Nine, 2023. Please note that earlier this morning, Coty 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 the reports filed with the SEC, or the company lists factors that could cause actual results to differ materially from those 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 the floor for questions.

Questions and Answers:

Operator

Our first question will come from Steve Powers with Deutsche Bank. Your line is open.

Steve Powers — Deutsche Bank — Analyst

Thank you and good morning, everybody. I guess my first question, just a clarification on the commentary on first quarter ’24 pricing. Both the press release and the prepared remarks, if I heard correctly, sort of — couple of those pricing comments with your efforts to transition the portfolio to cleaner, more sustainable products. I guess I was looking for a little bit more detail. Is that to cover the cost of that transition or are there other factors at play as you consider that round of pricing early next year?

Laurent Mercier — Chief Financial Officer

Hello Steve. Thanks for your question. So first of all, I mean, just to remind that indeed, we implemented price increase, I mean, over the last quarter, so the last one being end of Q3, which indeed is absolutely needed to mitigate cost inflation. And as you’ve seen in Q3, which is above 2%, and we expect in Q4 to be 2.5%. So now, indeed, yes, we are evaluating a new price increase in Q1 ’24. And as we explained several times, I mean we always make sure that we do it in a granular manner. And definitely, we are making sure that it’s always synchronized with value creation and sustainability is definitely one of the biggest element that we are putting in place to create value.

And concretely is what we are currently implementing is to bring a majority of our portfolio to carbon-neutral internal for end of calendar ’23. So, it’s really focused on this value creation that we share between our key retailers and consumers. So, this is one stream. But of course, there are a lot of other elements on value creation, which are about innovation and high-quality products we are bringing to the consumers. And to be very specific, to give you as a concrete example on Consumer Beauty also, where we are now developing clean formulations, which are — and now as we speak, COVERGIRL is a a concrete example and this is the DNA of the brand. And there will be more and more initiatives with clean formulation in the coming quarters.

Steve Powers — Deutsche Bank — Analyst

Okay. Very good. And actually, Laurent while I have you talking, too, I’m sure you’ll get questions from others. But Laurent, on the cash flow as you mentioned, 3Q is usually seasonally weaker or negative because of seasonal elements. But 4Q is also not typically a super strong cash quarter for Coty. And I think given where you are in the year and given your guidance, it implies maybe a little bit more robust cash flow generation in the fourth quarter than at least we were expecting initially. So, can you just talk us through the moving parts and your confidence in 4Q cash generation to get you to the full year guide? Thank you very much.

Laurent Mercier — Chief Financial Officer

Yes, absolutely. I mean I confirm with full confidence that we delivered the year with cash flow above $400 million, so that’s absolutely sure. So just to explain a little more on Q3, so you’re right that Q3 is always seasonally weaker. The basic reason is that, you need all the investment that we are doing in Q2, which is a big sales — big season, we are cashing out in Q3. So that’s always the cash cycle that we are having. Another example that I really want to bring to your attention is that also, we are rebuilding inventory end of Q3. So, this is really a conscious choice, conscious decision that we are making and also again, in control, we’re delivering $200 million. So that we are really in a good position to secure Q1 and Q2 season, okay? So this is really what we are monitoring. And you saw it’s really synchronized with the improvement of service levels that you are currently seeing. So Q4 will be positive and we will end fiscal year ’23 with the cash flow above $400 million. Year-to-date, as you noticed, it’s $365 million, okay? So, we are — we keep bringing the cash generation, we are in control.

Operator

Thank you. Our next question will come from Anna Lizzul with Bank of America.

Anna Lizzul — Bank of America — Analyst

Hi, good morning and thank you so much for the question. I was wondering if you can comment on the launch of Lancaster in China and how this compares to your expectations on skincare? And China has been a nice acceleration in fine fragrance penetration. How are you engaging there with consumers in this category versus on skincare?

Sue Y. Nabi — Chief Executive Officer and Director

Yes, Anna. This is Sue speaking. Thank you for the question. Indeed, China has been very active for Coty during this quarter, specifically at the end of the quarter and of course, during Q4. We started our skincare strategic bet in China a few weeks ago. And I can tell you that we are very happy about the very, very early results we are seeing behind Lancaster. Skincare is about R&D formulations, efficacy how consumers see operations.

And I can tell you that the ratings are outstanding, 4.9 out of five. This is really unseen on this very competitive where consumers are very demanding. So, for a brand that was not doing skincare in China just a few months ago, these ratings are, I would say, of great confidence for us, really fantastic things about how consumers in China are seeing already results for those who shop the line in skincare just a few weeks ago. This is number one. And number two is that, of course, we are creating the awareness of the line in China. And as you’ve seen it probably during the presentation, the — we were number one in terms of social buzz in China, which is, again, I would say an extra as we say in French, and this is in the middle of a very, very noisy environment. Everyone is trying to get through the noise of the Chinese market in terms of beauty brand.

And we were number one during the launch period and we continue to see very qualitative comments on the line. You’ve heard that some consumers call the cream — the Kelly cream, which in the reference, of course, the Grace Kelly, which is great for us because that’s a great summary of the high-quality, the exclusivity and of course, the European origin of the brand. Last but not least, when you look at what’s happening at the counters, we’ve seen — you’ve seen the first handling counter that opened and we were there a few weeks ago in China. You see that the conversion is as high if not above some of the leading brands, which give us a great, great, great confidence.

So now the job is to increase the traffic at the end of the day, when you have the formulations, when you have the right word of mouth, when you have a very high conversion, what takes is that, now you need to create this facet across our counters on Tmall, etc., to increase the size of the brand. So, it’s really starting exactly where we were dreaming it to start and the way we were dreaming it to start.

When it comes to the fragrances, the fragrances is that is also at play in China. And I was — I took the advantage of my visit to China to visit some consumers at home — fragrance buyers, this anti-procedural is packing them fragrances and I can tell that there was incredibly surprised to see the level of expertise of consumers. In a way, they were telling us that this category today is more or less seen as almost the skincare category, is high-value category.

It’s category that’s becoming performance-driven everyone is obsessed with what they call lingering scent, which is long-lasting scent. And people are more and more moving from heritage and traditional brands, towards niche, very conceptual brands that tell them a very unique story, something that they can speak about in social media to valorize who they are. So in a way, a company like Coty between fragrances where we are starting from a low base and we have a huge upside in front of us. Remember, the penetration is 3% to be compared to 50% in Europe. So there is a huge potential in the country. The fact that we have the right brands to operate there and next to this, we have our skincare adventure that’s starting right now. I think the upside can be very, very strong frequency.

Operator

Thank you. Our next question comes from Rob Ottenstein with Evercore. Your line is open.

Rob Ottenstein — Evercore — Analyst

Great. Thank you very much. Two questions. One, I want to follow-up on fragrances. It looks like you’re getting an acceleration in the quarter in the fragrance category. Is this driven by any specific brands? Or is it more broad-based? And then the second question is on the Consumer Beauty side, which continues to be very strong. What is fueling that continued momentum? Thank you.

Sue Y. Nabi — Chief Executive Officer and Director

Yes. Thank you, Robert. Good Morning. Yes, indeed, we are seeing clearly an acceleration. This famous fragrance index that I have been referring to since a few quarters now is not only continuing, but it’s accelerating. Fragrances in the Beauty division, the growth of the division was 16%, fragrances are around 20%. So it’s a very, very strong growth that we are seeing behind this category while still continuing to recover on the service level. So clearly, this has to do with one hand with service level improvement, but also and moreover, I would say consumer demand has accelerated. And indeed, this growth is very broad based with the different brands. Now all the brands are doing their job and they are all fantastically posting a strong double-digit growth, be it; Burberry, Hugo Boss that’s becoming a best seller line in Asia, of course, Gucci fragrances.

And so this is clearly something that gives us a strong confidence that we have the right portfolio to enter the different consumer cycle graphics, either in terms of pricing, but also in terms of what they are willing to buy in terms of brand universe and equity. And on Consumer Beauty, it’s clearly also a division where we are continuing to see a very strong momentum. Our cosmetics brands are all growing double digits, really this COVERGIRL, Max Factor, Rimmel to name the biggest brands. And this clearly is a great demonstration of the work we’ve been doing. Remember, I always said that we were fixing with what we have enhanced since two years now, 2.5 years.

And now we are starting to show to everyone what is the ability of this company to create really breakthrough innovation. So Yummy Gloss from COVERGIRL is one of them. It’s the number one with color launch in the U.S., number five cosmetic launch in the U.S. this spring: Clean Fresh by COVERGIRL that we just announced a few days ago. I think this is going to be a massive success in this very strong area where COVERGIRL is strong which is mascaras, but we are seeing more or less the same thing behind women in U.K. with three and Max Factor that’s having a 30% TGL growth, excluding Russia, which is really unprecedented for this brand. So I can tell you that cosmetics are doing fantastically well, but also our fragrances.

I don’t know if you’re aware of this, but a brand like Bruno Banani and our Prestige division in that you know is as big as Hugo Boss. It’s a really, really big property and this one is also growing double digits. So the fragrance index is also at play in our Consumer Beauty business. So to confirm that in a way what was embedded in your question, growth coming from both divisions from all the brands in both divisions and the fragrance index is only accelerating.

Operator

Thank you. Our next question comes from Filippo Falorni with Citi. Your line is open.

Filippo Falorni — Citi — Analyst

Hey good morning everyone. A follow-up on China. You mentioned in the prepared remarks that April sales, including Hainan increase year-over-year and also the two-year basis. Does that mean that your inventory levels are now in a normal position and now you’re growing in line with consumption? Or do you assume some carryover impact from normalizing inventory in fiscal Q4? And then longer term, just any kind of target you can give us in terms of the Lancaster launch, what do you think the brand can get to within the China skincare category?

Laurent Mercier — Chief Financial Officer

Good Morning, Filippo. So indeed, you’re absolutely right. So April, we are seeing some acceleration in April, so higher versus last year and higher versus two years ago. And to be very clear, this is really fewer organic performance, okay? So — and this is a level of inventory with our retailers is very healthy. And this is definitely, the growth is driven by all initiatives that we have just mentioned. So in definitely, skincare, link obviously Lancaster, all the brands we are putting in place. Its second premiumization in high-end fragrance acceleration.

So is a clear example. We have also saw a great initiative cosmetic on Prestige Cosmetics with the two launches we made on Burberry Foundation and the Gucci Foundation, which has a very, very good start. So this is — you are seeing that we are building the foundation of the new model in China.

And the strength for Coty, as you know, that we are starting from a low base. So again, there is no retailer inventory and so on going again. So this is really pure incremental. And this is also the case of Consumer Beauty, where we have also fantastic and great initiatives on Adidas, which are really starting now and accelerating. So this is, again, keep the word of building the foundation and sequential acceleration for China.

Sue Y. Nabi — Chief Executive Officer and Director

So Filippo Good morning. This is Sue speaking. So on Lancaster, it is very real target. In fact, this is a business where you need to create where you are present in the brick-and-mortar stores and of course, on the online store, the recipe for success. And again, the recipe for success is about consumer ratings, social buzz and conversion.

So when we will see that we have the right level of consumer buzz, the right level of conversion and the best-in-class ratings, this is when we will decide to expand the distribution. And at the end of the day, this strategy is still the same. We have three brands, Lancaster in China Adidas that going to be also starting in China, in the U.S. and in travel retail. And philosophy, which is the biggest skincare brand we have today at Coty. That started its reinvention a month ago here again. And you’ve seen the fantastic advertising behind the latest here on dose of wisdom.

These three brands will allow us to go to the $500 million in the coming years in terms of targets for our skincare business.

Operator

Thank you. Our next question will come from Korinne Wolfmeyer with Piper Sandler. Your line is open.

Korinne Wolfmeyer — Piper Sandler — Analyst

Hey Good morning all, and thanks for taking the questions and congrats on the quarter. I’d like just kind of touch on the margin guidance for the year and some of the puts and takes behind that. First, you talked about slight gross margin expansion, but also you did really raise the EBITDA guidance for the year. Can you just talk about where maybe some of that pressure is coming through? And I know you mentioned FX and maybe some higher A&CP spend, but can you just talk about what we should expect for Q4 there? And then as we head into fiscal ’24, how are you kind of thinking about the puts and takes of the margin trajectory there? Thank you.

Laurent Mercier — Chief Financial Officer

Yes, absolutely. So we are confirming our full year guidance on EBITDA, so $955 million to $965 million. To answer your point, I mean, this is despite about $15 million forex headwind. So this is again guidance that we gave beginning of the year. Despite this headwind, we are really in a position to confirm. And at the same time, which is absolutely key is also to reinvest in our strategic initiatives and we mentioned a few especially in China. So definitely, our equation is fully in control. It means that our EBITDA margin will grow 50 basis points at the end of the year and given our EBIT margin will grow 150 basis points. So you really understand that we are monitoring our equation in an accretive manner.

And this is definitely the way we allocate the resources, fueling the growth, but also delivering, of course, the profit objective. I will add one important element to this is that, as you saw, we are increasing our EPS guidance by $0.03. So with the swap, okay, we — the guidance is now to end the year at $0.52 to $0.53, which is close to 80% EPS increase versus last year. And if we exclude the swap, so the guidance is $0.48 to $0.49, which is about more than 30% EPS increase versus last year.

So basically, you see a significant improvement in our EPS guidance. So now definitely looking forward for fiscal ’24, and we will give you more detail in next earnings call. I mean, we confirm the midterm algorithm that we shared a few months ago and that we reconfirmed during CAGNY is really to have net revenue growth at the upper end of the 6% to 8%, EBITDA growth in the range of the 9% to 11%, and EPS growth 23%, 26% in the mid-20.

Operator

Thank you. Our next question comes from Ashley Helgans with Jefferies. Your line is open.

Sidney — Jefferies — Analyst

Hi. This is Sidney on for Ashley. First question was just any by category trends you can kind of call out in China and travel retail? And then just with the strength in the mass category, any potential signs of trade down that you’re seeing at all? Thank you.

Sue Y. Nabi — Chief Executive Officer and Director

So thank you for your question. So any sign of trade down, the answer is no. Clearly, no. We are not seeing any sign of trade down nowhere. We are investing even the opposite, the continuous communization be it in Consumer Beauty is what we call Kylie Beauty, which is a — it is beauty that is at the premium, that’s very cool and that’s very trendy on social media and where CoverGirl is starting to participate finally, which is really the phase three of the invention of this brand. And by the way, the invention of all our Consumer Beauty customer color cosmetic Brand. And when it comes to Prestige categories, we are continuing to see the fragrance index at play. There is a globalization of the Fragrance index. It started in the U.S. and then now is in Europe and in China, which really is the best, I would say, news for us and for the industry, as you can imagine.

This category is premiumizing and becoming the darling category of many consumers around the world. Skincare continues to be the clean category growing at a — kind of good growth, not crazy, not low, good growth, which has already been the case with skincare things, Consumer Beauty which is almost been 30 years now. And this category, by it’s the biggest category worldwide, and this is where we want to play now. And last but not least, we see color cosmetics back in Consumer Beauty quite strongly, specifically in the U.S., but also around the world with a different subcategories growing. Lip stick was Gen-Zs are back to lip stick, which is also something that’s new, but also the classical foundation and mascara category. So no signs of trade down. All the categories are growing, premiumization and fragrance index is accelerating. So that’s, I would say, the summary in terms of what we are seeing globally in terms of category penetration.

Operator

Thank you. Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open.

Chris Carey — Wells Fargo Securities — Analyst

Hi, good morning. So just two quick questions, please. Just number one, can you just talk about the Consumer Beauty profitability and how you see that trending going forward? And how fiscal Q3 came in relative to your expectations? And then the second question is, and I think there’s been a couple of questions kind of around this topic, but there was a comment in the press release around more investment into your skincare and that the revenue benefits from that investment would take some time to play out, is that in line with your prior expectations? Or are the — is the skincare opportunity just taking a bit longer to develop and it sounds like you still have the same goals over time, but perhaps the phasing is changing, so just any clarity there? So thanks for those on Consumer Beauty margins and the pace of skincare investment versus revenue over time. Thank you.

Laurent Mercier — Chief Financial Officer

Sure, sure. Thank you, Chris, for the question. So CB profitability. In Consumer Beauty, I mean, is a very profitable business. So maybe your question is more, but Q3. Q3 is always the quarter where we have significant investment for Consumer Beauty. And this is really the quarter where we have big launches. So we are investing. And again, it’s fully included in our equation and in our quarterly equation. But bear in mind that all the initiatives that we are putting in place on Consumer Beauty are very accretive, gross margin accretive.

So shared a few initiatives concretely that, you, know, initiatives we are making, we are launching currently on CoverGirl I mean these are very profitable initiative. And definitely, the flywheel in Consumer Beauty is absolutely in motion. So we explained that within the first two years, three years, we have to do the work and always watch what in place. And now definitely, there is some strong acceleration in top line, but also in the profitability, and there is a very strong ROI from all the initiatives that we are putting in place. So profit and margin will expand, should expand in fiscal ’23 and beyond, exactly based on what I shared with you.

The last element, which sounds a little more technical is also that in Q3, we have to pay some onetime forex impact mostly from LatAm, which was, I mean, mostly on Consumer Beauty. But again, going forward, I mean the flywheel and the model Consumer Beauty is very profitable. On your question, I can start, and Sue can build up on this. So we made very clear that indeed, in our balanced portfolio, skincare is really a strategic imperative. So we are investing, and this is indeed we included in our model and in our flywheel. So what we just kicked off with Lancaster and skincare

What we are doing currently also in U.S. with philosophy, but I can tell you from really the finance and marketing and commercial teams, we have very precise KPIs that we are tracking, so that we are really in a position to measure ROI also to put a corrective measures if needed. But definitely, I mean, ROI is there and definitely step-by-step, we are building a profitable business. Keep in mind that gross margin on skincare is also very accretive.

Sue Y. Nabi — Chief Executive Officer and Director

If indeed, I can complement what you said Laurent. The reality is that it’s too early to tell you if we are doing faster or less fast than what we had in our mind. We just started a month and a half ago. And the KPIs I’ve been sharing with you are excellent, and this is really the basis. You can do whatever you want. If you don’t have the right formulations, if consumers do not find your brand interesting and is the conversion of counter is not good, there, you have issues.

It’s not absolutely the case. Remember, we’ve been very clear from the beginning that the strategic emphasis is on driving a balanced growth agenda equity in our portfolio, which includes imperative to double our skincare business in the coming years. So again, we continue to be very confident in this strategy because we have the technological know-how, because we have the patents, and because we are putting in place — continuing to put in place the organizational capabilities.

Of course, this requires upfront investments and that’s clearly the name of the game, which we are making now. And the great news is that we’re lucky to be in a position where the rest of the portfolio is growing very strongly, which allow us both to deliver on our profit commitment. And at the same time, it’s only the end, it’s not either, soon our skincare portfolio with all the activities I have been sharing with you now.

Operator

Thank you. Our next question will come from Lauren Lieberman with Barclays. Your line is open.

Lauren Lieberman — Barclays — Analyst

Great. Thanks. Good morning. I just thought I’d kind of flip this around and — so many things are going well. So I thought maybe it’d be interesting to hear what are the things, Sue and Laurent, that you’re worried about as you look ahead? It seems like everything is on the right track, lots of positive updates today. So what are the things that are kind of top on your list as worry or watch points? Thanks.

Laurent Mercier — Chief Financial Officer

Yes. Good morning, Lauren. I can tell you, you know, this question is really since the last three years, this is the ongoing question, and this is all the decisions. The strategy we built are really exactly to grow the company and to protect the company. This is the name of the game is balanced portfolio.

So this is really what makes the difference and now what we are seeing in motion. So it’s balanced in terms of category. So what you are seeing, fragrance is doing great. Color Cosmetic is doing great. And fragrance is also impressive, also in Consumer Beauty. And now indeed, we are adding skincare, and we have also a Prestige Cosmetic. So definitely building the balanced portfolio is — makes a difference. It’s also the case in terms of geographies, very balanced portfolio across the world.

As you saw, America, doing very strong. And it’s a case of North America, but also South America. So here also, you see really the balanced growth of our equation. Europe. Europe is very strong, and we are seeing currently also good momentum in Europe. I mean the fragrance index that’s where I was referring to is now in motion in travel retail grew more than 30%. And last but not least, as we discussed extensively before, China for us is only an opportunity. So this is definitely that the world that with the leadership team that we are doing constantly.

Last element to answer your point is also in terms of price partition. We are covering on the affordable products, so you can match the needs of part of the consumers. And then we are going open, and we are also reaching very high-end consumers. So all these elements definitely are giving us not only the protection, but also the drivers of profitable growth. So this is definitely what we are looking at and adapting constantly.

Operator

Thank you. Our next question comes from Olivia Tong with Raymond James. Your line is open.

Olivia Tong — Raymond James — Analyst

Thank you. Good morning. My first question is around the price increases that you’re contemplating next quarter or in two quarters. Just if you could give us more color in terms of categories, geographies that you’re contemplating? Is it areas you had already planned and it’s just taking a little bit longer or areas that are new? And then on the fragrance service levels, getting back to the high 80s, can you talk about where it was heading into COVID? And at this rate of improvement, how long you think it will take you to get back to where you were before? And should we think of this shortage as impacting all the fragrance brands more or less equally on a percentage of sales or that could have potentially marked on the table? Are there any innovation changes you had to make as a result of the shortage? Just trying to think about the recovery as fragrance service levels get back to a more normalized pace? Thanks so much.

Laurent Mercier — Chief Financial Officer

Yes, good morning, Olivia. So I mean, price increase, as we shared, I mean we are contemplating this new price increase in Q1 ’24. I mean, the methodology remains the same and we explained several times. We have a dedicating pricing office, which was put in place more than two years ago. So the work we do is always very granular, so we do it in the per channel, per product, per category, per market, and we need to of course, combined with the data that we get from CMI so that we are making sure that what is done is really matching and exactly what the consumer needs. And as I shared before, is also we combine this with value creation. Sustainability is definitely a big angle on value creation. So this is the case indeed on Prestige, but also on Consumer Beauty. Keep this in mind that it’s very granular work.

And every time we are making sure that in terms of the portfolio, price increase that we are doing are very consistent, and we are not meeting some gaps between our products across the globe. So this is very something — and I have to tell you now we have very good expertise. And the last price increase went very smoothly and again, very good collaboration with the retailers. So on service level, definitely, we are seeing some very good improvement. So indeed now, I mean we are landing Q3 in the high 80s. What’s very important, so in the media, so there is still some tension, and this is the case for the whole industry.

So that’s why we remain very focused. So that’s why we are very clear that we also building inventory end of Q3. The key reason of the challenge on service level, in fact, is because the demand will remain very high. So it’s very — so it means that supply chain keeps adapting and there was already very strong export and the decision made. But basically, we stay very focused and to — so this was the case — this is the case on glass bottle indeed, but also caps and terms. But overall, very good improvement. We are now in a very good position. But of course, still some challenge that we are managing very, very carefully.

Operator

Thank you. Our last question comes from Andrea Teixeira with JPMorgan. Your line is open.

Andrea Teixeira — JPMorgan — Analyst

Thank you, good morning. So my question, if you can comment on the Prestige side of the business coming stronger than expected. And of course, you did mention a couple of things during the — your prepared remarks and your answers. But we’re seeing that strong demand in fragrance continues for about three years now and your implied fourth quarter, albeit is still very strong, it’s about 11% for the total company.

So I was wondering, if you were just embedding some conservatism or is there anything in the third quarter that came in?

I understand it came in also above your expectations. If there is any setup that you had for Lancaster that obviously may accelerate and reopening in China. Anything you can contribute to, say, perhaps there’s some pull forward there that you’re embedding some deceleration? And then just a clarification, a couple of questions regarding margins. So as we think about the pricing that you’re coming in for the first quarter, and what do you set yourself to in terms of the growth back in your Investor Day where you highlighted 9% to 11% EBITDA growth? Is that something you’re saying basically we need to invest growth is coming in better than anticipated, we are not going to chase margins at this point?

Obviously, you still had some improvement underlying, but it’s probably at this point below what could be if you were not investing. Is that the way we’re thinking? And in terms of priorities, your priority of — the priority will be dollar top line and dollar margins as opposed to percentage margins. Is that fair?

Sue Y. Nabi — Chief Executive Officer and Director

This is Sue. I’m going to take the first part of the question maybe around the other performance of Prestige and how we see this in Q4. Indeed, Q3 benefited both from restocking and of course, from the three things. We start in our overall performance with our innovations. You think about a brand like Burberry between Burberry Her and Burberry Hero fragrances. We’ve jumped from the 30 positions to a top 10 position, something like this in the U.S. market.

So you can see that we are overperforming the market, thanks to our innovation, restocking helps and by nature, also the growth of the market is lifting all of us. At the same time and this growth is a huge 60% in the U.S., 40% globally. And it’s just the beginning and belief of this fragrance in that, that is at play globally. In Q4, we believe that there will not be anymore any effects from restocking. This was really a onetime benefit in Q3. So, now when it comes to the details, maybe Laurent, you can take this one, when it comes to reinvesting prioritization of top line of our margin expansion.

Laurent Mercier — Chief Financial Officer

Absolutely. I will keep it short. I mean we said it just before, and definitely, what is important is really the end. So what we are doing is definitely to invest in the strategic initiatives, the big one, indeed, we referred to is skincare, but there are also a lot of other initiatives. So we are investing in the strategic initiatives and delivering the profit, EBITDA and EPS. So this is really the way, and this is we are monitoring our equation on a daily basis.

Operator

Thank you. This concludes the question-and-answer portion of today’s call. And I would like to turn the call back over to Sue for any additional or closing remarks.

Sue Y. Nabi — Chief Executive Officer and Director

Thank you very much. So thank you, everyone, for your questions. We are very proud as you can imagine that this 11th quarter of results that are in line or ahead of expectations. We see this sales growth accelerating both divisions, which is really — as you can imagine, a very strong source of pride for us. And both divisions are double-digit growth, and this is fantastic because we have two legs, and we need the two legs to compete in the very competitive world of today.

We clearly understood that we are reinvesting behind our skincare pillar. Our obsession, and Laurent has been saying this several times during the call today is about creating several growth engines, two divisions, several brands, several categories in several regions, and this is clearly starting to show results. And last but not least, while we are reinvesting, we are continuing to confirm our profit forecast and profit guidance. Last but not least, happy to say that the deleveraging of the company is fully on track targeting three times at the end of calendar ’23 and two times at the end of calendar ’25. Thank you very much.

Operator

[Operator Closing Remarks]