Q2 2024 Coty Inc Earnings Call

Participants

Laurent Mercier; CFO; Coty Inc.

Sue Y. Nabi; CEO & Director; Coty Inc.

Ashley Elizabeth Helgans; Equity Analyst; Jefferies LLC, Research Division

Charles-Louis Scotti; Head of Luxury Goods; Kepler Cheuvreux, Research Division

Filippo Falorni; VP; Citigroup Inc., Research Division

Lauren Rae Lieberman; MD & Senior Research Analyst; Barclays Bank PLC, Research Division

Mark Stiefel Astrachan; MD; Stifel, Nicolaus & Company, Incorporated, Research Division

Oliver Chen; MD & Senior Equity Research Analyst; TD Cowen, Research Division

Olivia Tong Cheang; MD & Research Analyst; Raymond James & Associates, Inc., Research Division

Robert Edward Ottenstein; Senior MD and Head of Global Beverages & Household Products Research; Evercore ISI Institutional Equities, Research Division

Shovana Nafiz Chowdhury; Research Analyst; JPMorgan Chase & Co, Research Division

Unidentified Analyst

Presentation

Operator

Hello. My name is Todd, and I'll be your conference operator today. At this time, I would like to welcome everyone to Coty's Second Quarter Fiscal 2024 Question-and-Answer Conference Call.
As a reminder, this conference call is being recorded today, February 8, 2024 at 8:15 a.m. Eastern or 2:15 p.m. Central European Time. Please note that on February 7, at approximately 4:30 p.m. Eastern Time or 10:30 p.m. Central European Time, 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 for 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 measurements section of the company's press release.
With that, we will now open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question will come from Rob Ottenstein with Evercore.

Robert Edward Ottenstein

Congratulations on another terrific quarter. So Sue, your outperformance in Prestige Fragrances was really impressive, 2 questions on that. How much of that outperformance is attributable to new brand launches? And then second, as Prestige Fragrance, as the prestige fragrance market normalizes, can you continue your outperformance? And if so, what gives you the confidence to be able to do that.

Sue Y. Nabi

Yes, thank you very much for your kind words. Indeed, it's a very good quarter, specifically driven by the Prestige performance. The outperformance in this division has been achieved, thanks to a very good, I have to say, balance of new launches and strong performance of the base business which is also supported by the [Chloe] from the launches. If I take the example of Burberry Goddess or Burberry as a brand, all the 3 lines are growing. The one that is, by definition, new Burberry Goddess biggest launch ever at Coty, top one fragrance innovation around the world, while at the same time, Burberry Her, which is a few years old or Burberry Eau which is 2.5 years old, are also growing. So in fact, this, I would say, outstanding performance we're having behind our innovation is also benefiting other brands.
Some other brands of the portfolio I'm thinking about Calvin Klein or Davidoff are also growing double digits without new innovation. So in a way, it's really a good balance between innovation and base business, if I may call it like this. And what gives us the confidence in this outperformance in this market that's going to normalize, still is going to be mid- to high single-digit growth, which is far above what was the case just a few years ago. But the confidence we're having it from a lot of capabilities we have been able to build during the last 3 years. Capabilities to build blockbusters, be it in terms of creating winning juices, creating winning mixes, finding the right balance between influencer marketing, classical media, sampling et cetera.
All this is a know-how that's here to stay and here to develop. It's also a confidence that we are taking from our [still] white space opportunities geographically speaking, but also white space opportunities in terms of categories. So all of these give us confidence that we will hopefully continue to outperform this very dynamic market.

Operator

Our next question comes from Oliver Chen with TD Cowen.

Oliver Chen

Sue and Laurent, you made so much nice progress regarding prices, and you mentioned targeted pricing going forward. Could you speak to what you mean there in terms of the opportunities as you surgically analyze that, also to e-commerce impressively drove 40% of your like-for-like sales growth. What do you see ahead in terms of embracing that channel in the centers of excellence and community and TikTok innovation as well?

Laurent Mercier

Thank you, Oliver, for your questions. So on pricing, as you know, I mean, we explained several times over the last quarter that we implemented price increase mid-single digit, and this is also what we did beginning of fiscal '24. So this price increase was very successful. It went very smoothly. And you see that it translates that we still are growing volumes. So this was really very good execution very precise, very granular and it needed to work very well.
So now looking ahead, Indeed, I indicated that we will continue very targeted price increase. So definitely because all the work that we are doing, value creation, it allows on specific products, specific market, specific channels still to pass some price increase. So this we will continue. But of course, it will be more moderate and very, very targeted. But definitely, we are going to focus even more now is more on the mix and what we are calling really strength that we are pushing, and we explained last time is a strategic revenue management which is really to review the full value that we are creating for retailers and for consumers and definitely focusing on increasing the price per unit.
I give you some examples. The innovation that was referring to, for example, Burberry Goddess. Burberry Goddess is the #1 innovation on the market, which is Eau de Parfum, and Eau de Parfum is, on average, 30% higher price versus Eau de Toilette. So you see this is a concrete example that now when we are launching new initiatives. We are working really in depth to make sure that this is a higher value versus the base business.
It is also the case in Consumer Beauty, great innovation that we just launched Simply Ageless Essence and fragrance. This is a high-quality, very premium product with a price which is 30% higher versus the base business, and it is the #1 on Amazon. So you understand this is really we work on improving the price per unit because there is value quality in the product optimizing also -- all the trade terms, reducing promotions.
So it's really this way that now we are really moving towards the strategic revenue management approach, mix improvement and we have already strong examples, and I can tell you definitely the work and all the initiatives that are in place. We really continue to [vision]. So that's why also it's one the big driver of our gross margin expansion in H2, definitely combined with inflation softening and definitely in addition of carryover pricing from last year and also all these strategic revenue management element. So that's a very clear path that we have ahead of us.

Sue Y. Nabi

And Oliver on the second part of your question, this is Sue speaking. So how are we embracing e-com digital community management, TikTok, et cetera? Indeed, the performance of e-com during the quarter have been outstanding. As you said it before, 40% of the growth in both divisions comes from e-com. This is really an unprecedented level of performance, I have to say. It's 180 basis points extra penetration in this channel, 20% of growth. And it's quite, I would say, obvious to explain this, thanks to the strategy that we have put in place and explained this several times now since 1.5 years of putting advocacy at the center of our social media strategy.
I can give you the example that Laurent was mentioning, which is Simply Ageless Essence foundation, which is a very innovative product. It's a serum -- transparent serum and you can see capsules of pigment in this serum and they burst on the skin when you apply them, so this is typically the very kind of product that TikTok and any social media is crazy about because it's very visual in the packaging. There is a transformation [onto your skin] something happens. And the result is that it's #1 on Amazon already just after a few weeks.
And it has been given to the hands of a media influencer that we were referring to during the presentation, we had 95 million views. Can you imagine one post 95 million views, $10 million of EMV, which is the total EMV of [CoverGirl] in the U.S. a year ago for 12 months. So you can see that this transformation of our Consumer Beauty business from a business that was relying on, I would say, a low level of innovation in terms of percentages maybe not enough disruptive innovation, but with the right band equities into a business where we are going to double down the level of innovation, disruptive visual innovation together hand-in-hand with strong advocacy marketing.
This translates into this performance that you are seeing, which is obviously driven by Amazon. And to finish on this point, because I guess the question will come at the moment or another, our advocacy plan is really evolving very fast. You've seen the 2 studios we have opened in the U.S. You've seen how much we moved from a few hundreds of influencers with whom we were working just a year ago to 5,000 today and the intention is to do double this triple this, who knows.
So at the end of the day, this is just a starting point and for me, this is next to fragrances. This is the biggest white space opportunity for our color cosmetics brands in the U.S., that's also around the world.

Oliver Chen

It's very exciting. I got to get some of that [Simply Ageless] looks awesome.

Sue Y. Nabi

Yes, yes. You love it. I'm sure.

Operator

Our next question comes from Filippo Falorni with Citi.

Filippo Falorni

I wanted to ask on margins for the second half. You're expecting stronger gross margin expansion, the cost inflation moderates. Maybe, Laurent, you can give us some help also below the gross margin line, what reinvestment are you assuming in the second half and whether you still expect 10 to 30 basis points of EBITDA margin expansion in the second half?

Laurent Mercier

So first of all, indeed, I'm really reaffirming that we confirm indeed our guidance. EBITDA margin growing 10 to 30 basis points. So this is really confirming that the right dynamic after growing 40 basis points that we did in Q2. So indeed, on H2, the model is that indeed, we are going to benefit from gross margin expansion -- significant gross margin expansion, which is really a combination of COGS inflation softening. This is definitely a big element, but it's also helped by the carryover of price increase that we did last year and we did beginning of this fiscal year. So in terms of all the work we are doing [on weekends] and last but not least, of course, is all the work we are doing on productivity as part of our all-in to win.
So this is definitely all these drivers are in motion. We keep investing definitely on all the strategic initiatives and all the drivers, Consumer Beauty and Prestige. So this is definitely -- and I confirm again that we will land our [agency] level in the high 20s. So the model is fully on track. Now to be more specific on H2, what we are also including in our model is that we are factoring that now we see Forex turning slightly negative in H2, okay, versus positive in H1, but on the full year, it should be pretty neutral, but there is a phasing effect due to Forex, and another element that you need also to take into account that as we have a headwind effect from Lacoste exit which is impacting mostly H2.
So if you take all these elements into consideration, you see that we continue to have a very nice EBITDA margin improvement on both semesters and definitely on the full year, confirming this 10 to [40] basis points.

Operator

Our next question will come from Olivia Tong with Raymond James.

Olivia Tong Cheang

I wanted to ask you about the innovation pipeline in Prestige fragrances. If maybe you can give us early unveiling of some of the plans for the next 12 months? Obviously, fantastic performance of late, but that remains more difficult comps are coming. So just thinking through the number of blockbuster launches. How should we think about the focus areas over the next 12 months versus the last 12?

Sue Y. Nabi

So in fact, the reality is that if you look back at -- what we did in 2022, which was a year with a big pipeline of innovations, you've seen the results we got in 2023, and this with constraint on supply, and they were very, very good. So in fact, the big difference between the Coty of years ago and the Coty of today, is that we are able to grow innovations across several years. Instead of launching and looking for something new and then adding these new things to the portfolio and having a plus and a minus story.
So we are growing all innovations at the same time, where we are bringing innovations from the past, I mean, at the same time, while we are bringing new innovations. So when it comes to upcoming innovations, we will continue, of course, to put on the market when we are ready and what we believe is going to be successful in the market. This is also a discipline we have put in place in the company since 3.5 years, which is to launch if and only if we are ready, we have the right mix. We are 100% sure about the success we're going to put in the market.
Remember, Goddess, I started to talk about Goddess before we launch it. We started to say everyone, this is going to be big and it's confirmed. And this is because we have now all the expertise and capabilities and understanding that allow us to say this is ready to become a big innovation or it's not ready, we should take a bit more time. So of course, I'm not going to reveal what's going to arise. I guess that our competitors are going to read the transcript. So it's not a good idea.

Olivia Tong Cheang

Fair enough. And then my next question is just around China and Travel Retail. Obviously, your results have been very strong as you continue building out your businesses there. So can you just talk through some incrementality and the plans there? How much of your product lineup that you intend to introduce there is already deployed and whether any of the recent macro challenges have impacted your ability to sort of reach the longer-term goals you have for the market, both in China and Travel Retail?
And then just lastly, you've started the skin care expansion in China, Lancaster, Orveda, fantastic brands, obviously, the launch in Shanghai with Orveda maybe just talk through your plans there a little bit more, that would be fantastic.

Sue Y. Nabi

So let me start with Travel Retail. We finished fiscal '23 with 30% of growth in Travel Retail and the first half of fiscal '24 is adding an extra 20% growth in this channel. This is really a channel where we are consistently gaining market share since now a few years in a row. And this is thanks, of course, to the -- of course, the power of our innovations. Remember, Burberry Goddess started first as an exclusive in Travel Retail last summer, which really is helping us to put on the market innovations that are tested in a way among consumers in this channel that we believe are amongst the most experts.
Second thing is that we are moving from a business that used to be just 3 years ago, and entry Prestige solidly fragrance-focused business into a triple access business today with fragrances, makeup, skin care and inside Fragrances, we are now playing in the 3 tiers on the market, entry-prestige, premium brands, but also niche and high-end fragrances with our outstanding performance behind a brand like (inaudible). So this channel is clearly a channel where we intend to continue because it's very related in our equation as you know it.
And we don't see in our figures any kind of slowdown in the pace of travel at consumers around the world. So this is one for Travel Retail. Now second, in China. So in China, we had also a very good performance, specifically driven by Prestige, which is the immense majority of our net revenue. We just got the beauty research figures about the sell-out during the quarter ending in December and Coty is 30 points above the market.
So we are doing very well. This is driven mainly by our fragrances, be it Burberry, the other collections that we have in the lines, (inaudible) et cetera. So this is clearly an area where we have -- the first white space is fragrances and even the small size of the company in that country, which give me a segue to skin care. You rightly said that we opened the first one Orveda in Shanghai. It's really a very different strategy we are doing behind these brands. We don't want to get in the game of other promotionality becoming the favorite brand of [Daigou]. This is not where we want to take our highest end brands, and you can understand why.
So that's the reason why we are experimenting new ways, mastering 100% of the brand's image and equity, mastering how to sell directly to consumers in the environment of Maison. That's everything, but just a point of sale. The Maison is really a place where you will be able, if you visit Shanghai, of course, to experiment the products to have facials, but also to discover how to eat, to discover how to take care of your skin, but also to maybe discover pieces of art. So we are really learning this part of the market that we believe is the next [country] for the beauty industry in general.
There was a study done by [Mackenzie] recently which said that the luxury market is $350 billion. The beauty is just taking a small fraction of this. What we call a real luxury and ultra luxury is clearly the next frontier for a company like ours on top of everything we are doing very well today. So this is for Orveda, the start of the brand over there is very, very good. We have the right consumers reaching out the high network and high network individuals. And in a way, this gives me the occasion to say that this brand got what we consider as the Oscar of the beauty industry, which is the [previously launched] (inaudible).
It was awarded last week. And this is really a fantastic achievement for the brand. That's allowing the brand everywhere else in the U.S. at (inaudible) but also in the niche boutiques where it's present in Europe, to multiply its productivity by 2, 3, 4, by 5, sometimes above this and become sometimes a bigger seller than famous brands with double access. So it's really something that's happening there, but we want to master the time of the expansion of the brand.
Now turning to the second brand that we launched in April in China It's [Lancaster] and this one is doing also very well, and we are now adding a second leg to the brand. We did skincare. And now we are adding the sun care part to the skin care, not that it was not there, but we were focusing our investments behind skin care. And we are realizing that by supporting both, we are increasing the productivity in a tremendous way. So everything is on track. And this -- but it is very important, we are really taking advantage of the momentum we are seeing behind our fragrance business to take the right amount of time not to do any kind of mistake and transform our brands into Daigou favorites.

Operator

Our next question will come from Charles Scotti with Kepler.

Charles-Louis Scotti

I have 2 questions, please. The first one on the ultra premium fragrance market that is outgrowing the Prestige segment. It seems that luxury brands are doubling down on this category. Could you share with us all the initiatives you have in place at the moment to tackle this, in my view [huge growth] opportunity ahead. I'm aware of (inaudible) but -- there any -- other initiatives in place to tackle this segment.
And second question, on e-commerce, it seems that you are enjoying a very strong growth in the online channel. What's the growth broad based between your DTC platform and also specialty retailers online business? And could you remind us how e-commerce growth is impacting your growth and EBIT margin?

Sue Y. Nabi

Okay. So let me start with the first question, which is around the ultra premium fragrance market, which is outgrowing indeed the Prestige fragrance underlying market. So there, you're right to mention (inaudible), which we've been mentioning now since several quarters as the best selling line, specifically in Asia and in Travel Retail. I can mention the collections behind each of our brands. The Boss collection is doing fantastically well in the Middle East, in Asia, in many Travel Retail locations. Burberry signatures is doing very, very well in the different areas around the world.
And you're right to mention the Coty (inaudible) line that's about to open its first store in the coming weeks. This is something that's really, I would say, the pride of the company. Once you have a product in your hands, I'm sure you'll be totally surprised by everything you will experiment from the packaging, from the box, the longevity of the scent at the same time, originality of the scent that also easy-to-wear scents and everything we are doing behind this brand is the best of the know-how of the company's sustainability is at the maximum we can do with receivable bottles, recyclable bottles, whatever is the right name.
So this area is going to become the new playground that the company if I may call it like this. And you were right to mention are there anything upcoming. What I can reveal is what is public today is the Marni new license that we have announced yesterday. This is a very premium fashion brand. It's very young. It's colorful, it's (inaudible). It's one of the coolest brand today in Asia and in Europe. And as you can imagine, this is going to be part of our agenda to really bring on the market very, very creative juices, very high positioning while at the same time, being part of this fragrance market.
So that's what I can say about what I can reveal. Stay tuned. Hopefully, you'll see things coming soon in this area, too. When it comes to e-com, you're right to mention the very strong growth that I've been commenting earlier. This is broad-based across retail.com and pureplay.com in a way, [DTC] which is the DTC behind our brands. We have DTC behind our skincare brands. You think about (inaudible) one of the biggest DTC platform we have at Coty. And this one is doing very well, the same way the brand has been growing during 3 quarters driven by DTC, same thing behind Orveda, where the DTC is growing here again triple-digit growth, if I'm not wrong. So you can clearly see that this part is also growing. But indeed, the big part of this in terms of net revenue is coming from retailers. When it comes to the profitability, maybe Laurent, you can say a few words about this.

Laurent Mercier

Yes, absolutely. And indeed, on the numbers, your question was also contribution to growth. So indeed, that this high 20% growth on e-commerce impact contributed to 40% of the Q2 growth. So it means that our e-com penetration in our numbers is growing by 180 basis points. So you see it's very very healthy, and it's very healthy from a profitability standpoint because indeed, e-com and all players, all channels is strongly margin accretive. So that's indeed part of our gross margin modern and very positive for the equation.

Operator

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

Unidentified Analyst

This is [Jonathan Kee] on for Anna. I'm just -- 2 questions. First, you mentioned in your prepared remarks a more tempered consumer environment in China and that you're making -- you're tweaking to accommodate these changes. Just wondering if you could give us any details about the tweaks given that economic change in China?
And then second, if you could go into any detail about the digital marketing and social media activation, what kind of ROI you're seeing for this marketing spend so far and how the engagement differs by demographic?

Sue Y. Nabi

So indeed, when it comes to China, the reality is that we are -- that's my intuition. And again, not studied around this, but everything we see, we hear, we read says that we are in the middle of 2 eras. There was the era where promotionality [Daigou] all this kind of way of buying really created a big bias in this market, and people were waiting for these occasions, for all these sales where people could buy anything that's very desirable at prices that do not work easily with desirability.
So this is something that lasted what it lasted. And now we are in a kind of era where it's, I would say, normalizing where we are seeing the brands respecting more and more their own brand equity. Protecting their brand equity, sometimes growing less fast than what they should -- what they want to do. But that's healthy, I would say. And that's also where to really make sure that the bad habits if I may call it of the past are behind us and even if Coty never went into this game, thank god, but this is something that we are really seeing is that there is a shift and consumers are waiting to see how brands are going to be held.
So for us, the 30 points above market performance we had in the quarter was really because we have the right brands because we have the right desirability behind these brands, mainly fragrance brands, that are really giving consumers value for money, but not discounted value for money. And that's a very important element. For me, that's the key element that changed between the story of the last 20 years and the upcoming story in the future. Now when it comes to digital marketing and social media activation, maybe Laurent, you can say a few words about the ROI of the...

Laurent Mercier

Absolutely. I mean what I can tell you, I mean, definitely that -- I mean, the ROI is much, much stronger compared to the traditional media so of course, there is no magic number. It depends on what TV activation and what is the launch but this is definitely a strong asset. And now we are really -- the work we have done also over the last years was also to get the capabilities and to get also the tools, okay? So now we have a very strong digital team, well equipped and definitely able to measure and really to focus our investments.
So this is definitely strong improvement. And that's why we shared also that now majority of our [agency] peer investment now are really in digital and social media. So this is very powerful, we can really target. By demographic, I would just highlight that, as you can easily understand that it's really very strong on Gen Z and that's very powerful because this is also a way to increase penetration from Gen Z. But not only Gen Z, it has also a halo effect on also millennials. So it's really -- it's a very positive cycle. And for us, in terms of resource allocation, a great move.

Sue Y. Nabi

And to complement what Laurent said Jonathan on ROI, the best ROI we have is on the most disruptive products. So it's good news because it's in our hands. It's our job to create exciting, desirable, innovative, new, different better products and once you have these products in the hand of consumers, you really start from a very high level of ROI and the rest is all around expertise.

Operator

Our next question comes from Ashley Helgans with Jefferies.

Ashley Elizabeth Helgans

Just wanted to follow up on actually the prior question about the dynamic skin care market that you mentioned. So in China, are you seeing any trade down or shift in preference to more domestic brand?

Sue Y. Nabi

So again, the shift towards domestic brands is in this something that is happening mainly on the mass market side, I have to say since now several years. And we've seen some very famous mass market brands, closing [over there]. This part of the business is very small at Coty. It's mainly Adidas that we are having, which is not considered as a mass market brand. Adidas is a kind of a cool brand, fashion brand, [phenomenon] more or less. And we have [Max factor] present on this market. But the reality is that the competition between international mass brands and local brands is fiercer than ever, and this is really a question mark for those who have big brands over there.
Regarding Prestige and skin care market, we don't see yet this. There is a kind of cohabitation between local new players, specifically in the niche part of the market. You've seen some brands becoming more and more visible created by Chinese founders. Together at the same time as a desirable, I would say, consumption of international brands, a lot of them are with Coty. So I wouldn't say that I see this phenomenon happening in this part.
Regarding the trading down, the trading down has been in China, the case for many, many, I would say, quarter because of the promotionality of the market. It's not people moving from an expensive brand to a niche expensive brand. It's people looking for the promotion to buy at cheaper costs. So the only thing I can tell you is that the part still very resilient bit in skin care or in fragrances in China is the high end and the higher end of the market. And this is the one that's protected. So we didn't talk about trading down. I would talk about people chasing promotions. Let's see how long this will last.

Operator

Our next question will come from Shovana Chowdhury with JPMorgan.

Shovana Nafiz Chowdhury

Congratulation on an impressive delivery in the first half, but it seems that you're assuming a steep deceleration. Can you please break down between volume and pricing? Is there any additional door or shop space? And more specifically, do you see a pause to the fragrance index, especially in your prestige fragrances and too early to speak about fiscal '25. But do you see stimulus triggering outsized growth for Coty again?

Sue Y. Nabi

I take the first part and I take the fragrance...

Laurent Mercier

I can take it. And I want to be very clear, there is no deceleration. So we are talking about normalization and again, to remind the numbers that shared. I mean, definitely, what we are seeing is a Prestige fragrance market being in the mid- to high single digit. Definitely Coty will continue to overperform this market. And then on Consumer Beauty, the assumptions we are making is low single digit to mid-single digit. And here also considering that Coty can really has the same dynamic.
So there is no pause in fragrance index. The fragrance index is fully at play. And you see definitely, I mean all the elements that to share is really that there is really appetite for premiumization -- you see the premium high end is really booming. There are really -- penetration keeps growing in the U.S. and in China. So this is, I can tell you, still a huge white space. So definitely, there is still a lot to expect on fragrance index. So it's -- so it will continue, and that's why we remain fully confident on [orders on] for H2 fiscal '24 and beyond for fiscal '25 and again beyond.

Operator

Our next question will come from Lauren Lieberman with Barclays.

Lauren Rae Lieberman

I was hoping we could go back to your original sales growth algorithm build to get to the 6% to 8% over time. Just curious if the drivers are still the same as the Prestige fragrance category normalizes as you've described. So historically, you've talked about 25% to 30% CAGR on skin care and Prestige cosmetics and then mid-singles on Consumer Beauty.
And just kind of given the flattish volume in Consumer Beauty, the more tempered language on skin care. And I would be curious to hear what tweaking to accommodate changes mean. I was just curious how you're thinking about the building blocks for that 6% to 8%?

Laurent Mercier

So indeed, first of all, I mean, we confirm indeed is midterm algorithm, so 6% to 8%. What we are really controlling tightly is really to make sure that it's really a balanced growth indeed between volume, mix and pricing. So as I've just explained, you understand that now we are shifting more from pricing to mix, okay? So this is definitely what we are balancing.
But definitely on volumes, our algorithm is really -- we continue to have volume growth. And again, all the innovation that we have just shared and that we will continue, of course, our volume drivers. So indeed, volume drivers, volume growth on Prestige. On Consumer Beauty, definitely, we focus a lot on the mix management. And again, same example, the innovation that we have just announced, as you understand, they are very -- they are improving the mix. And on volumes, I would say we are more assuming flat volumes on Consumer Beauty.
So you see -- so the model is more or less the same as we have always shared. And again, I mean, we are still seeing a lot of white space in fragrance, definitely, as I explained, with -- thanks to penetration, premiumization. I mean ultra-premium is a huge opportunity. And on Consumer Beauty, so in our algorithm, and we explained, we have also a lot of white space in Consumer Beauty. We shared and we highlighted all the great work that we are doing in Brazil but also, we have plans really on the emerging markets where our brands are at the right equity and the right positioning really to catch some market share.
So our model is perfectly on track. And indeed, with this balance, we keep repeating this balanced portfolio and balance geographical growth.

Lauren Rae Lieberman

Great. And then just a follow-up on the skincare commentary in the release, I think it was very pointed to sort of -- I think the quote "tweaking to accommodate changes in the dynamic skin care market." So just curious what that means and things still on track to double the business. I think it was by fiscal '26 is the target, but please correct me if that's the wrong date.

Sue Y. Nabi

So Lauren, this is Sue speaking. Skincare is still our biggest opportunity ever, both in terms of growth, in terms of white space, in terms of profitability, et cetera, et cetera. We have 3 fantastic brands operating exactly where the skincare market is growing today and will grow tomorrow, Ultra Premium, brands that are really rooted into premium market and of course, brands that are more towers Gen Z, millennials such as (inaudible). So with these 3 brands, we really mapped the market in a very nice way.
The other element that's very important is that when I saw how much we are overperforming in fragrances, how much we are doing the right things in this area, which is growing the business of the company. I decided intentionally to slow down our skin care openings, okay? I want to do it perfectly, and this is the best news is, I may say, of the year. It's not to go fast is to do the right thing. And as I love to say, what takes time is expected by time. It's not going to take an endless time. It's going to take the right time.
So don't expect us to change our strategy in Skin Care, its still the #1 obsession of the company for the next years. It's a very important part of the growth algorithm of the company. But the good news is that today, we can do without this growth that we have been mapping 2 years ago. And it's very good news, specifically when we see how some players in this area have been hit by other promotionality becoming [Daigou] [Fed rates], et cetera. We don't want to go there again, you see what I mean. So when you don't use these levers it takes a bit more time, but it's healthier and better in terms of brand equity protection.

Operator

Our next question will come from Mark Astrachan with Stifel.

Mark Stiefel Astrachan

Two questions related to expectations for some slowing in the category growth, particularly on the Prestige side. I guess, one, why increase inventory for the working capital commentary, if you think category growth is going to slow, especially heading into a period of traditionally smaller sales in the back half of your fiscal year. And related, what gives confidence that retailer inventories on that prestige side are balanced or in the right spot today given that your sales have exceeded consumer takeaway in the Prestige business in recent quarters?

Laurent Mercier

Thank you, Mark. So again, I want to be -- to repeat again. I mean it's not slowing in Prestige fragrance category. It's really normalization. And just to reiterate that mid- to high single-digit fragrance of both categories. I mean, it's a very robust growth and confirmed that this category is very dynamic, especially when you compare versus the trends that were existing before COVID.
So on inventory, I can tell you that we are absolutely in control on our inventory with our supply chain with very strong forecast accuracy. So we are running our business in a very intelligent manner. Definitely, we made a decision at the moment to increase inventory. Clear example is Burberry Goddess. I can tell you Burberry Goddess #1 innovation on the market. the biggest ever launch at Coty. So definitely, we make sure, especially because we started this project more than a year ago.
In a context where supply chain was still challenged. We make sure, of course, that we have sufficient components, sufficient products, of course, to have a very good service level and you see now the service level is that -- is 96% and even with the very big launches, which is the case in fragrance, but also impressive, but also in consumer beauty. So we have very, very tight control on the inventory. Then on the retailer side, I can tell you that the level of inventory that we have across our markets, across our retailers is very healthy.
We are really tracking sell-out and sell-in. And indeed, as you can see in our numbers, that are [set out] is ahead of the market. So this is really -- and we are really making sure with each market, all the teams that -- there is no inventory that inventory at retailer side is very, very healthy. And again, the discipline that Sue is referring to, this is definitely a big, big part of the discipline we have put in place, and we continue to manage with equity.

Sue Y. Nabi

Thank you, everyone. So again, as you can imagine, we are really very proud about this [14th] quarter of reserves that are in line so ahead of both guidance and expectations. It's 3.5 years already. That, I would say, an achievement. And of course, we are here to continue this trajectory. So looking forward to seeing all of you in CAGNY within 2 weeks. Thank you very much.

Operator

This does conclude today's Coty Second Quarter Fiscal 2024 Question-and-Answer Conference Call. You may disconnect your line at this time, and have a wonderful day.