Puig Manufacturers SA is betting on the Perfume Index for its multibillion-euro preliminary public providing. However the proprietor of Charlotte Tilbury, Jean Paul Gaultier and Nina Ricci must move the odor take a look at to persuade buyers to purchase into it. After three years of stellar progress, we could also be previous peak fragrance.
Puig generated €4.3 billion ($4.7 billion) in income in 2023, up 19 p.c from 2022, and earnings earlier than curiosity, tax, depreciation and amortisation of €863 million. With borrowings manageable — web debt on the finish of 2023 was €1.2 billion — the as much as €2.5 billion proceeds of the IPO can be used to help future progress. The Puig household will retain a majority stake.
Puig’s greatest markets are Europe and the US, with Asia-Pacific accounting for simply 10 p.c of income in 2023. So there’s scope to increase within the Asian magnificence market, which is dominated by skincare and cosmetics however the place perfume is getting extra fashionable.
Placing Puig’s 2023 Ebitda on a mix of L’Oréal SA and Coty Inc.’s multiples would suggest an enterprise worth of €17 billion. However this will likely show bold for a number of causes.
Some 72 p.c of Puig’s income got here from its perfume and vogue enterprise in 2023. Assuming the latter is a small a part of the division, then the vast majority of the unit’s income is generated by fragrance.
Perfume gross sales have surged because the pandemic. Cooped up at house, customers experimented with scent as a strategy to make themselves really feel good. Demand solely accelerated as economies reopened and we stocked up on our favorite perfumes to return to the workplace and social occasions. This sparked discuss of a Perfume Index, with Coty, Estée Lauder Cos Inc. and L’Oréal all seeing sturdy demand. It is a variation on the Lipstick Index, first noticed by Leonard Lauder throughout the 2001 recession, which described how girls dealing with an unsure financial atmosphere splurged on extra reasonably priced treats.
On this sense, Puig has extra in frequent with Galderma Group SA, which affords dermatological merchandise, one other fast-growing class, than Germany’s reply to magnificence behemoth Sephora, Douglas AG. Whereas Galderma shares soared 21 p.c in its market debut final month, Douglas slumped 11 p.c.
There’s a query mark over whether or not Puig’s fragrance manufacturers are wanted by Gen-Z consumers. Its general portfolio is clearly premium, and it has some area of interest scents, similar to Penhaligon’s, L’Artisan Parfumeur, Dries Van Noten and Byredo. What’s extra, totally or majority-owned manufacturers account for greater than 90 p.c of income, making it much less in danger than some rivals of luxurious homes taking management of their magnificence choices and delivering greater margins. Puig had an Ebitda margin of 20 p.c in 2023, in contrast with the just about 18 p.c anticipated for Coty within the 12 months to June.
Puig’s greatest model is Rabanne, which reached €1 billion of income final 12 months, with Carolina Herrera additionally approaching this stage of gross sales. These are mainstream fragrances, and Puig might want to work exhausting to make sure these manufacturers enchantment to discerning consumers by including extra premium artisanal strains.
Cosmetics and skincare stay smaller components of the enterprise. The corporate is constructing its presence in these markets, for instance shopping for dermatological skincare model Dr. Barbara Sturm in January. The enchantment of Charlotte Tilbury reveals no signal of diminishing, with this model additionally approaching €1 billion of income. However Puig might want to proceed to put money into make-up and skincare, significantly to faucet Asia. And relating to shopping for both area of interest perfume names or magnificence manufacturers, costs might be excessive.
Maybe the most important threat is from a cooling within the red-hot magnificence market.
Ulta Magnificence Inc. chief government officer Dave Kimbell mentioned final week that the retailer had seen each the mass-market and luxurious segments gradual “meaningfully” because the starting of February. He mentioned the deceleration had been “a bit earlier and a bit greater” than anticipated.
It’s not instantly clear whether or not it is a good or unhealthy signal for the broader client economic system.
A constructive studying can be that if girls aren’t shopping for lipstick and premium haircare, maybe they’re forking out on purses or getting their hair completed at salons. A extra worrying state of affairs is that customers are pulling again from smaller purchases due to rising costs or as a result of they purchased sufficient moisturiser and mascara over the previous three years. Kimbell blamed greater credit-card debt and the return late final 12 months of scholar mortgage repayments for the retrenchment.
Both means, the event is an unhelpful one for a magnificence enterprise that’s coming to market. In opposition to this backdrop, Puig should put its greatest face — or perfume — ahead.
By Andrea Felsted
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Puig Goals to Increase €2.5 Billion in IPO
The family-owned premium magnificence conglomerate has confirmed it’ll float shares on the Spanish inventory change whereas retaining majority management, following months of hypothesis.
