Text size
Beauty-products firm
Coty
reported strong fiscal-third-quarter earnings on Monday, and raised guidance.
Coty’s (ticker: COTY) Chief Financial Officer Laurent Mercier cited continued demand for fragrance and makeup for the upside.
For the full 2022 fiscal year, the company lifted its forecast range for adjusted earnings per share to 23 cents to 27 cents, from 22 cents to 26 cents. Analysts surveyed by FactSet had expected 27 cents.
The stock is down 7.8% in Monday morning trading to $6.72 as part of a broader selloff in the market. The stock was previously up 2% in early morning trading. It has fallen 36% so far this year, while the
S&P 500
has fallen 16%.
Broadly, inflation has taken a hit to consumers’ ability to spend, especially on discretionary goods. On top of that, people are often choosing to use what little money remains for experiences like trips and restaurants rather than items. But Coty’s quarterly results show that the demand for consumer goods like cosmetics seems to remain strong despite the situation.
“Overall we are very confident about the market dynamic,” Chief Financial Officer Laurent Mercier told Barron’s. “Being confident also means we are diligent and cautious in making sure we are following it [the market] in an accurate manner—for our mid- to high-end consumers, we are seeing great traction.”
Earlier in the pandemic, consumers focused on skincare and fragrance as more companies implemented work-from-home policies, and demand for various products shifted segments. Though that was the case early on, demand for all segments is still strong, Mercier said. That’s especially the case for fragrance and consumer beauty products.
“What we are seeing—and there are a few elements—is that people really enjoy fragrance,” he said.
Mercier said he’s also seen an uptick in demand for fragrance in demographics including Gen Z. “E-commerce is helping with that,” he said. “[What our consumers are seeing] on TikTok and so on is also very positive and you really see that fragrance is a perfect match between the usual retail distribution and also e-commerce.”
Consumer-beauty revenue increased 7.8% to $459.8 million in the quarter. Some of Coty’s well-known products include brands such as Kylie Cosmetics and CoverGirl.
But like any other company battling inflation, Coty has to price its products to mitigate higher costs. Passing on those higher prices to consumers isn’t always easy, but strong pricing power and a premiumization of products helps with that, Mercier said.
For the fiscal third quarter ended March 31, the company reported revenue of $1.19 billion, or an increase of 15.4%, above the FactSet consensus of $1.15 billion. Prestige revenue rose 20.8% to $726.4 million.
Net income was $50.3 million for the quarter, or 6 cents a share, compared with a loss of $18.5 million last year.
Of the 13 analysts that cover the stock on FactSet, the majority say the stock is a Hold, including Stifel analyst Mark Astrachan.
“Overall we view the [fiscal third-quarter] result as strong with continued strong sales growth reflecting recovering underlying global beauty category trends, especially in prestige fragrances, and market share improvement inCoty’s Consumer segment in part reflecting meaningful increases in advertising spend,” he wrote in a research note Monday morning. His target price for the stock is $12.
Write to Logan Moore at logan.moore@barrons.com.
Read More: Coty Boosts Its Outlook. Thank Consumer Demand for Cosmetics.