Coty results show decline in sales but beat analysts' forecasts

By Simon Pitman

- Last updated on GMT

Coty results show decline in sales but beat analysts' forecasts

Related tags Revenue

All eyes are on Coty as it gears up to almost triple the size of its business through acquisition, but its second quarter results reveal that challenges exist ahead of the portfolio expansion.

Net revenues for the quarter fell by 1% on a like-for-like basis to $1.21bn, a decline of 4% when factoring in the negative impact of currency translations and other factors.

Currently Coty has a relatively small global exposure, but that is set to change once 40 global P&G brands worth $12bn are brought into the stable, together with the $1bn acquisition of the Hypermarcas beauty brands in Brazil.

A closer look at the revenues for the quarter reveals that the company achieved solid like-for-like growth in the color cosmetics category, flat growth in the skin and body care category, and a decline in fragrance revenues.

Color cosmetics drove revenue growth

In the color cosmetics division, gains were driven by strong sales for brands such as Sally Hansen and Rimmel, which more than counterbalanced a general decline in the US market for nail care.

The lower revenues also impacted the adjusted net income figure for the quarter, which came in at $135.8m, compared to $163.2m in the corresponding period last year.

However, despite the dip in sales, the results beat Wall Street’s expectations, with the actual earnings results beating that of 10 analysts interviewed by Zacks Investment Research.

Getting the house in order, ahead of expansion

Commenting on the results, Coty CEO Bart Becht, spoke about the company’s aim to build a strong platform for the business, ahead of the integration of the P&G and Hypermarcas brands, which is set to take place throughout the course of 2016.

Indeed, the integration of those brands began last month, when 10 fragrance brands, including Hugo Boss, Gucci and Stella McCartney were migrated to the Coty portfolio.

Building on the acquisitions, the company also recently signed a major fragrance licensing deal with upscale New York City retailer Tiffany & Co, which is tipped to be a major revenue driver.

Muted revenue performance for next quarter

“Coty revenue trends remained muted and we expect to see this Q2 trend continue for the remainder of the fiscal year as we gradually rationalize non-strategic product lines and businesses,”​ said Becht about the latest quarterly results.

“At the same time, we continued to show strong momentum in driving operating profit, operating margin growth and cash flow generation, showing that we can continue to build a healthier and better business despite a muted revenue growth performance.”

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