Coty hints at sales pressure this quarter as it beats forecast

Reuters
Michele Scannavini,CEO of Coty Inc.,ing the opening bell at the New York Stock Exchange to celebrate the company's IPO
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Michele Scannavini, (C) CEO of Coty Inc., and company representatives ring the opening bell at the New York Stock Exchange to celebrate the company's IPO, June 13, 2013. REUTERS/Brendan McDermid

(Reuters) - Coty Inc (COTY.N) said revenue was likely to decline marginally this quarter as growth slows in the United States and Europe, taking some luster off stronger-than-expected results in the beauty products maker's first report as a public company.

Coty on Tuesday posted a higher-than-expected quarterly profit, helped by strong sales of branded perfumes such as Marc Jacobs and Chloe in Asia.

There have been concerns that the company, which made its market debut on June 13, is too dependent on the United States and Europe, where middle-income consumers have been cutting back on some discretionary purchases.

Over the last few months, Coty has seen "a deceleration of market growth in the U.S. and Europe, triggering significant trade de-stocking activity, particularly by U.S. mass retailers," Chief Executive Officer Michele Scannavini said during the company's morning conference call.

Most of Coty's top U.S. mass market retail customers are cutting back on inventory across all of the company's product segments, he said.

Coty expects revenue to fall marginally in its current first quarter and that over the second half of its fiscal year it can return to growing in line or faster than the markets and categories in which it competes, Scannavini added.

The company did not give specific earnings-per-share forecasts.

Coty's U.S. mass retail customers include Wal-Mart Stores Inc's (WMT) Walmart, Target Corp (TGT) and a variety of other chains that sell some of its fragrances, nail polish and other products.

The company's comments echo what rival Elizabeth Arden Inc (RDEN) said in August when it turned in much weaker results and forecasts than expected, due in part to pressure at Walmart in the United States and in Europe, particularly in the United Kingdom.

Coty's shares were down 3.3 percent in morning trading, while Elizabeth Arden's were up by the same percentage.

Through Monday, Coty's stock had fallen 7.1 percent from its initial public offering price of $17.50.

"Long-term sales growth will remain challenged and continue modestly below the global beauty category, capping material upside," said Stifel analyst Mark Astrachan, who has a "hold" rating on the shares.

Of nine analysts who follow Coty, five give it a "hold" rating, three a "buy" and one a "strong buy," according to Thomson Reuters data.

Coty also said it would pay an annual dividend of 20 cents per share in October.

FOURTH-QUARTER RESULTS

The company's net loss narrowed to $62.3 million, or 16 cents per share, in the fourth quarter ended June 30 from $357.3 million, or 95 cents per share, a year earlier.

Excluding items such as expenses from private company share-based compensation, earnings were 3 cents per share. Analysts on average were expecting a profit of 1 cent per share on that basis, according to Thomson Reuters I/B/E/S.

Revenue rose 3.9 percent to $1.06 billion, topping Wall Street estimates of $1.05 billion.

The results benefited from 11 percent sales growth in Asia, Coty's smallest market. Sales declined nearly 0.2 percent in the Americas and rose 5 percent in Europe, the Middle East and Africa.

Fragrances account for the bulk of Coty's business, even though the company has expanded in skin care, nail products and other categories through acquisitions.

Even so, it faces pressure from growing competition in areas such as nail care. Its OPI and Sally Hansen brands remained stable for the year.

(Reporting by Siddharth Cavale in Bangalore and Jessica Wohl in Chicago; Editing by Kirti Pandey and Lisa Von Ahn)

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