COTY Inks Agreement to Offload 3.6% of Its Stake in Wella
Coty Inc. COTY is on track to meet its leverage goal toward 3X as it exits CY23. The cosmetics behemoth unveiled that it has inked a letter of intent to divest part of its stake in Wella to IGF Wealth Management (an investment company). The deal is expected to close over the next two months, subject to certain conditions.
Coty will offload 3.6% of its Wella stake for nearly $150 million, which reflects a premium of 4% to Wella’s book value as of Mar 31, 2023. Following this, COTY will have a 22.3% stake left in Wella, with an implied valuation of roughly $900 million. This takes the company closer toward its focus on completely selling its stake in Wella and reaching a leverage of about 2X by the end of CY25.
These moves, together with efficient capital allocation and robust business advancement, place Coty well for further growth in the beauty space.
What’s Driving Coty’s Business?
COTY has been benefiting from its focus on six strategic pillars aimed at sustainable growth. These include stabilizing Consumer Beauty make-up brands and mass fragrances, accelerating luxury fragrances and setting up Coty as a core player in prestige make-up, establishing a skincare portfolio in prestige and mass channels, strengthening e-commerce and Direct-to-Consumer capabilities, growing presence in China via Prestige and certain Consumer Beauty brands and setting Coty as an industry leader in sustainability.
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Coty has been reaping the benefits of the booming global prestige fragrance market. In the third quarter of fiscal 2023, the demand for prestige fragrances across North America and Europe continued to grow in the mid-teen percentage. In the quarter, Coty’s overall e-commerce sales grew modestly year over year. COTY is on track to fuel its Digital momentum across key areas like social commerce, e-retail and new partnerships.
Apart from these, the company continues to witness impressive momentum in Travel Retail sales. Coty’s Travel Retail sales grew roughly 30% in the fiscal third quarter, representing approximately 8% of its overall business.
Coty has made several strategic partnerships to enhance its brand portfolio. In January 2023, Coty and Jil Sander unveiled that they have renewed their license deal and are in for a long-running collaboration. The renewed deal is likely to solidify the ongoing business alliance while laying the foundation for a new strategic project stretching over 10 years. On Nov 18, 2021, Coty signed a licensing agreement with Orveda — an ultra-premium skincare brand made in France.
The abovementioned drivers, commitment to enhancing leverage status and a focus on optimizing the cost structure are likely to add new leaves to Coty’s growth story. This Zacks Rank #2 (Buy) stock has rallied 44.5% year to date against the industry’s decline of 10.1%.
Other Solid Cosmetics Stocks
Some other top-ranked cosmetics stocks are Nu Skin NUS, Helen of Troy HELE and Inter Parfums IPAR.
Nu Skin, a beauty and wellness product company, currently sports a Zacks Rank #1 (Strong Buy). NUS has a trailing four-quarter earnings surprise of 9.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Nu Skin’s current fiscal-year EPS has risen by 2 cents to $2.61 over the past 60 days.
Helen of Troy, which offers various consumer products, currently has a Zacks Rank #2. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year EPS has increased from $8.75 to $8.80 over the past 30 days.
Inter Parfums, which offers a range of fragrances and fragrance-related products, currently carries a Zacks Rank #2. IPAR has a trailing four-quarter earnings surprise of 37.2%, on average.
The Zacks Consensus Estimate for Inter Parfums’ current fiscal-year sales and earnings suggests growth of 15.2% and 7.1%, respectively, from the year-ago reported numbers.
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