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COTY Q4 Loss In Line With Estimates, Sales Increase Y/Y

Coty Inc. COTY posted decent fourth-quarter fiscal 2022 results, with the top line surpassing the Zacks Consensus Estimate and the bottom line meeting the same. Both metrics improved year over year.

The company gained from strong performance across the Prestige and Consumer Beauty segments. Coty saw solid trends in the Prestige fragrance portfolio, with particular gains from Hugo Boss, Burberry, Chloe, Calvin Klein and Gucci Beauty. The Consumer Beauty unit delivered robust performance with growth in all product categories and almost every key brand. Coty witnessed solid gross margin expansion amid the inflationary environment. Management is on track to enhance its strategic growth pillars. Management expects fiscal 2023 revenues and profit to grow in line with medium-term targets.

Coty Price, Consensus and EPS Surprise

Coty Price, Consensus and EPS Surprise
Coty Price, Consensus and EPS Surprise

Coty price-consensus-eps-surprise-chart | Coty Quote

Quarter in Detail

Coty incurred a loss of 1 cent per share, in line with the Zacks Consensus Estimate. The metric was narrower than our estimate, which was pegged at a loss of 2 cents per share. The bottom line improved from a loss of 8 cents reported in the year-ago quarter.

Coty’s net revenues came in at $1,168.3 million, up 10% year over year, including an adverse currency impact of 6%. The metric topped the Zacks Consensus Estimate of $1,149.2 million but lagged our estimate of $1,170.3 million. LFL revenues rose 16% on growth in the Prestige and Consumer Beauty business segments. The company’s LFL revenues included more than 150 basis points (bps) unfavorable impact from its Russia business exit.

Coty’s e-commerce business continued to deliver solid performance, registering double-digit sales growth in the reported quarter.

Adjusted gross margin came in at 62.1%, expanding 120 bps from the prior-year quarter’s levels. The upside was supported by favorable category mix-shift, price and mix management, and improved absorption on better volumes despite the rising inflationary environment.

Adjusted operating income came in at $65.1 million, rising from $45.3 million in the prior-year quarter. The adjusted EBITDA in the quarter amounted to $132.4 million, up 4% as increased sales and gross profit was somewhat offset by escalated A&CP.

The adjusted operating margin in the fourth quarter came in at 5.6%, while the adjusted EBITDA margin was 11.3%.

Segment Results

Prestige: Net revenues in the segment advanced 16% to $662.8 million. The segment’s revenues were up 23% on an LFL basis, driven by strength in every region, especially in all EMEA markets, Travel Retail and the United States.

Consumer Beauty: Net revenues rose 3% year over year to $505.5 million. The segment’s LFL sales jumped 7%, with robust performance in color cosmetics, mass fragrances, skincare and body care. Management highlighted that every region generated LFL growth in the segment.

Region-Wise Results

Net revenues in the Americas increased 14% to $509.5 million. LFL revenues were up 13%, driven by solid growth in Prestige and Consumer Beauty segments.

Sales in EMEA increased 10% year over year to $517.7 million, while the figure rose 22% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segment.

Sales in the Asia-Pacific region declined 2% (up 2% at LFL) year over year to $141.1 million. Management highlighted that sales were hampered by the resurgence of COVID across China and associated lockdown measures through the majority of the quarter. Almost all markets generated double-digit growth outside China, courtesy of a persistent rebound in travel retail.

Other Updates

The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $233.3 million, net long-term debt of $4,409.1 million and immediate liquidity of $1,949.6 million.

In the year ended Jun 30, 2022, cash provided by operating activities amounted to $726.6 million.

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Zacks Investment Research


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Outlook

At the start of the first quarter of fiscal 2023, Coty is seeing continued prestige fragrance market momentum worldwide along with solid demand growth mainly in Europe, global Travel Retail, the Middle East & Africa and Brazil. Along with this, the company’s impressive launch pipeline of Prestige and Consumer Beauty keeps management optimistic about its fiscal 2023 core business projections. Adjusting for the impact of the Russia exit, management expects 6-8% LFL revenue growth, in line with the medium-term growth algorithm. The company expects unfavorable currency rates to affect revenues by 4-5% in fiscal 2023.

For fiscal 2023, adjusted EBITDA is projected in the range of $955-$965 million, relatively in line with its medium-term growth target, adjusted for the Russia exit impact. Management anticipates fiscal 2023 adjusted earnings per share (EPS) growth in mid-teens.

Further, management highlighted that it expects fiscal first-quarter and fiscal 2023 first-half revenue and EBITDA growth trends to be in line with the annual growth targets.

Price Performance

COTY’s shares have jumped 10.6% in the past three months compared with the industry’s 6.5% growth.

Stocks to Consider

Some better-ranked stocks are Inter Parfums IPAR, e.l.f. Beauty ELF and United Natural Foods UNFI.

Inter Parfums is engaged in the manufacturing, distribution and marketing of a wide range of fragrances and related products. IPAR currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and EPS suggests growth of 14.9% and 18.6%, respectively, from the year-ago period’s reported figures. IPAR has a trailing four-quarter earnings surprise of 31.1%, on average.

e.l.f. Beauty, a cosmetic company, currently has a Zacks Rank #2 (Buy). ELF has a trailing four-quarter earnings surprise of almost 77%, on average.

The Zacks Consensus Estimate for e.l.f. Beauty’s current financial-year sales and EPS suggests growth of 16.8% and almost 6%, respectively, from the year-ago period’s reported figures.

United Natural Foods distributes natural, organic, specialty, produce and conventional grocery and non-food products. UNFI currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for UNFI’s current financial year sales suggests 7.6% growth from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 29.9%, on average.


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