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Coty Tanks 14% As Quarterly Sales Fail To Impress; Street Says Hold

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Shares of Coty plunged 14 after the cosmetic maker’s quarterly sales fell short of analysts’ expectations.

In the three months ended Dec. 31, Coty’s (COTY) revenue slipped 15.9% to $1.415 billion, lagging the Street consensus of $1.433 billion, as sales in the US and EMEA regions were hit most due to pandemic-led store closures and a decline in make-up usage events. Meanwhile, adjusted earnings per share declined to $0.17 from $0.27 in the year-ago period, but came in ahead of the $0.7 per share expected by analysts.

On a geographic comparison, Coty’s prestige business in China continued to grow, with strong fragrance and retail sales for both Gucci and Burberry cosmetics.

“With revenues delivering on our objectives and profit, cash flow and debt all ahead of expectations, including 6% EBITDA growth, it is clear that a much stronger Coty is emerging, which we believe will weather any near-term market headwinds while simultaneously positioned strongly to capture the opportunities of the eventual global recovery,” Coty CEO Sue Y. Nabi said.

Looking ahead to the third quarter, Nabi disclosed that “January trends are starting inline with our expectations.”

Additionally, Coty is advancing on a plan to trim fixed costs, which are expected to reach $300 million this fiscal year, while adjusted EBITDA is forecasted to come in at $750 million in FY21.

“Despite continued disruptions to sales channels and short-term orders related to the COVID-19 pandemic, we remain focused on our strategic priorities and the improvement of our sell-out trends, and will start raising our commercial investments to fuel improvements ahead of FY22,” the company stated.

Shares of Coty surged a stellar 86% over the past three months, while Wall Street analysts are mostly sidelined on stock with a Hold consensus rating. That’s alongside an average analyst price target of $7.70, which implies 13% upside potential over the coming 12 months.

Following the sharp rally, Wells Fargo analyst Christopher Carey recently initiated the stock with a Hold rating and a $5 price target, arguing that “valuation doesn’t jibe with fundamentals.”

Carry noted that although “results have shown green shoots on margins, we’ve seen this before and still don’t have clarity on a sustainable turn in results to justify premiums relative to shares of companies with much better fundamental visibility ahead.” (See Coty stock analysis on TipRanks).

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