COTY on Track With Cost Savings Amid Inflationary Headwinds
Coty Inc. COTY is benefiting from the focus on its strategic pillars aimed at sustainable growth. The beauty products provider undertakes strategic partnerships to enhance its brand portfolio. Management is on track with cost-saving efforts to counter inflationary headwinds.
Let’s delve deeper.
Core Priorities Drive Growth
The company is benefiting from its focus on six strategic pillars that are 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 (DTC) capabilities; growing presence in China via Prestige and certain Consumer Beauty brands; and setting Coty as an industry leader in sustainability.
Coty is benefiting from the booming global prestige fragrance market. In the second quarter of fiscal 2024, its Prestige fragrance revenues increased 15% LFL. In the first half of fiscal 2024, e-commerce sales were a driver, with Prestige and Consumer Beauty seeing more than 20% e-commerce growth. Results benefited from strong enhancements in e-commerce fundamentals, better customer service, social media promotions and closer ties with online retailers. The company continues to witness impressive momentum in Travel Retail sales.
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Partnerships Hold Promise
Management made several partnerships to enhance its brand portfolio. Per the fiscal second-quarter earnings call, management signed a license with Marni, an Italian luxury brand, which complements the prestige portfolio. In the Consumer Beauty space, the company extended two key licenses — bruno banani and Mexx. 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 more than 10 years.
Cost Hurdles
Coty is witnessing dynamic inflation and a supply chain environment. In the fiscal second quarter, the company’s cost of sales increased to $603.5 million from $525.3 million reported in the year-ago quarter. Quarterly adjusted gross margin came in at 65.1%, contracting 40 basis points from increased excess and obsolescence, inflation and tough comparison with some benefits realized in the year-ago period.
Cost-Savings Offer Respite
Coty is committed to optimizing the overall cost structure amid cost hurdles. Management is progressing well with the All In to Win transformation program across five key work areas, driving notable improvement in cost, gross margins, sales growth and cash. In the fiscal second quarter, the company delivered savings of nearly $30 million. The company targets savings of $110-$120 million for fiscal 2024.
Shares of the Zacks Rank #3 (Hold) company have increased 7.5% in the past six months compared with the industry’s 2.8% growth.
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