An updated edition of the February 26, 2025 article.The beauty and cosmetics space has evolved from ancient natural remedies to today's advanced, science-backed skincare and makeup solutions. Beauty standards and preferences have changed over time, shaped by cultural influences, technological innovations and shifting societal values. Now a multi-billion-dollar global industry, beauty continues to redefine self-expression and personal identity through a diverse range of products — from skincare and makeup to ...

Companies in the Zacks Cosmetics industry are operating in a rapidly evolving macroeconomic landscape, grappling with external challenges that are dampening consumer demand and pressuring sector performance. Sluggish sales are being compounded by rising production and operational costs, which continue to impact profitability and efficiency.Nevertheless, leading players such as The Estee Lauder Companies Inc. (EL) , Coty Inc. (COTY) , Helen of Troy Limited (HELE) and European Wax Center, Inc. (EWCZ) are bene ...

Core Insights - Coty Inc. has sold its 20% stake in SKKN by Kim to SKIMS, ending its partnership with Kim Kardashian's beauty brand, allowing SKIMS to unify its beauty and lifestyle ventures under one brand [1] - The divestment is part of Coty's strategy to streamline its portfolio, invest in innovation, and strengthen its financial position through deleveraging efforts [1][2] Coty's Strategic Rationale - The decision to divest from SKKN reflects Coty's ongoing evaluation and optimization of its diverse brand portfolio, aiming to drive growth in key categories such as prestige and mass beauty, fragrance, and skincare [2] - Proceeds from the sale will support Coty's deleveraging strategy and fuel innovation across its broader brand portfolio [2] Historical Context - Coty initially invested in Kim Kardashian's beauty business in 2020, completing the transaction in 2021, leveraging its R&D capabilities and global distribution network [3] - Despite exiting SKKN, Coty retains a majority stake and perpetual license in Kylie Cosmetics, which has grown 1.5 times in the past two years under Coty's leadership [3] Market Position and Performance - Coty continues to solidify its leadership in the fragrance industry, achieving high-single-digit sell-out growth in its prestige fragrance portfolio during the first half of fiscal 2025, despite challenges in markets like China and travel retail [4] - The company's cosmetics brands are gaining momentum, supported by strong social media advocacy and an agile innovation strategy [5] Transformation and Operational Strategy - Coty is advancing its "All In to Win" transformation program, focusing on cost reduction, margin expansion, and revenue growth, with recent operational streamlining efforts strengthening cash flow for future investments [6] Challenges and Market Headwinds - Coty faces challenges in the Chinese mainland and Asia Travel Retail markets, where weak demand persists, leading retailers to adjust their orders [7] - The company is managing higher advertising and consumer promotions spending, with A&CP expenses remaining in the high 20% range, reflecting a year-over-year increase [8] Future Outlook - With the sale of the SKKN stake, Coty is reinforcing its focus on core brands and long-term strategic vision, committed to driving sustainable growth and expanding its presence in key global markets [10]

Core Insights - Coty Inc. is facing challenges due to rising costs and weaker-than-expected demand in key markets such as China, Travel Retail Asia, and the United States [1] - The company reported a decline in both top and bottom-line results for the second quarter of fiscal 2025, missing the Zacks Consensus Estimate despite strong holiday sales [1][4] - Coty's share price has dropped by 25.7% over the past three months, underperforming the industry and broader market indices [2] Financial Performance - In the second quarter of fiscal 2025, Coty's Asia Pacific segment reported net revenues of $191.5 million, reflecting an 11% decline due to tough market dynamics in China and the regional Travel Retail channel [5] - The company anticipates LFL sales trends in the second half of fiscal 2025 to remain consistent with the second quarter, projecting a decline of 1% to 2% [7] - A significant foreign exchange headwind of approximately 3% is expected to impact reported sales for fiscal 2025, leading to a low single-digit percentage decline [7] Cost Pressures - Coty has been experiencing increased advertising and consumer promotions (A&CP) spending, with A&CP costs remaining in the high 20s percentage range [6] - The ongoing rise in A&CP expenses, if not effectively managed, could further pressure Coty's margins and profitability in the upcoming quarters [6] Market Outlook - The beauty market is transitioning into a more normalized phase, with ongoing challenges in Asia and Travel Retail affecting Coty's performance [4] - Management forecasts a similar challenging market environment for fiscal 2026, indicating that recovery may take longer than anticipated [8]

Core Insights - Coty's international operations are crucial for assessing its financial strength and growth potential, especially given its global presence [1][2] - The company's reliance on foreign markets presents both opportunities and challenges, impacting its revenue stability and growth trajectory [3][9] Revenue Performance - For the quarter ending December 2024, Coty's total revenue was $1.67 billion, a decline of 3.3% year over year [4] - EMEA region generated $839.8 million, accounting for 50.29% of total revenue, slightly below the expected $842.22 million [5] - Asia Pacific contributed $191.5 million, representing 11.47% of total revenue, also falling short of the consensus estimate of $202.55 million [6] Future Revenue Predictions - Analysts predict Coty's total revenue for the current fiscal quarter to be $1.32 billion, reflecting a 4.9% decline from the previous year [7] - For the entire year, total revenue is forecasted at $5.98 billion, a reduction of 2.2% from the previous year, with EMEA expected to contribute 48% and Asia Pacific 12.1% [8] Stock Market Performance - Coty's stock has declined by 21.9% over the past month, contrasting with a 4.7% increase in the S&P 500 [13] - Over the past three months, Coty's shares decreased by 23.8%, while the S&P 500 rose by 3.1% [13]

Core Insights - Coty Inc. reported weaker-than-expected earnings for its second quarter, with earnings of 11 cents per share, missing the analyst consensus estimate of 21 cents per share, and quarterly sales of $1.67 billion, below the expected $1.72 billion [1][2] Company Performance - CEO Sue Nabi indicated that FY25 is expected to be pivotal for Coty, noting that the global beauty market continues to grow, albeit at a moderated pace compared to previous years. Fragrances, which account for over 60% of Coty's revenues, are outperforming other beauty categories [2] - Following the earnings announcement, Coty's shares fell by 5.5%, trading at $5.79 [2] Analyst Reactions - Analysts adjusted their price targets for Coty after the earnings report, with Morgan Stanley lowering its target from $9 to $7, Canaccord Genuity from $10 to $8, Evercore ISI Group from $15 to $10, and Goldman Sachs from $9 to $8 [3][4]

Core Viewpoint - Stifel analyst Mark S. Astrachan reiterated a Hold rating on Coty Inc and lowered the price forecast from $8.50 to $8 due to disappointing second-quarter results and a lowered guidance for the fiscal year [1] Financial Performance - Coty's second-quarter FY25 results showed a 1% year-over-year decline in net revenue on a like-for-like (LFL) basis, with the Consumer Beauty segment experiencing a 4% LFL drop, while the Prestige segment grew by 1% LFL [1][2] - The adjusted EBITDA for the quarter reached $391 million, surpassing the consensus estimate of $386 million, marking a 7% year-over-year increase [2] - The adjusted gross margin stood at 66.8%, reflecting a 170 basis point increase from the previous year, driven by supply chain savings and pricing adjustments [3] Segment Analysis - The Consumer Beauty segment, representing around 33% of Coty's sales, faced challenges in mass cosmetics and body care, although mass fragrances saw growth [2] - The Prestige segment, accounting for roughly 67% of Coty's sales, was supported by growth in prestige fragrances, but this was partially offset by declines in prestige cosmetics [2] Guidance and Market Outlook - Coty lowered its F2025 guidance, projecting a 1% – 2% decline in organic sales for the second half of the fiscal year, compared to consensus growth expectations of around 3% – 4% [3] - The company attributed its outlook to foreign exchange impacts and slowing growth in several categories, particularly U.S. mass cosmetics [4] - The company noted that sell-out continued to outpace its sales, indicating that retailers are still working through inventory reductions, which may affect future performance [4] Analyst Expectations - Analysts expect a 5% reduction in consensus adjusted EBITDA estimates, with Coty's stock anticipated to drop less than the expected revisions due to already anticipated weakness in the beauty sector [5] - J.P. Morgan analyst Andrea Teixeira reiterated a Neutral rating, noting that Coty's second-quarter adjusted EPS of $0.22 matched forecasts and was slightly above Bloomberg's consensus estimate of $0.21 [6] - The company warned of a "broadly similar market environment" entering FY26, with key variances from projections including a higher gross margin and lower taxes, partially offset by disappointing sales results [7]

Core Insights - Coty Inc. reported weak second-quarter fiscal 2025 results, with both revenue and earnings declining year over year and missing consensus estimates [1][4][3] - Despite challenges in certain markets, consumer spending on beauty remains strong, particularly in fragrances, which is a key growth area for Coty [2][5] Financial Performance - Adjusted earnings were 11 cents per share, missing the Zacks Consensus Estimate of 22 cents, and down from 25 cents per share in the prior year [3] - Net revenues totaled $1,669.9 million, a 3% decline year over year, and missed the consensus estimate of $1,715 million [4] - Adjusted operating income increased to $333.7 million, an 8% rise from the previous year, with an adjusted operating margin of 20%, up 210 basis points [9] Segment Performance - Prestige segment revenues were $1,116.1 million, a 1% drop, impacted by foreign exchange and divestiture challenges, but adjusted operating income rose to $260 million [10][11] - Consumer Beauty segment revenues fell to $553.8 million, an 8% decline, with lower sales in color cosmetics and body care, though mass fragrance showed growth [15] - The global mass beauty market growth slowed to low-single-digit levels, with Coty's mass color cosmetics business underperforming [16] Regional Insights - Americas segment revenues were $638.6 million, a 7% decline, primarily due to sluggish color cosmetics sales [18] - EMEA segment revenues increased by 2% to $839.8 million, driven by growth in several European markets [19] - Asia Pacific segment revenues declined by 11% to $191.5 million, affected by market pressures in China and inventory reductions [20] Future Outlook - Management expects LFL sales trends for the second half of fiscal 2025 to remain consistent with the reported quarter, projecting a decline of 1% to 2% [24] - Coty anticipates adjusted EBITDA margin expansion of 70-90 basis points in the second half of fiscal 2025, with adjusted EBITDA expected to increase in the low single digits [27] - The company projects fiscal 2025 adjusted EPS growth of mid- to high single digits, despite a nearly 4% negative impact from prior year tax benefits [28]

Financial Data and Key Metrics Changes - The company reported a gross margin expansion of approximately 200 basis points, reaching close to 67% by the end of Q2 [36] - The EBITDA margin is expected to grow by 70 to 90 basis points in fiscal '25, targeting a close to 19% EBITDA margin by the end of the fiscal year [41][122] Business Line Data and Key Metrics Changes - The Prestige business was impacted by challenges in China, Travel Retail Asia, and Australia, contributing to a decline of roughly 3 points in sales [12][31] - The Consumer Beauty segment faced challenges in the U.S., also impacting sales by approximately 3 points [12] Market Data and Key Metrics Changes - The company noted that the Asian Travel Retail market is lagging behind other regions, with the Americas and Europe performing significantly better [61] - The Prestige Fragrance category continues to grow in the high single digits, while the Color Cosmetics category is facing more significant challenges [60][62] Company Strategy and Development Direction - The company aims to return to growth in fiscal '26 through major product launches and expanding distribution of key brands [30][31] - There is a focus on innovation in the Color Cosmetics category to create higher entry barriers and attract consumers back to the market [48][49] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about stabilization in retailer inventory levels, which have been affected by overreactions to past supply chain issues [26][27] - The company is committed to outperforming the beauty market despite current macroeconomic challenges and uncertainties [90][92] Other Important Information - The company is evaluating its portfolio for long-term opportunities and return on investment, particularly in the Consumer Beauty segment [111][112] - The gross margin reached a record level of 68% during the quarter, indicating strong financial health [122] Q&A Session Summary Question: Concerns about retailer replenishment and market conditions in China - Management acknowledged challenges in China and other regions, noting that these areas represent about 20% of the business and are impacting sales [11][12] Question: Structural and competitive challenges in U.S. color cosmetics - Management highlighted the need for a balance between heritage and new brands to revitalize the color cosmetics market [20][21] Question: Expectations for sales growth in fiscal '26 - Management anticipates improvement in sales growth driven by new product launches and stabilization in retailer inventory levels [26][30] Question: Margin outlook and cost structure - Management confirmed a healthy P&L with gross margin expansion and a focus on maintaining discipline in cost management [36][41] Question: Performance of Prestige Fragrances compared to other categories - Management noted that the uniqueness of Prestige Fragrances contributes to their resilience in the market [44][45] Question: Travel Retail performance outside Asia - Management confirmed a strategic shift of resources from Asia to the U.S. and European markets to capitalize on growth opportunities [60] Question: Pricing strategy in light of inflation - Management indicated that pricing increases will be more moderate moving forward, focusing on maintaining volume growth [74][75] Question: Inventory levels at wholesalers and retailers - Management acknowledged ongoing adjustments in inventory levels and the competitive landscape affecting sell-in and sell-out dynamics [81][82] Question: Long-term growth algorithm and business strategy - Management emphasized the importance of outperforming the market and highlighted several growth drivers, including expanding fragrance offerings and online sales [90][94]

Core Insights - Coty reported revenue of $1.67 billion for the quarter ended December 2024, a decrease of 3.3% year-over-year, with EPS at $0.11 compared to $0.25 in the same quarter last year [1] - The revenue fell short of the Zacks Consensus Estimate of $1.72 billion by 2.65%, and the EPS was 50% lower than the consensus estimate of $0.22 [1] Financial Performance - Coty's shares returned +1.4% over the past month, while the Zacks S&P 500 composite increased by +2.1% [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3] Geographic Revenue Breakdown - Americas: Revenue of $638.60 million, down 7.2% year-over-year, below the average estimate of $684.46 million [4] - Asia Pacific: Revenue of $191.50 million, a decline of 10.5% year-over-year, compared to the average estimate of $202.55 million [4] - EMEA: Revenue of $839.80 million, slightly up by 1.7% year-over-year, close to the estimated $842.22 million [4] Segment Revenue Analysis - Prestige: Net revenues of $1.12 billion, down 0.6% year-over-year, slightly below the average estimate of $1.13 billion [4] - Consumer Beauty: Net revenues of $553.80 million, down 8.5% year-over-year, below the average estimate of $591.15 million [4] - Adjusted Operating Income (Loss) for Prestige was $260 million, exceeding the estimate of $246.65 million [4] - Adjusted Operating Income (Loss) for Consumer Beauty was $73.70 million, below the estimate of $77.42 million [4]