Coty Faces Challenges As Category Weakness Lies Ahead, Say Analysts

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]