The offering would be the first major beauty IPO since the Nineties and a sign of just how far the 108-year-old firm has come over the last decade, when annual revenues tripled to about $4.5 billion, according to the filing with the Securities and Exchange Commission. But the IPO comes at a time of instability in the European economy, growing uncertainty over the strength of the U.S. recovery, a slowdown in growth in China and Brazil and a few lackluster IPOs in recent months, including Facebook. RELATED STORY: Coty's $500M Crew >>
The key will be whether the beauty firm can convince Wall Street that it is a company well positioned for further growth or one that, having failed in its bid for Avon, is simply falling back on the IPO as a convenient plan B.
Coty’s growth has been fueled by both a series of acquisitions and by its pioneering moves in the celebrity fragrance category via deals with the likes of Jennifer Lopez, Madonna, Beyoncé Knowles, Halle Berry and Heidi Klum. The deals are a win-win for both sides: they have delivered a steady revenue stream for Coty while giving the stars a major source of cash. Coty has promised to pay licensing royalties of $300.5 million in the years ahead, while supporting its licensed businesses with $200.1 million in advertising and promotions.
The Reimann family controls Coty through its Joh. A. Benckiser investment vehicle, which owns 80.5 percent of the company. Investors Berkshire Partners and Rhône Capital each have a 7.5 percent stake. Bernd Beetz, who has run the company as chief executive officer since 2001, has a 1.6 percent holding, while chairman Bart Becht, the public face of the effort to buy Avon, has a 1.2 percent share.
Beetz received a salary of $1.6 million last year, while the combined salaries of the other four top executives named in the filing totaled $3.1 million.
None of the proceeds of the offering will go to Coty and the Reimanns will continue to control a majority of the firm’s voting power after the IPO, which a financial source said could be wrapped up by October. The two lead bankers handling the offering are J.P. Morgan Chase, Bank of America and Morgan Stanley.
In its pitch to investors, Coty describes itself as “the new emerging leader in beauty” with 10 “power brands” including Adidas, Calvin Klein, Chloé, Davidoff, Marc Jacobs, OPI, Philosophy, Playboy, Rimmel and Sally Hansen. Together those businesses make up about 70 percent of the company’s business.
Coty is most established in fragrances, which posted revenues of $1.99 billion for the nine months ended March 31, but it also has color cosmetics and skin and body care businesses.
According to Euromonitor statistics cited by Coty, the global retail market for its three product categories totaled $259 billion last year and is expected to increase by just 3.9 percent by 2016. Coty plans to grow faster than the industry at large by further developing its core brands, strengthening its global position in cosmetics and skin care and expanding its geographic reach.
“We are focused on the development of branding and market execution strategies with our top global customers that enable us to enter and gain share in new markets,” Coty said. “We also intend to leverage our current distribution to build our business in existing geographies with our full product line.”
The key to the company’s future lies in developing markets, however. Javier Escalante, executive director of Consumer Edge Research, said Coty needs to diversify geographically into China and Latin America, particularly Brazil, and expand more forcefully into skin care, which is expected to drive 35 percent of the global beauty and personal care market growth in the next two or three years. With its concentration of business in Europe and North America, Coty needs alternate outlets for its fragrances, which still account for more than 50 percent of the business.
A logical target is Brazil, despite high import duties and lack of prestige retail infrastructure. Escalante noted that there are two avenues into that market: a company builds its own stores or finds a direct distributor. The attempted acquisition of Avon fell through, but there are other conduits into Brazil, like Jequiti, the third largest direct seller. “Brazil is the market they want to be in,” he said adding that Brazilians “over index” in their beauty buying. “If you are in fragrance in the U.S., you’re not in a good spot,” he contended.
Similarly, Coty needs product diversification, said Escalante, who gave the company high marks for the job it has done with the Rimmel color cosmetics brand and its timely move into the super-high-growth nail enamel market with acquisitions of Sally Hansen and OPI. But he added that Coty is underrepresented in skin care and Asia, particularly China. Skin care is what sells in the East and treatment products generate the kind of loyalty missing in the boom and bust fragrance market. Coty had acquired the Chinese skin care brand TJoy and Philosophy in the U.S., but Escalante questioned whether the quirky U.S. brand would resonate with the Chinese consumer. Furthermore, he questioned whether Coty can build a distribution network from scratch in China.
One suggestion that Escalante made is that Coty should “aggressively explore” the global duty-free channel. In the long run, it may be more profitable to have the luxury shopper visit the brand in airport shops.
Coty clearly has not been afraid of acquisitions, as the bold bid for Avon indicated. The firm has spent $2.14 billion over the last two years to buy TJoy, Dr. Scheller, OPI and Philosophy. Not all of those deals have started off as expected. During the nine months ended March 31, Coty’s results were weighed down by $99.5 million in pre-tax asset impairment charges to write down the value of the Philosophy and TJoy trademarks after the two brands posted lower-than-expected revenues.
Profits attributable to Coty for the nine months fell 47.9 percent to $32.9 million from $63.1 million a year earlier. Including earnings attributable to noncontrolling interests, net income fell 32.7 percent to $58 million.
Revenues for the nine months gained 16.8 percent to $3.59 billion from $3.07 billion. In the Americas, revenues increased 29 percent to $1.44 billion, as turnover in Europe, the Middle East and Africa rose 7 percent to $1.74 billion and the Asia-Pacific business grew 26 percent to $399.2 million.
Coty plans to list its class A stock on either the Nasdaq Global Select Market or the New York Stock Exchange under the ticker “COTY.” The company will also have class B shares, which have 10 times the voting rights of class A stock.
IPOs can be tricky to time and price and the market could become more difficult to navigate as the U.S. presidential election approaches in November.
The rewards, though, can be significant.
The successful December offering of Michael Kors Holdings Ltd. had fashion atwitter about the potential of going public earlier this year. The designer himself has seen his net worth skyrocket by hundreds of millions of dollars. But some of the IPO enthusiasm drained away after the much-anticipated Facebook stock sale flopped.
“Facebook’s May debut was supposed to prove that U.S. IPOs were back on course,” said Renaissance Capital. “Instead, a mismanaged offering and heightened market volatility led to an abrupt, monthlong shutdown.”
Proceeds from IPOs fell 37 percent in the second quarter versus a year earlier, said the investment adviser.
Renaissance said the offerings that tend to do well have “a strong fundamental story, visible growth and earnings and a valuation that compensates investors for their reduced appetite for risk.”
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over-the-top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty