By  on February 8, 2018

Coty Inc. is making progress.The beauty company’s closed up 14.2 percent to $19.96 after the company announced its financial results for the second fiscal quarter — which included improvement in its Consumer Beauty division.

"Coty reported a meaningful [second quarter of fiscal 2018] sales and earnings beat," wrote Stifel analyst Mark Astrachan in a note. "Upside resulted mainly front stronger-than-expected like-for-like sales growth.…Sales trends improved sequentially in all categories, driven by growth in Luxury and Professional, and slight decline in Consumer Beauty.""The consumer segment remains the company's main focus, with significant innovation and new creative helping to offset legacy weakness and loss of shelf space," Astrachan continued.Consumer Beauty sales were up 14 percent year-over-year, to $1.1 billion. Younique — the social selling business that Coty bought a 60 percent stake in January 2017 — was responsible for 11.1 percent of that growth.The rest of the business posted a 1.3 percent decline on an organic basis, which marks an improvement from the prior quarter's 8 percent decline in the underlying consumer business. Declines in the consumer segment, which are linked with softness in the U.S. mass market, were offset partially by strong sales from Wella Retail, Max Factor and Monage. The numbers in the second fiscal quarter also reflect Coty's intentionally selling less product to retailers as it readied for the relaunches of Cover Girl and Clairol.Coty has undertaken a slew of initiatives to improve the segment's performance, including relaunching brands and partnering with retailers on innovations meant to increase conversion. But generally, the mass market in the U.S. has been struggling."All of us — beauty players and mass retailers — need to work together on improving the experience in store," said Coty chief executive officer Camillo Pane in an interview with WWD. "That's what really makes a difference, in my opinion, and will ensure that the consumers who are fluctuating between the prestige channel and the mass channel will increase the repertoire in the mass channel."Coty is working to regain some lost market share in the mass segment, and the Clairol and Cover Girl re-brands are a large part of that strategy, Pane said."The relaunches are at the core of the market-share recovery because it's not just relaunching the brand, it's truly changing a lot of the things of the brand, which we hope will attract consumers back — more consumers back — into the franchises of Cover Girl and Clairol," Pane said. "These two brands are large, loved brands by U.S. consumers, which were effectively not properly supported or managed in the past."Innovations in both brands are also crucial, he noted. Cover Girl's debut included 25 percent new products, and Clairol's Nice 'N Easy new "damage-blocking technology" and less-smelly formula. "It's an exclusive technology to us, [and] much, much stronger than what we had in the past," Pane said. "[There's] less ammonia smell — the entire consumer experience is on a different level with this product."Coty has also launched several technology initiatives meant to engage consumers. With Amazon, it partnered to create a technology for the Echo Show in the U.K. called Let's Get Ready that allows users to learn and create different beauty looks, and add the corresponding Coty-brand products to their Amazon carts.The business also partnered with Boots U.K. on an online Fragrance Finger that allows shoppers to input demographic and aesthetic preferences in an online quiz. The results show the percentage "match" that consumers are with various fragrances.Cover Girl also recently launched an application on its web site (no downloading required) that allows users to digitally try on makeup looks, and then purchase those looks from Walmart.com.Coty Luxury brought in $951.2 million in sales, a 14 percent increase from the prior-year period. Luxury sales were driven by sales of Gucci Bloom, the Tiffany & Co. fragrance launch, growth in Chloé and a 1 percent contribution from Burberry.Online sales in the Luxury division, as well as in Consumer and Professional, were boosted by gains in China, Pane said. At the heart of each category's double-digit growth in the region is the company's shift in China-related strategy, he noted.The company moved to have an in-house team — "an affiliate with a proper Coty organization instead of relying on distributors" — Pane said. He added it was "definitely paying off."He singled out the Tiffany fragrance launch 11 days ago in China, supported by marketing efforts, as an example. "We are the number two brand in Sephora," Pane said. "This is a brand that didn't exist 11 days ago in China…it's one customer, it's 11 days, but it shows that the team can implement great ideas with a high level of quality and end results."E-commerce sales are also growing in China and in general, Pane noted. Coty does not break out figures for online sales but Pane said it was "growing at a healthy, above-the-market rate in Consumer Beauty, Luxury and Professional."The Professional Beauty division were up 19 percent, to $547.8 million. Ghd sales were strong, with an 11.6 percent contribution to the category, and OPI — notably not a newly acquired brand for Coty — contributed 2 percent.The full company posted $109.2 million in net income for the quarter, up more than 100 percent from the prior-year period. Net sales were up 15 percent year-over-year to $2.6 billion. Both numbers were boosted by Coty's acquisitions, but even without including numbers from Younique, Burberry beauty and Ghd, Coty's organic sales were up 2.3 percent in constant-currency. Coty is projecting "modest net revenue growth" for the duration of the fiscal year.

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