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Coty Professional Business Said Attracting Buyer Interest

Coty net sales were down in the quarter, but earnings were up.

Coty’s Professional beauty business seems to be attracting buyer interest.

“We have launched a strategic preview, and it’s very early days because it was only two weeks ago, but we have received, so far, multiple and strong marks of interest,” Pierre Andre Terisse told WWD in an early-morning interview on Wednesday, after the company released its financial results for the first fiscal quarter.

“These assets are extremely valuable and attractive and therefore we’ve seen a lot of interest from different people — I will not comment further,” Terisse said. “This business has been managed well and we have been able to protect and to develop the business.”

Coty hired Credit Suisse in October to explore alternatives for the Professional division, with the intention to focus on fragrance and cosmetics.

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Broadly, for the quarter, Coty’s net sales declined, but earnings were up.

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“These are pretty healthy trends; not, again, where we want to be, but it’s going in the right direction,” Terisse said.

Net sales at Coty fell 4.4 percent, to $1.9 billion in the quarter, dragged down by the performance of the Consumer division. Net income was $52.3 million, up from $12.1 million in the prior-year period. The gain was driven by the Younique divestiture, which was completed Sept. 16 and brought in an $84.5 million gain. Earnings per share were 7 cents, up from a 2 cent loss in the prior-year period.

Terisse described net revenues as “almost stable” and noted that the company’s turnaround plans appear to be starting to work.

The Consumer Beauty segment posted a 13.5 percent decline in sales, to $716.5 million. Improvement has been seen in Europe, Coty said, but shelf space declines and the general struggle in the mass market continue to impact the brands in North America.

Sally Hansen was a bright spot, improving share in the U.S. market, as was Rimmel, which is said to have improved share gains in the U.K. market. Cover Girl saw “moderate growth” in its sub brands, and Max Factor saw “broad based improvement,” the company said.

Terisse said Coty has worked to revamp the ranges, including prices, and has seen results from that. For Cover Girl, Coty has been focusing on eight top stockkeeping units, Terisse said, which are considered the key products. “It’s already getting some traction,” he said. On top of that, the brands are being more selective about sales in emerging markets, seeking “healthy” sales, he said, versus low-margin sales.

Amazon has also become a key channel for Coty’s mass brands, executives said on the company’s earnings call. Mass brands on Amazon grew 40 percent in the quarter, Coty chief executive officer Pierre Laubies said.

Net sales in the Luxury division were up 1.7 percent in the quarter, to $806.7 million.

In the Luxury division, Gucci, Burberry, Hugo Boss and Chloé fragrances did well. Gucci’s lipstick line is growing, and will launch two more shades, the company said, and Burberry’s relaunched makeup line is doing well in the Asia-Pacific region.

Asked if Coty would build out makeup for the other luxury brands, like Chloé, Terisse declined to give a direct answer. “What we’re doing on Gucci and Burberry demonstrates the ability to cover more than one category with some brands,” he said.

“That’s absolutely the kind of thing we could be expanding in the future…another reason to concentrate, to focus on luxury and cosmetics, because precisely we have the ability to use the know-how and the expertise we have built managing some brands…and the technical and category knowledge we have in cosmetics, combining the two is combining the two strongest strengths we have, and we can create value with that,” he said.

Luxury sales were affected by protests in Hong Kong, executives said. “This has been hampering our growth in the city and the surrounding travel retail corridor throughout the quarter,” Terisse said on the earnings call.

In Professional Beauty, sales were up 2.4 percent, to $419.6 million in the quarter.

Coty also took over Luxasia, which it had owned a majority stake in, for $45 million in the quarter, executives said.