CoverGirl Clean Fresh Makeup

Coty Inc. may have seen a 16 percent net sales decline in the holiday quarter, but chief executive officer Sue Nabi said results in terms of profit and net debt were ahead of expectations. 

“We are maintaining the momentum that we had in the first quarter during the second quarter,” Nabi told WWD in an interview Tuesday morning. Revenues were “in line with expectations,” and were driven by “the good news of the luxury division,” she said, calling out Marc Jacobs Perfect — the number-one fragrance launch of 2020 — as a key success. 

The company has started to reduce its debt leverage thanks to the closing of the Wella deal, and accelerated e-commerce by 40 percent in the quarter. It now stands at between 19 to 20 percent of the total business, Nabi said. 

At the same time, Coty is working to accelerate skin care and growth China, where it just launched a Tmall shop for Gucci Beauty. The Asia Pacific region, a key growth driver for some of Coty’s competitors like the Estée Lauder Cos., is Coty’s smallest region, and brought in $167.2 million in sales for the most recent quarter. 

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Gucci’s new Fluide De Beaute Fini Naturel foundation, $68, is off to a strong start, Nabi said. The formulation was created specifically for the demands of beauty shoppers in Asia, and in its first month, sold more than 35,000 units, or about $2.4 million. “Once you have the right offer for this market, because this is mainly a face, skin care and face complexion market where we were mainly present with lipsticks, mascara, etc.,…the results are there,” Nabi said. “It’s really taking the brand to the next level in terms of productivity. It’s multiplying by five the turnover in Gucci makeup.” 

Coty will also work to adapt Kylie Jenner’s Kylie Skin for the Asian market, and is formulating Kim Kardashian West’s KKW Skin specifically for the Chinese and broader Asian markets, Nabi said. She also said Kylie’s manufacturing agreement, which had been with Seed Beauty since the brand’s inception, had expired. 

For the quarter ended Dec. 31, Coty posted $1.4 billion in net sales, down 16 percent year-over-year. The company posted a loss of $39.8 million for the quarter, which it said was due to charges related to the divestment of Wella to KKR and other restructuring costs. Adjusted operating income was up 7 percent, the company said, to $188.4 million.

Coty’s prestige division saw an 11 percent sales dip, to $903.7 million. 

In that segment, Nabi said she saw fragrance advertising and sales evolve online, and used Perfect by Marc Jacobs as an example of success. Pre-pandemic, Nabi characterized fragrance as “the category that was resisting online.” But Perfect was the biggest launch Coty’s done in the U.S. in 15 years, she said, and it was mainly supported by digital marketing efforts. The campaign reached 10 billion views on TikTok, she noted. 

“This is a reach that nobody else can achieve with classical advertising or being even in tens of thousands of stores,” she said. 

The social media reach also allowed for consumers to talk about the perfume using regular words, versus the niche and exclusionary language often used by the beauty industry to describe scents. 

“Sometimes you can hear people say, ‘this is musky,’ or ‘this is floral but it brings a kind of sweetness.’ And in a way, it’s a giant teasing campaign, because the people who are ordering online the fragrance try it, and share their impressions in front of their friends, their audience, and suddenly, it’s a new way to test fragrances,” Nabi said. “When you go and talk sometimes to experts of fragrances they tell you it’s musky and woody, and a lot of people don’t know what it means, musky and woody, etc. Now that it’s in the hands of what I would say are normal consumers, they’re going to use normal words.” 

The mass segment, home of Cover Girl and Rimmel, “decelerated,” Nabi said, declining 23 percent, to $511.5 million. Nabi characterized the mass business as “progressing on the market-share side” and “moving toward stabilization” on a call with Wall Street analysts Tuesday.

Nabi told WWD that Cover Girl has been making progress, that shelf space at retail remains stable, and that the business will continue to push its Clean Fresh franchise, a clean and vegan makeup segment fronted by actress Lili Reinhart. “We are starting with the airing of a new kind of advertising for Cover Girl featuring Lili Reinhart in her garden doing a kind of selfie advertising,” Nabi said. “You’ll see this on screens in America next week.” 

At Sally Hansen, which had been doing well even before pandemic-related nail salon closures caused many people to start doing their own nails at home, business remained strong, Nabi said, thanks to the Miracle Gel and Good Kind Pure lines. 

In the U.S. Coty saw sales decline 7.2 percent in the quarter, to $539.5 million, while sales in Europe, the Middle East and Africa fell 21.9 percent from the prior-year period, to $708.9 million. 

For the six month period ended Dec. 31, Coty posted an 18 percent dip in net sales, to $2.5 billion, with net income of $56.1 million. 

Coty also said it was going to increase its cost savings target from $200 million to $300 million for the fiscal year. Savings through to this point have been partially because of layoffs and other reductions, Coty chief financial officer Laurent Mercier said Tuesday. 

“[Second quarter] results were better than we expected given the challenging environment and all of the ongoing changes at the company and we are encouraged by the increased cost savings target,” wrote Citi analyst Wendy Nicholson in a note.

Jefferies analyst Stephanie Wissink said, “results were driven by directional improvement, namely a [nine point] acceleration in prestige and China, yet still down [year-over-year], reflecting a difficult backdrop in Americas and EMEA for beauty sales.” 

Coty’s stock closed down about 15 percent Tuesday, at $6.74. 

For more from WWD.com, see: 

Prestige Beauty Sales Fell 19 Percent in 2020

Skin Care Drives Estée Lauder Sales Gains

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