As Sue Nabi prepares to formally step into the chief executive officer’s role at Coty Inc., she is ready to refocus the ailing company on some key tenets of the beauty business — like good products.
Nabi, who spoke to Wall Street analysts on Thursday, said Coty needs “to work on products.”
“I really would like this company to become a product-driven, product-centric, but also new business model-centric company,” Nabi said. “If your product is not the best one on the market, if it’s not the one that delivers better than the others, if it’s not a product that’s perfectly designed for usage, but also for performance, and last but not least, if it’s not a product that you feel not guilty by using because it’s sustainable, then you’ll be happy to stick to this product.”
Nabi also talked about incorporating wellness into the portfolio, capitalizing more on direct-to-consumer capabilities, which she called a “dreamy business model,” and reinvigorating Coty’s mass brands, which have struggled for years.
“In over 25 years in this industry, with many opportunities, I have learned my lessons on what makes a beauty business or a brand successful. As I took a step back to assess the potential of Coty, I realized very quickly that this is a diamond in the rough,” Nabi said. “What people love are great comebacks, success stories they can be part of. I want to create an inspiring, very nimble, successful new Coty with the whole Coty team.”
With Coty, Nabi is taking on a project with a capital P.
She is the sixth ceo since Coty acquired most of Procter & Gamble’s beauty business for $12.5 billion in 2016, and she’s the only one with any real beauty experience. Nabi spent two decades at L’Oréal, where she led L’Oréal Paris and Lancôme, before starting her own luxury, sustainable skin-care brand, Orveda. Coty is said to be taking an ownership position in Orveda with plans to expand it through the Coty platform, according to an industry source close to the business.
At Coty, Nabi will continue to focus heavily on skin care, with plans to bring Kylie Skin and KKW skin care to Asia. The source said new product formulations are being developed to appeal to those markets, and that the lines should be launched there in the third quarter of fiscal 2021. Kylie and KKW manufacturer Seed Beauty sued KKW in June to try to block the company from sharing trade secrets with Coty, but the source noted that the brands don’t use Seed for skin-care manufacturing.
Those lines, in particular, give Coty data that it will use to inform decision-making, Nabi told analysts on the call.
“This has nothing to do with the business of celebrity fragrances. It has, by essence, what every brand is dreaming of — a large, very large, captive, data-rich audience,” she said.
Portfolio wise, Coty executive chairman and current ceo Peter Harf told analysts that the company was “renegotiating licenses that we have in our prestige portfolio that do not provide sufficient profitability for Coty.” The source noted that major changes in the portfolio, beyond the divestiture of certain professional brands, are not expected.
The professional divestiture — which includes the sale of 60 percent of Wella, Clairol, OPI and Ghd to KKR — is expected to be completed by year-end, the company said.
In a statement provided to WWD, Harf said: “Coty today is a very different Coty than just a few months ago due to the bold and decisive actions we have taken. We can clearly see green shoots emerging despite this challenging environment as we gain market share, build strong e-commerce momentum, successfully launch new products and ensure Kylie Skin is on track to expand. Coty is back.”
As “back” as it may be said to be, Coty posted major declines for the latest quarter due to the impacts of the coronavirus pandemic and pre-COVID-19 business conditions.
For the fiscal year, Coty posted a 25 percent decline in net sales, to $4.7 billion, with a net loss of $1 billion. For the quarter ended June 30, the company posted a net sales decline of 63 percent, to $560.4 million, with a net loss of $778.2 million.
“COVID-19 triggered a global real economy and supply crisis that led to turmoil in the financial market. It did hit Coty harder than its competitors,” said Coty chief operating officer and chief financial officer Pierre-André Terisse. He laid out a handful of reasons the company was impacted, including a “weak demand situation,” exposure to fragrance, makeup and professional beauty, which all took COVID-19-related hits, underrepresentation in China, and weakness in digital and e-commerce.
Coty’s mass beauty business has continued to struggle in the U.S., where it has lost shelf space. Nabi said the plan to revitalize Cover Girl will include leaning further into clean beauty, in line with the success of the Clean Fresh line.
That segment posted a 55 percent net sales decline in the quarter, to $340.7 million, with a 29 percent dip for the year, to $2.1 billion.
In luxury, the pandemic posed a larger problem, as most distribution corridors, including travel retail and department stores, were closed due to the pandemic. Kylie Cosmetics sales in the quarter didn’t fare well thanks to supply chain problems, but the skin range did well with the launch in Douglas in Europe, the company said.
Coty’s professional business, which includes Wella, posted a 41 percent sales decline for the quarter, to $361.6 million. For the year, sales dropped 14 percent, to slightly more than $2 billion. Declines were attributed to salon closures during the COVID-19 pandemic. Sales fluctuations are not expected to impact the KKR deal, executives said.
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