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There Are Signs of Stability for Coty’s Consumer Segment and IPO Plans for Brazil Business

Clean makeup formulations are driving sales at Coty, which is planning to spin off its Brazil business.

Coty Inc. is seeing signs of stability in its consumer beauty division, which houses Cover Girl and Rimmel, and is planning to spin off its Brazil business.

Coty said the consumer segment recorded stable market share for the first time in more than five years, since before it bought the brands in that division from Procter & Gamble in 2016. Cover Girl has now been gaining market share for three months, Coty said.

The company also confirmed that it plans to pursue “a partial IPO” of its Brazil business and personal care brands. Coty previously attempted to divest that unit, at the same time as it marketed its professional segment, in which KKR took a majority position.

In an interview Wednesday as Coty released its earnings figures, chief executive officer Sue Nabi said Coty has a “transformational year,” highlighting the divestiture of a majority position in Wella, as well as the company’s deliverance on savings targets, “which is helping us a lot to refuel the business.”

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For the fiscal year ended June 30, Coty reported a 2 percent decline in net sales, to $4.6 billion. The company narrowed its reported net loss in the year to $166.3 million, compared to 1.1 billion for the prior year. The prestige division grew sales by 4 percent for the year, to $2.7 billion, and the consumer segment posted a 10 percent year-over-year sales decline, to $1.9 billion.

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Things started to improve further into the company’s fiscal year, and for the quarter ended June 30, Coty reported a 90 percent uptick from the prior year, in the earlier stages of the coronavirus pandemic. Net loss was $221.1 million, smaller than the $696.2 million in the 2020 quarter. The prestige segment increased sales by 160 percent in the quarter, to $570.2 million, while the consumer segment increased year-over-year sales by 44 percent, to $492 million.

Nabi said Coty has beat expectations and is showing progress in its strategic pillars, including the stabilization of the consumer segment. Cover Girl has seen progress from clean makeup sales, including the Clean Fresh franchise and Lash Blast mascara.

“Cover Girl has everything to be a key leader of the American market,” Nabi said. “Specifically on the mass side, it’s really all about giving people product that has high performance but, at the same time, ticks all the boxes of ESG in terms of clean formulations, ethical sourcing, sustainable packaging, promoting a diverse vision of beauty, etc.”

Clean beauty is also a key driver of the drugstore makeup segment, Nabi noted. “The two categories driving the growth back of this market — it’s eyes and nails. Lips and face are still a little bit behind what it used to be,” Nabi said.

In Coty’s mass business, Sally Hansen continues to do well with the Good Kind Pure and new launch It Takes Two.

Globally, Rimmel and Max Factor’s rebrand are also showing signs of progress, with both brands gaining share, Nabi said.

For the fourth quarter, Coty saw sales growth in the U.S. and China with Marc Jacobs. Perfect, Gucci Guilty Pour Homme and Burberry Her driving market share gains, the company said. Nabi noted that newer launches, including some with with celebrity faces like Gucci Flora Gorgeous Gardenia with Miley Cyrus, Burberry Hero with Adam Driver and Calvin Klein Defy with Richard Madden, are seeing strong reception in the market.

Coty intends to push further into makeup and skin care, Nabi said. The company has been cleaning up distribution for its luxury brands, but said that for lines like Gucci and Burberry makeup, there are plans to expand both distribution and assortment.

Nabi noted that both Gucci and Burberry have limited stock keeping units right now, but once they are built out further “have the potential to be among the bestselling makeup brands in the world.” Nabi said Coty thinks through clean formulations at all levels of its business — “it matters for us as manufacturers” — but that “it’s less a driver of sales than it is on the mass side.”

“It matters for the fashion houses, that’s quite clear during the discussions we have,” Nabi said. “On the luxury side, it’s all about desirability.”

Coty is also expanding Lancaster, and has opened three counters in travel retail hub Hainan over the past few months.

Kylie Jenner’s Kylie Cosmetics, which was recently relaunched with new, cleaner product formulations, “is seeing great momentum” Nabi said.

With that relaunch, Nabi said that in the first 15 minutes the brand received “something like 300 orders per minute,” and that Jenner’s personal traction online has only continued to grow. The relaunch is especially important for the brand to attract Gen Z shoppers, Nabi noted. “They are all about high impact colors, but at the same time, good to the skin, good for the planet, etc.,” she said.

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