Cover Girl Mascara

Coty Inc. stock soared Thursday, rising almost 14 percent, to 16.80, after the beauty company beat Wall Street expectations.

Coty’s sales for the first fiscal quarter of 2018 were boosted by some of its acquisitions, including social selling business Younique and hair tools brand Ghd. While Coty’s Luxury and Professional segments posted significant gains, the Consumer Beauty division, which contains brands like Cover Girl and Rimmel, “is still not where it should be,” said Camillo Pane, Coty chief executive officer, in an interview. “I’m not happy about it, but we are starting to see signs of stabilizing the business,” Pane said.

“Call commentary gives us a bit of comfort that the worst of the operational distractions, execution slippage, and high-cost burden is behind the company,” wrote Jefferies analyst Stephanie Wissink in a note.

The Consumer Beauty division is being affected by a slowdown in the mass market, the company said. Sales for the segment were up 82 percent to $1.04 billion from $571.9 million — combined company sales were up 4 percent from the prior-year period. Those numbers indicate a 10 percent contribution from Younique and 8 percent decline in the underlying business, Coty said. Coty plans to relaunch some brands, including Cover Girl, in 2018.

Pane sees Coty’s role in the mass-market landscape as one building products and experiences that can help drive customers back into the mass market channel, he said.

“There will be a place for beauty products and beauty brands with strong value proposition and the retailers over time will overcome the current traffic,” Pane said. “Our beauty brands…are very strong and I believe that once we start connecting with the consumers in a different way, a more meaningful way — a more emotional way as well — this will generate a return to better traffic as well to the stores.”

Pane referenced Coty’s experiment with New York concept store Story as one that gave the business key insights into consumer preferences, especially in terms of how customers interact with technology.

“To see consumers reacting and interacting with [technology] gave us a lot of good learnings, which hopefully can be translated into the retail environment,” Pane said. He said consumers, particularly younger consumers, reacted well to choosing a “look” and seeing the look on themselves before being guided to the products required to create the effect. 

“It all depends what the consumer experience is in store,” Pane said. “When I say in store, I also mean online with the retailers — we need to all work together to improve the overall experience. We need to provide the right assortment, we need to provide the right innovation, we need to be faster to market, and…we intend to do so.”

Coty’s other two segments fared better than Consumer Beauty. Coty Luxury posted a 70 percent increase in sales for the quarter, with $764.4 million in net revenues from $449 million. Combined company year-over-year sales for the Luxury division were up 6 percent.

“This has been driven by the innovation pipeline, like Gucci Bloom and Tiffany’s, but also new campaigns from Hugo Boss, Marc Jacobs Daisy and Philosophy was also a strong performer,” Pane said. Philosophy fragrance is performing ahead of expectations with double-digit growth, Pane said, and Purity is also a top seller, he noted. Part of Philosophy’s improvement was the company’s launch in China, where it started selling on T-Mall. The brand also opened a stand-alone store in Shanghai in late October. 

Sales in the Professional segment rose dramatically to $430.5 million from $59.3 million in the prior-year period. Combined company sales were up 15 percent year-over-year for that division.

“The hair business grew across all regions, and OPI has continued to grow across North America,” Pane said.

The company posted a net loss of $19.7 million for the quarter. Net sales were $2.24 billion, up more than 100 percent from the prior-year period, which was before Coty closed the acquisition of the Procter & Gamble beauty portfolio. Combined company organic net revenue declined 2 percent excluding sales from newly acquired Younique and Ghd. Loss per diluted share was 3 cents.

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