Coty Inc. is feeling the pinch of an abrupt slowdown in nail color and fragrances, its two key categories.

This story first appeared in the November 8, 2013 issue of WWD. Subscribe Today.

Michele Scannavini, the beauty firm’s chief executive officer, told analysts during the company’s earning call on Thursday that he sees the sales weakness as “short term,” and that he expects Coty to return to top-line growth in line with or better than the markets where it competes in the second half. He cited the company’s investment in emerging markets and a robust pipeline of products tailored for these markets, including Adidas shampoo in China and fragrances tailored for the Middle East, as well as new innovation across key brands, such as Calvin Klein and Sally Hansen, as upcoming growth drivers.

But first the company must get through the holiday season. Scannavini said the second quarter will be challenging, as retailers in the U.S. and the U.K. ready for an uncertain and shorter holiday selling season. He said he believes retailers are planning for moderate growth but cautioned it’s “a wait-and-see situation.”

Coty on Thursday reported that adjusted net income in the first quarter declined 8.1 percent to $108.3 million, or 28 cents a diluted share, compared with $117.8 million, or 30 cents a share in the year ago period. Net revenue decreased 2.9 percent on a reported basis to $1.18 billion compared with $1.21 billion in the year-ago period. On a like-for-like basis, net revenue declined 2.6 percent.

Coty’s color cosmetics business, which includes nail color, was down 10 percent, to $311.5 million on both a reported and like-for-like basis, as mass retailers trimmed inventory in the wake of nail’s slowdown. Coty’s Sally Hansen brand, which has about a 33 percent share in mass nail color, was hit hardest, the company said. Meanwhile, Coty’s OPI nail brand has inked a distribution deal with a professional chain, which Scannavini did not name, that will increase its reach to 2,700 new doors.

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For Coty’s remaining categories, net revenue was essentially flat in both fragrances and skin and body care, which were $704.5 million and $162.2 million, respectively.

By region, net revenues in the Americas declined 12 percent to $468.6 million, due to weakness in the nail color and fragrance market; in Europe, the Middle East and Africa revenues gained 4 percent to $569 million, and in Asia-Pacific revenues gained 2 percent to $140.6 million. On a like-for-like basis, the Americas net revenues declined 10 percent; Europe, Middle East and Africa gained 2 percent and Asia-Pacific gained 7 percent.

The company also said Thursday that it has formed a new wholly owned subsidiary in South Africa to manage and operate its business there and in 13 other African countries.

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