Coty Inc. is broadening its assortment beyond fragrance, while Revlon Inc. is looking to the category as a way to diversify.
During Revlon’s first-quarter earnings call on Thursday, Revlon president and chief executive officer Lorenzo Delpani said the firm’s acquisition of the U.K.-based fragrance company CBBeauty expands its reach beyond color cosmetics and hair care.
“We are keen to diversify our options for growth and also to diversify our risks,” he told Wall Street analysts. “Being active in this segment is an opportunity for us….For Revlon, the fragrance segment will be a priority.” Delpani added that the company will take a selective approach to choosing licenses to develop, and they will include luxury, lifestyle and celebrity brands.
Revlon’s acquisition of CBBeauty includes the U.K. distributor SAS & Co., which distributes and markets fragrances such as One Direction, Burberry, Carven and Rihanna.
Revlon’s position of fragrance stood in sharp contrast to what was expressed by Coty during its earnings call on the same morning. Coty chairman and interim ceo Bart Becht declared, “Celebrity fragrance is largely a phenomenon that is dying out.” He acknowledged that a number of Coty’s celebrity brands are seeing double-digit declines. Coty has been working to broaden its portfolio beyond fragrance, and in April completed the acquisition of the color cosmetics brand Bourjois from Chanel.
Coty also has been focused on wringing out costs and aims to funnel some of the savings into its 10 “power brands,” which include Adidas, Calvin Klein, Chloé, Davidoff, Marc Jacobs, OPI, Philosophy, Playboy, Rimmel and Sally Hansen. It expects that strategy to boost the top line in the coming quarters.
For its third quarter, Coty moved from red to black, reporting net income attributable to the company of $75.5 million, or 21 cents a diluted share, compared with a loss of $253.3 million, or 66 cents a share, in the year-ago quarter. The company’s net revenue declined 7.4 percent to $933.8 million, from $1.01 billion in the year-ago quarter. Sales were flat in constant currency.
Revlon, for its part, reported a net loss of $900,000, or 2 cents a diluted share, compared with net income of $5.5 million, or 11 cents a share, in the year-ago period.
Net sales for the three months ended March 31 decreased 6.7 percent to $438.5 million, from $469.8 million. Sales were essentially flat in constant currency. Coty shares closed up 1.9 percent to $24.68 on the New York Stock Exchange on Thursday.
The results sent Revlon’s stock price down 11.4 percent to $34.45 at one point Thursday morning on the NYSE. Shares later closed at $36.01, down 7.4 percent.
Delpani cited a large number of product initiatives in the year-ago quarter, the impact of foreign currency exchange and higher marketing spending as the reasons for the sales results.
Revlon spent $16.6 million more in brand support in the quarter than in the prior-year period, mostly behind the repositioning of Revlon with its Love Is On effort, and Almay’s new Simply American campaign. In Delpani’s view, an increased level of investment this year, following stepped-up spending in 2014, will turn on sales growth.
To further encourage growth, he also said the company began to take price increases — mostly in line with inflation — across part of its portfolio in the second half of last year, and that strategy will continue each year. “Increasing prices is part of the way to generate value,” he said, as well as to align the brand to its rightful positioning in the market.
Sales in the consumer segment declined 4.5 percent to $324.3 million, and ticked up 1.4 percent in constant currency. Sales in the professional segment decreased 12.4 percent to $114.2 million, or were down 3.8 percent in constant currency.
Coty, meanwhile, said the firm is on track to achieve $80 million in savings this year as part of its goal to reach $200 million by fiscal 2017.
It has already put more might behind Sally Hansen for the launch of Miracle Gel, and is seeing that investment pay off, said Becht.
He noted that Miracle Gel nabbed 19 percent market share in the U.S. mass nail-color category in March, according to IRI.
Encouraged by that success, Coty plans to throw more support behind key initiatives across additional brands.
Becht said Coty is not reducing investment in the business, but simply reallocating spending away from underperformers to the top brands in the portfolio.
“[We] will be gradually expanding this to more brands,” he said. “Then once we get that up and running completely, we should see gradual improvement in the like-for-like growth rate of power brands,” said Becht. “Clearly, this will take a little bit of time in order to do that. But I would say we are well on the way on the efficiency programs in building a better business. Now we need to translate that into a better like-for-like growth rate.”
He said each year the company will put its 10 power brands on watch to determine which will stay on the list, and he expects incoming ceo Elio Leoni Sceti, who takes the reins July 1, to do the same.
Becht acknowledged that a number of brands on the list, namely OPI, Playboy and Adidas, are not performing up to par, and said the company has drafted initiatives to address most of their challenges. For instance, Becht said managerial issues during the transition of OPI to Coty’s portfolio hindered brand performance, but he added that Coty is addressing those snags. “It’s a fantastic brand. It has huge opportunity for growth going forward,” he said.
The market continues to speculate if Coty will make a bid for one of Procter & Gamble Co.’s beauty brands, which are up for sale, but Becht was mum on its mergers and acquisition plans. “We are not going to comment on any M&A speculation today.”