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Coty (COTY) More Than Doubles in a Year: Will Momentum Stay?

Focus on core priorities and strategic partnerships are working well for Coty Inc. COTY. The company’s solid e-commerce business is also noteworthy. Also, Coty is on track with its effective cost-saving efforts. Thanks to such upsides, shares of this cosmetics giant have more than doubled in the past year compared with the industry’s rally of 43.2%.

Let’s discuss further.

Focus on Core Priorities

Coty is focused on its long-term strategy (unveiled on April 23), which was highlighted by six priorities aimed at sustainable growth. These include stabilizing the Consumer Beauty make-up brands and mass fragrances; accelerating luxury fragrances and setting up Coty as a core player in prestige make-up; establishing a skincare portfolio in prestige and mass channels; strengthening e-commerce and Direct-to-Consumer (DTC) capabilities; growing presence in China via Prestige and certain Consumer Beauty brands; as well as setting up the company as an industry leader in sustainability.

With respect to stabilizing the consumer beauty brands, the company rolled out a new repositioning campaign, disruptive advertising as well as a clean vegan mascara in early spring for CoverGirl, the largest brand in the consumer beauty portfolio. Management is on track to boost its leading brands through innovations as well as renovations of key icons for fragrance business.

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What Else is Working for Coty?

Coty has made several strategic partnerships to enhance its brand portfolio. On Mar 3, 2021, the company signed a letter of intent to partner with LanzaTech — a pioneer in producing next-generation green and sustainable ingredients. Coty and Kylie Jenner unveiled their long-term alliance in January 2020, aimed at building upon Kylie’s beauty business that includes Kylie Skin and Kylie Cosmetics. It relaunched Kylie Cosmetics, formulated using clean and vegan ingredients with a revamped packaging. Kylie Cosmetics line and the new-integrated website were rolled out on Jul 15, 2021. The company is impressed with the performance of the brand.

Coty’s e-commerce business has been performing impressively for a while. In fourth-quarter fiscal 2021, the company’s e-commerce sales rallied 19%. Coty’s e-commerce penetration reached high teens percentage in fiscal 2021, double the penetration compared with pre-pandemic levels. During the fiscal fourth quarter, e-commerce sales in the Americas surged 36%, despite tough year-over-year comparisons. E-commerce sales in EMEA rallied 20%, while the metric jumped at a triple-digit rate across Asia-Pacific. The company is on track to strengthen its e-commerce and direct-to-consumer capabilities with focus on digital first omni-channel. Management is shifting its strategy toward digital storytelling and discovery to boost product sales both in-store and online.

Wrapping Up

Coty, which shares space with Inter Parfums, Inc. IPAR, has been encountering a volatile environment across markets, stemming from pandemic-induced restrictions, lower store traffic and challenges in social mobility. Moreover, the company has been witnessing softness in international travel due to the pandemic.

That being said, we believe that its effective cost-saving efforts along with the aforementioned upsides are likely to help this Zacks Rank #3 (Hold) company stay in investors’ good books. Management is focused on optimizing the overall cost structure. In this regard, the company’s fixed cost-reduction program has been helping it to redirect capital to improve brands and delivery profit. During the fiscal fourth quarter, its fixed cost declined 15% year over year. Coty continued to focus on curtailing cost structure in the quarter, with savings amounting to nearly $70 million. The company is on track to achieve its savings target of $600 million for fiscal 2023.

Top 2 Cosmetics Picks

Helen of Troy Limited HELE, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 28.2%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nu Skin Enterprises, Inc. NUS, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 15.7%, on average.

Tech IPOs With Massive Profit Potential: Last years top IPOs surged as much as 299% within the first two months. With record amounts of cash flooding into IPOs and a record-setting stock market, this year could be even more lucrative. 

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