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Coty (COTY) Up 15.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Coty (COTY). Shares have added about 15.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Coty due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

COTY Raises FY24 Revenue Outlook Despite Q1 Earnings Miss

Coty posted mixed first-quarter fiscal 2024 results, with the bottom line missing the Zacks Consensus Estimate and declining year over year. The top line surpassed the consensus mark and increased from the year-ago quarter’s reported figure.

The company saw sales growth, driven by Prestige & Consumer Beauty business gains. Coty witnessed double-digit percentage revenue growth across all geographies. However, it was not immune to an inflationary environment. Management raised its fiscal 2024 revenue outlook while reaffirming its earnings view.

Coty reported adjusted earnings per share (EPS) of 9 cents, missing the Zacks Consensus Estimate of 17 cents a share. The bottom line declined from 11 cents reported in the year-ago quarter. Coty’s net revenues came in at $1,641.4 million, up 18% year over year. The metric surpassed the Zacks Consensus Estimate of $1,576.7 million. LFL revenues also rose 18% on growth in the Prestige and Consumer Beauty business segments. We had expected LFL revenues to increase by 8.9%.

Adjusted gross margin came in at 63.5%, contracting 60 basis points (bps) from 64.1% reported in the year-ago quarter. The downside can be attributed to COGS inflation to the tune of nearly 2% of revenues. Normalization of fragrance gift sets in the mix and higher inventory build-up in the Prestige business were concerns. Targeted pricing, favorable mix management and supply chain productivity offered some respite. We had expected the adjusted gross margin to come in at 64.7%, up 60 bps year over year.

Adjusted operating income came in at $302.2 million, up 21% from $249.6 million in the prior-year quarter on improved gross profit. The adjusted operating margin stood at 18.4%, up 40 bps.

The adjusted EBITDA in the quarter amounted to $360.3 million, up 17%, courtesy of increased sales and gross profit. These were somewhat offset by higher A&CP. The adjusted EBITDA margin stood at 22%, down 20 bps. We had expected the metric to come in at 20.9%, down 130 bps year over year.

Segment Results

Prestige: Net revenues in the segment rallied 23% to $1,064.7 million. The segment’s revenues were up 22% on an LFL basis, on double-digit growth in almost every market, with significant momentum in prestige beauty demand. We had expected Prestige revenues to increase 8.7% to $938.7 million.

Consumer Beauty: Net revenues rose 10% year over year to $576.7 million. The segment’s LFL sales also jumped 10%, with robust growth in color cosmetics, mass fragrance and mass skin and bodycare. The company saw solid LFL growth across most regions like North America, Europe, Brazil and Latin America. We had expected Consumer Beauty revenues to increase 11.4% to $586.5 million.

Region-Wise Results

Net revenues in the Americas increased 17% to $708 million. LFL revenues were also up 17%, driven by growth in the Prestige and Consumer Beauty segments. Sales in EMEA grew 20% year over year to $732.2 million, while the figure increased 18% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segments. Sales in the Asia-Pacific region rose 16% (up 19% at LFL) year over year to $201.2 million.

Guidance

With the ongoing premiumization trends, management continues to witness strength in the beauty market. The company is gaining on such favorable trends, with momentum in the core categories, an impressive innovation pipeline and early wins across important white spaces.

Courtesy of these factors and a solid start to the year, management expects LFL revenue growth of 9-11%, up from the earlier projected growth of 8-10%. For the first half of fiscal 2024, Coty anticipates LFL revenue growth of 11-13%, up from the earlier outlook of 10-12% growth.

Revenues in fiscal 2024 are likely to include a neutral to 2% benefit from currency rates along with a 1-2% scope downside from the divestiture of the Lacoste license. For fiscal 2024, Coty expects adjusted EBITDA margin expansion of 10-30 bps, with the same performance during the first and the second half. The company projects fiscal 2024 adjusted EBITDA in the range of $1,080-$1,090 million, up from the previous guidance of $1,075-$1,085 million.

The company anticipates modest fiscal 2024 gross margin expansion on a year-over-year basis, with a substantial increase in the back half of fiscal 2024. Management still envisions fiscal 2024 adjusted earnings per share (EPS), excluding equity swap, in the band of 44 to 47 cents, reflecting growth of 16-25% year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Coty has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Coty has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Coty belongs to the Zacks Cosmetics industry. Another stock from the same industry, Estee Lauder (EL), has gained 14.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

Estee Lauder reported revenues of $3.52 billion in the last reported quarter, representing a year-over-year change of -10.5%. EPS of $0.11 for the same period compares with $1.37 a year ago.

Estee Lauder is expected to post earnings of $0.55 per share for the current quarter, representing a year-over-year change of -64.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.3%.

Estee Lauder has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.

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