Yahoo Finance COTY Rallies More Than 30% in Three Months: Here's Why
Coty Inc. COTY looks well-positioned, courtesy of its focus on six strategic pillars aimed at sustainable growth. The beauty products provider has been undertaking strategic partnerships to enhance its brand portfolio. Management is on track with optimizing the overall cost structure amid rising inflationary pressure.
Coty raised its like-for-like (LFL) sales view for fiscal 2023. The Zacks Rank #2 (Buy) company’s shares have increased 30.1% in the past three months against the industry’s 1.6% decline.
Let’s delve deeper.
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Bright View
Recently, Coty raised its LFL sales view for fiscal 2023 when it provided an update on its financial progress and growth opportunities at the 2023 Bank of America Consumer & Retail Conference held on Mar 15. The company’s third-quarter core LFL sales growth is tracking at 10%, up from a 7% increase in the second quarter. Both the Prestige and Consumer Beauty segments are seeing sequential growth. Consequently, management anticipates core LFL sales growth at the higher end of its previous guidance of 6-8% in fiscal 2023. For the fourth quarter of fiscal 2023, Coty expects core LFL sales growth of 6-8%.
Focus on Core Priorities
Coty is benefiting from its focus on six strategic pillars aimed at sustainable growth. These include stabilizing 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 Coty as an industry leader in sustainability. With respect to stabilizing and growing its consumer beauty business, the company is on track with repositioning campaigns and disruptive advertising.
In its last earnings call, management highlighted that in the past quarter and year, the global mass beauty market increased in the mid-single digits year over year. Its active brand repositioning of CoverGirl, Rimmel and Max Facto during 2021 led the company to generate market share growth for 2022. Coty has been reaping benefits from the booming global prestige fragrance market. The company is growing its skincare business across both divisions with brands like Lancaster and SKKN BY KIM. In the second quarter of fiscal 2023, Coty’s overall e-commerce sales grew modestly year-on-year amid fragrance supply constraints and weakness in key Chinese e-commerce platforms associated with lockdowns.
Strategic Partnerships Hold Promise
Coty has made several strategic partnerships to enhance its brand portfolio. In January 2023, Coty and Jil Sander unveiled that they have renewed their license deal and are in for a long-running collaboration. The renewed deal is likely to solidify the ongoing business alliance while laying the foundation for a new strategic project stretching over 10 years. On Nov 18, 2021, Coty signed a licensing agreement with Orveda — an ultra-premium skincare brand made in France. Prior to this, Coty entered into a multi-channel agreement with Perfect Corp. — a well-known beauty tech solutions provider. The partnership will help Coty’s customers shop in the most convenient and personalized manner both online and offline.
Cost Savings on Track
Coty is committed to 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. It is progressing well with the All In to Win transformation program across five key work areas, driving notable improvement in cost, gross margins, sales growth and cash. In the second quarter of fiscal 2023, the company delivered savings of nearly $50 million. The company continues to target savings of almost $170 million during fiscal 2023.
Certainly, the company’s focus on savings initiatives and the aforementioned upsides are likely to keep narrating Coty’s growth story.
Solid Staple Picks
Some top-ranked consumer staple stocks are Inter Parfums IPAR, Post Holdings POST and General Mills GIS.
Inter Parfums currently sports a Zacks Rank #1 (Strong Buy) and has an expected long-term earnings growth rate of 15%. IPAR has a trailing four-quarter earnings surprise of 36.2%, on average.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings per share (EPS) suggests growth of 10.5% and 0.8%, respectively, from the year-ago reported numbers.
Post Holdings, operating as a consumer-packaged goods company, currently sports a Zacks Rank #1. POST has a trailing four-quarter earnings surprise of 34.8%, on average.
The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 119.6% from the year-ago reported number.
General Mills, a branded consumer foods company, currently carries a Zacks Rank #2. GIS has a trailing four-quarter earnings surprise of 8.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 5.9% and 7.1%, respectively, from the corresponding year-ago reported figures.
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