(Bloomberg) – Cosmetics maker Coty Inc. reported worse-than-expected results in its fourth quarter, posting a $ 1.2 billion drop in sales year-on-year as consumers were trapped at home in the pandemic that swept beauty product purchases.
Sales of $ 922.1 million in the company’s fiscal fourth quarter fell 56% on year and less than analysts’ estimate of $ 1.34 billion.
Key Insights
After a brutal spring and summer with many on lockdown in the U.S. and world, the owner of Max Factor and Covergirl says things are starting to turn around, albeit slowly. The company saw sales gradually improve from April to June, with “significant improvements” in July and August, it said. Coty expects to return to profitability in the current fiscal quarter – but only when it comes to adjusted business income for ongoing operations. Outgoing Chief Executive Officer Peter Harf, who handed over the reins to Sue Nabi in September, said he had worked over the past three months to “get the company back on track”, including cleaning up its capital structure, financial underperformance, and product portfolio and management. Margins in a difficult quarter were also under pressure. The adjusted gross margin of 40.6% was sharply down from 60.8% in the same period last year. Coty attributed this to the pandemic dirty decline in sales plus ‘underutilization costs’ associated with the temporary closure of some production plants. To turn things around, the company recently took a series of steps to revamp its operations, including a deal in May to sell its Wella and Clairol brands to sales company KKR & Co. $ 800 million in cosmetics lines from Kylie Jenner and Kim Kardashian West in hopes of appealing to younger customers. Coty said its U.S. segment benefited from the contribution of the Kylie Beauty connection, although the market came under pressure in the last four years after the closure of the third-party manufacturer’s fulfillment center. Nevertheless, “Kylie Skin remained operational during the quarter, generating solid sales growth.”
Market reaction
Shares fell just 9.1% – the most intraday in more than two months – to $ 3.50. The stock was down 66% this year due to the close on Wednesday. Find out more about the results here.
(Stock Trading Updates)
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