uploads/2018/09/COTY-2-1.png

How Coty’s Top Line Performed in Fiscal 2018

By

Updated

Weakness in consumer beauty

For a long time, Coty’s (COTY) troubles have been due to the weak-performing consumer beauty division. The consumer division is the biggest contributor to the top line. In fiscal 2018, the segment constituted 45.4% of the overall revenues.

Overall, in fiscal 2018, revenue was up 22.8% driven mainly by acquisitions. However, on an LFL (like-for-like) basis, revenue was up a mere 0.4% due to the consumer beauty segment.

Given the subdued top-line performance, Coty stock has fallen 34.3% YTD (year-to-date) as of September 21. In comparison, Estée Lauder (EL) has risen 12.8%, and Inter Parfums (IPAR) has jumped 48.8%. Conversely, Revlon (REV) has declined 2.5% YTD.

Article continues below advertisement

What ails consumer beauty?

In fiscal 2018, the consumer beauty segment witnessed a decline of 1% when excluding the impact of acquisitions and divestitures. Average unit volume fell 7%. On an LFL basis, net revenue from consumer beauty was down 4% in fiscal 2018.

Stiff competition and supply chain troubles were the major reasons for the segment’s revenue decline. The US and Europe reported revenue declines in the mid-to-high single digits. In the ALMEA (Asia, Latin America, Middle East, Africa, and Australia) region, business in Brazil was disrupted due to a trucker strike. A shift in consumers’ shopping pattern is also impacting revenue. Consumers are now more inclined to shop online.

CoverGirl brand sales were hit due to markdowns and decreases in current product lines. Coty added that the CoverGirl relaunch efforts would be time-consuming. Clairol brand sales were positively impacted by improving sales of the Nice’N’Easy brand in fiscal 2018. Going forward, the company remains focused on innovation to drive the segment’s performance in fiscal 2019 along with increasing e-commerce sales.

Performance of other divisions

For fiscal 2018, the luxury and professionals segments reported growth of 6% and 1.7% on an LFL basis, respectively. On a reported basis, revenue was up 25.1% and 37.5%, respectively.

For the luxury division, acquisitions, especially Burberry, have been driving the growth along with strength in travel retail and all other categories. The company’s focus remains on the Botegga Veneta, Chloe, Marc Jacobs, and Tiffany brands.

As for the professional division, the company expects growth to be driven by the OPI and ghd brands. The Wella brand also remains a strong performer.

Advertisement

More From Market Realist