Coty Inc. COTY is flourishing from strength in its Prestige and Consumer Beauty businesses. In the first quarter of fiscal 2024, revenues from the company’s Prestige segment surged 23% year-over-year to reach $1,064.7 million. This surge was driven by the continued success of fragrance brands such as Hugo Boss, Calvin Klein, Burberry, and Gucci.
Simultaneously, the Consumer Beauty segment has been experiencing robust momentum, propelled by solid demand for color cosmetics, mass fragrances, and mass skin and body care products. In fiscal first quarter, the segment’s revenues soared 10% year over year to $576.7 million. Additionally, the resurgence of international travel and Coty’s expansion in the travel retail channel have been fueling its Travel Retail sales, which grew by more than 20% in first-quarter fiscal 2024.
With these encouraging trends and momentum in the core categories, the company offered a strong sales outlook for the first half and fiscal 2024. For the first half of fiscal 2024, COTY expects its core like-for-like (“LFL”) sales to grow between 11-13%. As a result, the management raised its overall fiscal 2024 core LFL sales view from an increase of 8-10% to 9-11%.
The company remains steadfast in its commitment to accelerating sales and profit growth, deleveraging its balance sheet, and simplifying its capital structure. In July 2023, it announced a letter of intent to divest part of its stake in Wella to IGF Wealth Management, and in December 2022, Coty announced the mutual sale of the Lacoste fragrance license. This strategic move will allow the firm to focus on its most significant fragrance licenses and expedite its deleveraging plan through the sale proceeds.
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This Zacks Rank #3 (Hold) company’s shares have gained 9.1% in the past three months, outperforming the industry’s 3% decline.
However, COTY has been grappling with escalating operating costs and expenses. In the fiscal first quarter, its cost of sales surged 20% year over year to $599.5 million. This surge was driven by higher manufacturing and material costs, a rise in designer license fees, and obsolescence costs.
Given the company’s extensive presence in international markets, its business is vulnerable to the risk of adverse currency fluctuations. For instance, in fiscal 2023, it suffered from over $70 million of negative foreign exchange impacts on adjusted EBITDA.
Stocks to Consider
Highlighting three better-ranked stocks from the same space, namely Dutch Bros BROS, Inter Parfums IPAR, and Ingredion Incorporated INGR, each currently carrying a Zacks Rank #2 (Buy). You can view the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Dutch Bros operates and franchises drive-thru shops focusing on serving high-quality, hand-crafted beverages with unmatched speed and superior service. BROS has an average trailing four-quarter earnings surprise of 57.1%.
The Zacks Consensus Estimate for Dutch Bros’ current financial-year sales and earnings indicates growth of 30.6% and 75%, respectively, from the year-ago period’s reported figures.
Inter Parfums manufactures, markets, and distributes a range of fragrances and fragrance-related products. The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 20.9% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.7%, on average.
Ingredion is a producer and distributor of sweeteners, nutrition ingredients, and biomaterial solutions. The Zacks Consensus Estimate for INGR’s current financial-year earnings per share indicates an increase of 24.7% from the corresponding year-ago reported figure. INGR reported an earnings surprise of 23.9% in the last reported quarter.
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