Coty profit beats on demand for brands aimed at younger consumers

Beauty products maker Coty Inc  posted a quarterly profit on Thursday that beat Wall Street estimates, selling more products geared toward millennials and making progress folding in newly-acquired brands in an expanded global portfolio.

Coty has been trying to keep pace with rivals Estee Lauder and LVMH’s Sephora, and has paid billions to acquire brands and take minority stakes in firms that appeal to younger consumers, most notably skincare brand Younique and ghd, which makes popular hair straighteners.

The shopping spree, which included 40-plus brands after paying $12 billion for Procter & Gamble’s beauty business, is paying off. It is now the third-largest beauty products maker in the world.

The company’s shares rose as much as 21 percent, marking their best one-day gain since February, 2016. They were up 16 percent at $17.12 in late morning trade.

Chief Executive Camillo Pane on Thursday said integrating these businesses was on track and that Coty would deliver the $780 million in savings it had promised investors.

“Today’s results should give some needed confidence to investors that the turnaround is progressing in a positive direction, despite a difficult macro-environment,” Wells Fargo analyst Joe Lachky wrote in a client note.

Pane also touted the impact Younique and ghd had on sales in its first quarter, saying they helped drive a 5 percent rise in combined company net revenue growth.

But some older brands like Clairol face waning demand from retailers, which are cutting back on inventories in favor of more niche brands.

Pane said the move would lead to uneven sales quarter-over-quarter and that sales in the second half of the year would be similar to the same period a year earlier.

Coty said it expected to regain some shelf space this year following the successful launch of Clairol’s Color Crave brand in the United States.

Excluding items, Coty earned 10 cents per share, compared to analysts’ estimates of a profit of 7 cents. Net sales more than doubled to $2.24 billion, but was in line with analysts’ estimates, according to Thomson Reuters I/B/E/S.
Estee Lauder reported better-than-expected sales and profit last week and lifted its expectations for the holiday-quarter, banking on its newly-acquired Too Faced and Becca brands, which are popular with millennials.