Beauty & Balance

Coty Posts Net Earnings Dip, Loss

Coty Inc's numbers declined in the second quarter, largely due to performance of its Consumer Beauty segment.
Overall, the company posted $2.5 billion in sales, down 4.8 percent year-over-year, with a net loss of $960.6 million. Coty said that loss was due to a $965 million non-cash impairment charge related to the Consumer Division and the CoverGirl and Clairol trademarks. Loss per share was $1.28 compared to 15 cents of earnings per share in the prior-year quarter.
Sales at the Luxury Beauty division, which houses designer Fragrance brands like Gucci, and the Burberry beauty business, were up 7 percent year-over-year, to more than $1 billion. Sales were driven by Gucci, Marc Jacobs, Burberry, Calvin Klein and Chloe. Tiffany's performed particularly well over the holiday season, the company said, but Hugo Boss was impacted by supply chain disruptions.
The Consumer Beauty business posted a 15 percent sales drop from the prior-year period, to $967.8 million in net sales. Brands in that segment, which include CoverGirl and Clairol, were impacted by weakness in the mass beauty market in the U.S. and Europe, the company said, nothing it "saw some moderation in the pace of our market share losses." That segment continues to be negatively affected by supply chain disruptions, including customer penalties and increased promotions, which reduced sales.
In Consumer color, the decline was in the mid single digits, and in hair, high single digits, Coty said. CoverGirl and Clairol's sales both had a favorable comparison to the prior-year period, when there was inventory depletion ahead of the brand relaunches.
Sally Hansen was a division bright spot for the quarter, and Wella's retail brand gained share in emerging and developed markets with different products. Sales and profit "remained pressured" at Younique because of a decline in product sales and presenter sponsorship.
Sales in the Professional Beauty segment dipped 4 percent, to $525.9 million. Part of that dip — 2 percent, the company estimates — was due to supply chain disruptions in the North America warehouse. OPI was disproportionately affected.
"Since I joined the company a few months ago, I have been thoroughly evaluating each part of our business, working to assess what has and has not worked, and where the opportunities lie. Within Coty, there are clear opportunities to improve how we run our company in order to enhance the quality of our business model, thereby giving us the time that we need to address our more strategic issues. I must stress that while we are confident that we can return Coty to a path of sustainable growth, we are also realistic that it will take time to achieve this outcome," said new Coty chief executive officer Pierre Laubies.
While the company's Luxury and Professional Beauty segments are growing, they can't compensate for the struggles that the Consumer Beauty division is having, Laubies noted.
"In Consumer Beauty, we need to earn our right to grow. From a financial standpoint, gross margin improvement will become our key area of focus," he said. "Gross margin is the lifeblood of the business and we recognize that we must close the gap we have here versus our beauty peers. That means managing revenue and costs, improving product mix and range, simplifying our portfolio and formulations, and systemically deploying lean-inspired methodologies in our manufacturing and logistics operations."
Right now, he said, Coty is working to finalize a strategic plan. While the previous team at Coty struggled to achieve integration and turn around the Consumer Beauty segment, Laubies said he has "a great deal of confidence that the management team we have put into place is the right one to develop this plan, and that together with the broader Coty organization, we will be able to meet the objectives of driving gross margin improvement and sustained topline growth."
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