Coty Consumer Division Shows Some Signs of Stabilization

Coty Inc.'s consumer division, which houses Cover Girl, Rimmel and other mass market beauty brands, may be showing a glimmer of hope.
While the segment was still down in Coty's most recent quarter, things appeared less bad than they historically have been. In an early-morning interview with WWD on Wednesday, Coty chief financial officer Pierre-André Terisse called out improvements.
"The performance of consumer beauty, which is not where we would like it to be ultimately, but which has been improving — we are delivering a minus 6.5 percent, which is approximately one point above the previous quarter," Terisse said, speaking in like-for-like figures. "It's been the highest for the past six quarters."
The signs of improvement — Coty executives are referring to them as "green shoots" — are still small. Max Factor is doing well in Germany again, for example, and Rimmel is back to making market share gains in the U.K., Coty executives said. Sally Hansen is doing well in the U.S. again.
The small wins are in part due to a shift in Coty's advertising strategy implemented by the current management team. Coty chief executive officer Pierre Laubies said the company is moving away from hyper-targeted advertising campaigns, and running things that have more mass appeal.
"We don't do targeted advertising. This is exactly the shift that we are making — we are actually talking to all consumers and our objective is to recruit new consumers. For that, we've basically shifted our strategy in advertising from a strategy of bursts, i.e. high pressure for a short period of time, to a strategy of…low pressure, all year long," Laubies said. So far it's been rolled out in the U.S., U.K. and Germany.
When the formula doesn't work, Coty has teams troubleshoot in real time, Laubies said.
There is still work to be done. Cover Girl, which recently brought on Lili Reinhart as a spokesperson, is still struggling, executives admitted, though it seems to be doing a bit better in Canada. "Cover Girl is not yet where we want it to be. It's progressing, so we will continue," Terisse said.
The numbers may be less bad, but they are by no means good. For the quarter ended Dec. 31, Coty's consumer segment posted a 17.4 percent year-over-year decline, with about $800 million in net sales.
Those numbers dragged down Coty's overall figures for the quarter. The company posted $2.3 billion in net sales, down 6.6 percent from the prior year period. Luxury division sales were down slightly, 0.1 percent, to about $1 billion. The Professional division, which Coty plans to sell, saw a 0.6 percent net sales gain in the quarter, to $528.8 million. Executives said the sale exploration process is on track to be completed by summertime.
Terisse pointed to other signs of improvement, including gross margins that went up by 130 basis points in the quarter. "Delivery on gross margin is obviously very important because the extent of what we're trying to do with the turnaround plan is precisely to improve not only the delivery but also the quality of our top line — we've been doing a lot of work on that front," Terisse said.
Wall Street analysts characterized that quarter as in line with expectations. "We view the result as essentially inline, suggesting management's turnaround is increasing consistency of results," Stifel analyst Mark Astrachan wrote in a note. "Challenges remain, especially in consumer beauty."
"Coty's results were a mixed bag, as well as profit margins expanded nicely and the company maintained its guidance for the full year, sales growth…came in below our expectations," wrote Citi analyst Wendy Nicholson. "In a group right now where most companies are delivering robust sales growth, we think Coty falls short of its peers."
For Coty, Kylie Jenner's Kylie Cosmetics marks a clearer bright spot — Terisse said holiday sales for the brand were "over expectations." Now that the deal has closed and Coty has installed a ceo, the company has big growth plans. "Now is going to be the time for us, in 2020, to start to create the links to make sure that we can accelerate the net revenue expansion, innovation, etc.," Terisse said.
Coty also unveiled a 10-year sustainability plan Wednesday, outlining new responsible sourcing, recycling and carbon dioxide reduction goals. "We want to be an attractive company, and an attractive company is a company that does great by doing good, and we want to be part of this club," Laubies said. In addition to being Coty's cfo, Terisse founded and continues to serve as executive chairman of Miya, a company that focuses on providing clean water in emerging markets.
As for the coronavirus, Coty executives said they are "reviewing the situation every day," and focusing on "taking care" of associates. "There will be some business impacts for sure, but I think it's really early days to assess them," Terisse said. "The only thing I know is we are going to be for sure less impacted than the competition because China represents about 3 percent of our sales."
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