Coty narrows losses in second quarter, updates sustainability platform
today Feb 5, 2020
New York-based beauty giant Coty Inc. reported a significant narrowing of its net loss in the second quarter on Wednesday, despite falling sales, and also announced the launch of an updated sustainability platform setting new targets for reductions in the company’s emissions and improvements in its sourcing practices.
For the third quarter ended December 31, 2019, Coty – owner of brands including Covergirl, Rimmel London and Max Factor – reported net revenues of $2.35 billion, down 6.6% from $2.51 billion in the prior-year period. On a comparable basis, the decline was 1.4%.
The company’s consumer beauty segment saw the biggest dip in revenues during the quarter, posting a 17.4% decrease to $799.7 million and a 6.7% decrease on a comparable basis. The decline was consistent across geographies, with North American revenues in particular coming under pressure due to a weakening in the mass beauty market.
The luxury segment also posted a decline in its revenues, which totaled $1.02 billion. This reflected a decrease of 0.1%, although, on a comparable basis, revenues in the segment actually rose 1.3%. Brands such as Burberry, Gucci, Tiffany, Hugo Boss and Lacoste put in a strong performance during the quarter, as did travel retail, and the ALMEA and Europe regions. North America, on the other hand, saw a decline in revenues.
Coty’s professional beauty business was therefore the only one of its segments to post an increase in its revenues during the second quarter, albeit only a slight rise of 0.6%. The segment’s revenues totaled $528.8 million in the quarter, reflecting a 2.2% increase on a comparable basis.
Overall, Europe, the company’s largest market, posted a 2.4% decline in revenues of $1.17 billion. The region did, however, see 1.5% revenue growth on a comparable basis.
In North America, revenues declined 14.4% (6.3% on a comparable basis) to $635.0 million, while the ALMEA region posted a decrease of 5.3% (1.7% on a comparable basis) in its revenues, which totaled $537.1 million.
Coty’s total quarterly net loss came to $21.1 million, a loss of $0.03 per diluted share, compared to a loss of $960.6 million, or $1.28 per diluted share, in the prior-year period.
“Our second quarter results were in-line with our expectations, and underpinned by strong results in our gross margin and free cash flow generation,” commented Coty CFO Pierre-André Terisse in a release. “This makes me confident in our ability to achieve our targets for the year.”
Over the course of the quarter, Coty also completed a transaction that saw the company acquire a 51% stake in Kylie Jenner’s beauty brand, Kylie Cosmetics, for $600 million, as part of a strategic partnership seeking to create a “global powerhouse.”
Taking the first quarter of the year into account, Coty reported revenues of $4.29 billion in the first half of the year, representing a 5.6% decrease when compared to the same period a year before, when the company posted revenues of $4.54 billion.
The group’s net income for the six-month period totaled $31.2 million, or $0.34 per diluted share, another significant improvement from the net loss of $972.7 million, or $1.30 per diluted share, reported by the cosmetics maker a year ago.
In line with its results, Coty has maintained its full-year guidance for fiscal 2020, and still expects annual net revenue to remain stable or to decrease slightly on a comparable basis. The company predicts that its adjusted earnings per share will see mid-single digit growth.
Following the announcement of Coty’s results and guidance, as well as comments made by Terisse to Reuters downplaying the effect that the coronavirus outbreak in China will have on the group’s performance moving forward, shares in the company jumped up more than 20% on Wednesday.
In a separate announcement made on the same day, the company also launched its “Beauty that Lasts” sustainability platform.
Part of the company’s ongoing turnaround plan, the updated strategy is based around three pillars: “The Beauty of our Products,” “The Beauty of our Planet” and “The Beauty of our People.”
Targets related to the first of these pillars include the company’s plans to purchase 100% mass balance certified palm oil for its production sites, as well as 100% responsibly sourced Indian mica, by 2022. The group has also pledged that 100% of its packaging will be made from recycled, recyclable, reusable or compostable materials by 2025.
In line with its “The Beauty of our Planet” initiatives, Coty aims to reduce absolute CO2 emissions across its entire value chain by 30% by 2030, as well as reduce its energy usage by 25% and switch to 100% renewable energy. The company also intends to be sending zero waste to landfill and recycling 80% of the waste it generates by the end of this time frame.
The group’s “The Beauty of our People” targets are more socially focused and involve accelerating inclusive training, achieving gender balance in leadership positions, reducing gender pay gaps and ensuring that 95% of associates complete compliance training annually, all by 2025
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