Coty in a Post-Pandemic World

Coty Inc was in trouble and it looked to its chairman for help. When Peter Harf took over the reins at the beleagured beauty company, Coty said in a statement that the move was made to “instill urgency and deliver results.” Well, the urgency is apparent, now the wait begins on results.

Just this week came a $200 million purchase for a 20% stake in Kim Kardashian West's beauty brand KKW. Under terms of the agreement, Coty will manufacture skin, hair and personal products for KKW. During the pandemic, skin care has been a relatively bright spot for the global cosmetics market, and industry sources expect Coty, a long-time leader in fragrance, to make a move toward the top in skin care in the coming years. There is certainly room for growth;  Jefferies Group estimates skin care will account for just 5% of Coty’s business following the spinoff of its professional and retail hair businesses. In contrast, color cosmetics represents 45% of sales and fine fragrance is 50% of sales.

Financial analysts seem split on the Jenner/Kardashian deals, which cost $800 million in the past year. They point out that Coty has paid a high price for both Kylie Cosmetics and KKW. Last year, Coty paid $600 million for a 51% stake in Kylie, but after the books were opened, it was discovered that the brand has annual sales of just $177 million or so. In this latest deal, KKW was valued at $1 billion. Price tags aside, analysts note that Coty still has much work to do if it wants to turn around CoverGirl, which it acquired years ago in a blockbuster deal with Procter & Gamble. 

While analysts have suggested Coty has too much on its plate, company executives are quick to point out that Coty’s research also showed that both Kylie Cosmetics and Kardashian West have big social media followings around the world. Together the brands are said to approach 600 million.