Luxury Shows Promise at Coty in Q2

Coty Inc. posted mixed financial results for the second quarter of fiscal year 2019, ended Dec. 31, 2018. Net revenues fell 4.8% to $2.5 billion. However, luxury net revenues rose 7% to $1.0 billion. 


Consumer beauty net revenues fell 15% to $967.8 million and professional beauty dropped 4% to $525.9 million. North America net revenues of $742.2 million, or approximately 29% of total net revenues, was flat as reported.


Pierre Laubies, CEO, weighed in on the report. He commented, “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. Our luxury and professional beauty divisions are growing reasonably well, but they cannot compensate completely for the difficult trajectory of our consumer beauty division. In consumer beauty, we need to earn our right to grow.”


He added, “From a financial standpoint, gross margin improvement will become our key area of focus. 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. While we will deploy these principles whenever possible in the remainder of FY19, our immediate objective is to finalize a Strategic Plan, which will define our agenda for the medium term. I look forward to sharing more details on this plan in the coming months.”


According to Laubies, as Coty focuses on building a healthier business model, the company anticipates a profit trend recovery in the second half of FY19. However, FY19 constant currency adjusted operating income will be moderately below FY18. The company expects positive free cash flow for FY19, he said.