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Coty (COTY) Stock Rallies 30% in 3 Months: Will Momentum Stay?
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Coty Inc. (COTY - Free Report) has been benefiting from strength in its e-commerce operations and gains from partnerships. These aspects form part of the company’s core strategic priories, which include achieving robust e-commerce momentum; strengthening presence in China; solidifying foothold in white space opportunities such as prestige, skincare and cosmetics; undertaking innovation and thereby enhancing the core prestige fragrance business; and stabilizing the mass beauty business market share. Additionally, the company’s cost-saving efforts have been aiding.
Impressively, the impact of these upsides was reflected in Coty’s second-quarter fiscal 2021 results, wherein both top and bottom lines came ahead of the Zacks Consensus Estimate. Management on its last earnings call remained pleased with the second-quarter show and said that the company’s January trends were also in tandem with its anticipations. Shares of Coty have rallied 30.4% in the past three months compared with the industry’s growth of 20.1%. Let’s delve deeper and see if this cosmetics biggie can keep its growth trend going amid pandemic-related headwinds.
E-Commerce Strength & Gains From Alliances
In the second quarter of fiscal 2021, the company’s e-commerce sales surged 40%, with strength in all regions and channels. Also, Coty’s e-commerce penetration, as a percentage of sales, continued to increase in the Americas and the EMEA regions, with the latter being its biggest e-commerce region and largest growth contributor. Channel-wise, e-commerce sales rose 40% in the Prestige channel and by double-digits in the Mass channel, with the latter seeing continued growth at retailer sites and robust performance on Amazon (AMZN - Free Report) in the United States, Germany and the U.K.
We note that Coty has inked several partnerships to enhance its brand portfolio. Recently, the company signed a letter of intent to partner with LanzaTech, which is aimed at introducing sustainable ethanol produced from captured-carbon emissions into Coty’s fragrance offerings. Further, the company acquired a 20% stake in Kim Kardashian West's business in January 2021. The deal will help Coty and Kim Kardashian West focus on fresh beauty categories, alongside expanding their worldwide presence beyond the current line of products.
Additionally, Coty and Kylie Jenner unveiled their long-term alliance in January 2020, aimed at further building upon Kylie’s beauty business, which includes Kylie Skin and Kylie Cosmetics. Notably, Kylie Beauty continued performing well in the second quarter, with revenues in line with the first quarter of fiscal 2021. Apart from witnessing strength on the Kylie Skincare direct-to-consumer website in the quarter under review, management remains encouraged about the scope of Kylie Skin in the retail channel across the United States, Australia and Europe, as the pandemic-led lockdowns start getting lifted. This is likely to be backed by new launches and activations.
Robust Cost-Saving Actions
Coty delivered fixed cost savings of nearly $80 million in the second quarter and is now on track to generate savings of roughly $300 million in fiscal 2021 compared with more than $200 million expected before. The raised savings goal can be accountable to robust delivery in the first half and acceleration of various projects. This, in turn, is likely to lead to adjusted EBITDA of $750 million for fiscal 2021. Certainly, Coty’s robust cost discipline and cash-flow dynamics remain its main drivers. We note that the company has been focused on reducing people and non-people costs, alongside undertaking solid marketing cost management. Thanks to these factors, adjusted operating income from continuing operations came in at $188.4 million in the second quarter, up 7% year over year. Adjusted EBITDA (from continuing operations) for the quarter came in at $284.1 million, up 6% year over year. The adjusted operating and adjusted EBITDA margins expanded 280 basis points and 420 basis points, respectively.
Not All is Rosy for Coty
Coty’s revenues have been affected by soft traffic and a disrupted travel retail network amid the pandemic-led social distancing trends. In second-quarter fiscal 2021, net revenues from continuing operations decreased 15.9% year over year to $1,415.6 million. LFL net revenues from continuing operations slid 17.9%. LFL revenues were down across all regions and channels. Results were especially affected by continued softness in travel retail (in Asia-Pacific region and Prestige channel), the impact of the second wave of the pandemic that resulted in several market closures (in Prestige channel and EMEA region), lesser make-up usage and lower store traffic (in the Mass channel).
In fact, the Mass channel has long been witnessing soft sales. In the second quarter, net revenues declined 23.3% year over year to $511.5 million, while LFL sales fell 21.6%. Sales continued to bear the brunt of reduced demand for color cosmetics due to lesser make-up usage occasions and lower store traffic amid the increased waves of the pandemic.
Nonetheless, we expect the aforementioned drivers to help this Zacks Rank #3 (Hold) company stay firm amid these hurdles.
The J.M. Smucker (SJM - Free Report) has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 17.7% in the trailing four quarters, on average.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Coty (COTY) Stock Rallies 30% in 3 Months: Will Momentum Stay?
Coty Inc. (COTY - Free Report) has been benefiting from strength in its e-commerce operations and gains from partnerships. These aspects form part of the company’s core strategic priories, which include achieving robust e-commerce momentum; strengthening presence in China; solidifying foothold in white space opportunities such as prestige, skincare and cosmetics; undertaking innovation and thereby enhancing the core prestige fragrance business; and stabilizing the mass beauty business market share. Additionally, the company’s cost-saving efforts have been aiding.
Impressively, the impact of these upsides was reflected in Coty’s second-quarter fiscal 2021 results, wherein both top and bottom lines came ahead of the Zacks Consensus Estimate. Management on its last earnings call remained pleased with the second-quarter show and said that the company’s January trends were also in tandem with its anticipations. Shares of Coty have rallied 30.4% in the past three months compared with the industry’s growth of 20.1%. Let’s delve deeper and see if this cosmetics biggie can keep its growth trend going amid pandemic-related headwinds.
E-Commerce Strength & Gains From Alliances
In the second quarter of fiscal 2021, the company’s e-commerce sales surged 40%, with strength in all regions and channels. Also, Coty’s e-commerce penetration, as a percentage of sales, continued to increase in the Americas and the EMEA regions, with the latter being its biggest e-commerce region and largest growth contributor. Channel-wise, e-commerce sales rose 40% in the Prestige channel and by double-digits in the Mass channel, with the latter seeing continued growth at retailer sites and robust performance on Amazon (AMZN - Free Report) in the United States, Germany and the U.K.
We note that Coty has inked several partnerships to enhance its brand portfolio. Recently, the company signed a letter of intent to partner with LanzaTech, which is aimed at introducing sustainable ethanol produced from captured-carbon emissions into Coty’s fragrance offerings. Further, the company acquired a 20% stake in Kim Kardashian West's business in January 2021. The deal will help Coty and Kim Kardashian West focus on fresh beauty categories, alongside expanding their worldwide presence beyond the current line of products.
Additionally, Coty and Kylie Jenner unveiled their long-term alliance in January 2020, aimed at further building upon Kylie’s beauty business, which includes Kylie Skin and Kylie Cosmetics. Notably, Kylie Beauty continued performing well in the second quarter, with revenues in line with the first quarter of fiscal 2021. Apart from witnessing strength on the Kylie Skincare direct-to-consumer website in the quarter under review, management remains encouraged about the scope of Kylie Skin in the retail channel across the United States, Australia and Europe, as the pandemic-led lockdowns start getting lifted. This is likely to be backed by new launches and activations.
Robust Cost-Saving Actions
Coty delivered fixed cost savings of nearly $80 million in the second quarter and is now on track to generate savings of roughly $300 million in fiscal 2021 compared with more than $200 million expected before. The raised savings goal can be accountable to robust delivery in the first half and acceleration of various projects. This, in turn, is likely to lead to adjusted EBITDA of $750 million for fiscal 2021. Certainly, Coty’s robust cost discipline and cash-flow dynamics remain its main drivers. We note that the company has been focused on reducing people and non-people costs, alongside undertaking solid marketing cost management. Thanks to these factors, adjusted operating income from continuing operations came in at $188.4 million in the second quarter, up 7% year over year. Adjusted EBITDA (from continuing operations) for the quarter came in at $284.1 million, up 6% year over year. The adjusted operating and adjusted EBITDA margins expanded 280 basis points and 420 basis points, respectively.
Not All is Rosy for Coty
Coty’s revenues have been affected by soft traffic and a disrupted travel retail network amid the pandemic-led social distancing trends. In second-quarter fiscal 2021, net revenues from continuing operations decreased 15.9% year over year to $1,415.6 million. LFL net revenues from continuing operations slid 17.9%. LFL revenues were down across all regions and channels. Results were especially affected by continued softness in travel retail (in Asia-Pacific region and Prestige channel), the impact of the second wave of the pandemic that resulted in several market closures (in Prestige channel and EMEA region), lesser make-up usage and lower store traffic (in the Mass channel).
In fact, the Mass channel has long been witnessing soft sales. In the second quarter, net revenues declined 23.3% year over year to $511.5 million, while LFL sales fell 21.6%. Sales continued to bear the brunt of reduced demand for color cosmetics due to lesser make-up usage occasions and lower store traffic amid the increased waves of the pandemic.
Nonetheless, we expect the aforementioned drivers to help this Zacks Rank #3 (Hold) company stay firm amid these hurdles.
2 Solid Consumer Staple Stocks
Estee Lauder (EL - Free Report) has a Zacks Rank #2 (Buy) and a long-term earnings per share growth rate of 10.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The J.M. Smucker (SJM - Free Report) has a Zacks Rank #2 and its bottom line outpaced the Zacks Consensus Estimate by 17.7% in the trailing four quarters, on average.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2021 today >>