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Coty Inc. (COTY - Free Report) posted second-quarter fiscal 2023 results, with the bottom line surpassing the Zacks Consensus Estimate and increasing year over year. The top line missed the consensus mark and decreased from the year-ago quarter’s reported figure. The company witnessed pressures from component shortages and currency headwinds in the quarter.
That said, consumer demand for beauty products continues to remain solid. During the fiscal second quarter, consumer demand for beauty products, mainly prestige fragrances, remained solid, with high-single-digit growth in the prestige fragrance market and mid-single-digit growth across the mass beauty market.
Management reaffirmed its fiscal 2023 revenue and profit guidance while increasing its earnings per share (EPS) view.
Quarter in Detail
Coty reported adjusted EPS of 22 cents, surpassing the Zacks Consensus Estimate of 15 cents a share. The metric also came ahead of our estimate, which was pegged at 13 cents per share. The bottom line increased from earnings of 17 cents per share reported in the year-ago quarter, courtesy of higher adjusted net income.
Coty’s net revenues came in at $1,523.6 million, down 3% year over year, including an adverse currency impact of 7%. The metric missed the Zacks Consensus Estimate of $1,528.1 million and our estimate of $1,538.9 million. LFL revenues rose 4% on growth in the Prestige and Consumer Beauty business segments. The company’s LFL revenues included a nearly 3% unfavorable impact from its Russia business exit.
Adjusted gross margin came in at 65.5%, expanding from 64.6% reported in the year-ago quarter. The upside was supported by pricing and better trade spending. These were somewhat offset by COGS inflation.
Adjusted operating income came in at $261.4 million, rising from $236.3 million in the prior-year quarter on lower depreciation expenses. The adjusted EBITDA in the quarter amounted to $317.6 million, up 2%. The adjusted operating margin in the second quarter came in at 17.2%, while the adjusted EBITDA margin was 20.8%.
Segment Results
Prestige: Net revenues in the segment went down 5% to $957.7 million. The segment’s revenues were up 3% on an LFL basis, driven by strength in every region, reflecting a recovery in most EMEA markets, Travel Retail, Latin America and most APAC markets.
Consumer Beauty: Net revenues fell 1% year over year to $565.9 million. The segment’s LFL sales jumped 6%, with robust performance in color cosmetics, skincare and body care. Management highlighted that every region generated LFL growth in the segment.
Region-Wise Results
Net revenues in the Americas increased 6% to $624.3 million. LFL revenues were up 8%, driven by growth in Prestige and Consumer Beauty segments.
Sales in EMEA decreased 10% year over year to $713.5 million, while the figure grew 2% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segment, with solid momentum in regional Travel Retail.
Sales in the Asia-Pacific region fell 5% (up 2% at LFL) year over year to $185.8 million. The company’s Consumer Beauty generated solid growth, while the Prestige business was affected by COVID-related challenges across China during most of the quarter. Excluding China, almost every market generated double-digit growth.
Other Updates
The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $280.8 million, net long-term debt of $4,014 million and immediate liquidity of $2,195.7 million.
For the six months ended Dec 31, 2022, cash provided by operating activities amounted to $645.4 million.
Image Source: Zacks Investment Research
Outlook
Management continues to witness solid demand growth in almost all markets, especially in Prestige fragrances, as Coty is maintaining impressive launch activity across Prestige and Consumer Beauty segments. The company is also seeing improvement regarding component shortages which restricted Coty's Prestige fragrance growth.
Improved service levels and the ongoing strength in beauty consumption are fueling sequential acceleration in the company’s January sales growth. Thanks to these upsides, Coty is on track with its fiscal 2023 outlook, which is in line with the medium-term growth algorithm.
Adjusting for the impact of the Russia exit, management expects 6-8% LFL core revenue growth. The company now expects unfavorable currency rates to affect revenues towards the better end of the 6-8% range in fiscal 2023. The company expects second-half core business LFL revenue growth trends to be consistent with the annual growth target of 6-8%.
For fiscal 2023, adjusted EBITDA is projected in the range of $955-$965 million, relatively in line with its medium-term growth target of 9-11% growth, adjusted for the Russia exit impact.
Owing to solid earnings performance in the first half of the fiscal year, management now expects fiscal 2023 adjusted EPS growth of more than 20% to 35-36 cents, up from the earlier range of 32-33 cents a share. Management expects modest gross margin expansion during fiscal 2023 in spite of the rising inflationary environment.
Price Performance
COTY’s shares have increased 56.3% in the past three months compared with the industry’s 29.3% growth.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial-year sales and earnings suggests growth of 39.2% and 61.9%, respectively, from the prior-year reported numbers.
Helen of Troy currently carries a Zacks Rank of 2. HELE has a trailing four-quarter earnings surprise of 13.4%, on average. Helen of Troy has a long-term earnings growth rate of 8%.
The Zacks Consensus Estimate for HELE’s current financial-year sales and earnings suggests declines of almost 8% and 24.6%, respectively, from the prior-year reported numbers.
Inter Parfums currently has a Zacks Rank #2 and an expected long-term earnings growth rate of 15%. IPAR has a trailing four-quarter earnings surprise of 27.8%, on average.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings suggests growth of 23.6% and 29.5%, respectively, from the year-ago reported numbers.
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COTY Q2 Earnings Surpass Estimates, Sales Decrease Y/Y
Coty Inc. (COTY - Free Report) posted second-quarter fiscal 2023 results, with the bottom line surpassing the Zacks Consensus Estimate and increasing year over year. The top line missed the consensus mark and decreased from the year-ago quarter’s reported figure. The company witnessed pressures from component shortages and currency headwinds in the quarter.
That said, consumer demand for beauty products continues to remain solid. During the fiscal second quarter, consumer demand for beauty products, mainly prestige fragrances, remained solid, with high-single-digit growth in the prestige fragrance market and mid-single-digit growth across the mass beauty market.
Management reaffirmed its fiscal 2023 revenue and profit guidance while increasing its earnings per share (EPS) view.
Quarter in Detail
Coty reported adjusted EPS of 22 cents, surpassing the Zacks Consensus Estimate of 15 cents a share. The metric also came ahead of our estimate, which was pegged at 13 cents per share. The bottom line increased from earnings of 17 cents per share reported in the year-ago quarter, courtesy of higher adjusted net income.
Coty’s net revenues came in at $1,523.6 million, down 3% year over year, including an adverse currency impact of 7%. The metric missed the Zacks Consensus Estimate of $1,528.1 million and our estimate of $1,538.9 million. LFL revenues rose 4% on growth in the Prestige and Consumer Beauty business segments. The company’s LFL revenues included a nearly 3% unfavorable impact from its Russia business exit.
Coty Price, Consensus and EPS Surprise
Coty price-consensus-eps-surprise-chart | Coty Quote
Adjusted gross margin came in at 65.5%, expanding from 64.6% reported in the year-ago quarter. The upside was supported by pricing and better trade spending. These were somewhat offset by COGS inflation.
Adjusted operating income came in at $261.4 million, rising from $236.3 million in the prior-year quarter on lower depreciation expenses. The adjusted EBITDA in the quarter amounted to $317.6 million, up 2%. The adjusted operating margin in the second quarter came in at 17.2%, while the adjusted EBITDA margin was 20.8%.
Segment Results
Prestige: Net revenues in the segment went down 5% to $957.7 million. The segment’s revenues were up 3% on an LFL basis, driven by strength in every region, reflecting a recovery in most EMEA markets, Travel Retail, Latin America and most APAC markets.
Consumer Beauty: Net revenues fell 1% year over year to $565.9 million. The segment’s LFL sales jumped 6%, with robust performance in color cosmetics, skincare and body care. Management highlighted that every region generated LFL growth in the segment.
Region-Wise Results
Net revenues in the Americas increased 6% to $624.3 million. LFL revenues were up 8%, driven by growth in Prestige and Consumer Beauty segments.
Sales in EMEA decreased 10% year over year to $713.5 million, while the figure grew 2% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segment, with solid momentum in regional Travel Retail.
Sales in the Asia-Pacific region fell 5% (up 2% at LFL) year over year to $185.8 million. The company’s Consumer Beauty generated solid growth, while the Prestige business was affected by COVID-related challenges across China during most of the quarter. Excluding China, almost every market generated double-digit growth.
Other Updates
The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $280.8 million, net long-term debt of $4,014 million and immediate liquidity of $2,195.7 million.
For the six months ended Dec 31, 2022, cash provided by operating activities amounted to $645.4 million.
Image Source: Zacks Investment Research
Outlook
Management continues to witness solid demand growth in almost all markets, especially in Prestige fragrances, as Coty is maintaining impressive launch activity across Prestige and Consumer Beauty segments. The company is also seeing improvement regarding component shortages which restricted Coty's Prestige fragrance growth.
Improved service levels and the ongoing strength in beauty consumption are fueling sequential acceleration in the company’s January sales growth. Thanks to these upsides, Coty is on track with its fiscal 2023 outlook, which is in line with the medium-term growth algorithm.
Adjusting for the impact of the Russia exit, management expects 6-8% LFL core revenue growth. The company now expects unfavorable currency rates to affect revenues towards the better end of the 6-8% range in fiscal 2023. The company expects second-half core business LFL revenue growth trends to be consistent with the annual growth target of 6-8%.
For fiscal 2023, adjusted EBITDA is projected in the range of $955-$965 million, relatively in line with its medium-term growth target of 9-11% growth, adjusted for the Russia exit impact.
Owing to solid earnings performance in the first half of the fiscal year, management now expects fiscal 2023 adjusted EPS growth of more than 20% to 35-36 cents, up from the earlier range of 32-33 cents a share. Management expects modest gross margin expansion during fiscal 2023 in spite of the rising inflationary environment.
Price Performance
COTY’s shares have increased 56.3% in the past three months compared with the industry’s 29.3% growth.
3 Top-Ranked Cosmetics Stocks
Here are some other top-ranked stocks, namely e.l.f. Beauty (ELF - Free Report) , Helen of Troy (HELE - Free Report) and Inter Parfums (IPAR - Free Report) .
e.l.f. Beauty currently sports a Zacks Rank of 1 (Strong Buy). ELF has a trailing four-quarter earnings surprise of 105%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial-year sales and earnings suggests growth of 39.2% and 61.9%, respectively, from the prior-year reported numbers.
Helen of Troy currently carries a Zacks Rank of 2. HELE has a trailing four-quarter earnings surprise of 13.4%, on average. Helen of Troy has a long-term earnings growth rate of 8%.
The Zacks Consensus Estimate for HELE’s current financial-year sales and earnings suggests declines of almost 8% and 24.6%, respectively, from the prior-year reported numbers.
Inter Parfums currently has a Zacks Rank #2 and an expected long-term earnings growth rate of 15%. IPAR has a trailing four-quarter earnings surprise of 27.8%, on average.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings suggests growth of 23.6% and 29.5%, respectively, from the year-ago reported numbers.