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Why Is Coty (COTY) Down 8.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for Coty (COTY - Free Report) . Shares have lost about 8.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Coty due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
COTY's Q4 Loss Wider Than Estimates, Sales Increase Y/Y
Coty posted fourth-quarter fiscal 2024 adjusted loss of 3 cents, missing the Zacks Consensus Estimate of earnings of 4 cents. The bottom line deteriorated from earnings of 1 cent reported in the year-ago quarter.
Coty’s net revenues came in at $1,363.4 million, up 1% year over year owing to growth in prestige and mass fragrances as well as in prestige cosmetics and mass skin & body care. The metric reflects a 2% adverse impact from unfavorable foreign currency exchange and a 2% headwind due to the divestiture of the Lacoste license. Revenue growth was fueled by the rise in net revenues from the Consumer Beauty unit, while Prestige revenues remained stable. However, quarterly net revenues missed the Zacks Consensus Estimate of $1,376.3 million. LFL revenues rose 5% on growth in the Prestige and Consumer Beauty business segments. We had expected LFL revenues to increase 4.9%.
The gross margin came in at 64.2%, up 130 bps from 62.9% reported in the year-ago quarter. The improvement can be attributed to savings in the supply chain, pricing actions and premiumization. The adjusted gross margin stood at 64.2%, reflecting a 140-bps year over year increase. Coty’s adjusted operating income rose 3% to $108 million. The adjusted operating margin improved to 7.9% from 7.8% reported in the year-ago quarter. The upside was mainly driven by strong gross margin growth. However, it was partially offset by higher advertising and promotional costs and fixed expenses as the company invested in its strategic growth initiatives. The adjusted EBITDA amounted to $164.5 million, down 1% year over year. The adjusted EBITDA margin contracted by 10 bps to 12.1%.
Segment Results
Prestige: Net revenues in the segment totaled $802.8 million, remaining flat on a reported basis while rising 6% on an LFL basis. The reported figures were affected by a 4% decline due to the divestiture of the Lacoste license and a 2% headwind from unfavorable foreign currency translations. Despite these headwinds, strong demand for prestige beauty drove growth across most regions, with notable outperformance in Latin America, Asia excluding China and the Travel Retail channel. The segmental adjusted operating income was $87.8 million compared with $85.1 million reported in the year-ago quarter. The adjusted operating margin was 10.9%.
Consumer Beauty: Net revenues amounted to $560.6 million, increasing 2% and including a 2% negative impact from unfavorable foreign currency translations. COTY saw a 4% increase on a LFL basis. The upside in the segment was driven by double-digit percentage increases in mass fragrances and skin & body care, especially in Brazil. The EMEA region experienced solid reported revenue growth, while Latin America, Canada and Asia, excluding China, also saw strong growth. The segmental adjusted operating income was $20.2 million, a slight increase from $20 million reported in the year-ago quarter. The adjusted operating margin remained flat at 3.6% year over year.
Region-Wise Results
Net revenues in the Americas increased by 3% on a reported basis despite a 4% negative impact from foreign exchange and a 1% decline due to the divestiture of the Lacoste license. On an LFL basis, net revenues grew by 8% in the region. The regional performance was bolstered by growth across nearly all markets, with particularly strong reported net revenue growth in Latin America, Canada, and the regional Travel Retail channel. Our model suggested revenue growth of 2.5% for the fiscal fourth quarter.
Sales in the EMEA rose 1% on a reported basis, including a 1% negative impact from foreign exchange and a 4% decline due to the divestiture of the Lacoste license. On an LFL basis, net revenues increased by 5% in the region. Positive contributions from most markets and the Travel Retail channel drove the regional performance. Our model suggested revenue growth of 1% for the fiscal fourth quarter.
Sales in the Asia-Pacific region fell 4% on a reported basis, including a 2% negative impact from unfavorable foreign currency rates. On an LFL basis, net revenues declined 2%. Excluding China and the Travel Retail Channel, Asia reported growth of mid-single-digit to double-digit percentages. In China, total company sales were lower in the quarter due to challenging comparisons with the previous quarter and a very gradual market recovery.
Other Updates & Outlook
The company ended the quarter with cash and cash equivalents of $300.8 million and net long-term debt of $3,841.8 million. For the year ended Jun 30, 2024, cash provided by operating activities amounted to $614.6 million.
The global beauty market continues to show strong growth, particularly in prestige fragrances. The company expects mid-single-digit growth in mature markets, bolstered by robust e-commerce momentum for the fiscal 2025. Coty is targeting double-digit revenue growth in its key growth markets and the rapidly expanding travel retail channel, supported by a strong innovation pipeline for the year. Considering these factors, management expects 6-8% LFL revenue growth for the fiscal 2025 and the first half of the year. The company anticipates approximately 6% LFL revenue growth in the fiscal first quarter. The company’s reported revenues for the fiscal 2025 are anticipated to witness a low-single-digit percentage of unfavorable currency rates. Coty projects adjusted EBITDA growth of 9-11% for the fiscal 2025, reaching $1,186-$1,208 million. This projection suggests an expansion of the adjusted EBITDA margin by 10-30 bps. Additionally, Coty anticipates continued year-on-year gross margin expansion in the fiscal 2025. Management expects adjusted EPS for the fiscal 2025, excluding the equity swap, to be 54-57 cents and suggesting a 15-20% year-over-year increase.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Coty has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Coty has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Coty (COTY) Down 8.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Coty (COTY - Free Report) . Shares have lost about 8.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Coty due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
COTY's Q4 Loss Wider Than Estimates, Sales Increase Y/Y
Coty posted fourth-quarter fiscal 2024 adjusted loss of 3 cents, missing the Zacks Consensus Estimate of earnings of 4 cents. The bottom line deteriorated from earnings of 1 cent reported in the year-ago quarter.
Coty’s net revenues came in at $1,363.4 million, up 1% year over year owing to growth in prestige and mass fragrances as well as in prestige cosmetics and mass skin & body care. The metric reflects a 2% adverse impact from unfavorable foreign currency exchange and a 2% headwind due to the divestiture of the Lacoste license. Revenue growth was fueled by the rise in net revenues from the Consumer Beauty unit, while Prestige revenues remained stable. However, quarterly net revenues missed the Zacks Consensus Estimate of $1,376.3 million. LFL revenues rose 5% on growth in the Prestige and Consumer Beauty business segments. We had expected LFL revenues to increase 4.9%.
The gross margin came in at 64.2%, up 130 bps from 62.9% reported in the year-ago quarter. The improvement can be attributed to savings in the supply chain, pricing actions and premiumization. The adjusted gross margin stood at 64.2%, reflecting a 140-bps year over year increase. Coty’s adjusted operating income rose 3% to $108 million. The adjusted operating margin improved to 7.9% from 7.8% reported in the year-ago quarter. The upside was mainly driven by strong gross margin growth. However, it was partially offset by higher advertising and promotional costs and fixed expenses as the company invested in its strategic growth initiatives. The adjusted EBITDA amounted to $164.5 million, down 1% year over year. The adjusted EBITDA margin contracted by 10 bps to 12.1%.
Segment Results
Prestige: Net revenues in the segment totaled $802.8 million, remaining flat on a reported basis while rising 6% on an LFL basis. The reported figures were affected by a 4% decline due to the divestiture of the Lacoste license and a 2% headwind from unfavorable foreign currency translations. Despite these headwinds, strong demand for prestige beauty drove growth across most regions, with notable outperformance in Latin America, Asia excluding China and the Travel Retail channel. The segmental adjusted operating income was $87.8 million compared with $85.1 million reported in the year-ago quarter. The adjusted operating margin was 10.9%.
Consumer Beauty: Net revenues amounted to $560.6 million, increasing 2% and including a 2% negative impact from unfavorable foreign currency translations. COTY saw a 4% increase on a LFL basis. The upside in the segment was driven by double-digit percentage increases in mass fragrances and skin & body care, especially in Brazil. The EMEA region experienced solid reported revenue growth, while Latin America, Canada and Asia, excluding China, also saw strong growth. The segmental adjusted operating income was $20.2 million, a slight increase from $20 million reported in the year-ago quarter. The adjusted operating margin remained flat at 3.6% year over year.
Region-Wise Results
Net revenues in the Americas increased by 3% on a reported basis despite a 4% negative impact from foreign exchange and a 1% decline due to the divestiture of the Lacoste license. On an LFL basis, net revenues grew by 8% in the region. The regional performance was bolstered by growth across nearly all markets, with particularly strong reported net revenue growth in Latin America, Canada, and the regional Travel Retail channel. Our model suggested revenue growth of 2.5% for the fiscal fourth quarter.
Sales in the EMEA rose 1% on a reported basis, including a 1% negative impact from foreign exchange and a 4% decline due to the divestiture of the Lacoste license. On an LFL basis, net revenues increased by 5% in the region. Positive contributions from most markets and the Travel Retail channel drove the regional performance. Our model suggested revenue growth of 1% for the fiscal fourth quarter.
Sales in the Asia-Pacific region fell 4% on a reported basis, including a 2% negative impact from unfavorable foreign currency rates. On an LFL basis, net revenues declined 2%. Excluding China and the Travel Retail Channel, Asia reported growth of mid-single-digit to double-digit percentages. In China, total company sales were lower in the quarter due to challenging comparisons with the previous quarter and a very gradual market recovery.
Other Updates & Outlook
The company ended the quarter with cash and cash equivalents of $300.8 million and net long-term debt of $3,841.8 million. For the year ended Jun 30, 2024, cash provided by operating activities amounted to $614.6 million.
The global beauty market continues to show strong growth, particularly in prestige fragrances. The company expects mid-single-digit growth in mature markets, bolstered by robust e-commerce momentum for the fiscal 2025. Coty is targeting double-digit revenue growth in its key growth markets and the rapidly expanding travel retail channel, supported by a strong innovation pipeline for the year. Considering these factors, management expects 6-8% LFL revenue growth for the fiscal 2025 and the first half of the year. The company anticipates approximately 6% LFL revenue growth in the fiscal first quarter. The company’s reported revenues for the fiscal 2025 are anticipated to witness a low-single-digit percentage of unfavorable currency rates. Coty projects adjusted EBITDA growth of 9-11% for the fiscal 2025, reaching $1,186-$1,208 million. This projection suggests an expansion of the adjusted EBITDA margin by 10-30 bps. Additionally, Coty anticipates continued year-on-year gross margin expansion in the fiscal 2025. Management expects adjusted EPS for the fiscal 2025, excluding the equity swap, to be 54-57 cents and suggesting a 15-20% year-over-year increase.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Coty has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Coty has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.