Coty Inc. (COTY Quick QuoteCOTY - Free Report) capitalized on its strong brand presence in fragrances, cosmetics and skincare. It continue s to thrive in the booming global beauty market despite some headwinds. The focus on expanding its consumer beauty and fragrance segments, coupled with a commitment to innovation and sustainability, positions COTY to benefit from growing consumer demand.

In a backdrop where the beauty sector is integral to personal well-being, Coty benefits from a resilient consumer base. Consumers are not only gravitating toward physical stores but are also shopping online. This is a shift that the company has embraced by enhancing its e-commerce capabilities. With robust growth in its Prestige and Consumer Beauty segments, COTY is well on track for continued success.

For the fiscal 2025, Coty expects like-for-like (LFL) revenue growth of 6-8%, which reflects its proactive strategies. Despite challenges such as rising costs and currency fluctuations, if continues to strengthen its competitive position in the beauty industry.

Image Source: Zacks Investment Research

Strong Beauty Trends Power Coty’s Growth

Coty’s fourth-quarter fiscal 2024 results highlight its ability to navigate the complexities of the global beauty market. The company’s fourth-quarter fiscal 2024 net revenues came in at $1,363.4 million, up 1% year over year, owing to growth in prestige and mass fragrances and in prestige cosmetics and mass skin & body care. With an LFL revenue growth of 5%, COTY's performance was buoyed by significant outperformance in markets like Latin America and Asia, excluding China. Prestige beauty, especially fragrances, proved to be a key growth driver, while the Consumer Beauty segment saw impressive double-digit percentage growth in mass fragrances and skin & body care.

Coty anticipates mid-single-digit growth in mature markets, bolstered by robust e-commerce momentum for the fiscal 2025. Management 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.

Innovation and Strategic Focus Drive Coty’s Success

Coty has identified six strategic growth pillars that are central to its long-term success. These include stabilizing its Consumer Beauty brands, accelerating luxury fragrances, building a skincare portfolio and strengthening its e-commerce and direct-to-consumer capabilities. It made strides to expand its presence in key markets like China, while also positioning itself as an industry leader in sustainability.

Recent product launches, such as Gucci Flora Gorgeous Orchid and Marc Jacobs Daisy Wild, have been instrumental in Coty’s growth, particularly in the fragrance segment. Innovations like the Adidas Vibes fragrance are expected to further diversify the company’s product portfolio and expand its market share.

In the fiscal fourth quarter, Coty’s e-commerce channel posted impressive double-digit growth, with Consumer Beauty e-commerce revenues surging more than 30%. The company also gained market share in e-commerce across all segments. Travel Retail, now accounting for about 9% of sales, registered more than 20% LFL growth in the fiscal 2024, fueled by its broad geographic footprint and strategic retailer partnerships.

Cost and Currency Headwinds Hurt COTY

Despite Coty’s strong growth trajectory, it faces challenges on the cost front. The company has been operating in a challenging macroeconomic environment, with rising costs in selling, general and administrative (SG&A) expenses. In fourth-quarter fiscal 2024, Coty’s SG&A expenses climbed to $791 million, up from $672.9 million reported in the year-ago quarter. A rise in costs related to advertising and promotions also impacted profitability, and these pressures are expected to persist into fiscal 2025.

Another key concern for Coty is currency fluctuations. With a significant portion of its revenues coming from international markets, the company is exposed to the risk of adverse currency movements. In the fiscal 2024, Coty’s net revenues were negatively impacted by 2% due to unfavorable foreign exchange rates and this trend is expected to continue into the fiscal 2025, with management projecting a low-single-digit percentage headwind from currency translations.

COTY’s stock has dropped 10.1% in the past three months compared with the industry’s 21.3% decline.

COTY’s Future Remains Strong Despite Headwinds

While Coty faces challenges, its focus on cost-saving initiatives and strategic partnerships helps mitigate the impact. The company’s ongoing "All In to Win" transformation program has already delivered more than $115 million in savings during the fiscal 2024, with plans to achieve another $75 million in the fiscal 2025. These savings will allow Coty to reinvest in growth areas, particularly digital and skincare, which are crucial for maintaining its competitive edge.

Strategic partnerships also play a vital role in Coty’s future growth. The company recently signed several key agreements, including a long-term licensing deal with Lena Gercke’s LeGer brand and an extension of its partnership with Jil Sander. Such collaborations not only strengthen Coty’s brand portfolio but also pave the way for future innovations that will enhance its market presence.

Investors Guide For Coty

Coty’s ability to leverage strong consumer demand in the global beauty market, coupled with its strategic investments in e-commerce and innovation, positions it for growth in the fiscal 2025. Although rising costs and currency headwinds are a challenge, Coty’s proactive approach to cost management and its robust innovation pipeline are likely to support the company’s long-term success. All said, investors should keep a close watch on the stock and evaluate all aspects before making any decision. At present, COTY carries a Zacks Rank #3 (Hold).

3 Top-Ranked Staple Bets

Here, we have highlighted three better-ranked food stocks — The Chef's Warehouse (CHEF Quick QuoteCHEF - Free Report) , Flowers Foods (FLO Quick QuoteFLO - Free Report) and McCormick & Company, Inc. (MKC Quick QuoteMKC - Free Report) .

The Chef’s Warehouse, which distributes specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings each indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.

Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 1.9%, on average.

The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings suggests growth of around 1% and 5%, respectively, from the year-ago reported numbers.

McCormick is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.

The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.2% and 5.6%, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 8.3%, on average.