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COTY Pulls Up Fiscal 2024 Outlook Despite Q3 Earnings Miss
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Coty Inc. (COTY - Free Report) posted mixed third-quarter fiscal 2024 results, with the bottom line missing the Zacks Consensus Estimate and declining year over year. The top line surpassed the consensus mark and grew year over year.
The company saw robust growth in Prestige and Consumer Beauty segments across every region and core categories, including fragrances, color cosmetics, skin care and body care. The uptick was bolstered by a diverse portfolio of its top-performing brands. Management raised the high end of its guidance range for the fiscal 2024.
Quarter in Detail
Coty delivered adjusted earnings per share (EPS) of 5 cents, missing the Zacks Consensus Estimate of 6 cents a share. The bottom line slumped from 19 cents reported in the year-ago quarter.
Coty’s net revenues came in at $1,385.6 million, up 7.5% year over year. The metric surpassed the Zacks Consensus Estimate of $1,373.8 million. Like-for-like (LFL) revenues rose 10% on growth in the Prestige and Consumer Beauty business segments. Results benefited from growth in fragrances, color cosmetics, skin care and body care. We had expected LFL revenues to increase by 6.5%.
In the fiscal third quarter, Coty's e-commerce channel saw a net revenue growth of nearly 20%, following a rise of more than 20% in the first half of fiscal 2024. Consequently, the year-to-date e-commerce penetration increased by approximately 190 basis points (bps), reaching around 20%.
The gross margin came in at 64.8%, expanding 190 bps, mainly driven by premiumization, carryover pricing, supply chain productivity savings and easing inflation. The adjusted gross margin of 64.8%, also expanded 190 bps from 62.9% reported in the year-ago quarter.
Coty’s quarterly operating income of $77.8???million surged 79% on the back of increased sales and gross profit. The operating margin stood at 5.6%, expanding 220 bps, driven by impressive gross margin expansion. Increased A&CP and fixed costs somewhat offset this.
The adjusted EBITDA in the quarter amounted to $199.9 million, up 10%, due to increased sales and gross profit. The adjusted EBITDA margin stood at 14.4%, up 30 bps.
Segment Results
Prestige: Net revenues in the segment jumped 8% to $867.2 million. The segment’s revenues were up 13% on an LFL basis, driven by continued strength in prestige beauty demand. This fueled strong growth in all regions, especially in APAC, EMEA and the Travel Retail channel.
Consumer Beauty: Net revenues rose 6% year over year to $518.4 million. The segment’s LFL sales also jumped 6%. The upside can be attributed to growth in mass fragrances, mass skin & body care and color cosmetics across the majority of countries.
Region-Wise Results
Net revenues in the Americas increased 8% to $589 million, driven by growth in the Prestige and Consumer Beauty segments. LFL revenues were up 11%. Our model suggested revenue growth of 4% for the fiscal third quarter.
Sales in the EMEA rose 7% year over year to $628 million, while the figure increased 9% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segments. Our model suggested revenue growth of 4% for the fiscal third quarter.
Sales in the Asia-Pacific region rose 7% (up 11% at LFL) year over year to $168.6 million. Growth was backed by strong Prestige revenues. We had expected revenues to increase 10% in the Asia Pacific region.
Image Source: Zacks Investment Research
Other Updates
This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $260.2 million and net long-term debt of $3,902.3 million. For the nine months ended Mar 31, 2024, cash provided by operating activities amounted to $438.1 million.
On Feb 22, 2024, management repurchased 27 million shares for nearly $200 million.
On Feb 20, 2024, Coty entered into a new license agreement with Etro to manufacture and distribute its signature fragrance lines and home scent collections beyond 2040.
Outlook
The global beauty market continues to stand out, with prestige fragrances experiencing double-digit percentage growth rates, while the mass beauty market maintains consistent growth at mid-single-digit percentages. Coty continues to leverage this favorable market environment with momentum in its core categories, successful product launches and early successes in key areas.
For the fiscal 2024, management now anticipates LFL revenue growth to reach the higher end of its previous guidance range of 9-11% growth. This includes expectations for low-to-mid single-digit percentage LFL revenue growth in the fiscal fourth quarter. The quarterly guidance reflects a mid-single-digit percentage headwind in the Prestige business due to tough year-over-year comparisons. The company’s fiscal fourth-quarter revenues are likely to witness a 1-2% headwind from unfavorable currency rates and almost a 2% scope headwind from the divestiture of the Lacoste license.
Coty expects fiscal 2024 adjusted EBITDA margin expansion to be toward the higher end of its previous guidance range of 10-30 bps. The company still projects fiscal 2024 adjusted EBITDA in the range of $1,080-$1,090 million. Overall, the company expects a modest gross margin expansion in the year.
Coty anticipates adjusted EPS, excluding equity swap, to now reach the upper end of the prior guidance range of 44-47 cents, indicating growth at the upper end of the 16-25% range.
Shares of COTY have dropped 3.2% in the past three months compared with the industry’s decline of 7.8%.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 24.6% from the year-ago reported numbers.
Grocery Outlet (GO - Free Report) , an extreme value retailer of quality, name-brand consumables and fresh products, currently carries a Zacks Rank #2. GO has a trailing four-quarter earnings surprise of 17%, on average.
The Zacks Consensus Estimate for Grocery Outlet's current financial-year sales and earnings suggests growth of around 9.7% and 10.3%, respectively, from the year-ago reported numbers.
Energizer Holdings, Inc. (ENR - Free Report) , which manufactures, markets and distributes household batteries, specialty batteries and lighting products, currently carries a Zacks Rank #2. ENR has a trailing four-quarter earnings surprise of 4%, on average.
The Zacks Consensus Estimate for Energizer Holdings’ current fiscal-year earnings suggests growth of 3.9% from the year-ago reported numbers.
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COTY Pulls Up Fiscal 2024 Outlook Despite Q3 Earnings Miss
Coty Inc. (COTY - Free Report) posted mixed third-quarter fiscal 2024 results, with the bottom line missing the Zacks Consensus Estimate and declining year over year. The top line surpassed the consensus mark and grew year over year.
The company saw robust growth in Prestige and Consumer Beauty segments across every region and core categories, including fragrances, color cosmetics, skin care and body care. The uptick was bolstered by a diverse portfolio of its top-performing brands. Management raised the high end of its guidance range for the fiscal 2024.
Quarter in Detail
Coty delivered adjusted earnings per share (EPS) of 5 cents, missing the Zacks Consensus Estimate of 6 cents a share. The bottom line slumped from 19 cents reported in the year-ago quarter.
Coty’s net revenues came in at $1,385.6 million, up 7.5% year over year. The metric surpassed the Zacks Consensus Estimate of $1,373.8 million. Like-for-like (LFL) revenues rose 10% on growth in the Prestige and Consumer Beauty business segments. Results benefited from growth in fragrances, color cosmetics, skin care and body care. We had expected LFL revenues to increase by 6.5%.
In the fiscal third quarter, Coty's e-commerce channel saw a net revenue growth of nearly 20%, following a rise of more than 20% in the first half of fiscal 2024. Consequently, the year-to-date e-commerce penetration increased by approximately 190 basis points (bps), reaching around 20%.
Coty Price, Consensus and EPS Surprise
Coty price-consensus-eps-surprise-chart | Coty Quote
The gross margin came in at 64.8%, expanding 190 bps, mainly driven by premiumization, carryover pricing, supply chain productivity savings and easing inflation. The adjusted gross margin of 64.8%, also expanded 190 bps from 62.9% reported in the year-ago quarter.
Coty’s quarterly operating income of $77.8???million surged 79% on the back of increased sales and gross profit. The operating margin stood at 5.6%, expanding 220 bps, driven by impressive gross margin expansion. Increased A&CP and fixed costs somewhat offset this.
The adjusted EBITDA in the quarter amounted to $199.9 million, up 10%, due to increased sales and gross profit. The adjusted EBITDA margin stood at 14.4%, up 30 bps.
Segment Results
Prestige: Net revenues in the segment jumped 8% to $867.2 million. The segment’s revenues were up 13% on an LFL basis, driven by continued strength in prestige beauty demand. This fueled strong growth in all regions, especially in APAC, EMEA and the Travel Retail channel.
Consumer Beauty: Net revenues rose 6% year over year to $518.4 million. The segment’s LFL sales also jumped 6%. The upside can be attributed to growth in mass fragrances, mass skin & body care and color cosmetics across the majority of countries.
Region-Wise Results
Net revenues in the Americas increased 8% to $589 million, driven by growth in the Prestige and Consumer Beauty segments. LFL revenues were up 11%. Our model suggested revenue growth of 4% for the fiscal third quarter.
Sales in the EMEA rose 7% year over year to $628 million, while the figure increased 9% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segments. Our model suggested revenue growth of 4% for the fiscal third quarter.
Sales in the Asia-Pacific region rose 7% (up 11% at LFL) year over year to $168.6 million. Growth was backed by strong Prestige revenues. We had expected revenues to increase 10% in the Asia Pacific region.
Image Source: Zacks Investment Research
Other Updates
This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $260.2 million and net long-term debt of $3,902.3 million. For the nine months ended Mar 31, 2024, cash provided by operating activities amounted to $438.1 million.
On Feb 22, 2024, management repurchased 27 million shares for nearly $200 million.
On Feb 20, 2024, Coty entered into a new license agreement with Etro to manufacture and distribute its signature fragrance lines and home scent collections beyond 2040.
Outlook
The global beauty market continues to stand out, with prestige fragrances experiencing double-digit percentage growth rates, while the mass beauty market maintains consistent growth at mid-single-digit percentages. Coty continues to leverage this favorable market environment with momentum in its core categories, successful product launches and early successes in key areas.
For the fiscal 2024, management now anticipates LFL revenue growth to reach the higher end of its previous guidance range of 9-11% growth. This includes expectations for low-to-mid single-digit percentage LFL revenue growth in the fiscal fourth quarter. The quarterly guidance reflects a mid-single-digit percentage headwind in the Prestige business due to tough year-over-year comparisons. The company’s fiscal fourth-quarter revenues are likely to witness a 1-2% headwind from unfavorable currency rates and almost a 2% scope headwind from the divestiture of the Lacoste license.
Coty expects fiscal 2024 adjusted EBITDA margin expansion to be toward the higher end of its previous guidance range of 10-30 bps. The company still projects fiscal 2024 adjusted EBITDA in the range of $1,080-$1,090 million. Overall, the company expects a modest gross margin expansion in the year.
Coty anticipates adjusted EPS, excluding equity swap, to now reach the upper end of the prior guidance range of 44-47 cents, indicating growth at the upper end of the 16-25% range.
Shares of COTY have dropped 3.2% in the past three months compared with the industry’s decline of 7.8%.
3 Solid Picks
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks, currently carrying a Zacks Rank #2 (Buy). UTZ has a trailing four-quarter earnings surprise of 2% on average. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 24.6% from the year-ago reported numbers.
Grocery Outlet (GO - Free Report) , an extreme value retailer of quality, name-brand consumables and fresh products, currently carries a Zacks Rank #2. GO has a trailing four-quarter earnings surprise of 17%, on average.
The Zacks Consensus Estimate for Grocery Outlet's current financial-year sales and earnings suggests growth of around 9.7% and 10.3%, respectively, from the year-ago reported numbers.
Energizer Holdings, Inc. (ENR - Free Report) , which manufactures, markets and distributes household batteries, specialty batteries and lighting products, currently carries a Zacks Rank #2. ENR has a trailing four-quarter earnings surprise of 4%, on average.
The Zacks Consensus Estimate for Energizer Holdings’ current fiscal-year earnings suggests growth of 3.9% from the year-ago reported numbers.