Global beauty products maker Coty Inc. NYSE: COTY has been in a turnaround that looks to accelerate in 2024. The company has a wide range of owned and licensed beauty products, which include cosmetics, skincare, nail care, hair care products, and fragrances. Its prestige portfolio of fragrances licenses well-known brands, including Hugo Boss, Gucci, Burberry, Marc Jacobs, and Calvin Klein. It owns many iconic brands, including CoverGirl, Max Factor, Lancaster, and Rimmel.
The majority of its revenues are derived from its prestige collection. Much credit for the turnaround must be given to its CEO, Sue Nabi, who took over the reins during the pandemic on September 1, 2020. This consumer discretionary sector company faces competition from well-known brands like The Estee Lauder Cos. NYSE: EL, and e.l.f. Beauty Inc. NYSE: ELF.
The prestige fragrance portfolio
Coty sells most of its products through department stores and retail outlets. It caters to a diverse demographic ranging from budget-conscious, value-seeking consumers to affluent luxury buyers. Its mass-market products are priced in the affordable $5 to $20 range, while its prestige brands can cost upwards of over $400 a product. The prestige line of fragrances is driving growth as sales rose 25% YoY compared to Consumer Beauty revenues increasing 10% YoY. Wella is the premium salon brand line of hair products that Coty originally planned to sell its partial stake in but opted to retain its 25.9% stake, valued at $1.06 billion. Check out the sector heatmap on MarketBeat.
Guidance reaffirmed
Coty reaffirmed fiscal 2024 EPS of 44 cents to 47 cents versus 46 cents consensus analyst estimates. However, Coty raised its fiscal 2024 like-for-like (LFL) revenue growth forecast to 9% to 11%. Coty raised its first-half 2024 LFL revenue growth to 11% to 13%. It expects full-year 2024 adjusted EBITDA margin expansion of 10 bps to 30 bps and adjusted EBITDA of $1.08 billion to $1.09 billion. The adjusted full-year 2024 EPS is forecasted to grow between 16% and 25% YoY. In Q3 2024, Coty expects to execute a 27 million share buyback via its first equity swap and a 23 million share buyback in fiscal year 2025 for its second equity swap.
EPS adjustments and accelerating revenues
Coty reported fiscal Q1 2024 adjusted EPS of 9 cents, missing consensus analyst estimates by 8 cents. The adjusted EPS includes a negative non-operating EPS impact of 6 cents from a mark-to-market equity swap and a negative 3-cent non-cash impact from a change in the Swiss statutory rate. Backing out these charges would result in a 1-cent EPS beat. Revenues surged 18% to $1.64 billion, beating analyst estimates of $1.58 billion. Gross margins fell 40 bps to 63.5% on elevated inflation and normalization in fragrance gift sets. Free cash flow totaled $124 million, up 40.9% YoY. All regions experienced double-digit revenue growth. Get AI-powered insights on MarketBeat.
Medicated beauty trend
During the question and answering conference call, Coty CFO Laurent Mercier underscored that the skincare and beauty market is trending in the direction of medicated beauty. This has spurred them to reposition many of their brands to capitalize on the trend. Its Orveda skincare products were launched as the world's first serum using technologies inspired by the medical world called phenolytics. Phenolic compounds are a type of organic molecule in plants that provide pigmentation, act as antioxidants and protect against pests and diseases. Orveda is the first to use phenolytics in a topical cream.
Coty analyst ratings and price targets are at MarketBeat. Coty peers and competitor stocks can be found with the MarketBeat stock screener.
Daily cup and handle with Golden Cross
The daily candlestick chart for COTY illustrates a cup and handle pattern and a Golden Cross breakout.
The cup lip line formed at the $12.53 peak on September 22, 2023, before shares fell to a low of $9.02 on November 1, 2023. COTY staged a rally back up through the daily 50-period moving average (MA) and 200-period MA to retest the cup lip line on December 14, 2023. Shares pulled back to the daily 200-period MA support at $11.49, triggering the daily market structure low (MSL) buy signal on the $12.01 breakout to retest the cup lip line on January 12, 2024. This caused the daily relative strength index (RSI) to spring up off the 40-band and pull the daily 50-period MA at $111.63 up through the 200-period MA at $11.49 to form the Golden Cross breakout. Pullback support levels are at $11.39, $10.45, $9.41 and $8.43.
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