Back to top

Image: Bigstock

Coty (COTY) Looks Strong: Stock Up More Than 30% in Six Months

Read MoreHide Full Article

Coty Inc. (COTY - Free Report) looks solid, courtesy of focus on strategic growth efforts like core priorities and accretive partnerships. The company is benefiting from growth in its e-commerce operations as well as effective cost-saving measures.  

The Zacks Rank #2 (Buy) stock has rallied 31.2% in the past six months compared with the industry’s growth of 26.1%. The stock has comfortably outperformed the Zacks Consumer Staples sector’s increase of 7.1% during the same period.

Let’s discuss further.

Strategic Partnerships Driving Growth

Coty has made several strategic partnerships to enhance its brand portfolio. Coty and Kylie Jenner unveiled their long-term alliance in January 2020. The collaboration is aimed at building upon Kylie’s beauty business, which includes Kylie Skin and Kylie Cosmetics. Recently, the company announced the relaunch of Kylie Cosmetics, now formulated using clean and vegan ingredients with a revamped packaging. The products were made available on a new direct-to-consumer (DTC) website starting Jul 15, 2021. The website features Kylie Skin and Kylie Cosmetics items together and will serve as an avenue for new product and collection launches.

On Mar 3, 2021, the company signed a letter of intent to partner with LanzaTech — a pioneer in producing next-generation green and sustainable ingredients. This partnership will introduce sustainable ethanol produced from captured-carbon emissions into Coty’s fragrance offerings.

Zacks Investment Research
Image Source: Zacks Investment Research

Focus on Core Priorities

On April 23, Coty revealed its long-term strategy that was highlighted by six priorities aimed at sustainable growth. These include stabilizing Consumer Beauty make-up brands and mass fragrances; accelerating luxury fragrances and setting up Coty as a core player in prestige make-up; establishing a skincare portfolio in prestige and mass channels; strengthening e-commerce and DTC capabilities; expanding presence in China via Prestige and certain Consumer Beauty brands; as well as setting Coty as an industry leader in sustainability. Certainly, the impact of these strategies was reflected in Coty’s third-quarter fiscal 2021 results, wherein sales in the prestige channel reverted to growth as the effects of coronavirus minimalized in a number of markets. The company witnessed strength in several core markets like China and the United States in the quarter.

E-Commerce Strength

Coty’s e-commerce business has been performing impressively, especially amid the pandemic. In fiscal third quarter, the company’s e-commerce sales surged nearly 38%, with strength in all regions and channels. Coty’s e-commerce sales in the Americas surged more than 50%, while the metric in EMEA soared about 90% in the quarter. E-commerce sales jumped in triple digits in the Asia-Pacific region. Channel-wise, e-commerce sales rose more than 20% in Prestigechannel. Further, e-commerce sales in Mass channel remained strong, surging more than 50%. The upside was backed by consistent growth at retailer sites as well as robust performance on Amazon (AMZN - Free Report) .

Several other cosmetic companies like Helen of Troy Limited (HELE - Free Report) and The Estee Lauder Companies Inc. (EL - Free Report) have also been benefiting from their online business, especially amid the pandemic.

Wrapping Up

Management is committed toward optimizing the company’s overall cost structure. Coty’s fixed cost-reduction program helped it to redirect capital to improve brands and deliver profit. In fiscal third quarter, Coty’s fixed costs declined 15% year on year. The company delivered cost savings amounting to nearly $110 million in the quarter, and is on track to achieve its savings target of about $300 million for fiscal 2021.

We believe that Coty’s effective cost-saving efforts along with the aforementioned upsides are likely to help it stay in investors’ good books.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.