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Coty (COTY) Boosts Fragrance Line Growth With Renewed Deal

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Coty Inc. (COTY - Free Report) and Jil Sander unveiled that they have renewed their license deal and are in for a long-running collaboration. The renewed deal is likely to solidify the ongoing business alliance while laying the foundation for a new strategic project stretching over 10 years.

The new project will see the Jil Sander brand foraying into the worldwide ultra-premium fragrance space for the first time. Also, the deal will fuel the growth of Coty’s fragrance line.

Incidentally, Coty announced the sale of the Lacoste fragrance license back to the latter in a mutual deal in December 2022. The move was aimed at helping Coty focus on its biggest fragrance licenses alongside speeding up its deleveraging plan via the sale proceeds.

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Factors to Note

Coty has made several strategic partnerships to enhance its brand portfolio. On Nov 18, 2021, it signed a licensing agreement with Orveda – an ultra-premium skincare brand made in France. Prior to this, Coty entered into a multi-channel agreement with Perfect Corp. – a well-known beauty tech solutions provider.

Further, the company’s buyout of the iconic Burberry brand has been yielding favorably. This acquisition has been supporting growth in the Prestige segment. Additionally, COTY’s buyout of Procter & Gamble Company’s global fine fragrances, salon professional, cosmetics and retail hair color businesses, along with select hair styling brands (the P&G Beauty Business) in 2016, has been noteworthy.

Coty has been benefiting from its focus on six strategic pillars that are 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 and establishing a skincare portfolio in prestige and mass channels.

Also, the strategic pillars emphasize strengthening e-commerce and Direct-to-Consumer capabilities, growing Coty’s presence in China via Prestige and certain Consumer Beauty brands and setting up Coty as an industry leader in sustainability. For stabilizing and growing its consumer beauty business, the company is on track with repositioning campaigns and disruptive advertising.

On its first-quarter fiscal 2023 earnings call, management highlighted that it has successfully repositioned several key brands in the Consumer Beauty business. This helped the company outperform the global mass beauty market, with Coty’s sell-out growing in the mid-to-high-single digits. Coty has been reaping the benefits of the booming global prestige fragrance market.

In the fiscal first quarter, the company saw nearly 10% price/mix growth in prestige fragrance sales, with volume growth adjusted for the Russian exit. Management remains committed to building solid and long-lasting fragrance brands with a high-growth and high-margin fragrance business. The company is growing its skincare business across divisions with brands like Lancaster and SKKN BY KIM.

Wrapping Up

Given the abovementioned upsides, Coty looks well-placed to add new leaves to its growth story.  For fiscal 2023, adjusted EBITDA is projected in the range of $955-$965 million, relatively in line with its medium-term target of 9-11% growth, adjusted for the Russian exit impact. Management anticipates fiscal 2023 adjusted EPS growth in the mid-teens to the 32-33 cents per share band.

Considering the solid fiscal first quarter, Coty expects first-half core business LFL revenue growth trends to be consistent with the annual growth target of 6-8%, with demand remaining robust in the second quarter. Management expects modest gross margin expansion in the fiscal second quarter and full year despite the rising inflationary environment.

Shares of the Zacks Rank #3 (Hold) company have soared 46% in the past three months compared with the industry’s growth of 22.3%.

Consumer Staple Stocks to Grab

Some better-ranked stocks are Nomad Foods (NOMD - Free Report) , Campbell Soup (CPB - Free Report) and Ingredion Incorporated (INGR - Free Report) .

Nomad Foods, a frozen food product company, currently sports a Zacks Rank #1 (Strong Buy). NOMD has a trailing four-quarter earnings surprise of 11.5%, on average. Nomad Foods’ shares have increased 23.3% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank of 2 (Buy). CPB has a trailing four-quarter earnings surprise of 8.7%, on average.

The Zacks Consensus Estimate for Campbell Soup’s current financial-year sales and earnings suggests growth of 8.3% and 4.6%, respectively, from the corresponding year-ago reported figures.

Ingredion, which produces and sells starches and sweeteners, currently carries a Zacks Rank #2. Ingredion’s shares have rallied 22% in the past three months. The Zacks Consensus Estimate for INGR’s current financial-year EPS suggests an increase of 5.9% from the year-ago reported number.

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