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COTY Shares Increase 28.7% YTD: What's Driving the Stock?

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Shares of Coty Inc. (COTY - Free Report) have rallied 28.7% so far this year. The company’s strength across its businesses, focus on strategic priorities, solid e-commerce initiatives and strong financial position seem to have boosted sentiments for the stock.

The New York-based company belongs to the Zacks Cosmetics industry, which comes under the ambit of the Zacks Consumer Staples sector.

Year to date, Coty’s shares have outperformed the industry’s decline of 29.5%. While the S&P 500 has risen by 12.5%, the sector decreased by 9.5% during the same period.

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Let’s take a look into the factors that are driving this Zacks Rank #3 (Hold) stock.

Coty has been witnessing strength in its Prestige & Consumer Beauty businesses, which boosted its fourth-quarter fiscal 2023 (ended on Jun 30, 2023) results. In the quarter, revenues from the company’s Prestige segment increased by 21% year-over-year to $799.6 million. The increase was driven by strength in the prestige fragrance category, owing to the continued success of fragrance brands like Burberry, Hugo Boss, Calvin Klein, Gucci and Marc Jacobs. The Consumer Beauty segment’s revenues rose by 9% year-over-year to $552 million, driven by solid momentum across its body care, skincare and color cosmetics categories.

The business strength led the company to generate overall revenues of $1,351.6 million in the fiscal fourth quarter, reflecting an increase of 16% year over year. The company witnessed sales growth in all its business segments and regions.

Coty recently raised its guidance for the first half and fiscal 2024. For the first half of fiscal 2024, the company’s core like-for-like (LFL) sales are expected to grow in the range of 10-12%. This marks an increase from its estimate of 8-10% projected in fourth-quarter fiscal 2022 earnings call last month.

Consequently, the company now foresees overall fiscal 2024 core LFL sales growth of 8-10%, surpassing its earlier guidance to achieve the upper limit of its medium-term target range of 6-8%.

It has also been benefiting from its focus on six strategic pillars aimed at sustainable growth. These include stabilizing Consumer Beauty makeup brands and mass fragrances, accelerating luxury fragrances and setting up Coty as a core player in prestige makeup. It also involves establishing a skincare portfolio in prestige and mass channels, strengthening e-commerce and Direct-to-Consumer capabilities, growing a presence in China via Prestige and certain Consumer Beauty brands.

Coty is on track to fuel its digital momentum across key areas like social commerce, e-retail and new partnerships. COTY also remains focused on reducing its debt burden. As of the end of fourth-quarter fiscal 2023, its long-term debt declined to $4,178.2 million from $4,225 million reported in the previous quarter.

Despite the positives, the company has been witnessing dynamic inflation and a supply chain environment. In the fiscal fourth quarter, its cost of sales increased to $502.1 million from $446.2 million reported in the year-ago period.

Solid Picks

Here we have highlighted three better-ranked stocks from the same sector.

Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.

Celsius Holdings (CELH - Free Report) , which offers functional drinks and liquid supplements, currently carries a Zacks Rank #2. CELH delivered an earnings surprise of 100% in the last reported quarter.

The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales suggests growth of 88.9% from the year-ago reported number.

Flowers Foods (FLO - Free Report) emphasizes on providing high-quality baked items. The company currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales suggests growth of 6.7% from the year-ago period’s actual. FLO has a trailing four-quarter earnings surprise of 7.6% on average.

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