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COTY Raises FY24 Revenue Outlook Despite Q1 Earnings Miss
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Coty Inc. (COTY - Free Report) posted mixed first-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 increased from the year-ago quarter’s reported figure.
The company saw sales growth, driven by Prestige & Consumer Beauty business gains. Coty witnessed double-digit percentage revenue growth across all geographies. However, it was not immune to an inflationary environment. Management raised its fiscal 2024 revenue outlook while reaffirming its earnings view.
Quarter in Detail
Coty reported adjusted earnings per share (EPS) of 9 cents, missing the Zacks Consensus Estimate of 17 cents a share. The bottom line declined from 11 cents reported in the year-ago quarter.
Coty’s net revenues came in at $1,641.4 million, up 18% year over year. The metric surpassed the Zacks Consensus Estimate of $1,576.7 million. LFL revenues also rose 18% on growth in the Prestige and Consumer Beauty business segment. We had expected LFL revenues to increase by 8.9%.
Adjusted gross margin came in at 63.5%, contracting 60 basis points (bps) from 64.1% reported in the year-ago quarter. The downside can be attributed to COGS inflation to the tune of nearly 2% of revenues. Normalization of fragrance gift sets in the mix and higher inventory build-up in the Prestige business were concerns. Targeted pricing, favorable mix management and supply chain productivity offered some respite. We had expected the adjusted gross margin to come in at 64.7%, up 60 bps year over year.
Adjusted operating income came in at $302.2 million, up 21% from $249.6 million in the prior-year quarter on improved gross profit. The adjusted operating margin stood at 18.4%, up 40 bps.
The adjusted EBITDA in the quarter amounted to $360.3 million, up 17%, courtesy of increased sales and gross profit. These were somewhat offset by higher A&CP. The adjusted EBITDA margin stood at 22%, down 20 bps. We had expected the metric to come in at 20.9%, down 130 bps year over year.
Segment Results
Prestige: Net revenues in the segment rallied 23% to $1,064.7 million. The segment’s revenues were up 22% on an LFL basis, on double-digit growth in almost every market, with significant momentum in prestige beauty demand. We had expected Prestige revenues to increase 8.7% to $938.7 million.
Consumer Beauty: Net revenues rose 10% year over year to $576.7 million. The segment’s LFL sales also jumped 10%, with robust growth in color cosmetics, mass fragrance and mass skin and bodycare. The company saw solid LFL growth across most regions like North America, Europe, Brazil and Latin America. We had expected Consumer Beauty revenues to increase 11.4% to $586.5 million.
Region-Wise Results
Net revenues in the Americas increased 17% to $708 million. LFL revenues were also up 17%, driven by growth in the Prestige and Consumer Beauty segments.
Sales in EMEA grew 20% year over year to $732.2 million, while the figure increased 18% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segment.
Sales in the Asia-Pacific region rose 16% (up 19% at LFL) year over year to $201.2 million.
Other Updates
The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $280 million and net long-term debt, net of $4,095.4 million.
For three months ended Sep 30, 2023, cash provided by operating activities amounted to $186.2 million.
Image Source: Zacks Investment Research
Outlook
With the ongoing premiumization trends, management continues to witness strength in the beauty market. The company is gaining on such favorable trends, with momentum in the core categories, an impressive innovation pipeline and early wins across important white spaces.
Courtesy of these factors and a solid start to the year, management expects LFL revenue growth of 9-11%, up from the earlier projected growth of 8-10%. For the first half of fiscal 2024, Coty anticipates LFL revenue growth of 11-13%, up from the earlier outlook of 10-12% growth.
Revenues in fiscal 2024 are likely to include a neutral to 2% benefit from currency rates along with a 1-2% scope downside from the divestiture of the Lacoste license.
For fiscal 2024, Coty expects adjusted EBITDA margin expansion of 10-30 bps, with the same performance during the first and the second half. The company projects fiscal 2024 adjusted EBITDA in the range of $1,080-$1,090 million, up from the previous guidance of $1,075-$1,085 million.
The company anticipates modest fiscal 2024 gross margin expansion on a year-over-year basis, with substantial expansion in the back half of fiscal 2024. Management still envisions fiscal 2024 adjusted earnings per share (EPS), excluding equity swap, in the band of 44 to 47 cents, reflecting growth of 16-25% year over year.
The company’s shares have dropped 15.3% in the past three months compared with the industry’s 27.5% decline.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year sales and earnings suggest growth of 58.2% and 50.6%, respectively, from the year-ago reported numbers.
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Inter Parfums’ current financial year sales indicates 22.5% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9% on average.
Flowers Foods (FLO - Free Report) , a packaged bakery food products company, has a trailing four-quarter earnings surprise of 7.6%, on average. FLO carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Flowers Foods’ current fiscal-year sales suggests growth of 6.7% from the corresponding year-ago reported figure.
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COTY Raises FY24 Revenue Outlook Despite Q1 Earnings Miss
Coty Inc. (COTY - Free Report) posted mixed first-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 increased from the year-ago quarter’s reported figure.
The company saw sales growth, driven by Prestige & Consumer Beauty business gains. Coty witnessed double-digit percentage revenue growth across all geographies. However, it was not immune to an inflationary environment. Management raised its fiscal 2024 revenue outlook while reaffirming its earnings view.
Quarter in Detail
Coty reported adjusted earnings per share (EPS) of 9 cents, missing the Zacks Consensus Estimate of 17 cents a share. The bottom line declined from 11 cents reported in the year-ago quarter.
Coty’s net revenues came in at $1,641.4 million, up 18% year over year. The metric surpassed the Zacks Consensus Estimate of $1,576.7 million. LFL revenues also rose 18% on growth in the Prestige and Consumer Beauty business segment. We had expected LFL revenues to increase by 8.9%.
Coty Price, Consensus and EPS Surprise
Coty price-consensus-eps-surprise-chart | Coty Quote
Adjusted gross margin came in at 63.5%, contracting 60 basis points (bps) from 64.1% reported in the year-ago quarter. The downside can be attributed to COGS inflation to the tune of nearly 2% of revenues. Normalization of fragrance gift sets in the mix and higher inventory build-up in the Prestige business were concerns. Targeted pricing, favorable mix management and supply chain productivity offered some respite. We had expected the adjusted gross margin to come in at 64.7%, up 60 bps year over year.
Adjusted operating income came in at $302.2 million, up 21% from $249.6 million in the prior-year quarter on improved gross profit. The adjusted operating margin stood at 18.4%, up 40 bps.
The adjusted EBITDA in the quarter amounted to $360.3 million, up 17%, courtesy of increased sales and gross profit. These were somewhat offset by higher A&CP. The adjusted EBITDA margin stood at 22%, down 20 bps. We had expected the metric to come in at 20.9%, down 130 bps year over year.
Segment Results
Prestige: Net revenues in the segment rallied 23% to $1,064.7 million. The segment’s revenues were up 22% on an LFL basis, on double-digit growth in almost every market, with significant momentum in prestige beauty demand. We had expected Prestige revenues to increase 8.7% to $938.7 million.
Consumer Beauty: Net revenues rose 10% year over year to $576.7 million. The segment’s LFL sales also jumped 10%, with robust growth in color cosmetics, mass fragrance and mass skin and bodycare. The company saw solid LFL growth across most regions like North America, Europe, Brazil and Latin America. We had expected Consumer Beauty revenues to increase 11.4% to $586.5 million.
Region-Wise Results
Net revenues in the Americas increased 17% to $708 million. LFL revenues were also up 17%, driven by growth in the Prestige and Consumer Beauty segments.
Sales in EMEA grew 20% year over year to $732.2 million, while the figure increased 18% on an LFL basis. The unit’s performance gained from impressive growth across the Prestige and Consumer Beauty segment.
Sales in the Asia-Pacific region rose 16% (up 19% at LFL) year over year to $201.2 million.
Other Updates
The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $280 million and net long-term debt, net of $4,095.4 million.
For three months ended Sep 30, 2023, cash provided by operating activities amounted to $186.2 million.
Image Source: Zacks Investment Research
Outlook
With the ongoing premiumization trends, management continues to witness strength in the beauty market. The company is gaining on such favorable trends, with momentum in the core categories, an impressive innovation pipeline and early wins across important white spaces.
Courtesy of these factors and a solid start to the year, management expects LFL revenue growth of 9-11%, up from the earlier projected growth of 8-10%. For the first half of fiscal 2024, Coty anticipates LFL revenue growth of 11-13%, up from the earlier outlook of 10-12% growth.
Revenues in fiscal 2024 are likely to include a neutral to 2% benefit from currency rates along with a 1-2% scope downside from the divestiture of the Lacoste license.
For fiscal 2024, Coty expects adjusted EBITDA margin expansion of 10-30 bps, with the same performance during the first and the second half. The company projects fiscal 2024 adjusted EBITDA in the range of $1,080-$1,090 million, up from the previous guidance of $1,075-$1,085 million.
The company anticipates modest fiscal 2024 gross margin expansion on a year-over-year basis, with substantial expansion in the back half of fiscal 2024. Management still envisions fiscal 2024 adjusted earnings per share (EPS), excluding equity swap, in the band of 44 to 47 cents, reflecting growth of 16-25% year over year.
The company’s shares have dropped 15.3% in the past three months compared with the industry’s 27.5% decline.
Top 3 Staple Picks
e.l.f. Beauty (ELF - Free Report) sports a Zacks Rank #1 (Strong Buy). ELF has a trailing four-quarter earnings surprise of 90.1% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year sales and earnings suggest growth of 58.2% and 50.6%, respectively, from the year-ago reported numbers.
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Inter Parfums’ current financial year sales indicates 22.5% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9% on average.
Flowers Foods (FLO - Free Report) , a packaged bakery food products company, has a trailing four-quarter earnings surprise of 7.6%, on average. FLO carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Flowers Foods’ current fiscal-year sales suggests growth of 6.7% from the corresponding year-ago reported figure.