Coronavirus-Led Woes Hurt Coty (COTY), E-commerce Looks Solid

The coronavirus outbreak has limited growth prospects for many cosmetic players thanks to sluggish store and salon traffic, disrupted travel retail network, supply-chain hiccups and reduced makeup usage due to decline in social outings. One such company facing coronavirus-related challenges is Coty Inc. COTY.

In fact, coronavirus-led concerns put pressure on Coty’s fourth-quarter fiscal 2020 results. During the quarter, the top and the bottom line slumped year over year and fell significantly short of the respective Zacks Consensus Estimate. Results were marred by broad-based channel shutdowns caused by coronavirus-induced restrictions.

Other Factors Hurting Coty’s Performance

Coty’s Consumer Beauty segment has been posting drab sales since the last few quarters. The segment continued to be under pressure in the fourth quarter of fiscal 2020, with revenues declining 55% year over year and Like for Like sales plunging 48%. Revenues in the segment were hurt by absence of Younique’s sales, which were included in the prior-year quarter. Also, reduced traffic in drugstores and mass retailers globally hampered results. Consumers’ shifting preference for more important personal care products put pressure on the color cosmetic category.

Apart from these, Coty is exposed to unfavorable foreign currency translations owing to the company’s exposure to international markets. During the fiscal fourth quarter, currency translations affected revenues to the tune of 2%.

The Bright Side

While Coty saw soft sales in the fiscal fourth quarter due to coronavirus-led concerns, the company’s e-commerce business was quite impressive. In fact, the company is witnessing strong momentum as well as market share gains for its ecommerce business. In Americas segment the company saw solid e-commerce sell-out for both mass and prestige brands. Even in the EMEA segment Coty witnessed double to triple digit e-commerce sell-out growth in its prestige and mass businesses.

Well, other cosmetic companies like Helen of Troy Limited HELE, Estee Lauder EL and e.l.f. Beauty, Inc. ELF have also been benefiting from strength in their digital operations, especially amid the coronavirus pandemic.

Meanwhile, Coty has made several strategic acquisitions to enhance its brand portfolio. On Jun 29, the company announced partnership with one of the most influential celebrity—Kim Kardashian West. Further, Coty acquired a 51% stake in King Kylie this January and entered into a deal to produce, promote, distribute and sell certain products of King Kylie. Apart from this, the company’s buyout of the iconic Burberry brand in the second quarter of fiscal 2018 is noteworthy. Also, Coty is on course to turn around its operations. Coty’s latest move in this regard is its strategic alliance with KKR.

Apart from these, management is committed to optimizing the overall cost structure. Incidentally, the company has lowered its third-party costs, people on people expenses as well as non-working advertising and consumer promotion spends. Additionally, Coty is on track with reducing its capital expenditures

That being said, it is yet to be seen whether these upsides can help Coty counter the aforementioned hurdles.

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