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Is Coty's Consumer Beauty Segment Poised for a Turnaround?

oty Inc.COTY has long been struggling with soft organic sales at its Consumer Beauty segment. Despite the prevalence of this headwind in the second quarter of fiscal 2018, the segment improved on a sequential basis. Also, management has been taking several efforts to revive the Consumer Beauty unit, which forms vital part of Coty's overall revenues.

These endeavors helped this Zacks Rank #3 (Hold) stock rally about 20% in the past six months, while it underperformed the industry 's 24.7% increase. So, let's delve deeper into all aforementioned aspects and see what's in store for the Consumer Beauty segment.

What's Hurting Consumer Beauty?

Coty's consumer beauty segment has been grappling with underlying challenges in North America, mainly due to consumers changing preferences and a highly competitive environment. Notably, Avon Products AVP , a cosmetics player also bearing the brunt of dismal sales in North America, was compelled to exit the region.

Coming back to Coty, the company's Consumer Beauty unit remained troubled in North America during the second quarter on account of distribution losses from the previous year, along with inventory wind downs ahead of the company's planned relaunches. Moreover, the global mass beauty market remained sluggish in the quartet.

Consequently, organic sales at this segment dipped 1.3% year over year. Nevertheless, this marked a significant improvement from an 8% drop recorded in the first quarter. Prior to that, organic sales declined 6% and 10% in the third and the fourth quarter of fiscal 2017, respectively.

Strategic Efforts Bearing Fruit: A Revival in the Cards?

Well, the improved trends at Consumer Beauty depict that the company's strategic efforts including its focus on enhancing market execution, undertaking brand initiatives and having consumer-focused communications is yeilding results. Incidentally, results improved in Europe, courtesy of a stabilized business. Also, management remains impressed with Consumer Beauty's performance in the ALMEA region, especially Brazil that has been depicting robust results for a while now.

Well, management has long been focused on reviving the performance of this unit, which accounted for nearly 43% of Coty's top line in the second quarter. Evidently, the company has been taking steps to make innovations, and enhance product development and communication processes to address the evolving consumer demands and provide on-trend products.

Progressing on these lines, Coty announced the relaunch of COVERGIRL brand last year and has solid plans for various other brands like Max Factor and Clairol among others for the second half of fiscal 2018. Management plans to relaunch the Clairol brand in the second half of fiscal 2018.These efforts are aimed at reconnecting these brands with the consumers, building on their existing strong brand equity.

Apart from this, Coty is making considerable efforts to speed up end-to-end digital transformation and boost e-commerce development. While these growth strategies make us hopeful about seeing continued improvements at Coty's vital Consumer Beauty segment, management stated that full recovery is still expected to take some time. Until then, investors can count on the following better-ranked stocks from the same sector.

2 Consumer Staples Stocks in the Spotlight

Estee Lauder EL with a long-term growth rate of 12.9% carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Helen of Troy HELE , carrying a Zacks Rank of 2, flaunts a splendid earnings surprise history.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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