Why Coty Stock Was Gaining Today
What happened
Shares of Coty (NYSE: COTY) finished higher today after the cosmetics company said it would open up a new Gucci beauty store on Tmall, Alibaba's online shopping mall.
The stock gained 10.9% on the news as investors saw the move as another step in Coty's turnaround.
Image source: Coty.
So what
Coty will operate the store as a licensed partner for Gucci, one of the world's most valuable luxury brands, which is owned by the Kering group. The digital store in Tmall's luxury pavilion gives the brand access to the online mall's 770 million customers, and leverages two key relationships -- with Gucci and with a massive Chinese customer base.
Coty CEO Sue Nabi said, "Coty's prestige cosmetics and skincare retail sales in China grew by over 40% last quarter, with Gucci Beauty delivering double digit sell-out growth there last year."
China has become an increasingly important beauty market, especially in areas like skin care, and the 40% growth rate shows Coty executing well there.
Now what
After years of disappointing results after its $12.5 billion acquisition of dozens of beauty brands from Procter & Gamble in 2015, Coty stock has been rallying in recent months. The company sold off its professional beauty business, Wella, to help alleviate its debt burden and so it can focus on the luxury market, its fastest-growing segment. In January, it acquired 20% of Kim Kardashian's beauty business.
The consumer discretionary stock is now up 150% in the last three months, surging on a better-than-expected third-quarter earnings report and its sale of the Wella business. The stock's turnaround remains volatile, so expect it to move again after its earnings report comes out next Tuesday morning. Analysts are forecasting revenue to fall 39% to $1.43 billion, reflecting the impact of the pandemic, and for earnings per share to decline from $0.27 to $0.07.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd. The Motley Fool has a disclosure policy.
