Coty’s fragrances sweeten profit forecast after strong beat

Reuters | May 9, 2023

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By Ananya Mariam Rajesh and Deborah Mary Sophia

(Reuters) -Coty Inc on Tuesday raised its annual profit forecast for the second time, as the CoverGirl parent banks on price hikes, new launches and resilient demand for its high-end and affordable fragrances and cosmetics.

The company also crushed estimates for quarterly earnings, as improving supplies of glass bottles and pumps bolstered sales of its high-end fragrances.

The results reflect the so-called “lipstick effect” – the trend of shoppers indulging in smaller luxuries like lipsticks and fragrances as they shun high-end purchases amid inflation.

That also encouraged retailers to restock on Coty products after keeping a tight leash on inventories.

“Our retailers are now rebuilding and reordering. At the end of the third quarter, the level of inventory was very healthy,” Chief Financial Officer Laurent Mercier told Reuters.

Coty also saw a boost from the post-pandemic recovery in travel retail – an area of focus for luxury companies where customers pick up products from duty-free stores at airports and major shopping districts like Hainan in China.

“China has been very active for Coty during this quarter,” Mercier said in a post-earnings call, with the launch of luxury foundations and skincare products set to further boost sales in the current quarter.

In contrast, peer Estee Lauder forecast weaker sales and profit last week, blaming slow recovery in travel retail, especially in Asia.

“Coty’s strategy to focus on product premiumization and new products launched in China have delivered the desired result,” said Kunal Sawhney, CEO of equity research firm Kalkine Group.

Coty raised its 2023 adjusted per-share profit expectation to between 38 cents and 39 cents, from 35 cents to 36 cents earlier. Third-quarter adjusted earnings of 19 cents per share crushed expectations of 3 cents.

Still, shares fell 4% amid broader market declines, with Jefferies analyst Ashley Helgans noting the weakness could also stem from profit-taking following a more than 40% gain this year.

(Reporting by Ananya Mariam Rajesh and Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila)

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