Coty Inc. (COTY) Shares Plummet on Softer Sales Outlook, Cost-Cutting Measures
The beauty giant Coty Inc. (COTY) saw its stock price plummet today after the company announced less-than-stellar preliminary first-quarter results. While the company did report positive news regarding its prestige fragrances, experiencing increased volume and pricing, the overall picture was dampened by slowing growth in the mass beauty segment. The company attributed this slowdown to a decline in unit demand.
Despite the challenges, Coty boasts strong revenue growth in other key markets and remains relatively unaffected by the difficulties faced in China due to its limited exposure there. However, the company anticipates a flat to moderately lower adjusted EBITDA compared to last year for the first quarter. The company cited several factors contributing to this, including lower-than-expected order patterns in the latter half of the quarter, coupled with investments in high-return initiatives, fixed cost timing, and the profit impact from divesting the Lacoste license.
Cost-Cutting Initiatives: A Response to Uncertainty
In light of uncertain demand and a cautious approach from retailers, Coty is re-accelerating its cost-reduction initiatives. This strategy aims to achieve savings exceeding the initial FY25 target of $75 million. These measures signal the company’s proactive stance in navigating the current market conditions.
Q2 & FY24 Outlook: Cautious But Optimistic
Reflecting the ongoing caution from retailers and a slowing U.S. market, Coty now anticipates moderate second-quarter LFL sales growth. However, the company remains optimistic about the latter half of the fiscal year, forecasting accelerated growth driven by easier comparisons, improved alignment between sell-in and sell-out, strong product launches, and strategic distribution expansion.
Coty reiterates its commitment to achieving FY25 adjusted EBITDA growth of 9%-11% year over year. This target is underpinned by ongoing sales growth, gross margin expansion, and the cost savings resulting from the ongoing initiatives. The company will officially release its first-quarter results on November 6, 2024.
Price Action: Reflecting Market Sentiment
Following the announcement, COTY shares experienced a significant decline, closing down 10.1% at $8.24 at the last check on Tuesday. This price action reflects the market’s reaction to the company’s outlook and its decision to implement cost-cutting measures.
Investors will be watching closely as Coty navigates these market challenges and continues to execute its growth strategy. The company’s ability to adapt to the changing consumer landscape and deliver on its financial targets will be critical in determining its future success.
