Coty (COTY) Profits from Growth in Online Sales and Core Beauty Units
With the easing of restrictions related to the pandemic and people spending more time outdoors, the demand for makeup and beauty products is accelerating. The same trends are supporting certain players in the cosmetics space, including Coty Inc. COTY. The company manufactures, markets and distributes beauty products around the world. Coty is benefiting from growth in the Prestige and Consumer Beauty categories and strong online sales. It is also progressing well with its strategic growth pillars, which include strengthening makeup brands, fragrances and skin care offerings.
Shares of this company Zacks Rank # 1 (Strong Buy) have risen 25.7% in the past three months compared to an industry decline of 17.3%. Let’s take a closer look at the factors that determine the stock.
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E-commerce sales on the rise
The growing inclination of consumers to shop online has been a boon for Coty’s online wing. Coty’s ecommerce business has been performing impressively for quite some time now. It is on track to build e-commerce and direct-to-consumer capabilities, while focusing on omnichannel foremost digital.
In the first quarter of fiscal 2022, the company’s e-commerce sales grew 23%. Coty’s e-commerce penetration reached mid-teens to Q1 sales percentage. In the reported quarter, premium segment e-commerce sales increased 21% year-on-year and 27% year-on-year in the Consumer Beauty unit.
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Strengthening of Prestige & Beauty Consumer Units
The company’s long-term growth strategy consists of six strategic pillars aimed at sustainable growth. These include stabilizing the Consumer Beauty make-up brands and mass perfumes, accelerating luxury perfumes and making Coty a central player in prestigious make-up. The company is working to establish a strong skin care portfolio in prestige and mass channels. It is committed to strengthening its presence in China through Prestige and certain Consumer Beauty brands. Such efforts, along with prudent steps to build direct-to-consumer capabilities, aim to establish Coty as an industry leader.
When it comes to stabilizing mainstream beauty brands, the company is repositioning campaigns and advertising. Coty’s efforts to reposition its core Consumer Beauty brands – COVERGIRL, Rimmel and Max Factor – are on track. Under the COVERGIRL banner, the company offers clean, vegan, and cruelty-free beauty products. The company is also launching product launches as part of the prestige unit. During the first quarter, the company rolled out Gucci Flora Gorgeous Gardenia, Burberry Hero, Calvin Klein Defy, among others. He also relaunched Kylie Cosmetics. The company enjoys impressive performances at Burberry, Marc Jacobs, Gucci and Chloé.
Management is on track to revitalize its flagship brands through innovations and renovations of key icons for the fragrance industry. It is also advancing with the expansion of the skin care portfolio. Coty undertakes strategic partnerships to enhance its brand portfolio. The company has entered into a multi-channel deal with Perfect Corp., a well-known beauty technology solutions provider. The partnership will help Coty’s customers to shop in the most convenient and personalized way, both online and offline.
Coty continues to witness strong growth in the beauty market in the second quarter of fiscal 2022. Management noted that the company is experiencing growth in the United States and China, as well as continuous improvement. in Western Europe. It is also experiencing a strong rebound in Travel Retail. Supported by such benefits and gains from product launches, management has increased its vision for LFL sales for fiscal 2022. It now expects revenue growth in the order of the percentage of low to middle-aged teens. , up from previous forecasts of weak growth among adolescents.
How are other cosmetics stocks doing?
Inter Parfums, Inc. IPAR, posting a Zacks Rank # 1, benefited from its focus on innovation and product launches. This well-known manufacturer, distributor and distributor of a wide range of fragrances and related products is enjoying strong demand for some of its top brands. Inter Parfums is striving to expand its offering under renowned brands such as Donna Karan, DKNY, Oscar de la Renta, Jimmy Choo and Kate Spade, among others. IPAR explored potential license agreements with different brands.
Inter Parfums share has grown 23.7% over the past three months. Zacks’ consensus estimate for its current year sales and profit shows growth of 51.4% and 95.9%, respectively. IPAR has a surprise earnings of 29.7% on average over the past four quarters.
Helen of Troy Limited HELE, holder of a Zacks Rank # 2 (Purchase), is focused on strengthening its portfolio of leadership brands. These brands represent a significant portion of the company’s sales and generate strong margins and volumes. Leading HELE brands include names like Braun, OXO, Vicks, Honeywell and more. The company’s strong online operations have paid off. Amid the easing of pandemic standards, Helen of Troy’s Beauty and Housewares segments are doing well.
Shares of Helen of Troy have risen 7.7% in the past three months. HELE shows a long-term profit growth rate of 22.2%. The company has a surprise profit for the last four quarters of 19.8% on average.
Renowned cosmetic player, Estée Lauder Companies Inc. EL, has gained strength in its skin care category, driven by growing consumer trends in home care. Estée Lauder’s online business has also performed well and is expected to remain a major growth driver. In fact, EL’s brand teams are fully committed to improving online consumer experiences. This Zacks Rank # 3 (Hold) company is also progressing well with strong cost saving measures, which improve margins.
Estée Lauder shares have risen 3.9% in the past three months. Zacks’ consensus estimate for its current year sales and profit shows growth of 16% and 15.2%, respectively. EL shows a long-term profit growth rate of 11.2%.
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