Coty Inc. COTY posted strong second-quarter fiscal 2024 results, as the top and bottom lines increased year over year and cruised past the Zacks Consensus Estimate. Revenues grew across all categories and regions.
Results gained from Coty's brand strength, along with robust momentum in the global beauty market despite geopolitical and macroeconomic challenges. This highlights consumers' enduring preference for beauty as a vital part of their well-being. Consumers' demand for fragrances, cosmetics and skincare products and their engagement in both physical stores and online have been a driver.
Coty's impressive portfolio of brands and industry-leading capabilities help the company undertake relevant innovations that not only meet consumers' expectations but also boost their desire for beauty products. Apart from this, the company's All In To Win Savings program has been yielding positively, generating more than $660 million worth of savings to date.
Coty Price, Consensus and EPS Surprise
Coty price-consensus-eps-surprise-chart | Coty Quote
Quarter in Detail
Coty delivered adjusted earnings per share (EPS) of 25 cents, beating the Zacks Consensus Estimate of 20 cents a share. The bottom line increased from 22 cents reported in the year-ago quarter.
Coty's net revenues came in at $1,727.6 million, up 13% year over year. The metric surpassed the Zacks Consensus Estimate of $1,671 million. Revenues included a 3% favorable impact of currency movements. Like-for-like (LFL) revenues jumped 11% on growth in the Prestige and Consumer Beauty business segments. We had expected LFL revenues to increase by 7.4%.
In the first half of FY24, e-commerce sales were a growth driver, with both Prestige and Consumer Beauty seeing more than 20% e-commerce growth. This fueled e-commerce as a percentage of total revenues to the low 20s range. Results benefited from strong enhancements in e-commerce fundamentals, better customer service, social media promotions and closer ties with online retailers.
The adjusted gross margin came in at 65.1%, contracting 40 basis points (bps) year over year. The gross margin decline resulted from increased excess & obsolescence, inflation and tough comparison with some benefits realized in the year-ago period. This was partly compensated by supply-chain productivity savings and pricing.
Adjusted operating income came in at $309.3 million, up 18% from $261.4 million in the prior-year quarter. The adjusted operating margin stood at 17.9%, up 70 bps.
The adjusted EBITDA in the quarter amounted to $366.4 million, up 15%, due to increased sales and gross profit. The adjusted EBITDA margin stood at 21.2%, up 40 bps.
Segment Results
Prestige: Net revenues in the segment rose 17% to $1,122.6 million. The segment's revenues were up 15% on an LFL basis, driven by continued strength in prestige beauty demand, which fueled double-digit growth across all regions. The company witnessed robust growth in Travel Retail.
Consumer Beauty: Net revenues rose 7% year over year to $605 million. The segment's LFL sales jumped 5%, with robust growth in color cosmetics, mass fragrance and mass skincare. The company saw solid LFL growth across the EMEA, the Americas, Europe, Brazil, the Middle East and Latin America.
Region-Wise Results
Net revenues in the Americas increased 10% to $687.9 million. LFL revenues were up 11%, driven by growth in the Prestige and Consumer Beauty segments. Our model suggested revenue growth of 6% for the second quarter.
Sales in the EMEA grew 16% year over year to $825.7 million, while the figure increased 10% on an LFL basis. The unit's performance gained from impressive growth across the Prestige and Consumer Beauty segments.
Sales in the Asia-Pacific region rose 15% (up 16% at LFL) year over year to $214 million. Growth was backed by strong Prestige revenues. We had expected revenues to increase 16% in the Asia Pacific region.
Other Updates
This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $450 million and net long-term debt of $3,682.9 million. For the six months ended Dec 31, 2023, cash provided by operating activities amounted to $608.1 million.
On Nov 13, 2023, management raised its share buyback plan by another $600 million, taking its total authorization to nearly $1 billion.
On Feb 6, 2024, Coty unveiled that it entered a long-term license with Marni, which is a popular Italian luxury fashion brand. This marks another step in the company's focus on its six-pillar strategy.
Apart from this, COTY is targeting the divestiture of its stake in Wella by the end of CY25.
Outlook
The beauty space continues to stand out as the company moves into the second half of fiscal 2024. Coty remains well-positioned to capitalize on this favorable market environment, experiencing ongoing momentum in its core categories, achieving impressive results with product launches and gaining success in untapped areas.
Management continues to expect LFL revenue growth of 9-11%. For the second half of fiscal 2024, Coty anticipates LFL revenue growth of 6-8%.
Revenues in the second half of fiscal 2024 are likely to include a 1-2% adverse impact of currency rates, along with a roughly 2% scope downside from the sale of the Lacoste license.
For fiscal 2024, Coty expects adjusted EBITDA margin expansion of 10-30 bps. The company projects fiscal 2024 adjusted EBITDA in the range of $1,080-$1,090 million.
Management anticipates modest gross margin growth in fiscal 2024, including robust gross margin expansion in the second half. Management still envisions fiscal 2024 adjusted EPS, excluding equity swap, in the band of 44-47 cents, indicating growth of 16-25% year over year.
Shares of COTY have risen 4.1% in the past six months against the industry's decline of 6.3%.
3 Solid Picks
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Ingredion Incorporated INGR, which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, holds a Zacks Rank #2 (Buy). INGR delivered a positive earnings surprise of 6.5% in the last reported quarter.
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Casey's General Stores CASY, the third largest convenience retailer and fifth largest pizza chain in the United States, currently sports a Zacks Rank #1. CASY has a trailing four-quarter earnings surprise of 17.8%, on average.
The Zacks Consensus Estimate for Casey's current financial-year sales and earnings suggests growth of around 0.3% and 9%, respectively, from the year-ago reported numbers.
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