New Coty Inc. chief executive officer Sue Nabi said the company is emerging “stronger” this quarter — and it looks like Wall Street agrees with her.
Nabi noted that Coty’s results for the quarter ended Sept. 30 exceeded the company’s own expectations. Shares spiked more than 22 percent after the results were released, closing at $4.08. Citi analyst Wendy Nicholson called the results “better than we expected” in a note.
“A stronger Coty has emerged this past quarter,” Nabi told WWD in an early morning video interview Friday. She credited market trends but also improvements in the company’s mass and prestige businesses for the results, and outlined her vision for Coty, which has been ailing since the company’s takeover of the P&G specialty beauty portfolio in 2016.
Nabi said Coty is on track to deliver on financial targets, including leverage reduction — its roughly $8 billion in debt is expected to be halved once the divestment of Wella is complete, expected later this year, she said. KKR is taking the majority stake in several of Coty’s professional businesses, including Wella, and Coty will remain a 40 percent owner. The value of that position is about $1.3 billion, Nabi said.
“At the same time, we are doing this and improvements are very visible, I would say we are putting in place the right foundations to unleash Coty’s potential,” Nabi said.
The plan includes heightened focus on the firm’s remaining businesses — mass and luxury — including turning around Covergirl, which has been losing shelf space for years.
Nabi said things are starting to look better there, and that “green shoots” are emerging. Sally Hansen continues to do well, too, she noted.
For the first time in five years, Covergirl has not had its shelf space reduced by major U.S. retailers, Nabi said.
“Covergirl is attracting customers. This is probably the main reason why our partnering retailers have decided to keep our space, is we are bringing in with the Clean Fresh makeup line Gen Z customers to this channel, which is a really strategic target for them, and for Covergirl and for us,” Nabi said.
The Clean Fresh line launched earlier this year with a clean-makeup positioning. “Covergirl is the inventor of clean makeup,” Nabi said. “Clean makeup was invented in 1961…it was the first medicated foundation using Noxema ingredients.”
Nabi’s goal is “stabilizing and reigniting the potential of Covergirl, while continuing on the success of Sally Hansen, and next to this, accelerating the Luxury division, which at the moment is doing great in terms of sellouts — we are gaining market share in America, we are growing three times faster than the American market,” Nabi said.
She plans to build new “engines” of growth for the luxury division with makeup, skin care and direct-to-consumer efforts, she said.
Kylie Cosmetics, which is majority-owned by Coty, is the best example, Nabi said. The business recently expanded direct-to-consumer offerings in the U.K., Germany, France and Australia, and Nabi called the results “honestly outstanding.”
“The size of skin care has tripled year-on-year. We have a returning customer that’s 50 percent of the people who are buying online…which is the beauty of d-to-c and skin care,” Nabi said. Kylie Skin did $25 million in sales this quarter, Nabi noted.
“Coty needs to be read as a company that’s super well-positioned with two divisions that’s going to expand into makeup for the luxury division and also into skin care, powered by a d-to-c powerful engine,” Nabi said.
That’s why Nabi said she hired Jean-Denis Mariani as chief digital officer. He is “putting in place the right teams, the right organizations, the right investments,” Nabi said, with four goals in mind. First, to accelerate e-commerce sales, which stood at 13 percent for the overall business this quarter; second, to shift media spending from traditional to digital; third, to implement virtual tools for shopping online, and fourth, to accelerate conversations in d-to-c that allow Coty to own related data, Nabi said.
For the quarter ended Sept. 30, Coty posted a net sales decline of 13 percent, to $1.69 billion, with net income up to $200.6 million, helped by tax benefits, the company said.
The Americas saw sales dip 4 percent, to $470.6 million in the quarter, while Europe, the Middle East and Asia and the Asia Pacific regions saw larger declines, 22 percent and 35 percent respectively, to $530.4 million and $123.1 million.
Coty appears to be making some progress in China — where it is underdeveloped in comparison to peers — with prestige brands. Nabi said Gucci lipsticks sold out after the company partnered with Lu Han, and that Burberry beauty has done well on Tmall. Gucci will launch on Tmall in early 2021, Nabi said, and the brand is planning a custom foundation launch for the Chinese market.
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