COTY Inventory Forecast: What to Expect from Processing
One of the world’s largest beauty companies, Coty Inc. (NYSE: COTY), is strategically turning the company around to generate future earnings. COTY Stock’s latest forecast shows a possible turnaround, but a few hurdles will need to be overcome first.
Founded in 1904 in Paris, Coty is one of the most iconic brands in the beauty industry. However, after seeing its annual sales decline since 2017, the beauty firm is ready to turn things around.
Coty is in the midst of a strategic shift. The company intends to cut costs and promote higher margins. With that in mind, the plan is paying off so far with a stronger and more diverse product portfolio.
For example, in December 2020, Coty took a 20% stake in Kim Kardashian’s beauty business while relaunching Kylie Cosmetics last year. While this is just a small sample of Coty’s plan, these steps allow the company to compete in the highly competitive direct-to-consumer (DTC) beauty market.
If you’re not already familiar, influencers like Kim and Kylie promote products to their millions of social media followers, a huge opportunity. Keep reading to see the latest COTY stock forecast and what you can expect from the beauty company.
A leading global beauty brand
Coty operates in approximately 130 countries with leading positions in major markets such as the United States, Europe and Brazil.
Although you may not recognize the Coty name, you may be familiar with a few of its brands.
- cover girl
- Max factor
- Sally Hansen
In addition, Coty licenses major brands such as Adidas, Nautica, Gucci, Burberry and Tiffany & Co. Between Coty’s own line and licensed brands, its diverse portfolio reaches every corner of the market.
Coty’s consumer mix currently consists of 65% cosmetics, 18% body care, 15% fragrances and 2% skin care. Additionally, the beauty firm divides its brands into luxury and consumer divisions. Finally, Coty sold the majority stake in its professional and retail hair division to focus on higher sales and margin opportunities.
Leading positions in key markets
Cosmetics is expected to be the fastest growing beauty segment with revenue growth of 32% by 2025. With the biggest sales coming from cosmetics, Coty’s stock forecast looks well positioned to drive part of growth.
On the one hand, its color cosmetics brands are leaders in two of the three largest beauty markets in the world (United States and Europe).
WE: Sally Hansen #1, Covergirl #3.
UK: Rimmel #1, Sally Hansen #3, Max Factor #4.
Germany: Manhattan #5, Max Factor #8.
Brazil: Risk #1
On top of that, Coty’s Body Care and Fragrances, the second fastest growing beauty segment, also ranks.
However, the company lacks two critical areas compared to its peers.
- Digital Sales
- Sales in China (the fastest growing market)
Nonetheless, these are the main areas that Coty plans to address as part of its new strategy.
COTY Stock Forecast: The Recovery Strategy
At Coty’s 2021 Investor Day, the company presented its plans to transform the business. To summarize the plans, the goal is to grow faster than the beauty market. With this in mind, Coty plans to reduce costs and accelerate revenue growth by focusing on its most profitable segments.
Given these points, Coty is bolstering its DTC capability with key influencer partnerships (Kim and Kylie). In fact, Kylie Cosmetics is the #4 DTC brand, providing the company with an effective sales method.
Additionally, COTY plans to expand its presence in China by building brand awareness and boosting sales. So far, the company is enjoying success with its premium brands. For example, Lancaster became the number one exclusive brand at Sephora (China) after taking second place last quarter.
Finally, Coty is looking after its balance sheet to reduce risk and better position itself for future growth. Keep reading to see the latest COTY stock forecast and what to expect next.
Signs of progress
Although the strategy is still in its early stages, you can see several signs of progress. In the third quarter, Coty beat expectations, making seven straight quarterly beats.
- EPS: .03 vs. .01 exp.
- Revenue: $1.19 billion versus $1.15 billion in expenses.
Sales growth is fueled by better product positioning and a rebound in economic activity. More importantly, Coty continues to gain global market share in Consumer Beauty, making five consecutive months.
Additionally, digital sales picked up momentum with double-digit growth in the third quarter and year-to-date. Although many companies are feeling the inflationary effects, Coty maintains strong margins. In Q3, gross margins increased by 240 basis points to 64.3%.
After taking on heavy debt in 2020 ($7.5 billion), the company continues to improve its balance sheet. Net debt improved by more than $200 million to $4.2 billion.
CEO Sue Y Nabi praised the company’s progress. On the earnings call, Nabi said the quarter “confirms that Coty has the brands and the people to win in the beauty market, guided by our strategic priorities.”
Finally, the strong performance gives the company confidence that it will meet its revenue and EBITDA guidance for the full year. At the same time, Coty is raising its EPS forecast to the .23-.27 range.
COTY Stock Forecast: Where Are We Going?
So far, Coty is taking the necessary steps to turn the business around and promote future growth. Even though many retail brands are losing significant sales to inflation, Coty continues to grow.
For now, all signs point to another strong performance from Coty in the next quarter and into 2022. The company is weathering lockdowns in China, war in Ukraine and soaring inflation while growing sales.
Coty’s vision is coming to fruition as it gains global market share, expands digital sales and strengthens its position in China. Not only that, but growth helps the company pay down debt while fueling future growth.
With strategic portfolio adjustments, Coty is in a better position than in recent years. For one thing, influencer partnerships are a quick and inexpensive method of selling that continues to grow in popularity on social media.
The back-to-work and back-to-school trend will likely boost Coty’s profits as covid policies continue to ease. Given these points, COTY’s latest equity forecast is favorable with an optimistic outlook, growing momentum and a strategic shift underway.
With COTY shares down 44% from their 52-week high, investors can buy cheap. Again, the market sell-off leaves few safe spots, and if we see indices falling again, there could be more fallout from COTY stocks. In the long term, COTY is taking the right steps to set itself on the path to growth in the vast beauty market.
Pete Johnson is an experienced financial writer and content creator specializing in equity and derivatives research. He has over ten years of personal investment experience. Digging through Forms 10-K and finding hidden treasures is his favorite pastime. When Pete isn’t doing stock research or writing, you can find him enjoying the outdoors or exercising.