Coty: strong fourth quarter result and upside potential thanks to new strategy (NYSE: COTY)

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Quoted (NYSE: COTY) is down 41% year-to-date, however, in my personal opinion, we now have an attractive entry point for a long position. Despite the fact that the company operates in the discretionary segment, which is suffering more than others from the rise inflation, pressure on profitability and declining consumer confidence, the company is able to operate effectively in the current macroeconomic environment. Thus, thanks to successful product positioning (innovative products, new looks and disruptive campaigns), growth in prices and sales volumes in the main sales markets, the company managed to post solid operational and financial results for the fiscal year 2022, showing growth in revenue and growth in profitability.

Review of 4th quarter results (ended June 30)

Despite rising inflation, the company managed to demonstrate not only revenue growth in major markets, but also gross margin expansion. The company reported better than expected revenue and online EPS. Revenue growth was 10% and LFL growth +16%, including more than 150 basis points of negative impact from exiting its Russian business.

Revenue by segment

The company posted positive LFL in both the mainstream beauty (+7%) and prestige (+23%) segments. In both segments, the company continued to increase its market share, managed to pass on inflation to the end consumer and increased sales. Prestige segment revenue growth was 16%, driven by strong sales trends among brands such as Hugo Boss, Burberry, Chloé, Calvin Klein and Gucci Beauty. Revenue growth in the consumer beauty segment was 3%, but the company continued to grow its own market share in both segments.

Company data

Revenue by geographic area

The company recorded revenue growth in all markets: Americas +14% (LFL +13%), EMEA +10% (LFL +22%), Asia-Pacific -2% (LFL +2%). The decline in the APAC region is due to the COVID lockdown in China, which has put pressure on sales, however, the easing of COVID restrictions in China is expected to support sales in the coming quarters, which is one drivers of the income recovery. In addition, the effect of pent-up demand will support next quarter’s results, given the growth in the share of urbanization in China and the recovery in consumer incomes.

Company data


Despite rising inflation and pressure from input costs, the company managed to increase its gross margin to 61.8% (+140 bps), adj. gross margin up to 62.1% (+120 basis points) thanks to higher prices, a favorable product mix and higher sales volumes. The operating loss amounted to $77.4 million. primarily due to $31.4 million in impairment charges and $45.9 million in Russian exit-related costs. 4Q22 adjusted operating income of $65.1 million increased from $45.3 million a year earlier, driven by a $14.9 million reduction in amortization expense.

Company data

Market share

Importantly, the company continued to increase its market share growth in both segments. In the consumer beauty segment, market share growth was supported by the repositioning of key brands. In addition, adidas is currently undergoing a repositioning which should support market share in the periods to come. In the prestige segment, market share also increased, thanks to a recovery in sales to pre-pandemic levels and an increase in the product range. Additionally, management says there is still enough room in the segment to expand the product line and distribution channels.

Company data

Strategy update

On September 22, 2022, the company pleasantly surprised the market with a new strategy, where the company plans to double the skincare business until 2026. With the new strategy, the company will be able to demonstrate a LFL increased by +8-9% over the next quarter, as well as increasing gross margin at a faster rate, which is particularly important in the current macroeconomic environment.

I love that the company continues to improve the product line. Thus, the company aims to increase the share of prestige and reduce the share of mass cosmetics, which will have a positive effect on the profitability of the core business.

With the trend towards premiumization and controlling operating costs, revenue growth will outpace the expense growth rate, therefore, the company will be able to demonstrate improved long-term profitability.

Company data

Company data


Revenue increase: The company will continue to successfully pass on rising inbound costs to the end consumer. An increase in the share of premium brands will also help increase prices and market share.

Easing of COVID restrictions in China: While Q2 LFL in APAC was only +2%, the easing of COVID restrictions in China will drive demand for the company’s products in the periods ahead, which should support revenue growth .

Profitability growth: The company, in line with the strategy, will continue to increase the share of premium brands (favorable product mix), which is a positive factor for operational profitability, as consumers in the premium segment are less sensitive to price increases.


Macros: Rising inflation and deteriorating consumer confidence may negatively impact demand for the Company’s products, therefore revenue growth may slow.

Growing share of premium brands: If the company does not follow through on its stated plans to increase the share of premium brands in its product mix, this may be viewed negatively by investors, as it will put pressure on profitability.


In my view, the company’s current strategy is clearly in line with current market trends and investor demands. Thus, the company continues to work successfully with the product mix, maintains and increases sales volumes and plans to increase operational profitability. Against the backdrop of declining year-to-date listings and strong Q2 reports, I conclude that the company is successfully coping with inflation, increasing sales and profitability. I think the 1Q23 (fiscal) report will serve as a catalyst for the company’s stock growth.

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