Coty raises profit expectations as demand, margins remain solid

May 09, 2022 7:19 AM ETCoty Inc. (COTY)ELBy: Kevin P. Curran, SA News Editor2 Comments

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Coty Inc. (NYSE:COTY) is increasing its bullishness despite a myriad of pressures bearing down on the makeup industry.

The New York-based beauty brand beat on top and bottom lines for its fiscal third quarter while increasing forecasts, contrasting sharply with recent reports from competitors like Estee Lauder (EL).

For the quarter, margins expanded despite pressure on material costs while digital sales soared. The quarterly filing noted that year-to-date reported gross margin grew to 64%, an expansion of 450 basis points from the prior year due to higher volumes and pricing actions taken amid higher inflation.

CEO Sue Nabi highlighted not only strong demand, but the margin expansion and lessened debt load for the company as key factors signaling the strength of the company in an uncertain environment.

“Coty is benefiting from several category and market tailwinds led by fragrances, though at the same time, we and the industry face lockdowns in China, the war in Ukraine, inflationary headwinds, and global supply pressures,” she commented. “What is clear is that Coty has navigated this complex backdrop very successfully thus far.”

She added that the company was able to overcome major challenges in terms of lockdowns in China that hit the company in March as well as an exit from Russia, a market that accoutned for about 3% of sales prior to the invasion of Ukraine.

In charting this successful navigation ahead, Nabi confirmed the company’s full year guidance while hiking its EPS outlook to $0.23-0.27 from the previous guide of $0.20-$0.24. The raised EPS expectation is the second quarter in a row of raised forecasts from the company on EPS.

Still, even the raised estimate came up short of a bullish consensus set at $0.33, tempering any upward move shares may have enjoyed on the largely positive print. Shares traded in a volatile manner in pre-market trading, offering little certainty on the implied move into the market open.

Read more on company’s with significant Russia exposure.

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