Coty leaves little room for optimism

Perfume giant Coty has only been on the market for a few months and today released its first earnings report. The company’s IPO was one of the largest consumer products offerings in recent history, raising more than $1 billion. The initial reaction was lukewarm, perhaps because investors were unconvinced by the supposed valuation or the use of the offering proceeds (none was spent on operations). Today, however, the company has managed to cut its losses and exceed Wall Street’s expectations. Is Coty a rosier choice today?

Winnings Summary
For its fourth fiscal quarter of 2013, Coty lost just over $62 million, or $0.16 per share. This is a much higher result than last year, when the company lost a staggering $357 million. On an adjusted basis, which excludes offering costs and other restructurings, it actually earned $0.03 per share. Analysts were expecting $0.02 in adjusted EPS.

Revenue climbed slightly above 3%, reaching $1.06 billion. Fragrances, skin and body care products led the way with sales growth of 6%.

If the first quarter was a nice surprise for investors and analysts, the good news stopped there. Coty management has noted a slowdown in market growth in the United States and Europe and now expects lower revenues in the first quarter of fiscal 2014 compared to the first quarter of last year. come to an end.

While short-term revenue or sales declines are hardly a reason to panic (unless you’re Mr. Market himself), the troubling trend here is market share, as the fragrance sector and body care is incredibly competitive, with prices close to those of basic products. terms.

A difficult affair
Coty is the fragrance maker behind many brands endorsed by celebrities and other big names, from Davidoff to Playboy. In this industry, the name is almost everything, as most consumers are not strict olfactory connoisseurs of seasonal floral blends. If the company struggles to grow, or even maintain, its market share, this would lead to problems. Given its maturity and size, Coty relies on acquisitions to significantly grow its business. Recently, she tried to buy a multi-level marketing company Avon for 11 billion dollars.

Management will certainly continue to look for companies that would fit well under the Coty empire, but there will soon be pressure to do a deal if its current products don’t hold up in stores.

At nearly 18 times projected earnings and with an EV/EBITDA of 11.6 times, not to mention a balance sheet with over $2.5 billion in debt, Coty is a tough stock to like right now. Its brands are impressive and the company has some qualities of a long-term, profitable business. But given its valuation, an IPO that didn’t do much for the company, and questions about its ability to grow market share, this stinking rose isn’t a buy in my mind. eyes.

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