Coty’s share price: What to expect in Q1 earnings

Coty’s [COTY] share price has decreased 74.22% this year, plunging from $11.25 to $2.90 at last Friday’s close. This year’s decline reinforces a worrying long-term downtrend, with Coty’s share price falling 64.55% between 2017 and 2019, and losing 84.17% between the beginning of 2017 and 4 November’s closing price. 

Coty’s share price decline is mirrored in its fundamentals, with the beauty company’s revenue having decreased consistently in recent years, falling 25% to $4.7bn in its last full year. To emphasise the beauty firm’s decline, Coty’s share price plunge led to its demotion from the S&P 500 in the latest quarterly reshuffle in September, leaving it in the S&P MidCap 400. Is there any hope on the horizon, or is there more doom and gloom ahead?

When is Coty reporting Q1 earnings?

6 November

What happened last quarter?

Coty’s share price faltered following fourth-quarter results in August which, hit by the Covid-19 pandemic, didn’t make for pretty reading. Q4 net revenue decreased 56% to $922.1m, with full-year net revenue sliding 22% to $6.7bn. Luxury net revenue in Q4 came in at $219.4m, registering a huge drop of 70.9% year-on-year, and a 21% fall for the full year to $2.6bn. While e-commerce accounted for around 30% of Coty’s luxury sales in the quarter, its Kylie Cosmetics stores were hit by closures and supply chain challenges. Net revenue in the consumer beauty division dropped 54.7% from the same period of 2019, to $340.7m, as store closures and lower store traffic hit sales. 

Executive chairman Peter Harf struck a defiant note at the time, saying: “We have taken decisive action to tackle the issues in our capital structure, financial underperformance, product portfolio, and management.”

"We have taken decisive action to tackle issues in our capital structure, financial underperformance, product portfolio, and management." - Peter Harf, Coty executive chairman

Coty said there was a gradual sales trend improvement from April through to June, with significant improvements in July and August. Investors will be closely scrutinising the results after Coty said it expects to return to profitability in the first quarter of FY21 – if the firm’s expectations are met, Coty’s share price could get a much-needed uplift.

Why should investors care about Coty’s share price?

New leadership offers turnaround hope

Coty’s recent appointment of the experienced Sue Nabi as CEO could be a game-changer for the troubled beauty giant. Peter Harf, who had been acting CEO, will work closely with Nabi to lead Coty’s transformation as he moves into the role of executive chairman.

Nabi is renowned within the industry as a global innovator and entrepreneur. She founded luxury skincare line Orveda and has held roles as president of L’Oréal and Lancôme. Nabi said: “I’ve been following their progress avidly and am inspired and energised by the opportunity to proudly lead the global Coty team into the future as we build the new, more modern Coty.”

"I've been following their progress avidly and am inspired and energised by the opportunity to porudly lead the global Coty team into the future as we build the new, more modern Coty." - Sue Nabi, Coty CEO

With Nabi only starting her role in September, the final month of the company’s first quarter, the impact is unlikely to be felt quite so soon, but the appointment certainly offers hopes for Coty’s share price and revenue prospects in the mid- to longer-term.

Coty expands Kylie Skin range

Coty recently announced the launch of Kylie Skin across the UK, France, Germany and Australia, under a direct-to-consumer model. Coty’s share price jumped 12.3% to $3.74 after the announcement on 8 October, following on from a 9.5% gain the previous day, which itself came after Jefferies’ upgrade from Hold to Buy on optimism that Nabi would lead a turnaround.

The Kylie Skin launch offers Coty a chance to capitalise on a rare growth trend during the pandemic, as more customers shop online rather than in stores, many of which have been forced to close during the pandemic. Coty said the new direct-to-consumer website would enable faster delivery, helping it take advantage of the growing online trend. In 2019, Coty paid $600m to acquire a 51% stake in Kylie Cosmetics, the company founded by celebrity Kylie Jenner. 

What is Wall Street expecting?

The Wall Street Journal shows Coty’s consensus earnings per share estimate for Q1 is -$0.06, which would be an improvement on Q4’s -$0.46, though down on the $0.07 seen in Q1 2019. The consensus revenue estimate according to Yahoo Finance is $1.08bn, which would be a 44.60% year-on-year decline. 

Among the analysts tracking the stock, Coty’s share price has a high price target of $7.00, with an average target of $4.27 and low target of $3.25. Hitting the average price target would represent a 41.4% upside from Coty’s share price of $3.02 (as of 4 November’s close). Of the 14 analysts offering recommendations, Coty has 2 Buy, 1 Overweight and 12 Hold ratings, resulting in a consensus Hold. 

Coty's share price vitals, Yahoo Finance, 5 November 2020