Coty Inc (NYSE:COTY) has announced second-quarter sales, gross margin and profit that beat its guidance despite the impact of the stronger dollar.
The American-French multinational beauty company also said its January sales growth trends are accelerating sequentially as it reaffirmed its full-year 2023 revenue and profit targets and increased guidance for earnings per share.
Coty reported a 3% decline in sales to $1.52 billion for the three months ended December 31, 2022, due to a 7% foreign currency headwind. Like-for-like sales increased by 4% including the negative impact of about 300 basis points following the exit of its Russia business.
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The company’s adjusted gross margin improved to 65.5% from 64.6% in 2Q 2022, while adjusted operating income improved by 11% to $261.4 million, driven by a $19.4 million reduction in depreciation expense. Adjusted earnings per share (EPS) came in at $0.22, up from $0.17 in the prior year.
During the quarter, the company noted that consumer demand for beauty products, particularly prestige fragrances, remained robust, with high-single-digit growth in the prestige fragrance market and mid-single-digit growth in the mass beauty market.
Although it delivered strong like-for-like growth across both divisions, as expected revenue from its Prestige segment continued to be constrained by industry-wide component shortages stemming from accelerated fragrance demand. Encouragingly, it said it has already begun to see an improvement in its Prestige service levels entering the third quarter.
"I am incredibly pleased by Coty's tenth consecutive quarter of delivering results in line to ahead of expectations, especially as most quarters surpassed expectations despite the highly complex external environment, with particular pressures this quarter from component shortages and FX,” Coty CEO Sue Nabi said in a statement.
“This delivery validates the strength of our brands, our teams, and the growing nimbleness of our organization, positioning us for success in various macro scenarios,” she added.
Improved 2023 outlook
Coty said it continues to see strong demand growth across nearly all markets, particularly in Prestige fragrances, with the company maintaining strong launch activity in both Prestige and Consumer Beauty.
It expects full-year revenue to be 6% to 8% higher than in 2022 on a like-for-like basis, with modest gross margin expansion. Supported by strong EPS delivery in the first half of its financial year, it anticipates FY23 adjusted EPS growth of over 20% to $0.35-0.36, an increase from its previous adjusted EPS guidance of $0.32-0.33.
“Coty is firing on all cylinders financially, supported by solid life-for-like sales growth, ongoing gross margin and profit expansion, strong EPS growth, and our ability to reach the critical milestone of four times leverage at the end of calendar year 2022,” Nabi said.
Coty's shares were steady at around $10 in early New York trade.
Contact the author at stephen.gunnion@proactiveinvestors.com