- The effects of new management and fixed cost reductions are starting to show.
- The sale of Wella significantly deleverages the balance sheet.
- Stakes in Kylie Cosmetics and KKW Beauty provide significant exposure to Gen Z.
- E-commerce momentum with percentage of total sales growing from 6% to 13%.
Thesis
Coty has positioned itself for a tremendous recovery. New management, deleveraging the company and moves into Gen-Z preferred businesses have provided the keys for a comeback. The first sign of this turnaround was clear during the Q1FY21 quarterly earnings call. Both the top and bottom line came in ahead of estimates due to cost reductions and strength in the business. The company posted revenues of $1.12B and a profit of 122M. It is the first profitable quarter for Coty in over a year. Posting a profit during the pandemic surprised investors. As a result, the stock jumped 22%. It is the first step in a potential multi-year path of recovery. At the current share price of $4.79, investors should give Coty a second look and consider buying low.
Business
Coty is an American multinational beauty company founded by François Coty. With stakes in Burberry, Gucci, Covergirl, Adidas, Calvin Klein etc. the company has quite the assortment of luxury beauty products. The portfolio is split into three categories as shown below. Coty Luxury, Coty Consumer Beauty and Coty Professional Beauty.
