Coty raises annual profit outlook on resilient luxury demand

By Praveen Paramasivam and Ananya Mariam Rajesh

-Coty Inc raised its full-year profit forecast on Monday following resilient demand for its high-end fragrances and skincare products in the United States and Europe at a time when inflation has soared to multi-year highs in most countries.

Demand for luxury goods has held up as higher prices of everyday essentials have not affected the spending power of the affluent, updates from cosmetics group L’Oreal and Birkin bag maker Hermes have shown in recent days.

Revenue at Coty’s prestige division, which houses cosmetics and fragrances from the Hugo Boss, Gucci and Burberry brands, rose 21% to $726.4 million for the third quarter ended March 31.

“(Coty’s) prestige brands are seeing phenomenal growth, which means that consumer confidence to buy our brands is intact,” Chief Executive Officer Sue Nabi told Reuters.

Customers unable to afford products from its prestige segment could trade down to the consumer beauty unit that sells lower-priced items, Nabi said.

However, Coty’s shares fell as much as 8% to $6.68 amid broader market declines. [L3N2X12UK]

“While the market may be preoccupied with macro factors today, we believe COTY‘s better-than-expected results … should be taken positively on a stand-alone basis,” Deutsche Bank analysts said.

The cosmetics maker, which has also raised prices to combat higher costs, saw its third-quarter gross margin increase to 64.3%. Adjusted per-share profit was 3 cents, beating estimates of 1 cent, according to Refinitiv IBES data.

Coty increased its fiscal 2022 adjusted per-share earnings forecast to between 23 cents and 27 cents, from its previous outlook of 22 cents to 26 cents.

The implied forecast for the fourth quarter, however, is of a per-share loss between 1 cent and 5 cents, according to Reuters calculations, as Coty deals with the impact of higher raw material costs, the Ukraine conflict and COVID-19 curbs in China.