Coty expects second quarter profits to decline as rising costs cast a shadow over business recovery

Sanskriti Shekhar/Alexander Marrow

Reuters, Nov 4 - Coty (COTY.N) forecast on Wednesday that this quarter’s profit would fall well short of Wall Street expectations, as cost pressures from the Middle East conflict make it harder for the “CoverGirl” parent to revitalize its business.

Under interim CEO Markus Strobel, the company has launched the “Coty.Curated (link)” plan, aimed at reviving growth and profitability by focusing on core brands, cutting costs, and generating cash flow.

“We have not fully reached our goals yet and there is still a lot of work to do,” CFO Soraya Benchikh, who started in September, told Reuters when discussing the company’s transformation.

Coty said it expects adjusted earnings per share for the current quarter to be between 16 and 18 cents, while market expectations, according to LSEG data, are at 16 cents.

The protracted conflict in the Middle East is forcing businesses to deal with higher costs for raw materials like plastics, metals, and packaging, as well as shipping delays.

“We have taken into account the ongoing effects of the Middle East situation. We don’t expect this to ease in the short-term,” Benchikh said. She added that because the company did not provide an annual forecast last quarter (link), the outlook already factors in the impact of the regional conflict.

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This cautious outlook overshadowed the company’s strong first-quarter performance, which beat expectations thanks to robust results from leading premium brands such as Hugo Boss, Burberry, Calvin Klein, and Marc Jacobs.

Coty said Marc Jacobs, one of its key brands, posted double-digit growth thanks to continued strong performance of its “Daisy” fragrance line and the successful launch of its makeup collection in Sephora stores.

Demand for premium fragrances and skincare remains strong, driven by affluent consumers and young shoppers (link) who are willing to spend on high-end beauty products—a trend which also benefits peer Estée Lauder (link) EL.N.

Coty reported first-quarter sales of $1.56 billion, above the $1.52 billion expected. Adjusted quarterly earnings per share were 16 cents, ahead of the 12-cent forecast.

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