Coty faced a challenging second quarter as revenues declined, partially due to U.S. market softness in the mass fragrance and nail categories. Despite the challenges, company executives expressed optimism during Friday morning’s conference call, and look to return to top-line growth in the second half.
“The key market trends and business dynamic that impacted our first quarter results continued into the second quarter. This was largely anticipated, and the quarterly results came generally in-line with our expectations,” CEO Michele Scannavini told analysts.
Net revenues during the quarter ended Dec. 31 totaled $1.32 billion, down 4% on a like-for-like basis and as reported relative to the prior-year period.
Net income decreased to $82.5 million from $123.2 million in the year-ago period. The company attributed the decrease primarily to lower operating income partially offset by lower tax expense.
Scannavini said that the fragrance market in the United States reported negative growth in the quarter, with a high-single digit decline in the mass channel. In fragrance, revenues declined 2% on a like-for-like basis, reflecting the timing of new launch activity, the impact of expired licenses and high promotional activity during the holiday season, especially in the mass channel.
The mass color cosmetics market also faced a decline, driven by a decline in nail. In the United States, the nail category at mass declined 6% in the quarter following a 4% decline in the first quarter.
“As a reaction to this consumption slowdown, retailers have rapidly adjusted their inventory level. This destocking continued into the second quarter, however, to a lower extent compared with the first quarter. Now, we believe a big part of the inventory reduction should be over,” Scannavini said.
Looking ahead, the company will remain focused on restoring growth in its color cosmetics segment, stemming the decline in nail and fully leveraging the strength of its Rimmel brand. Furthermore, in its Sally Hansen brand the company is implementing a 360-degree program to increase competitiveness and bolster market share gains. This program will include a modernization of the brand image through a new advertising campaign and in-store fixturing, Scannavini said.
In OPI, the company is targeting robust growth in the second half. As part of the effort, it is working on a special collection developed in partnership with Coca-Cola, which will be supported by a digital plan. The brand also is expected to benefit from new distribution with Sally Beauty in the United States.
In mass fragrance, Coty is currently launching a new perfume from Beyoncé, called Beyoncé Rise. It also recently partnered with singer and songwriter Enrique Iglesias to develop his own line of signature fragrances. The partnership with Iglesias is expected to expand its fragrance business, particularly in Brazil and to the Latin population, which is gaining an increasing share of total fragrance consumption in the United States, Scannavini told analysts.
In skin and body care, the company is targeting growth in the second half as it expects Adidas to progressively gain momentum with the launch of a World Cup-inspired line, as well progressive expansion in emerging markets, he noted.
“Market conditions will remain challenging in several markets around the globe, particularly in the mass channel. Despite this uncertainty, we keep targeting to return to top line growth in the second half thanks to a competitive innovation plan, the increasing impact of our new structure in the emerging markets and continued marketing investment to support our power brands,” Scannavini said.