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COTY Rides on Solid Partnerships & Strategic Growth Pillars

Coty Inc. COTY is committed to undertaking strategic partnerships to enhance its brand portfolio. The beauty products provider is focused on its six strategic pillars aimed at sustainable growth. The company is optimizing the overall cost structure amid rising inflationary pressure.

The Zacks Rank #1 (Strong Buy) company’s shares have increased 31.6% in the past three months against the industry’s 0.1% decline. The stock has outperformed the Zacks Consumer Staple sector’s 3.4% growth. Let’s discuss all the factors driving Coty’s performance.

Zacks Investment Research
Zacks Investment Research


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Strategic Partnerships Fuel Growth

The company has made several strategic partnerships to enhance its brand portfolio. In January 2023, Coty and Jil Sander unveiled that they have renewed their license deal and are in for a long-running collaboration. The renewed deal will likely solidify the ongoing business alliance, while laying the foundation for a new strategic project stretching over 10 years. On Nov 18, 2021, it signed a licensing agreement with Orveda — an ultra-premium skincare brand made in France. Prior to this, Coty entered into a multi-channel agreement with Perfect Corp. — a well-known beauty tech solutions provider. The partnership will help customers shop in the most convenient and personalized manner both online and offline.

What Else is Driving Coty’s Growth?

Coty is benefiting from its focus on six strategic pillars aimed at sustainable growth. These include stabilizing Consumer Beauty make-up brands and mass fragrances; accelerating luxury fragrances and setting up Coty as a core player in prestige make-up; establishing a skincare portfolio in prestige and mass channels; strengthening e-commerce and Direct-to-Consumer (DTC) capabilities; growing presence in China via Prestige and certain Consumer Beauty brands; and setting the company as an industry leader in sustainability. With respect to stabilizing and growing its consumer beauty business, it is on track with repositioning campaigns and disruptive advertising.

In its last earnings call, management highlighted that in the past quarter and the year, the global mass beauty market increased in the mid-single digits year over year. Its active brand repositioning of CoverGirl, Rimmel and Max Facto during 2021 led it to generate market share growth in 2022. Coty has been reaping benefits from the booming global prestige fragrance market. COTY is growing its skincare business across both divisions with brands like Lancaster and SKKN BY KIM. In the second quarter of fiscal 2023, its overall e-commerce sales rose modestly year on year amid fragrance supply constraints and weakness in key Chinese e-commerce platforms associated with lockdowns.

Coty is committed to optimizing the overall cost structure. The company’s fixed cost reduction program has been helping it redirect capital to improve brands and delivery profit. It is progressing well with the All In to Win transformation program across five key work areas, driving notable improvement in cost, gross margins, sales growth and cash. In the second quarter of fiscal 2023, the company delivered savings of nearly $50 million. Management continues to target savings of almost $170 million during fiscal 2023.

We believe that COTY’s efforts to save costs and the upsides mentioned above are likely to keep it in investors’ good books.

Solid Staple Bets

Some other top-ranked consumer staple stocks are General Mills GIS, Beyond Meat BYND and Kimberly-Clark Corporation KMB.

General Mills, a branded consumer foods company, carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 6.3% and 7.4%, respectively, from the corresponding year-ago reported figures.

Beyond Meat, which develops, manufactures, markets and sells plant-based meat products, currently carries a Zacks Rank #2. BYND has a trailing four-quarter negative earnings surprise of 29.3%, on average.

The Zacks Consensus Estimate for Beyond Meat’s current fiscal-year earnings suggests an increase of 39.7% from the year-ago reported number.

Kimberly-Clark is engaged in the manufacture and marketing of a wide range of consumer products around the world. It currently has a Zacks Rank of 2. KMB has a trailing four-quarter earnings surprise of 1.4%, on average.

The Zacks Consensus Estimate for Kimberly-Clark’s current financial year sales and earnings suggests growth of 1.8% and 5.2%, respectively, from the year-ago reported numbers.

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