CoverGirl parent lifts profit view on high-margin strength, China focus

CoverGirl cosmetics owned by Coty Brands are shown for sale in a retail store in Encinitas, California, U.S., November 8, 2017. REUTERS/Mike Blake/File Photo

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Feb 8 (Reuters) – CoverGirl parent Coty Inc (COTY.N) on Tuesday raised its profit expectations for the year, benefiting from its focus on high-margin skincare products even as quarterly sales took a hit from COVID-19 curbs in some markets.

Sales rebounded in the United States though, as reopening offices and the return of social gatherings pushed up demand for makeup, sending shares of the Hugo Boss fragrance maker 2% higher.

“We are selling more expensive products, more expensive categories, in regions of the world where there is high price elasticities. Think of China, think of skincare with Lancaster,” Chief Executive Officer Sue Nabi said in an interview.

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Coty also benefited from its new line of products, including the Flora Gorgeous Gardenia fragrance by Gucci and Rimmel’s Kind & Free collection.

The cosmetics company has been ramping up investments in its high-margin range and markets with more spending power. It introduced new packaging and collaborated with celebrities including actor Adam Driver and singer Miley Cyrus.

Coty raised its adjusted per-share profit forecast for the year to between 22 cents and 26 cents from 20 cents to 24 cents.

During the second quarter, however, sales in Coty’s prestige division increased just 12%, compared with a 34% jump in the first, partly due to stop-start lockdowns in Australia and a zero-COVID policy in China, a high-growth market for many U.S. brands.

The company also forecast fiscal 2022 sales growth towards the higher end of its prior low-to-mid teens range, while analysts were expecting a 15.5% increase.

Revenue from continuing operations rose 12% to $1.58 billion in the second quarter ended Dec. 31, while analysts polled by Refinitiv were expecting $1.60 billion.

“(Omicron) had a limited impact clearly,” CEO Nabi said.

Adjusted per-share earnings rose by 4 cents to 17 cents in the quarter, beating analysts’ average estimate of 11 cents, according to Refinitiv IBES data.

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Reporting by Praveen Paramasivam and Ananya Mariam Rajesh in Bengaluru; Editing by Devika Syamnath

Our Standards: The Thomson Reuters Trust Principles.

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