Coty’s downbeat annual profit forecast overshadows quarterly revenue beat

FILE PHOTO: Covergirl makeup, owned by Coty Inc., is seen for sale in Manhattan, New York City

By Juveria Tabassum and Ananya Mariam Rajesh

(Reuters) -CoverGirl parent Coty forecast annual profit below Wall Street expectations on Tuesday, signaling a hit from steeper input expenses in the first half of the year, and said it would raise product prices as it battles higher costs and a strong dollar.

Shares of the company were down 3% in early trade.

Raw material and freight costs have eased from pandemic-era highs, but a tight labor market is exacerbating the drag of persistent inflation on production costs for major global companies.

This overshadowed Coty’s quarterly revenue beat, despite customers splurging on its high-end and affordable fragrances and cosmetics, ranging from Hugo Boss to Gucci.

Rival Estee Lauder also provided downbeat annual forecasts, but due to a frail recovery in travel retail in China and slowing U.S. demand.

“When you look at the geographical performance, they look more in line with what we have seen at L’Oreal in the beauty category, rather than Estee Lauder, which continues to be dragged down by specific issues,” said Javier Gonzalez Lastra, portfolio manager at Tema ETFs for luxury funds.

Coty reported a quarterly adjusted profit of 1 cent per share, missing estimates of 2 cents, according to Refinitiv data. The company’s cost of sales grew to $502.1 million, from $446.2 million a year ago.

Chief Financial Officer Laurent Mercier told Reuters in an interview that the company was expecting to see cost-of-goods inflation ease in the second half of fiscal 2024.

In a post-earnings call, Mercier said Coty would undertake a mid-single-digit pricing in its Prestige and Consumer Beauty divisions in the first quarter.

Coty forecast 2024 adjusted profit between 44 cents and 47 cents per share, compared to estimates of 48 cents.

Its net revenue for the fourth quarter rose 16%, to $1.35 billion, topping an expectation of $1.31 billion.

(Reporting by Juveria Tabassum and Ananya Mariam Rajesh in Bengaluru; Editing by Pooja Desai)