Coty is improving its outlook. Thank consumer demand for cosmetics.

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Coty raised its forecast for adjusted earnings per share.

The time of dreams

beauty products company


Quoted

on Monday announced strong fiscal third-quarter results and raised its guidance.

Coty (ticker: COTY) chief financial officer Laurent Mercier cited continued demand for fragrances and makeup for the upside.

For the full year 2022, the company raised its guidance range for adjusted earnings per share to 23 cents to 27 cents, from 22 cents to 26 cents. Analysts polled by FactSet had expected 27 cents.

The stock was down 7.8% Monday morning at $6.72 in a selloff in the market. The stock was previously up 2% in early morning trading. It has fallen by 36% since the start of the year, while the


S&P500

fell 16%.

In general, inflation has taken a toll on consumers’ ability to spend, especially on discretionary goods. On top of that, people often choose to use what little money is left over for experiences like travel and restaurants rather than items. But Coty’s quarterly results show that demand for consumer goods like cosmetics appears to remain strong despite the situation.

“Overall, we are very confident about the market dynamics,” said CFO Laurent Mercier. Barons. “Being confident also means we are diligent and careful to make sure we follow it [the market] precisely – for our mid- to high-end consumers, we’re seeing great traction.

Earlier in the pandemic, consumers focused on skincare and fragrances as more companies implemented work-from-home policies and demand for various products shifted segments. While that’s the case early on, demand for all segments is still strong, Mercier said. This is particularly the case for consumer perfumes and beauty products.

“What we’re seeing — and there are some elements — is that people are really enjoying the scent,” he said.

Mercier said he’s also seen an increase in demand for fragrances across demographic groups, including Gen Z. “E-commerce is helping with that,” he said. “[What our consumers are seeing] on TikTok and so on is also very positive and you really see that perfume is a perfect match between the usual retail distribution and also e-commerce.

Consumer beauty revenue increased 7.8% to $459.8 million in the quarter. Some of Coty’s well-known products include brands such as Kylie Cosmetics and CoverGirl.

But like any other inflation-fighting business, Coty must price its products to mitigate higher costs. Passing those higher prices on to consumers isn’t always easy, but strong pricing power and product premiumization help, Mercier said.

For the fiscal third quarter ended March 31, the company reported revenue of $1.19 billion, an increase of 15.4%, above the FactSet consensus of $1.15 billion. Prestige revenues increased 20.8% to $726.4 million.

Net income was $50.3 million for the quarter, or 6 cents per share, compared with a loss of $18.5 million last year.

Of the 13 analysts who cover the stock on FactSet, the majority say the stock is a hold, including Stifel analyst Mark Astrachan.

“Overall, we perceive [fiscal third-quarter] equally strong result with continued strong sales growth reflecting recovery in underlying global beauty category trends, particularly in prestige fragrances, and improved market share in Coty’s Consumer segment, reflecting in part of significant increases in ad spend,” he wrote in a research note Monday morning. His target price for the stock is $12.

Write to Logan Moore at logan.moore@barrons.com.

Donovan B. Sanford