Coty reports surprise quarterly loss on higher costs

Coty Inc reported a surprise quarterly loss and warned that it expected retailers to reduce stocking some of the beauty products the company acquired from Procter & Gamble Co until the second half of 2018.

Shares of the U.S. beauty products maker fell 13 percent to $17 in afternoon trading on Tuesday.

Retailers have been limiting shelf space for brands such as CoverGirl and Clairol, which Coty acquired from P&G in 2016, and instead have been stocking up on trendy brands such as NYX and ELF.

"Shelf space loss has been an issue that we faced in the fourth quarter and it will continue to impact us until the second half of fiscal 2018," Chief Executive Camillo Pane told Reuters.

Coty's consumer beauty unit, which is a key revenue contributor and houses CoverGirl and Clairol, reported a 10 percent decline in organic sales, which excludes currency fluctuations and acquisitions.

"The P&G deal is a big question mark," said Rosie Edwards, London-based analyst at research firm Berenberg.
There are concerns whether the likes of Clairol and Max Factor can compete in the color cosmetics and haircare businesses that have disruptive brands like L'Oreal and ELF Cosmetics, she said.

Coty reported an adjusted net loss of $3.4 million due to "materially" higher marketing spend for the launch of fragrances such as Gucci Bloom and Hugo Boss Tonic, and higher fixed costs related to the acquisition of P&G's brands. The company reported break even on a per share basis compared with analysts' estimates of a profit of 9 cents per share.

Net loss attributable to Coty Inc narrowed to $304.8 million, or 41 cents per share, in the fourth quarter ended June 30, from $422.2 million, or 66 cents per share, a year earlier. The company said it incurred restructuring charges of $212.2 million in the quarter.

Coty's fourth-quarter revenue rose 5 percent to $2.24 billion on a constant currency basis and after adjusting year-ago sales for the acquisition of P&G brands. Coty's costs rose to 53.1 percent of sales in the quarter, from 46.6 percent, a year earlier.

"We are rapidly working to address (fixed costs)... Our cost base is not where it should be and we are highly focused on this issue as a key initiative for fiscal 2018," Pane said in a statement. "Our Consumer Beauty division remains under pressure and its recovery is a key priority for us."

The company's results were in contrast to rival Estee Lauder, which last week posted a better-than-expected quarterly profit as its makeup segment did well.