Makeup demand slump wipes millions off Coty's revenue, shares

Gucci lipstick maker Coty Inc missed market estimates for quarterly revenue on Tuesday, hurt by weak demand for makeup products as shoppers stayed at home due to fresh COVID-19 restrictions, sending its shares down as much as 15% in premarket trade.

Coty has been working to ramp up its presence in the skin-care category as well as online, as sales of makeup products, including foundation and lipsticks, have been pressured due to pandemic-induced lockdowns that have forced shoppers to stay at home.

Beauty product sales in major markets, including North America and Europe, have been hampered by a resurgence in coronavirus cases as it has prompted fresh lockdowns and store closures.

“The lockdowns (in Europe), like on every other competitor in the industry, have had an effect,” Chief Executive Officer Sue Nabi told Reuters, noting Coty’s Europe, Middle East and Africa (EMEA) unit was the biggest contributor to its 40% overall online sales rise.

Sales in the EMEA region, however, dropped 21.9% to $708.9 million.

“(The e-commerce growth) is not, in a way, compensating what’s happening with the closure of the stores,” Nabi added.

Cosmetic companies such as Coty have also been battling the closure of many sales channels, including duty-free shops at airports, leading to a hit in travel retail sales.

Coty has been laying off workers, freezing and reducing one-off expenses as part of its turnaround plan, which has involved reducing organizational layers and the addition of a new finance chief, helping it post profit above estimates.

Excluding items, the company earned 10 cents per share from continuing operations, beating analysts’ average estimate of 7 cents, according to IBES data from Refinitiv.

The Burberry fragrance maker, which in December sold a majority stake in its professional and retail hair division to U.S. buyout firm KKR & Co Inc, said its net revenue from continuing operations fell about 16% to $1.42 billion, missing estimates of $1.43 billion.