Coty results outpace strong beauty demand, more in-store price hikes

Nov 8 (Reuters) – Coty Inc (COTY.N) fragrances and cosmetics enjoyed strong demand in the first quarter, helping it beat Wall Street targets despite pressure from a strong US dollar and the departure of the company from Russia.

Consumers who get out more after lockdowns indulge in smaller luxuries like makeup and perfume even as they put off larger purchases due to rising inflation and recession risks.

Perfume maker Hugo Boss will also increase prices further, in the mid-single digits around winter, as it battles higher freight and labor costs.

Coty’s prestige division, home to cosmetics and fragrance brands Calvin Klein and Gucci, posted a 1% drop in revenue due to macroeconomic headwinds. But chief executive Sue Nabi told Reuters the company “doesn’t see any slowdown or trading in the prestige division.”

In fact, consumers are trading lower-priced beauty product labels for prestige, she said.

“Coty is seeing strong consumer demand and may continue to be strong in the coming months… as beauty products tend to be a cheaper way to build confidence,” said Kunal Sawhney, the firm’s chief executive. Kalkine Group Stock Research.

Its European peer L’Oreal (OREP.PA) had also reported strong sales growth in the third quarter. China’s zero-COVID policy hurt Estee Lauder (EL.N), prompting it to cut annual forecasts, but Coty’s lower exposure to that market helped protect it.

The beauty category is “more resilient than ever,” Nabi said, as Coty also reiterated its full-year earnings forecast.

However, supply constraints prevent it from meeting strong demand, especially in the fragrance segment, the company said. Shares were flat at $6.98.

Excluding items, Coty earned 15 cents a share in the quarter ended September 30, beating estimates of 11 cents, according to IBES data from Refinitiv.

Net income increased 1% to $1.39 billion, slightly above estimates.

Reporting by Ananya Mariam Rajesh in Bangalore; Edited by Devika Syamnath

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