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Can Buyouts Help Coty Tide Over Consumer Beauty Softness?


Coty Inc. COTY, a renowned name in the world of beauty and cosmetics, relies primarily on strategic buyouts to boost its portfolio and market presence. Also, stringent cost control, innovations and e-commerce operations are driving results.

However, underlying weaknesses in the company’s Consumer Beauty segment have increased concerns for management, lately. In fact, organic sales in this segment dipped 1.3% in the second quarter, thanks to persistent softness in the global mass beauty market. Also, the segment has been persistently witnessing underlying challenges in North America. While results at the consumer beauty unit improved sequentially and management is working toward enhancing this segment, full recovery is likely to take time.

On that note, lets delve into some of the strategic efforts undertaken by Coty that have helped sustain its position in the cosmetics realm and see if such growth drivers can help it tide over the aforementioned obstacles.

Acquisitions: Vital Growth Agent

Improved consumer confidence has not only been favoring spending on food and beverage items but has led to higher expenses on personal care and cosmetic products. Such trends have been boosting Coty’s Luxury and Professional segments performance and encouraged the company to engage in business expansion through buyouts.

Coty made several strategic acquisitions to enhance its brand portfolio. In this regard, the company concluded the buyout of the iconic Burberry brand in the second quarter of fiscal 2018, which is likely to further solidify the Luxury segment. In fact, synergies from the ghd, Younique and Burberry brand drove the company’s top-line during the second quarter. Other noteworthy buyouts of the company include Procter & Gamble’s Beauty business that has been favorably impacting Coty’s performance for a while. All said, management is optimistic about the ongoing synergies from buyouts which have been solidifying its portfolio.

Strides in the E-Commerce Realm

Consumers’ tech-oriented lifestyle drove Coty to undertake end-to-end digital transformation efforts, which includes e-commerce, across its divisions and regions. The company has been taking great strides in this regard, which helped it witness e-commerce sales growth in its segments. In the second quarter, Coty launched artificial intelligence tools on boots.com in UK and partnered with Amazon AMZN to launch “Let’s Get Ready” for the Amazon Echo Show. Apart from this, the buyout of leading online peer-to-peer social selling platform, Younique indicates Coty’s focus on connecting with customers through e-commerce initiatives. Further, the company is making progress with COVERGIRL brand through its Custom Blend app. The app helps customers to take a digital, social and influencer-led go-to-market approach and personalize and customize it as per desire.

Other Efforts to Drive Efficiency

In addition to the aforementioned growth drivers, Coty is committed toward cost reduction and inducing operational efficiencies. In fact, the company targets to realize nearly $750 million of synergies driven by cost, procurement, supply chain and SG&A savings by 2020. Apart from this, Coty seeks to divest non-performing brands to focus and utilize its resources in other attractive opportunities.

We expect such efforts to help Coty offset the challenges in the Consumer Beauty segment, which will raise further optimism among investors. Well, this Zacks Rank #3 (Hold) stock has gained 8.2% in the past six months, though it underperformed the industry’s advancement of 26.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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