Coty CFO Plans to Slash Cosmetic Giant’s Debt Further

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The move, announced at an investor event on Thursday, comes as the company continues to reduce its portfolio to boost margins.

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Coty said it wants to grow its earnings per share and its EBITDA over the coming years. Chief financial officer Laurent Mercier said improvements are expected to come from higher sales and profits, as well as efficiency programs and cost savings.

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Coty has been struggling to boost sales since its 2016 acquisition of various beauty brands from Procter & Gamble. Co.

For about $12 billion. Consumers have opted for high-end and niche cosmetics brands in recent years, a trend that has hurt some of Coty’s mass-market brands such as CoverGirl and Max Factor.

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Its business, which suffered heavy losses last year due to the coronavirus pandemic, has picked up in recent quarters. Coty stock closed Wednesday at $10.81 and is up nearly 60% since the start of the year, according to data provider FactSet. Shares traded below $3 in October 2020.

Coty reported net revenue of $1.37 billion during the quarter ended September 30, up 22% from the prior-year period. Its net income and gross margin also improved during the latest quarter.

Coty is working to find $600 million in cost savings by the end of its fiscal year 2023. Earlier this month it has achieved nearly $400 million in cost reductions.

Its net debt, according to S&P Global Market Intelligence, declined to $5.22 billion at the end of September, from $5.55 billion at the end of June — when its last fiscal year ended — and $8.25 at the end of June 2020. From Billion, a data provider.

The company continues to shrink its portfolio by eliminating under-selling products and reducing the complexity of its business, for example, through a technology called platforming, using fewer types of bottles, caps, and pumps. “Every time there’s a new launch in a brand, we’re not reinventing from scratch. [and are] We are using what already exists,” Mr Mercier said.

Analysts welcomed Thursday’s announcement, saying it could make Coty’s stock more attractive to investors.

,[The] The debt burden has been a big part of the bear case,” said Nick Modi, managing director of investment bank RBC Capital Markets. “Investors really thought the company was going to go bankrupt during the pandemic,” he said, adding that Coty’s shareholders look forward to continued progress toward the company’s financial goals. “With turnaround stories, what investors really want to see is proof point and consistency of execution,” Mr. Modi said.

A rise in US interest rates — as forecast by economists for 2022 or 2023 — could turn investors away from highly leveraged companies, said Linda Bolton Weiser, managing director of advisory firm DA Davidson & Co. “While Coty has made some progress, leverage will still be quite high for some time to come,” said Ms Weiser.

The company said earlier this month that investment firm KKR & Co sold its remaining 2.4% stake, simplifying Coty’s capital structure and resulting in annual dividend cash savings of $11 million. Including the previous three transactions in which KKR reduced its stake in Coty, the company saves about $77 million a year in cash dividends, Mr. Mercier said.

According to FactSet, the company’s largest stakeholder is consumer goods conglomerate JAB Holding Company, which holds 55.61% of the outstanding shares as of October 29.

“While they have resolved the KKR stake, a substantial overhang exists with respect to JAB Holdings of Coty Shares,” said Ms. Bolton Weiser.

Like many other companies, Coty too has been battling cost overruns due to some degree of inflation. According to a spokesperson, the company is targeting low-single-digit price hikes this year. “We have pricing power because we have strong brands, we like brands,” Mr. Mercier said.

Nina Trentmann at [email protected]


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