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Challenging quarter but Coty determined to dig its nails in and come out on top

By Andrew McDougall+

24-Feb-2014
Last updated on 24-Feb-2014 at 16:06 GMT

Challenging quarter but Coty determined to dig its nails in and come out on top

Beauty firm Coty struggled in its second quarter as net revenues were down, as the U.S. in particular slowed down; but there is still hope for the company, particularly in color cosmetics.

Net revenues of $1,323.2 million decreased 4% like-for-like and positive gross sales growth was more than offset by increased discounts and allowances, reflecting high competitive pressure in the soft market dynamic.

However, in a conference call after the results announcement, CEO Michele Scannavini spoke of the possibilities in the color cosmetics segment; particularly nail care, where the strong Rimmel performance was perhaps the only shining light in an otherwise grey sky.

Nail trend

Scannavini views the nail trend as a growing one going forward, given that the category is sensitive to innovation and there has been a particular boost in this area in the last few years.

This has meant that many consumers changed their habits and used nail products in a whole range of ways, customizing their look with different lacquers and special effects.

“I believe [there is] room… to keep on growing on the long run at least in line with the color cosmetic trend because there is still room to increase penetration, still room to increase distribution, still room also of new markets where this is not yet maybe comparable to mature markets,” says the Coty boss.

“I have a strong confidence that we will see nail back to a solid growth on the long run going forward, as has been in the past.”

Skin care future hope

Coty has gained a lot of ground in the color cosmetics category in the last few years thanks to various acquisitions bolstering business and there is now no question of its position in the market, which may have been the case 6-7 years back.

Scannavini likens Coty’s current position in Skin to that of Color a few years ago when 70% of the business was focused on Fragrance, and the aforementioned acquisitions were necessary to build the color business.

“As far as Skin and Body Care is concerned, we have started a similar journey,” comments Scannavini. “We are acquiring brands, we are strengthening our internal capability, and we are bringing people that bear a specific expertise in skin care, particularly in R&D and in marketing.

With its current portfolio of brand in the sector, it appears growth is certainly possible; but as with Color many years ago, it is vital for Coty to add more brands and more critical Mass in order to compete in the skin care arena.

Segment breakdown

Skin & Body Care net revenues in the second quarter declined by $2.1 million, or 2% due to a decline in the TJoy brand, although philosophy and Adidas help up slightly better.

Net revenues declined in the color cosmetics segment too primarily due to pressure in Sally Hansen as a result of the unfavorable comparisons, including the substantial new gel technology launch in the prior-year period, decreasing nail category demand in the U.S., and declining market share due to higher competitive activity.

As previously mentioned, Rimmel continued to grow during the quarter significantly ahead of market pace in both the U.S. and Europe, supported by a strong innovation pipeline and brand investment.

In Coty’s traditionally strong fragrance segment Marc Jacobs, Chloe, and Davidoff power brands all posted a strong performance, but were more than offset by declines in certain brands, including in certain lines of Calvin Klein and in Lady Gaga.

This saw lower net revenues on a like-for-like basis, which was also attributed to the strong promotional activity in the market, and facing a softer than expected consumption dynamic in the holiday season.

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