What happened

Shares of Coty Inc. (NYSE:COTY) were tumbling today after the cosmetics maker reported disappointing revenue in its first-quarter earnings report, blaming supply chain issues. As a result, the stock was down 22.1% as of 1:47 p.m. EST. 

So what 

The Cover Girl parent said that organic revenue, which strips out the impact of acquisitions and divestitures, was down 7.7%, while overall revenue fell 9.2% to $2.03 billion, missing estimates significantly at $2.17 billion. Management said that "temporary supply chain related headwinds," which included disruptions in warehouses in Europe and U.S., accounted for 5% of the dip in organic sales. The company also said organic weakness was limited to the consumer beauty segment, while the luxury category delivered solid growth, tracking with broader trends in the cosmetic industry. 

Various cosmetics on well-lit shelves at a drugstore.

Image source: Getty Images.

Adjusted gross margin fell 120 basis points to 60.4%, due to the supply chain issues, and adjusted operating income dropped 28% to $140.8 million for similar reasons. Adjusted earnings per share, excluding a $32 million tax benefit, fell from $0.10 to $0.07, missing estimates by a penny.

According to CEO Camillo Pane, "While we had anticipated some level of disruption in the first quarter from warehousing and planning consolidation, the increased scope of the disruptions resulted in much weaker results than previously expected. We have been working to remedy the supply chain issues and expect to temper the headwinds in 2Q19, and have them be substantially resolved in 3Q19, although we do not expect to fully recover the 1Q19 financial impact in the balance of FY19."

Now what 

Looking ahead, management said it saw an organic sales improvement in both the luxury and professional beauty division in the current quarter, but projected a high single-digit decline in consumer beauty. Nevertheless, the company maintained its guidance of $750 million by 2020 in synergy-related cost savings from its acquisition of Cover Girl and several other brands from Procter & Gamble. That indicates that Coty stock should eventually bounce back, but with this year's results marred by the supply chain disruption, it's clear why the stock is sharply lower today.

 

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.