What happened
Coty's (COTY 3.86%) problems continued last year, as the cosmetics maker struggled to absorb its acquisition of Cover Girl and other brands from Procter & Gamble and it saw further upheaval in its executive ranks, disrupting a potential turnaround.
As a result, the stock gave up 67%, according to data from S&P Global Market Intelligence, adding to its woes since the Cover Girl deal closed in 2016. There was no single driver for the stock's sell-off. Rather, shares fell gradually as investors lost faith in the company's turnaround potential.
So what
Coty shares jumped on second-quarter earnings in February, when the company beat estimates on the top and bottom lines. But those gains were short-lived. The stock slid gradually over the next few months on little news, though the company refinanced $8 billion in March, and investors seemed to absorb threats from a number of competitors, including Fenty Beauty, Kylie Cosmetics, Sephora, Mac, and Ulta Beauty. Shares then sank on the third-quarter earnings report in May, falling 13% over a weeklong span as an otherwise solid report was marred by weakness in the consumer segment.
Image source; Getty Images.
Coty stock sank again in August as rival e.l.f. Beauty reported disappointing results, signaling further weakness in the consumer beauty segment. Coty then tumbled again on its own earnings report later in the month, when organic sales growth slowed to just 0.3% in the quarter and management offered weaker than expected guidance resulting from supply-chain disruptions, including a trucker strike in Brazil.
Finally, the stock plunged on Nov. 7, losing 23% in a single session as revenue fell 7.7% in the first-quarter earnings report, a result of disruptions at several warehouses around the world. A few days later, the board announced that CEO Camillo Pane would step down for "family reasons" and be replaced by Pierre Laubies, who brings experience with consumer packaged-goods companies including Mars and Jacobs Douwe Egberts, the coffee company. The board also switched its chairman.
The stock slumped to close out the year, falling on the broader market sell-off.
Now what
Coty shares are already up 10% this year as the company has caught a tailwind from the market's recovery, and its leadership transition persisted with the naming of a new chief financial officer, chief global supply officer, and chief operating officer of consumer beauty, in an attempt to shore up the company's pain points.
With well-known brands such as Cover Girl and Max Factor and licensing arrangements with labels such as Calvin Klein, Hugo Boss, and Gucci, Coty would seem to have turnaround potential, since the stock is cheap based on expected earnings, but the supply-chain issues should last at least for another quarter. Still, if new CEO Laubies can execute effectively, Coty could recoup at least some of its losses from last year.
Check out the latest Coty earnings call transcript.
