What happened

Shares of Coty (NYSE:COTY) were surging today after the cosmetics giant turned in a surprise profit and much better revenue than expected in its fiscal first-quarter report, a sign that its turnaround efforts may be gaining traction.

As of 1:47 p.m. EST, the stock was up 18.4%.

A miniature shopping cart filled with cosmetics.

Image source: Getty Images.

So what

Though the company continued to experience headwinds from the COVID-19 pandemic, the results easily cleared expectations. Organic revenue from continuing operations, which factors out acquisitions, divestitures and currency exchange, declined 19%, and overall revenue from continuing operations slipped 20.3% to $1.12 billion, beating estimates of $1.08 billion. Continuing operations exclude the Wella professional care brand, of which a 60% stake is being sold to KKR. Revenue in the quarter including Wella was $1.69 billion, down 13%.

Further down the income statement was where the company saw the most progress, as it achieved $80 million in fixed cost savings in the first quarter, on track for $200 million in savings this year. As a result of those cost controls, adjusted operating income from continuing operations increased 24% to $81.1 million, and its adjusted earnings per share, which include Wella, were $0.11, up from $0.07 a year ago and much better than the consensus at a loss of $0.05 per share.

New CEO Sue Nabi said in a statement, "Our first quarter results are a testament that a stronger, more focused and more flexible Coty, is emerging in the middle of the COVID-19 pandemic and better prepared to face any future market disruptions."

Now what

Nabi is the third CEO in less than a year at Coty, which shows the turbulence the company's experienced in recent years after a majority takeover by JAB Holdings has yet to yield the desired results. The company has also staked its fortunes on Kylie Cosmetics and founder Kylie Jenner as it seeks exposure to newer brands. 

Cost-cutting is generally a good way to score points with Wall Street, but it will take a few more quarters to assess the durability of the beauty stock's turnaround. At the very least, investors should hope to see revenue increase beyond pre-COVID-19 levels, though that may not happen until the pandemic is over.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.