What happened
A combination of a pandemic-driven sales slide and the company's own unforced errors sent Coty (COTY 0.09%) stock tumbling last year, and the cosmetics company finished 2020 down 38%, according to data from S&P Global Market Intelligence.
The stock was down as much as 75% in October, but began to recover toward the end of the year as its turnaround efforts began to show traction. The chart below shows the stock's trajectory for the year.
So what
Coty came into 2020 carrying a heavy debt burden after a deal to acquire Cover Girl and dozens of other beauty brands from Procter & Gamble didn't deliver the expected results. Those costs were magnified when the pandemic struck and Coty shares fell sharply as sales tanked across much of the cosmetics industry.
Image source: Coty.
Coty's performance went from an organic revenue decline of 1.4% in the fiscal second quarter of 2020, which ended in December 2019, to a 20% organic revenue decline in the subsequent quarter. In May, the company announced a strategic partnership with KKR, and signed a memorandum of understanding with the investment firm to take a majority stake in Coty's professional care business, Wella, or the products it sells to salons. The deal immediately gave Coty much needed cash in a $750 million preferred equity investment.
In July, the company named Sue Nabi as its new CEO, its third in a year, and saw organic revenue plunge 60% in its spring quarter.
The stock began to recover in November as its organic sales loss improved to 19% in the September quarter. Shortly after, the company announced its sale of Wella to KKR for $2.5 billion, sharply lowering its debt burden.
Now what
Coty enters 2021 with a shaky track record and still suffering from headwinds from the coronavirus pandemic. The company has also tied its business to members of the Kardashian family, taking stakes in cosmetics brands owned by Kim Kardashian and Kylie Jenner, which the company hopes will give it exposure to a younger audience.
With the sale of Wella, sales numbers are unlikely to reach their former heights, but investors should keep an eye on the bottom line to see how the turnaround is going. If the company can deliver growing profits, the stock will respond favorably.
