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Why Coty Stock Jumped 13.5% at the Open Today

By Reuben Gregg Brewer – Nov 8, 2021 at 10:56AM

Key Points

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The company reported earnings and it was a good read. Here's a quick look at the company's quarterly update.

What happened

Shares of beauty company Coty (COTY -0.20%) rose swiftly out of the gate on Oct. 8, gaining just over 13.5% in the first few minutes of trading. By roughly 10:15 a.m. EST the stock was still holding on to a roughly 12% advance. The big news today was the company's premarket fiscal first-quarter 2022 earnings release. Investors clearly like what they read.

So what

On the top line Coty reported a 22% sales increase year over year in the fiscal first quarter of 2022. That was driven by strength in its prestige brands, which posted 35% growth, and a 23% advance in e-commerce sales. The company's consumer brands witnessed 4% sales growth, which, while not as impressive as the prestige business, was directionally positive. Coty noted that its results bested its own expectations for the quarter, highlighting that brick-and-mortar sales were a notable positive. 

A person putting on makeup.

Image source: Getty Images.

On the bottom line, Coty's adjusted earnings per share came in at $0.08, compared to a penny-a-share loss in the same fiscal quarter of 2021. Notably, Wall Street had been expecting earnings of around $0.03 per share. Investors tend to like it when companies beat analyst estimates, so it's not surprising that the stock jumped on the earnings update. But that wasn't all of the good news. Thanks to strong product launches and the general reopening of the global economy, Coty increased its full-year sales expectations from low-teens growth to low- to mid-teens growth. Investors also like it when companies up their guidance.

Now what

Coty is clearly moving in a good direction right now and investors should be pleased. In addition, the company is moving to simplify its balance sheet, agreeing to exchange an additional stake in Wella with KKR in return for 56% of KKR's convertible preferred stake in Coty. Coty previously offloaded Wella to KKR in an attempt to streamline its business and start the turnaround effort that is now bearing fruit. The recent exchange materially reduces Coty's dividend expenses and builds on similar deals from September and October. All in, it was, indeed, a good quarter and shows the makeup company's efforts to get back on the growth track are gaining traction.

Reuben Gregg Brewer 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.

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