Investing.com -- Coty (NYSE:COTY) has warned investors of an expected slowdown in sales for the second quarter, echoing concerns from other companies about a global deceleration in the beauty market's growth.
The cosmetics firm’s shares fell around 3% in premarket trading Tuesday. As of Monday’s close, the shares had declined over 26% year-to-date.
Coty, which owns brands like Max Factor, Covergirl, and Lancaster, said on Monday that retailers are reducing their inventories due to weaker demand and lower beauty product sales, particularly in the U.S.
The company expects store sales to increase by 4% to 5% in the fiscal first quarter, which ends on Sept. 30, missing consensus estimates of 6%.
Due to a weaker market environment, management now anticipates Q2 sales to "grow moderately", with some acceleration expected in the second half. This improvement is likely to be driven by easier comparisons, better alignment between sell-in and sell-out, new product launches in both the prestige and mass segments, and targeted distribution expansions.
As a result of the sales slowdown, investments in higher return on investment (ROI) sell-out initiatives, the timing of fixed costs, and the divestiture of the Lacoste license, Coty expects Q1 EBITDA to be flat to slightly down year-over-year, compared to the Street's expectation of a 6.2% year-over-year increase.
However, Q1 gross margin expansion was strong, exceeding the Street's estimate of a 50bps year-over-year improvement.
Looking ahead, the beauty company slightly lowered its full-year sales outlook, but maintained its EBITDA growth forecast of 9-11%, supported by cost-saving measures.
Commenting on the price reaction to Coty’s warning, Jefferies analysts said investors appear “to not be overly surprised by the softness” in mass beauty. They point out that many investors are recognizing the slowdown in the sector and the tightening of retail inventories.
Still, Jefferies's team said they “still see value” in Coty stock at 9x enterprise value (EV) to EBITDA, reiterating a Buy rating.