Coty results beat on strong beauty demand, more price hikes in store

Coty Inc's fragrances and cosmetics enjoyed strong demand in the first quarter, helping it surpass Wall Street targets despite pressure from a strong U.S. dollar and the company's exit from Russia.

Consumers heading out more after lockdowns are indulging in smaller luxuries such as makeup and perfumes even as they put off bigger purchases because of rising inflation and risks of a recession.

The Hugo Boss perfume maker will also increase prices further, by mid-single digits around winter, as it combats higher freight and labor costs.

Coty's prestige division, home to cosmetics and fragrances from the Calvin Klein and Gucci brands, saw revenue fall 1% due to macroeconomic headwinds. But Chief Executive Officer Sue Nabi told Reuters that the company does not "see any slowdown or trading down in the prestige division."

In fact, consumers are trading up from lower-priced consumer beauty labels to prestige, she said.

"Coty is seeing strong consumer demand and may remain strong in the coming months ... as beauty products tend to be a more pocket-friendly way to boost confidence," said Kunal Sawhney, CEO of equity research firm Kalkine Group.

European peer L'Oreal had also reported strong third-quarter sales growth. China's zero-Covid policy impacted Estee Lauder, prompting it to slash annual forecasts, but Coty's smaller exposure to that market has helped it shield itself.

The beauty category is "more resilient than ever", Nabi said, as Coty also reiterated its annual profit forecast.

Supply constraints are keeping it from meeting strong demand though, especially in the fragrance segment, the company said. Shares remained flat at $6.98.

Excluding items, Coty earned 15 cents per share in the quarter ended Sept. 30, surpassing estimates of 11 cents, according to IBES data from Refinitiv.

Net revenue rose 1% to $1.39 billion, slightly above estimates.