Slowed Sales Forecasts Cause Coty Shares to Fall

The cosmetics manufacturer Coty, known for brands such as Max Factor, Covergirl, and Lancaster, has warned investors of an expected slowdown in sales growth in the second quarter. This announcement reflects concerns raised by other companies regarding a global slowdown in beauty market growth. Since the beginning of the year, Coty's shares have already lost more than 26% in value. The U.S. market, in particular, shows weaker demand, prompting retailers to reduce their inventories. In the first fiscal quarter, ending September 30, the company expects sales growth of 4 to 5%, while the market had anticipated 6%. Despite the current challenges, Coty plans to regain momentum in the second half of the year through new product launches and targeted distribution expansions. However, EBITDA in the first quarter is expected to stagnate or slightly decrease due to investments in higher ROI initiatives and the divestiture of the Lacoste license. On a positive note, the strong gross margin expansion exceeded analysts' expectations. Even though the sales expectations for the full year have been slightly lowered, Coty is maintaining its EBITDA growth target of 9-11%. Cost reduction measures are intended to support this. According to an analysis by Jefferies, investors are unsurprised by the weakness in the mass market. Nonetheless, analysts still see potential in Coty shares and recommend a buy due to an attractive enterprise value relative to EBITDA.