Coty lifts profit forecast as luxury shoppers seek cosmetics, fragrances

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(Reuters) -Coty Inc raised its annual profit forecast for the second time and beat quarterly revenue and earnings estimates, buoyed by the CoverGirl parent’s price hikes and steady demand for its high-end and affordable cosmetics and fragrances.

Shares of Coty (NYSE:COTY), which is planning for a dual listing in Paris, climbed about 2% in premarket trading.

The results reflect the recent trend of luxury shoppers indulging in lipsticks and fragrances even as they shun high-end purchases amid rising interest rates and product prices.

Coty signaled that retailers were restocking after keeping a tight leash on inventories in the previous quarters.

“Our retailers are now rebuilding and reordering. At the end of the third quarter, the level of inventory was very healthy,” Chief Financial Officer Laurent Mercier told Reuters.

Coty said a post-pandemic recovery in travel retail extended into the quarter. The segment is an area of focus for luxury companies where customers snap-up products from duty-free stores at airports and major shopping districts like Hainan in China.

The company’s prestige division, home to cosmetics and fragrances from the Hugo Boss, Gucci and Burberry brands, reported a jump of more than 30% in global travel retail sales across all regions.

In contrast, peer Estee Lauder (NYSE:EL) forecast weaker sales and profit last week, blaming slow recovery in travel retail, especially in Asia.

Coty is also seeing sturdy demand from Gen Z consumers, who are splurging on both luxury brands as well as relatively more affordable products like Rimmel cosmetics, Mercier said.

The company has been increasing prices of its products to ease the pressure on margins from sky-high commodity and shipping costs.

Coty raised its 2023 adjusted per-share profit expectations to between 38 cents and 39 cents, from 35 cents to 36 cents earlier.

Third-quarter revenue rose 9% to $1.29 billion, topping Refinitiv estimates of $1.22 billion, while adjusted profit of 19 cents per share crushed expectations of 3 cents per share.