Coty Shares Tumble
Cosmetics maker Coty Inc. will take a $3 billion write down — about a third of its market capitalization — as its aging mass-market brands face new competition from savvy upstarts in the booming beauty industry.
The company, under pressure to turn its business around as revenues stagnate, laid out the first steps of a turnaround plan Monday intended to revive margins, reduce leverage and better keep up with its rivals. Coty — which acknowledged a stunning 60% of its brands are “margin dilutive” — plans to simplify its management structure and concentrate on a fewer number of product lines. It didn’t specify which — if any — brands might be on the chopping block.
Many women have shifted to higher-end and niche brands, and increasingly buy beauty products from online startups or outlets like Sephora and Ulta Beauty. Fighting back, CVS and Walgreens have looked to expand their selection while paring mass-market beauty names. The shift has meant sales declines for many once-popular brands, including Revlon Inc. Namesake line and L’Oréal SA’s Maybelline.
Consumers are being wooed by social-media-driven brands like Glossier, a skincare and makeup line that emphasizes a natural look, and celebrity founders, such as reality-TV star Kylie Jenner’s Kylie Cosmetics. “Clearly we are under performing, we want to close the performance gap,” Coty Chief Executive Pierre Laubies said in an interview. While mass-market beauty brands as a whole are declining due to shifting consumer habits, Mr. Laubies said the bigger issue for Coty are the years of brand neglect and mishandling. “Our performance is much lower” than the overall market, he said.
Coty entered the deal with P&G with the idea that the addition of more than 40 brands, including Wella shampoos and Clairol hair dyes, would enable it to better compete against other conglomerates. But while its luxury and professional divisions have performed solidly, the company’s consumer beauty unit, which accounts for nearly half of its roughly $9 billion annual revenue, has slumped.