Coty Reports Q2 Earnings Above Street View; Says January Sales Growth Trends Accelerated Sequentially

Coty Inc COTY reported a second-quarter FY23 sales decline of 3% year-on-year to $1.52 billion, beating the consensus of $1.50 billion.
Like-For-Like (LFL) revenue increased 4% Y/Y, driven by a 3% increase in Prestige and a 6% increase in Consumer Beauty.
Revenue in the Americas rose 6% Y/Y, EMEA decreased 10%, and Asia-Pacific dropped 5%.
Gross margin expanded 110 basis points Y/Y to 65.5%, and the gross profit fell to $998.3 million.
Adjusted operating margin was 17.2%, and the adjusted operating income increased 11% to $261.4 million.
Adjusted EBITDA of $317.6 million increased 2% Y/Y, resulting in an adjusted EBITDA margin of 20.8%, 100 basis points expansion versus 2Q22.
Adjusted EPS was $0.22, beating the analyst consensus of $0.15.
Cash from operating activities for Q2 totaled $482.2 million, with a free cash flow of $455 million. The company held $280.8 million in cash and equivalents as of Dec. 31, 2022.
The company's financial net debt as of Dec. 31, 2022, totaled $3.9 billion.
The company said component shortages which limited its Prestige fragrance growth in Q2, have begun to ease. The combination of improved service levels and ongoing strength in beauty consumption is driving a sequential acceleration in Coty's January sales growth.
Outlook: Coty raised FY23 adjusted EPS outlook from $0.32 - $0.33 to $0.35 - $0.36 versus the $0.32 estimate.
The company expects adjusted EPS growth of 20% in FY24 and beyond, fueled by lower interest expenses.
It continues to target FY23 adjusted EBITDA of $955 million - $965 million.
Coty continues to expect FY23 revenues for the core business, adjusting for the impact of the Russia exit, to grow 6-8% LFL.
Coty continues to expect modest gross margin expansion in FY23, despite the elevated inflationary environment.
Price Action: COTY shares are trading lower by 2.32% at $10.11 on the last check Wednesday.

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