On Wednesday, Deutsche Bank adjusted its outlook for Coty Inc . (NYSE:COTY), reducing the price target to $12.00 from the previous $14.00 while maintaining a Buy rating on the stock. The adjustment follows Coty's pre-announcement of weaker fiscal first-quarter 2025 results, which showed like-for-like (LFL) sales growth of approximately 4%-5%, falling short of the anticipated 6%. This slowdown was attributed to reduced demand and retailer destocking.
Coty now expects only moderate LFL sales growth in the second quarter of fiscal year 2025, with hopes for a pickup in the second half of the year. This anticipated reacceleration is supported by factors such as easier year-over-year comparisons, new product introductions, selected distribution expansions, and a realignment of company sell-in with retailer sell-out.
Despite the softer first-quarter performance, Coty projects that adjusted EBITDA will be roughly flat to moderately lower, even with continued gross margin progress. The company anticipates EBITDA growth to resume in the second quarter and to further accelerate in the second half of the year. Coty is also expecting to exceed its original cost savings target of $75 million for fiscal year 2025, which should contribute to financial improvements as the year progresses.
In response to the updated guidance, Coty's stock experienced a downturn, dropping 10.8% on Wednesday, contrasting with a 0.6% rise in the Consumer Staples Select Sector SPDR Fund (XLP) and a 0.8% decline in the S&P 500 index. Following the company's announcement, Deutsche Bank analysts met with Coty's CEO Sue Nabi and CFO Laurent Mercier at the opening of the La Maison Orveda boutique in New York.
After the meeting, the analysts expressed confidence in Coty's ability to meet the lower end of its full-year EBITDA targets, despite adopting a cautious stance on the company's top-line momentum going into the second quarter and second half of the year. The analysts believe that the first-quarter and first-half headwinds are more reflective of retailer dynamics than a deterioration in end-market demand, especially within the Prestige segment.
In other recent news, Coty Inc. reported a 4-5% like-for-like sales growth for the first quarter of fiscal year 2025, falling short of the projected 6%. The company's EBITDA for the same period is expected to remain flat or slightly lower year-over-year.
Despite these figures, Coty maintains its full-year adjusted EBITDA growth projections at 9%-11%. Analyst firms DA Davidson, Stifel, and JPMorgan have responded by reducing their price targets for Coty, while maintaining a Buy, Hold, and Neutral rating respectively.
RBC Capital, Canaccord Genuity, and Jefferies have maintained their positive outlooks, with Jefferies upgrading Coty to a Buy rating, citing the company's strong position in the premium fragrance market. Coty has also announced the formation of its first Scientific Advisory Board to guide skincare research and development.
InvestingPro Insights
Recent InvestingPro data provides additional context to Coty's current situation. The company's market capitalization stands at $7.1 billion, with a P/E ratio of 93.74, indicating a high valuation relative to earnings. This aligns with the InvestingPro Tip that Coty is "trading at a high earnings multiple."
Despite the recent challenges, Coty has shown some positive financial indicators. The company's revenue for the last twelve months reached $6.118 billion, with a revenue growth of 10.15%. More importantly, Coty boasts an impressive gross profit margin of 64.39%, which supports the InvestingPro Tip highlighting "impressive gross profit margins."
However, investors should note that Coty's stock has faced significant pressure recently. The InvestingPro data shows a 19.25% price decline over the past three months, corroborating the tip that the "stock price has fallen significantly over the last three months." This decline aligns with the recent downward revision of Deutsche Bank's price target and the company's pre-announcement of weaker fiscal first-quarter results.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Coty, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.