On Tuesday, JPMorgan adjusted its outlook on Coty Inc . (NYSE:COTY) shares, a global beauty company, by reducing its price target to $10 from the previous $11 while maintaining a Neutral rating on the stock. This adjustment follows Coty's pre-announcement of its first-quarter fiscal year 2025 earnings, which was released after the market closed on Monday.
Coty's management has indicated that the company's like-for-like (LFL) global sales for the first quarter of fiscal year 2025 are projected to grow by 4-5%, which is below the previously provided guidance of +6% during the fourth-quarter fiscal year 2024 earnings report on August 20th. Moreover, the company now expects its EBITDA for the first quarter to be roughly flat or slightly lower year-over-year, contrasting with its initial guidance of a 7% to 9% increase for the first half of fiscal year 2025.
The company has observed a slowdown in the U.S. market growth during the latter part of the first quarter. Coty's management also noted challenges with tight order and inventory management by retailers, leading to a discrepancy where Coty's sell-in rates are tracking significantly below sell-out in several markets. This includes the United States as well as other regions such as Australia, China, and Travel Retail Asia, which each represent a low single-digit percentage of Coty's business.
The beauty categories have shown varying performance levels, with the global mass beauty segment experiencing a slowdown. In contrast, the prestige fragrance category continues to perform strongly, benefiting from both volume and price/mix improvements, according to the company's management.
In other recent news, Coty Inc. reported a 4-5% like-for-like sales growth for the first quarter of fiscal year 2025, missing the anticipated 6% growth. Analysts from Canaccord Genuity maintained a Buy rating on Coty, while Citi kept a Neutral rating. Despite this, Coty remains optimistic, reaffirming its full-year profit target. The company also announced the formation of its first Scientific Advisory Board to guide skincare research and development.
Jefferies upgraded Coty from Hold to Buy, citing its strong position in the premium fragrance market. Coty's fourth-quarter results showed a slight revenue increase of 0.9%, falling short of the estimated 1.8% growth, but adjusted EBITDA reached $164.5 million, surpassing their guidance. These are the recent developments that investors should be aware of.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Coty's financial situation, providing context to JPMorgan's adjusted outlook. Despite the reduced price target, Coty maintains impressive gross profit margins, with InvestingPro data showing a gross profit margin of 64.39% for the last twelve months as of Q4 2024. This strength in margins could potentially help buffer the company against the challenges highlighted in its recent pre-announcement.
However, investors should note that Coty is currently trading at a high earnings multiple, with a P/E ratio of 105.29. This valuation metric suggests that the market may be pricing in significant future growth expectations, which could be at odds with the company's recent downward revision of its near-term outlook.
InvestingPro Tips indicate that Coty's net income is expected to grow this year, and analysts predict the company will be profitable. These projections offer a glimmer of optimism amidst the current headwinds. For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide valuable insights into Coty's financial health and market position.
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