February 8, 2019 / 11:59 AM / a year ago

Coty rebounds, sees profit in second half; shares surge

(Reuters) - Cosmetics and perfume maker Coty Inc said on Friday it expected to post a profit in the second half of fiscal 2019 as it reported holiday-quarter revenue and adjusted earnings that beat Wall Street estimates, sending its shares up 29 percent.

Coty has been hit by supply chain issues caused by hurricanes, trucker strikes and component shortages, while struggling with integrating its distribution centers in Europe and the United States after it acquired about 40 beauty brands from Procter & Gamble in 2016.

The company still has low visibility into some supply chain problems, Chief Financial Officer Pierre-André Terisse said on a post-earnings call.

Coty expects those disruptions to impact revenue by about $150 million and profit by about $90 million in the first half of 2019.

Recently appointed Chief Executive Officer Pierre Laubies said he was evaluating each part of the company and would focus on improving gross margins, as Coty seeks to get beyond the disruptions and minimize the pressure on profits.

“Gross margin is the lifeblood of the business and we recognize that we must close the gap we have here versus our beauty peers,” he said in a statement.

To improve its track record of posting just one quarterly net profit in the past two years, the Covergirl maker said it would look at managing costs better, simplify its line of products and push a leaner manufacturing and logistics process.

For the holiday quarter, Coty proved it was moving in the right direction as it reported an adjusted gross margin of 62.1, up 50 basis points, as more customers bought pricier Gucci, Marc Jacobs and Burberry perfumes as well as salon cosmetics.

Overall net revenue fell 4.8 percent to $2.51 billion in the holiday second quarter, but beat expectations of $2.47 billion, according to Refinitiv’s IBES.

Expectations were low going into the quarter with analysts reassessing their sales expectations downward by 3 percent ahead of the results.

“We think Coty shares were embedding a worst-case scenario coming into second-quarter results,” Stifel analyst Mark Astrachan said, cautioning that results still remain challenged due to high debt levels and uneven cash flows.

Excluding certain items, the company earned 24 cents per share, topping expectations of 22 cents.

Shares of the company, which have fallen about 60 percent in the past 12 months, rose $2.03 to $9.09 in morning trade.

Reporting by Jaslein Mahil in Bengaluru; Editing by Maju Samuel

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