August 22, 2017 / 10:52 AM / a year ago

Coty says some of its P&G brands to stay under pressure until 2018

(Reuters) - Coty Inc (COTY.N) reported a surprise quarterly loss and warned that it expected retailers to reduce stocking some of the beauty products the company acquired from Procter & Gamble Co (PG.N) until the second half of 2018. Shares of the U.S. beauty products maker fell 13 percent to $17 in afternoon trading on Tuesday.

Models gather at a trading post on the floor of the New York Stock Exchange for the IPO of Coty Inc., June 13, 2013. REUTERS/Brendan McDermid/File Photo

Retailers have been limiting shelf space for brands such as CoverGirl and Clairol, which Coty acquired from P&G in 2016, and instead have been stocking up on trendy brands such as NYX and ELF.

“Shelf space loss has been an issue that we faced in the fourth quarter and it will continue to impact us until the second half of fiscal 2018,” Chief Executive Camillo Pane told Reuters.

Coty’s consumer beauty unit, which is a key revenue contributor and houses CoverGirl and Clairol, reported a 10 percent decline in organic sales, which excludes currency fluctuations and acquisitions.

“The P&G deal is a big question mark,” said Rosie Edwards, London-based analyst at research firm Berenberg.

There are concerns whether the likes of Clairol and Max Factor can compete in the color cosmetics and haircare businesses that have disruptive brands like L’Oreal and ELF Cosmetics, she said.

Coty reported an adjusted net loss of $3.4 million due to “materially” higher marketing spend for the launch of fragrances such as Gucci Bloom and Hugo Boss Tonic, and higher fixed costs related to the acquisition of P&G’s brands.

The company reported break even on a per share basis compared with analysts’ estimates of a profit of 9 cents per share.

“We are rapidly working to address (fixed costs)... Our cost base is not where it should be and we are highly focused on this issue as a key initiative for fiscal 2018,” Pane said in a statement.

Coty’s costs rose to 53.1 percent of sales in the quarter, from 46.6 percent, a year earlier.

The company’s results were in contrast to rival Estee Lauder (EL.N), which last week posted a better-than-expected quarterly profit as its makeup segment did well.

Coty’s quarterly revenue rose 5 percent to $2.24 billion on an adjusted constant currency basis, helped by its increased marketing efforts on its luxury brands such as Gucci Bloom and Hugo Boss Tonic.

Analysts on average had expected the company to post revenue of $2.16 billion, according to Thomson Reuters I/B/E/S.

Reporting by Gayathree Ganesan and Vibhuti Sharma in Bengaluru; Editing by Sriraj Kalluvila and Arun Koyyur

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