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High-margin luxury fragrances power Coty's profit beat; shares rise

(Reuters) - Coty Inc COTY.N reported quarterly profit above Wall Street expectations on Wednesday, helped by increased demand for its high-margin Hugo Boss, Burberry and Gucci fragrances, sending its shares up more than 17%.

FILE PHOTO: A trader works at the trading post that trades Coty Inc. on the floor of the New York Stock Exchange, June 13, 2013. REUTERS/Brendan McDermid/File Photo

The company has been doubling down on its skin care and fragrance products, rolling out new Tiffany fragrances and Gucci lipsticks, while spending more on marketing to stem falling sales.

The efforts lifted revenue at its luxury business by 4.4% in the first quarter. Adjusted gross margin expanded 160 basis points to 62%, above analysts’ expectation, also helped by cost controls.

Coty, which has an outstanding debt of $7.37 billion as of Sept.30, launched a restructuring plan in July after struggling to integrate brands including Max Factor and CoverGirl it bought from Procter & Gamble PG.N in 2016.

“Although we are still in the early stages of activating our plans, we are beginning to see some green shoots in our operational performance,” said Chief Executive Officer Pierre Laubies in a post-earnings conference call.

Excluding items, Coty earned 7 cents per share, while analysts were expecting 6 cents. It also reaffirmed its full-year profit forecast.

“Overall, stability appears to be returning to the story,” said Wells Fargo analyst Joe Lachky in a note.

However, sales at Coty’s consumer beauty business was impacted by weakness at its color cosmetics brand Younique. The company sold its 60% stake in the brand in September.

The company said it has seen “strong interest” from buyers for its professional beauty business that includes hair care brands such as Wella and Clairol as well as Brazilian operations.

Overall net revenue fell 4.4% to $1.94 billion, missing analysts’ average expectation of $1.97 billion, according to IBES data from Refinitiv.

Reporting by Praveen Paramasivam and Soundarya J in Bengaluru; Editing by Shinjini Ganguli