Coty's (NYSE:COTY) Q1 Sales Beat Estimates

Petr Huřťák /
2024/05/06 4:37 pm EDT

Beauty products company Coty (NYSE:COTY) beat analysts' expectations in Q1 CY2024, with revenue up 7.5% year on year to $1.39 billion. It made a non-GAAP profit of $0.05 per share, down from its profit of $0.19 per share in the same quarter last year.

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Coty (COTY) Q1 CY2024 Highlights:

  • Revenue: $1.39 billion vs analyst estimates of $1.37 billion (small beat)
  • EPS (non-GAAP): $0.05 vs analyst expectations of $0.06 (17% miss)
  • Full year EPS (non-GAAP) guidance: maintained from previous, $0.46 at the midpoint roughly in line with analyst expectations (although expected adjusted EBITDA margin increase is higher than previously expected)
  • Gross Margin (GAAP): 64.8%, up from 62.9% in the same quarter last year
  • Free Cash Flow was -$234.3 million, down from $363 million in the previous quarter
  • Market Capitalization: $10.38 billion

With a portfolio boasting many household brands, Coty (NYSE:COTY) is a beauty products powerhouse with offerings in cosmetics, fragrances, and skincare.

Personal Care

While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.

Sales Growth

Coty is larger than most consumer staples companies and benefits from economies of scale, giving it an edge over its smaller competitors.

As you can see below, the company's annualized revenue growth rate of 13.9% over the last three years was solid for a consumer staples business.

Coty Total Revenue

This quarter, Coty grew its revenue by 7.5% year on year, and its $1.39 billion in revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 4.3% over the next 12 months, a deceleration from this quarter.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Coty burned through $234.3 million of cash in Q1, representing a negative 16.9% free cash flow margin. The company reduced its cash burn by 31.3% year on year.

Coty Free Cash Flow Margin

Over the last two years, Coty has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 5.1%, slightly better than the broader consumer staples sector. Furthermore, its margin has been flat, showing that the company's cash flows are relatively stable.

Key Takeaways from Coty's Q1 Results

It was encouraging to see Coty narrowly top analysts' revenue and gross margin expectations this quarter. On the other hand, its operating margin missed analysts' expectations and its EPS missed Wall Street's estimates. The company raised its full year adjusted EBITDA margin expectations but maintained its previous EPS guidance. Overall, the results were mixed. The stock is up 2.9% after reporting and currently trades at $11.84 per share.

So should you invest in Coty right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.