COTY COTY INC.
Sector financial performance:
This company, primarily a manufacturer (or third party), marketer, and distributor of fragrance, color cosmetics, skin& body care and hair solon (owned brands and licensed brands), has been grouped into cosmetics& perfumes sector in personal care industry.
It seems that demand, from retail distribution channels, for cosmetic, perfume, or skin& hair care products of companies in this sector in US market has been weak since 2015. This has been reflected by the decreasing sales volumes among most of those companies (-3-1% of annual growth rate) during this period. International market seems to have had a better performance than US market.
The downward trend in US market seems also related to the slowing down shopping mall traffics. And this may be the reason why higher price products performed better. And it seems that it may be helpful in improving sales performance of companies as they give more focus on e-commerce sales. Unfavourable industrial retail environment may probably be behind the increasingly consolidation activities in this sector.
Sales pressure resulted in increasing pressure on price and the intensive promotions obviously hurt margin of companies in this sector. We have seen a slight declining in typical companies ‘gross margin (about 59% in 2017) and the larger spending in SG&A including promotion (typical SG&A as percentage of sales is about 53% in 2017). Therefore, the typical operating margin went down to about 7% from about 12% since 2014.
The typical average stock price/sales ratio is about 1.5.
It seems that the demand for products of this company has been weak in the past three years as indicated by continuingly decreased unit volume sales. However, after entering into 2017 the downturn in sales volume seems to be turning over as the negative growth slowed down.
The six months ended Dec 31, 2017 compared with the same period of 2016
Organic sales (excluding currency and acquisition) increased 1% primarily due to increase of 2% in price and mix offset by decrease of 1% in unit volume.
The fiscal 2017 compared with 2016
Organic sales (excluding currency and acquisition) decreased 7% primarily due to decrease of 4% in price and mix and decrease of 3% in unit volume.
Fiscal 2016 compared with 2015
Organic sales (excluding currency and acquisition) decreased 1% primarily due to decrease of 5% in unit volume offset by increase of 4% in price and mix and
Its gross margin (including depreciation and amortization) has decreased from around 58% in 2014 down to about 57% of 2017 due to acquisition. Its operating margin thus decreased to about 3% in 2017 from 11% of 2014 due to largely increased SG&A as percentage of sales due to increase in administration and selling expenses as a result of acquisition.
This stock currently has a stock price/sales ratio of 1.5. We think that its stock is being relatively overvalued considering the declining sales volume and uncertainty in profitability.
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