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By
Reuters
Published
Nov 7, 2018
Reading time
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Coty shares plunge 22 percent as supply-chain problems mount

By
Reuters
Published
Nov 7, 2018

Coty Inc  shares slumped 22 percent on Wednesday as the CoverGirl cosmetics maker faced unprecedented supply chain disruptions in the United States and Europe that led to a steeper-than-expected drop in its first quarter sales.



The company has been grappling with supply chain disruptions related to the streamlining of its distribution centers in Europe and the United States, after its acquisition of about 40 beauty brands from Procter & Gamble in 2016.

Added to that, the company struggled with shortages of packaging products at its key suppliers and Hurricane Florence that interrupted shipping to retailers in the quarter.

However, the company expects to fully recover the hurricane-disrupted product shipments in the holiday shopping season during the second quarter.

Supply chain problems cost the company $60 million in the first quarter alone, way above Coty’s estimate of $50 million for the full year.

The New York-based company also said it did not expect to fully recover the financial impact of first quarter during the remaining part of the fiscal year, which ends in June 2019.

“We are very disappointed with the supply chain disruptions that we have experienced over the last quarter and the resulting poor Q1 financial performance,” Chief Executive Officer Camillo Pane said.

Sales in Europe, its biggest market, fell 10 percent in the quarter, while the hurricane caused a 14 percent drop in North America.

Coty’s consumer beauty segment that includes brands such as Rimmel and Max Factor, remained a sore spot for the company, falling nearly 21 percent, weighed down by increased competition, higher promotional offers and its ongoing problems with distribution.

“While sentiment was low, results were well below expectations,” Wells Fargo analyst Joe Lachky noted, adding that Coty’s ongoing execution issues and little visibility will weigh on the company.

Operating income at Coty’s luxury business segment that owns perfume brands from Gucci, Tiffany and Chloe, fell 14 percent in the quarter.

Net revenue fell 9.2 pct to $2.03 billion, missing analysts’ average estimate of $2.17 billion.

Net loss attributable to the company narrowed to $12.1 million in the first quarter ended Sept. 30.

Excluding items, Coty earned 11 cents, beating analysts’ estimate of 8 cents, according to IBES data from Refinitiv.

Coty shares fell 21.8 pct to a record low of $8.74 on Wednesday, adding to this year’s losses of about 44 percent.

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