Coty Inc. COTY announced partnership with one of the most influential celebrity with nearly 300 million followers on social media platforms—Kim Kardashian West. Per the deal, Coty will buy a 20% ownership stake in Kim Kardashian’s beauty business for $200 million. The partnership is aimed at introducing new beauty categories and expanding into new product lines for the beauty business. The agreement is expected to be closed in third-quarter fiscal 2021.
Per the agreement, Coty will focus on developing new products for the beauty business in skincare, personal care, hair care as well as nail categories. Meanwhile, Kim Kardashian and her team will assume creative responsibilities like product as well as communications initiatives. The products will be sold via renowned luxury beauty retailers as well as various online channels. Following this announcement, shares of Coty were up 13.4% on Jun 29.
Coty has been making several strategic acquisitions to enhance its brand portfolio. In this regard, the company acquired a 51% stake in King Kylie this January and entered into a deal to produce, promote, distribute and sell certain products of King Kylie. In the second quarter of fiscal 2018, the company acquired the iconic Burberry brand, which is yielding favorably. The acquisition has been supporting growth in the Luxury segment.
Other instances in this regard include the buyout of Good Hair Day or ghd, which has been aiding Coty’s Professional Beauty segment, courtesy of a solid e-commerce business. Additionally, the company’s buyout of Procter & Gamble Company’s global fine fragrances, salon professional, cosmetics and retail hair color businesses along with select hair styling brands (the P&G Beauty Business) has been yielding favorable results for quite some time.
Coty is gaining from a solid e-commerce business. In fact, the company’s online sales increased across all segments in third-quarter fiscal 2020. In Americas and EMEA, e-commerce sales were particularly strong for the mass business. Even APAC and Professional segments saw e-commerce growth amid the coronavirus pandemic. Such trends along with a continued focus on strategic partnerships bode well.
However, coronavirus-led concerns put pressure on Coty’s third-quarter fiscal 2020 results. During the quarter, results were hurt by soft revenues, reduced gross margin, currency headwinds and escalated fixed costs. Revenues were hampered by weakness across all segments and channels, stemming from coronavirus-led concerns like salon closures, retail store closures and receding traffic at the stores that were open in March. Moreover, restricted air travel is a blow to the travel retail network. Markedly, this Zacks Rank #4 (Sell) stock has lost 12.4% in the past three months against the industry’s growth of 13%.
All said, the recent partnership with Kim Kardashian is likely to strengthen Coty’s portfolio and boost performance.
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