Beauty products company Coty (NYSE:COTY) missed analysts’ expectations in Q2 CY2024, with revenue flat year on year at $1.36 billion. It made a non-GAAP loss of $0.03 per share, down from its profit of $0.01 per share in the same quarter last year.

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Coty (COTY) Q2 CY2024 Highlights:
Revenue: $1.36 billion vs analyst estimates of $1.38 billion (small miss)
EPS (non-GAAP): -$0.03 vs analyst estimates of $0.04 (-$0.07 miss)
EPS (non-GAAP) guidance for the upcoming financial year 2025 is $0.55 at the midpoint, missing analyst estimates by 2.8%
EBITDA guidance for the upcoming financial year 2025 is $1.20 billion at the midpoint, above analyst estimates of $1.18 billion
Gross Margin (GAAP): 64.2%, up from 62.9% in the same quarter last year
EBITDA Margin: 12.1%, in line with the same quarter last year
Free Cash Flow Margin: 8.6%, up from 2.8% in the same quarter last year
Market Capitalization: $8.24 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 9.7% over the last three years was decent for a consumer staples business.

This quarter, Coty’s revenue grew 0.9% year on year to $1.36 billion, falling short of Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 5.6% over the next 12 months, an acceleration 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 has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.6% over the last two years, slightly better than the broader consumer staples sector.

Taking a step back, we can see that Coty’s margin dropped by 1.2 percentage points during that time. Coty’s two-year free cash flow profile was compelling, but shareholders are surely hoping for its trend to reverse.

Coty’s free cash flow clocked in at $116.7 million in Q2, equivalent to a 8.6% margin. This quarter’s result was good as its margin was 5.7 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Key Takeaways from Coty’s Q2 Results

It was encouraging to see Coty slightly top analysts’ gross margin expectations this quarter. On the other hand, its EPS and its full-year earnings guidance missed Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $9.50 immediately following the results.

Coty may have had a tough quarter, but does that actually create an opportunity to invest 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.