COTY Coty Inc

By Sharon Terlep 

Nearly two years after Coty Inc. paid $12 billion to acquire Procter & Gamble Co.'s beauty business, the deal remains a drag on the struggling beauty giant.

Weak performance of former P&G brands, including names like CoverGirl makeup and Clairol hair dye, drove down sales in the most recent quarter, Coty said Tuesday. A trucker strike in Brazil also contributed to a loss of $181.3 million, or 24 cents a share, compared with a loss of $304.8 million a year ago.

Separately, the company announced the resignation of Finance Chief Patrice de Talhouet, in the job since 2014, saying he left "to pursue other opportunities."

Coty shares fell 9.8% to $11.19 in midday trading and have lost more than half their value since the P&G deal closed in October 2016.

Coty CEO Camillo Pane blamed problems with the former P&G business on the drawn-out acquisition -- the deal took 16 months to close after being announced -- and said the brands were in worse condition than Coty anticipated when it agreed to buy them.

But he also said more universal factors are at play. Shoppers have cooled on mass-market beauty brands sold at drugstores and big-box retailers, while demand for premium beauty products has soared in the past year.

Estée Lauder Cos., with high-end names from MAC to Bobbi Brown to Clinique, on Monday reported a 12% increase in sales, not including currency moves. The company's stock is up nearly 30% from a year ago.

Coty reported 0.3% organic sales growth for the period ended June 30, stripping out currency changes, acquisitions and divestitures. Organic sales rose 5.3% in Coty's luxury segment while professional beauty was up 2.1%. Consumer beauty, which comprises about half the company's sales and includes mass-market makeup brands like CoverGirl, fell 3.4% in the quarter.

"E-commerce is slowing traffic and consumers are looking for more of an experience. You see a trade-up to prestige and specialty," Mr. Pane said in an interview. "This is something I'm not sure people were expecting, but it is the reality."

He said Coty is spending money to grow in more promising areas, such as online sales, emerging markets and in direct-to-consumer sales, which it entered last year with the acquisition of social-media-driven cosmetics company Younique LLC.

Analysts, on a call with Coty executives, pressed the company to address continued problems.

Jonathan Patrick, of Feeney Consumer Edge Research, noted on the call that Coty has been "negatively surprised by the evolution of the business."

Mr. Pane said Coty won't sell any of the struggling big P&G brands and that he believes the deal will prove beneficial over the long term. CoverGirl, one of the biggest U.S. mass beauty brands, has "a lot of problems," but also is improving, he said. CoverGirl sales fell by mid-single-digit percentage points in the recent period, down from double-digit percentage declines in previous years.

Write to Sharon Terlep at sharon.terlep@wsj.com

(END) Dow Jones Newswires

August 21, 2018 13:23 ET (17:23 GMT)

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