By Sharon Terlep
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 2, 2019).
Cosmetics maker Coty Inc. is taking a $3 billion write-down on
CoverGirl, Max Factor and other brands it acquired a few years ago,
becoming the latest consumer giant to reckon with mainstream labels
that are losing their grip on American shoppers.
The makeup and fragrance seller, which is controlled by European
investment firm JAB Ltd., has struggled with weak sales and
executive turnover. On Monday, the company said it will restructure
its operations and cut jobs to ease indigestion from brands Coty
bought in 2016 from Procter & Gamble Co.
Much as Kraft Heinz Co. is struggling as organic foods are
winning out over processed foods sold in the center of the
supermarket, Coty's mass-market brands are suffering as consumers
buy fewer cosmetics and skin-care products from drugstore
aisles.
Many women have shifted to higher-end and niche brands, and
increasingly buy beauty products from online startups or outlets
like Sephora and Ulta Beauty. Fighting back, CVS and Walgreens have
looked to expand their selection while paring mass-market beauty
names.
The shift has meant sales declines for many once-popular brands,
including Revlon Inc.'s namesake line and L'Oréal SA's
Maybelline.
Consumers are being wooed by social-media-driven brands like
Glossier, a skin-care and makeup line that emphasizes a natural
look, and celebrity founders, such as reality-TV star Kylie
Jenner's Kylie Cosmetics.
"Clearly we are under performing, we want to close the
performance gap," Coty Chief Executive Pierre Laubies said in an
interview. While mass-market beauty brands as a whole are declining
due to shifting consumer habits, Mr. Laubies said the bigger issue
for Coty are the years of brand neglect and mishandling. "Our
performance is much lower" than the overall market, he said.
Coty entered the deal with P&G with the idea that the
addition of more than 40 brands, including Wella shampoos and
Clairol hair dyes, would enable it to better compete against other
conglomerates. But while its luxury and professional divisions have
performed solidly, the company's consumer beauty unit, which
accounts for nearly half of its roughly $9 billion annual revenue,
has slumped.
P&G held onto its higher-end beauty brands including SK-II
skin care and Olay moisturizers, whereas Coty executives have said
the P&G brands they bought were in worse shape than thought.
Earlier this year, Coty took a nearly $1 billion impairment charge
for the business.
Exacerbating the problem, Coty remained "too stuck" on meeting
financial targets set at the time of the P&G deal, and that
prevented the company from taking the necessary steps to shore up
the business, Mr. Laubies said.
Mr. Laubies, who took the helm last fall after the abrupt
departure of CEO Camillo Pane, said that despite the challenges he
believes the P&G acquisition was the right move for Coty in the
long run. Mr. Laubies previously ran European coffee company Jacobs
Douwe Egberts, which JAB also controls.
He said Coty needs to stanch losses and cut costs before it can
realistically focus on new products and growth. Immediate
priorities, he said, are cost cutting, reorganizing Coty's
corporate structure and improving brand performance at
retailers.
"Our goal right now is not to gain market share but to stop the
erosion, " Mr. Laubies said. In the near term the company will set
more-modest forecasts, he said. For the fiscal year started July 1,
the company now expects revenue to decline.
As part of its restructuring, Coty will move its management from
London to Amsterdam, which is closer to the company's main markets
and, amid Brexit, a "cost-efficient and tax-stable location."
The company didn't specify the number of jobs cuts, but finance
chief Pierre-André Terisse said they will reduce annual expenses by
about $200 million, or roughly 10% of Coty's fixed costs. The
company had about 20,000 full-time employees as of June 2018, prior
to announcing a restructuring program a couple of months later.
Coty said it expects to book $600 million in restructuring costs
over several years. On Monday, it struck a deal with creditors to
provide enough funding to carry out its plan to reduce staffing and
product offerings while reorganizing the business into distinct
geographic units.
Wells Fargo analyst Joe Lachky said the goals seem ambitious,
adding, "Coty remains a long-term turnaround story and we note that
turnarounds never happen in a straight line."
JAB has run Coty since buying a perfume business from Pfizer
Inc. in 1992. The firm moved in February to boost its Coty stake to
60% from 40% by offering to buy $1.75 billion in additional shares.
The move came after Coty shares had fallen sharply over the
previous year.
JAB has become a consumer-goods powerhouse after a string of
acquisitions that gave it brands like Keurig Dr Pepper, Krispy
Kreme and Pret a Manger. But Coty's purchase of the P&G brands
has been problematic; in addition to switching CEOs, a senior JAB
partner resigned as Coty's chairman last year.
Write to Sharon Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
July 02, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Procter and Gamble (NYSE:PG)
Historical Stock Chart
From Aug 2024 to Sep 2024
Procter and Gamble (NYSE:PG)
Historical Stock Chart
From Sep 2023 to Sep 2024