Struggling Beauty Giant Coty to Restructure Operations -- Update
July 01 2019 - 10:19AM
Dow Jones News
By Sharon Terlep
Cosmetics and fragrance giant Coty Inc. said it would
restructure its operations and take a $3 billion write-down on the
multibillion-dollar beauty business it acquired nearly three years
ago from Procter & Gamble Co.
Coty, whose products include OPI nail polish and CoverGirl
makeup, said Monday it struck a deal with creditors to provide
enough funding to carry out a restructuring plan that will downsize
staffing and product offerings while reorganizing the business into
distinct geographic units.
The company, which is controlled by European investment firm JAB
Ltd., has struggled with weak sales and executive turnover. Coty
expects to book $600 million in restructuring costs over several
years but didn't say how many jobs would be affected.
"Clearly we are under performing, we want to close the
performance gap." Coty CEO Pierre Laubies said in an interview.
"The way to turn around is to start quickly and build
progressively."
As part of the plan, Coty will move its management to Amsterdam
from London, which is closer to the company's main markets and a,
"cost efficient and tax stable location," Coty said in a
statement.
Job cuts will reduce costs by about $200 million a year,
representing roughly 10% of Coty's fixed costs, Chief Financial
Officer Pierre-André Terisse said. As of June 2018, Coty had about
20,000 full-time employees though it announced a restructuring
program in August 2018.
Coty has been weighed down by the $12 billion purchase in 2016
of P&G beauty brands. The company has said the brands were in
worse shape than Coty anticipated when agreeing to the deal and
have continued to decline as consumers shift away from mass-market
brands sold in drugstores.
The merger, completed in 2016, gave Coty more than 40 brands
from P&G like CoverGirl, Max Factor and Clairol to better
compete against other conglomerates.
Mr. Laubies said that despite the challenges he believes the
P&G acquisition was the right move for Coty in the long
run.
While Coty's luxury and professional divisions have performed
solidly, the consumer beauty unit, which comprised nearly half of
Coty's revenue, has continued to decline. Camillo Pane resigned
abruptly last fall as chief executive and was replaced by Mr.
Laubies, who previously ran European coffee company Jacobs Douwe
Egberts.
Mr. Laubies said Coty needs to stop losses and cut costs before
it can realistically focus on new products and growth. Immediate
priorities, he said, are cost cutting, reorganizing the company's
corporate structure and improving Coty brands' performance at
retailers.
"Our goal right now is not to gain market share but to stop the
erosion, " he said. In the near term the company will set more
modest forecasts, he said.
While Coty's mass-market brands have suffered as consumers shift
toward higher-end and niche brands, years of neglect and
mishandling have been bigger issues, Mr. Laubies said. "Our
performance is much lower" than the overall market, he said.
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 sold by 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 additional shares.
The move came after Coty shares had fallen sharply over the
previous year.
While 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, 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 01, 2019 10:04 ET (14:04 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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