Coty Inc.’s new executives discussed the many supply chain issues the beauty company still has to sort through in 2019, though they say many problems have been resolved.
“We firmly believe altogether that we have resolved the most critical supply chain integration issues, and we are confident that the disruption will be solved by year-end, with a much more moderate impact expected in the second half,” said Pierre-André Terisse, chief financial officer at Coty COTY, +32.15% , on the earnings call, according to FactSet.
Coty’s current CEO, Pierre Laubies, opened his comments by noting that he has been on the job for “fewer than three months” while Terisse has been CFO for a week.
“I must stress to you that while we are confident we can return Coty to a path for growth, we are also realistic that it will take some time,” Laubies said.
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In November 2018, former Chief Executive Camillo Paine said Coty would change its distribution center consolidation plan after posting a “bad” earnings report.
For the most recent quarter, Coty reported revenue of $2.51 billion, down from $2.64 billion last year, but ahead of the $2.47 billion FactSet consensus. The company had adjusted earnings of 24 cents per share, also ahead of the FactSet expectation for 22 cents per share.
The results sent shares soaring more than 32% in Friday trading. Coty brands include CoverGirl, Rimmel and fragrances from brands like Gucci and Hugo Boss.
“We now have significantly more visibility around these issues and we can confirm that the nearly $150 million of net revenues in the first half of full year 2019 represent the majority of the impact we expect for the year,” said Terisse.
While the company says it has made progress in sorting out issues in Germany and the U.K., with Terisse calling them a “sizeable headwind” for the luxury division in the most recent quarter, problems remain in the U.S. and abroad.
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“[W]e still have progress to make on the consolidation of the Professional Beauty distribution center in the U.S., which continues to negatively impact customer service, particularly for the OPI nail brands,” said Terisse. “We expect to stabilize OPI service level during the second half, and the teams are working hard on this as we speak with good progress.”
While the rally is a positive, “expectations were extremely low,” Wells Fargo analysts wrote.
“The lack of new surprises should warrant a relief rally and we expect shares to trade higher today.”
Wells Fargo rates Coty stock market perform.
Coty shares have sunk more than 53% over the past year while the S&P 500 index SPX, +0.07% has gained 5% for the period.