<\/p>\n
By Alexander Marrow and Dominique Patton<\/p>\n
LONDON\/PARIS (Reuters) -Ageing brands and declining sales could make Coty’s makeup business a hard sell, raising the prospect of piecemeal deals or lower than expected proceeds that might complicate the group’s plans to cut debt and invest in growth.<\/p>\n
Coty said on Tuesday it had launched a review of its mass-market Consumer Beauty business, a prelude to a possible sale or spinoff of some brands in a bid to cut debt, reverse shrinking cash flow, and focus on more profitable fragrances.<\/p>\n
The business, home to the CoverGirl and Rimmel brands, generates around $1.2 billion in annual revenues, but has been losing market share to competitors with faster innovation cycles and more accessible price points.<\/p>\n
WHO COULD BUY COTY’S CONSUMER BEAUTY BRANDS?<\/p>\n
“It’s hard for these brands because they don’t look new to today’s consumers. And newness is important, especially in colour cosmetics,” said Morningstar analyst Dan Su.<\/p>\n
Barclays analysts described the division as a “tough asset to sell”. They said it could be worth anywhere between $690 million and $950 million.<\/p>\n
Buyers this year have shown strong interest in smaller, fast-growing brands like Hailey Bieber’s makeup and skincare line Rhode, snapped up by retailer Elf Beauty for $1 billion, and the vitamin A-based skincare business Medik8 bought by L’Oreal for an estimated $1 billion.<\/p>\n
Buyout firms could look at the division, much as private equity house KKR bought a majority stake in Coty’s professional and retail haircare business, Wella, in 2020.<\/p>\n
“I expect piecemeal deals rather than a one-shot sale,” Michael Ashley Schulman, partner and CIO at Running Point Capital Advisors, naming private equity firms Permira and L Catterton among possible suitors.<\/p>\n
Coty said it did not comment on speculation. L Catterton declined to comment. Permira did not immediately respond to a request for comment.<\/p>\n
Coty’s Consumer Beauty business reported an 8% drop in sales in the year ended June 30. Morningstar analysts expect another high-single-digit percentage decline this financial year, as it struggles to compete with social media influencers launching their own brands and selling on fast-growing online channels.<\/p>\n
Coty’s in-house manufacturing has made it slower to innovate when compared to firms like Elf that use third-party producers, resulting in market share that is slipping over time, said Bank of America analyst Anna Lizzul.<\/p>\n
“It’s a melting iceberg situation,” she said.<\/p>\n
COTY CAME LATE TO SHIFTING FRAGRANCE TRENDS<\/p>\n<\/p><\/div>\n
Coty became a beauty industry giant after buying Procter & Gamble’s perfume, hair care and makeup businesses for $12.5 billion in 2015. After divesting from hair and now possibly consumer cosmetics, fragrance will be its primary focus.<\/p>\n
Its newly combined fragrance division accounts for 69% of Coty’s sales and, with categories growing between 2% and 9%, is performing far better than Coty’s consumer cosmetics.<\/p>\n
But it relies heavily on licences, and about 14% of them are due to expire in the next three-and-a-half years, said BofA.<\/p>\n
The blockbuster licence for Gucci fragrances, which analysts believe runs until 2028, brings in about $500 million a year, BofA estimates – almost double Coty’s free cash flow of $277.6 million in its last financial year.<\/p>\n
Selling the makeup business could bring in money for what some analysts think is much-needed investment.<\/p>\n
“It would have probably helped to do this strategic review 10 years ago,” said Alfonso Emanuele de Leon, a beauty industry veteran and partner at FA Hong Kong Consultancy. “Most importantly, when it was getting clear that the fragrance market was moving towards conceptual, experiential brands.”<\/p>\n
Top sector player L’Oreal has invested in niche Chinese fragrance brands To Summer and Documents, Estee Lauder in fellow Chinese brand Melt Season, and Spanish rival Puig acquired a majority stake in Sweden’s Byredo.<\/p>\n
Coty should have recognised that its fragrance segment was shrinking and made acquisitions too, Emanuele de Leon said.<\/p>\n
“They can still do it, it’s just going to be more expensive and maybe too late because the wave has already reached the shore.”<\/p>\n
(Reporting by Alexander Marrow and Dominique Patton; additional reporting by Abigail Summerville. Editing by Lisa Jucca and Mark Potter)<\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"
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