Coty Stock Down 42% in a Year: Can the Beauty Giant Recover in 2025?

Coty Inc. COTY has faced significant challenges in an evolving beauty market, which has led to a notable 42.7% drop in its share price over the past year. The beauty industry, which previously experienced exceptional growth, is now entering a more normalized phase, creating hurdles for Coty. The company is grappling with rising operational costs, poor performance in key international markets, such as China, and unfavorable currency fluctuations.Coty’s decline is steeper than the 39% drop in the industry and the 3.7% decrease in the broader Consumer Staples sector over the past year. In addition, the company’s stock has underperformed the S&P 500, which saw an increase of 24.4% during the same period. With these ongoing issues, investors are left questioning the company's future performance and whether it can turn things around.COTY’s Challenges in International MarketsThe macroeconomic environment remains challenging, with the exceptional beauty market growth of recent years transitioning into a more normalized phase. Amid these headwinds, Coty continues to face headwinds in markets like the Chinese mainland and Asia Travel Retail. In the first quarter of fiscal 2025, Coty’s Asia Pacific segment reported net revenues of $190.2 million, marking a 5% decline on a reported basis due to lower revenues in the Prestige segment and divestiture of the Lacoste license.On a like-for-like (LFL) basis, Asia Pacific net revenues declined by 5% in fiscal first-quarter. The region saw net revenue declines across the Prestige and Consumer Beauty divisions, driven by challenging market conditions in mainland China and the regional Travel Retail channel. Management continues to expect ongoing challenges in the Chinese mainland and Asia Travel Retail to persist in fiscal 2025. Our model suggests a decline of 1.2% in Asia Pacific LFL in fiscal 2025.COTY's Price PerformanceImage Source: Zacks Investment ResearchRising Costs Put Pressure on Coty’s MarginsOne of the key challenges Coty faces is the significant rise in its operational costs. The company’s fiscal first-quarter results reveal a rise in selling, general and administrative (SG&A) expenses, which came in at $808 million, up from $767.4 million reported in the year-ago quarter. As a percentage of net revenues, SG&A expenses came in at 48.3%, up from 46.8% reported in the year-ago quarter.The company’s advertising and consumer promotions (A&CP) spending reflected nearly 25% of sales for the fiscal first quarter, increasing 40 basis points year over year. Management anticipates its A&CP investment to remain at a high 20% level of sales in fiscal year 2025. A rise in such costs, if not controlled, might continue to dent the company’s margins and profitability in the upcoming quarters.Currency Fluctuations Add to Coty’s StrainAs a global company, Coty is vulnerable to fluctuations in foreign exchange rates, which can impact its revenues and profitability. The company’s first-quarter fiscal 2025 net revenues reflect a 1% adverse impact from unfavorable foreign currency exchange. The continuation of these headwinds remains a threat for Coty.Final Words on COTY StockWhile demand for beauty products remains strong, Coty’s ability to navigate through a slower growth phase, manage rising costs and overcome international market weaknesses is uncertain. Investors will need to monitor how effectively the company can address these challenges and whether it can regain its footing in an increasingly competitive market. At present, Coty carries a Zacks Rank #4 (Sell).Top Three PicksAbercrombie & Fitch Co. 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Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Abercrombie & Fitch Company (ANF): Free Stock Analysis Report The Gap, Inc. (GAP): Free Stock Analysis Report Helen of Troy Limited (HELE): Free Stock Analysis Report Coty (COTY): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks