Coty CFO Looks to Boost Margins by Shrinking Product Portfolio

The cosmetics company, which has been struggling to increase sales for years, also aims to improve its inventory forecasts

Coty has been struggling to boost sales since its 2016 acquisition of CoverGirl and other brands from Procter & Gamble.

Photo: John Minchillo/Associated Press

Coty Inc.’s finance chief Laurent Mercier is pruning the cosmetics company’s product portfolio, working to improve its forecasts and reducing inventory to increase profitability.

The New York-based company, whose executive offices are in Amsterdam, has been struggling to boost sales since its 2016 acquisition of various beauty brands just as consumers were shifting away from purchasing cosmetics at drugstores and opting for higher-end and niche brands.

Coty at the time bought CoverGirl, Max Factor and other beauty products and fragrances from Procter & Gamble Co.香蕉视频苹果下载 for roughly $12 billion. It reported net revenue of $1.03 billion for the quarter ended March 31, down 3.3% compared with the same period last year.

Mr. Mercier, who has been in the chief financial officer role since February, is focusing on finding $600 million in savings over three years—$300 million this fiscal year alone. Coty has gone through several leadership changes in recent years, including chief executive officers and CFOs. Sue Nabi, a former L’Oréal SA香蕉视频苹果下载 executive, is the current chief executive.

香蕉视频苹果下载“Improving the gross margin is essential,” Mr. Mercier said. “It is very detailed work, a question of discipline,” he said. Coty is combing through its portfolio and taking out products that don’t sell frequently or that have low margins. The company over the past year reduced the number of items in its consumer beauty business by about 40%, according to Mr. Mercier. Those items generated about 5% of net revenue, but the decline has been offset by other measures, he said.

Coty is up against a multitude of competitors, including well-managed businesses such as L’Oréal or Estée Lauder香蕉视频苹果下载 Cos., said Rebecca Scheuneman, an equity research analyst at Morningstar Inc.’s research division. “It is very prudent to eliminate these products that haven’t sold well,” Ms. Scheuneman said.

Coty CFO Laurent Mercier.

Photo: Coty Inc.

Estée Lauder reported net sales of $3.86 billion for the quarter ended March 31, up 16% compared with the prior year period. L’Oréal posted sales of €7.61 billion, equivalent to $9.30 billion for the quarter, up 5.4% from last year.

Coty’s Mr. Mercier said he is also taking a close look at the company’s promotions and at targeted price increases. “We are not doing promotions just to gain revenue,” he said. Another important piece is improving the company’s forecasts so that it doesn’t produce more than is needed. “If the forecasts are too high and sellout is not so high, the company has elevated inventories,” Mr. Mercier said. Coty is using artificial intelligence to improve its forecasting capabilities and outsourcing some finance tasks to Accenture香蕉视频苹果下载 PLC, he said.

The company, which doesn’t own or operate physical stores, also is looking to run its factories more efficiently. Coty in January said it plans to close a manufacturing plant in Cologne, Germany.

The efforts are starting to show results. Coty’s gross margin rose to 61.9% in the first fiscal quarter, up from 56.6% in the prior-year quarter. “Sixty percent is the new base for our gross margin,” Mr. Mercier said. Still, there is room for improvement. Rival Estée Lauder, for example, reported a gross margin of 75.7% for the quarter ended March 31, up from 75% a year before.

Mr. Mercier, who started out as an auditor, worked for French food-processing company Danone SA for two decades before joining Coty in 2017 as CFO of the luxury business. He became deputy finance chief last year.

香蕉视频苹果下载U.S. sales for some of the company’s products are encouraging, said Linda Bolton Weiser, a managing director at advisory firm D.A. Davidson & Co., citing recent statistics by data-analytics firm Information Resources Inc. Those estimates show double-digit percentage growth in sales for certain Coty products, compared with previous quarters, when sales growth was flat or negative.

香蕉视频苹果下载“A lot of managers can cut costs and get to a certain margin level,” Ms. Weiser said. “For it to be sustainable, you need top-line growth.”

Write to Nina Trentmann at Nina.Trentmann@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the June 3, 2021, print edition as 'Coty Shaves Product Portfolio To Plump Up Profit Margins.'