Coty (COTY) to Buy Stake in Kim Kardashian's Beauty Business

Coty Inc. COTY announced partnership with one of the most influential celebrity with nearly 300 million followers on social media platforms—Kim Kardashian West. Per the deal, Coty will buy a 20% ownership stake in Kim Kardashian’s beauty business for $200 million. The partnership is aimed at introducing new beauty categories and expanding into new product lines for the beauty business. The agreement is expected to be closed in third-quarter fiscal 2021.

Per the agreement, Coty will focus on developing new products for the beauty business in skincare, personal care, hair care as well as nail categories. Meanwhile, Kim Kardashian and her team will assume creative responsibilities like product as well as communications initiatives. The products will be sold via renowned luxury beauty retailers as well as various online channels. Following this announcement, shares of Coty were up 13.4% on Jun 29.

Coty has been making several strategic acquisitions to enhance its brand portfolio. In this regard, the company acquired a 51% stake in King Kylie this January and entered into a deal to produce, promote, distribute and sell certain products of King Kylie. In the second quarter of fiscal 2018, the company acquired the iconic Burberry brand, which is yielding favorably. The acquisition has been supporting growth in the Luxury segment.

 

Other instances in this regard include the buyout of Good Hair Day or ghd, which has been aiding Coty’s Professional Beauty segment, courtesy of a solid e-commerce business. Additionally, the company’s buyout of Procter & Gamble Company’s global fine fragrances, salon professional, cosmetics and retail hair color businesses along with select hair styling brands (the P&G Beauty Business) has been yielding favorable results for quite some time.

Coty is gaining from a solid e-commerce business. In fact, the company’s online sales increased across all segments in third-quarter fiscal 2020. In Americas and EMEA, e-commerce sales were particularly strong for the mass business. Even APAC and Professional segments saw e-commerce growth amid the coronavirus pandemic. Such trends along with a continued focus on strategic partnerships bode well.

However, coronavirus-led concerns put pressure on Coty’s third-quarter fiscal 2020 results. During the quarter, results were hurt by soft revenues, reduced gross margin, currency headwinds and escalated fixed costs. Revenues were hampered by weakness across all segments and channels, stemming from coronavirus-led concerns like salon closures, retail store closures and receding traffic at the stores that were open in March. Moreover, restricted air travel is a blow to the travel retail network. Markedly, this Zacks Rank #4 (Sell) stock has lost 12.4% in the past three months against the industry’s growth of 13%.

All said, the recent partnership with Kim Kardashian is likely to strengthen Coty’s portfolio and boost performance.

Some Solid Cosmetic Picks

Helen of Troy Limited HELE sports a Zacks Rank #1 (Strong Buy) and has a long-term earnings growth rate of 8%.You can see the complete list of today’s Zacks #1 Rank stocks here.

The Estee Lauder Companies EL, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 9.6%.

Nu Skin Enterprises NUS, carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

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
 
The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report
 
Helen of Troy Limited (HELE) : Free Stock Analysis Report
 
Nu Skin Enterprises, Inc. (NUS) : Free Stock Analysis Report
 
Coty Inc. (COTY) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research