(Reuters) – Cosmetics maker Coty on Tuesday said it had launched a strategic review of its consumer beauty business that could lead to the sale of brands such as CoverGirl and Rimmel, as it plans to focus on its more profitable fragrances unit.
The move reflects a challenging market in the U.S. for mass market makeup, with drugstores destocking inventories as cost-conscious consumers tighten spending and fierce competition from newer brands building a strong following online.
Last month, New York-based Coty projected a quarterly sales decline as demand for its beauty products softened. The firm invested heavily into its U.S. mass beauty business at the expense of fragrance, before shifting course as mass beauty struggled with rising competition from lower‑cost online rivals.
“This new structure will… drive renewed momentum and sharper focus for consumer beauty, positioning it to compete more effectively in the evolving beauty landscape,” CEO Sue Nabi said, adding she aims to grow Coty’s prestige portfolio through blockbuster launches and brand elevation.
POTENTIAL PARTNERSHIPS, DIVESTITURES AND SPIN-OFFS
The firm said in a statement that its review would focus on its $1.2 billion revenue mass color cosmetics segment, which includes brands such as CoverGirl, Rimmel, Sally Hansen and Max Factor, as well as its $400 million standalone Brazil business.
“The review will assess a full range of alternatives including partnerships, divestitures, spin-offs and other potential strategic actions,” Coty said, adding that the aim was to maximize long-term value and bolster its balance sheet.
Coty’s consumer beauty division’s like-for-like sales fell 5% year on year for the 12 months ending June 30, Coty said last month. In the same period, its ultra-premium, prestige and consumer beauty fragrances all grew between 2% and 9%.
Reduced profits have eaten into Coty’s free cash flow, which totaled $277.7 million for the year to June 30, while the company’s total debt was just over $4 billion.
Coty’s previous efforts saw it bring together hair and nail brands into professional beauty business Wella and sell a majority to stake to KKR. Coty is still working to divest its remaining 26% stake in that business.
Coty will bring all fragrance and scent brands under one business unit accounting for 69% of company sales, while aiming to maintain steady growth in cosmetics and skincare.
Shares of the company, which have lost nearly half of their value so far this year, were marginally higher in premarket trading on Tuesday. Coty, which licences the fragrance brands of Gucci, Chloe and Burberry, has a market capitalization of about $3 billion, according to LSEG data.
The news was first reported by the Wall Street Journal earlier on Tuesday.
(Reporting by Nilutpal Timsina, Shivani Tanna and Ruchika Khanna in Bengaluru, Alexander Marrow in London and Dominique Patton in Paris; Editing by Adam Jourdan, Sonia Cheema, Sherry Jacob-Phillips, Mrigank Dhaniwala and Louise Heavens)
