Coty slumps following earnings, Barclays downgrade

Investing.com -- Coty Inc. shares dropped more than 5% Thursday following its latest quarterly earnings and a downgrade from Barclays (LON:BARC).

Analysts at the bank expressed concerns about the company's ability to meet long-term growth goals and manage current market challenges.

Barclays downgraded Coty (NYSE:COTY) to Underweight from Equal Weight and slashed its price target to $7 from $8, citing concerns that the company's recent changes to its medium-term growth projections may signal more challenges ahead.

According to Barclays, Coty "effectively lowered its medium-term algorithm," adjusting sales growth expectations to align more closely with the beauty market's projected growth of 3-5% rather than its previous target of 6-8%.

Analysts noted this adjustment wasn't disclosed in Coty's press release, raising concerns among investors. Barclays wrote, "This significant change was not detailed in the press release," which may come as a surprise to investors who have missed updates shared only in Coty's prepared remarks.

Barclays believes Coty could face further revenue revisions in FY25. Coty projects like-for-like (LFL) sales growth of 3-4% for the second half of FY25, driven by strong prestige fragrances but tempered by ongoing challenges in China and the U.S. mass cosmetics sector.

"We think the company may be pushing too hard to achieve its profit objectives for the year," Barclays added, highlighting the pressure on margins due to aggressive cost-cutting measures.

Barclays also voiced skepticism about Coty's expansion into areas like lifestyle fragrances and wellness, which are relatively new focuses for the company.

The strategic shift signals a pivot in Coty's growth model, but Barclays says it may not be enough to offset weak performance in other categories.

The bank revised its 2025 adjusted EBITDA estimate to the low end of Coty's guidance, suggesting the company may struggle to maintain market share even as it pursues growth initiatives.

With a revised outlook and questions around execution, Barclays concluded, "We see little reason to remain Equal Weight the shares," signaling concerns over Coty's competitive positioning and ability to navigate upcoming challenges.