Correction to Coty's Beauty Sales Story

By Sharon Terlep Features Dow Jones Newswires

Coty Inc. spent billions on dozens of Procter & Gamble Co. brands with the goal of becoming one of the world's top players in the beauty business. So far, the deal has brought mostly pain.

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The New York-based company posted a surprise quarterly loss Tuesday that executives attributed largely to sinking sales of those products, which include CoverGirl and Max Factor cosmetics and Clairol hair dye, and unexpected costs associated with the business it has owned since October. Shares of Coty fell 13% to $16.93 in morning trading.

Retailers have been reducing shelf space allotted to those long-struggling P&G brands, exacerbating the already challenging market for mass-market beauty products.

In an interview, Coty Chief Executive Camillo Pane said executives didn't realize the extent to which the P&G brands were suffering until the deal closed. Mr. Pane said he remains confident that the $11.6 billion acquisition was a good move for Coty in the long run.

"We feel absolutely confident that we have a roster of brands that was much stronger than the two legacy companies before," he said.

Because P&G and Coty were competitors at the time of the acquisition, provisions of the deal prevented Coty from getting information on the inner workings of the business.

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"We were not aware of anything," Mr. Pane said of the troubles P&G faced with its brands, such as high fixed costs in the business and retailers' plans to shrink shelf space. "I don't know how much they were aware."

Coty reported an adjusted net loss of $3.4 million. A year ago, it reported an adjusted profit, which excluded the P&G beauty business, of $45.7 million. Organic sales fell 3%, including a 10% decline for the consumer beauty business.

Executives declined to provide details on how they would cut costs or when they expected the business to turn around. The company plans to shed some of its brands, mainly fragrances and beauty products, that currently comprise 6% to 8% of its net sales.

Coty also is pouring money into relaunching struggling brands, including CoverGirl and Clairol, which contributed to higher-than-expected costs for the quarter. The company's costs rose to 53.1% of sales in the quarter ended June 30, from 46.6% a year earlier.

Write to Sharon Terlep at sharon.terlep@wsj.com

Corrections & Amplifications

This article was corrected at 2:47 p.m. ET because an earlier version incorrectly stated organic sales fell 5% in the ninth paragraph. Coty's organic sales fell 3% in the quarter ended June 30.

Coty's organic sales fell 3% in the quarter ended June 30. "Coty's Beauty Sales Slump," at 12:33 p.m. ET, incorrectly stated they fell 5% in the ninth paragraph. (Aug. 22, 2017)

(END) Dow Jones Newswires

August 22, 2017 15:02 ET (19:02 GMT)