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Investing.com -- Jefferies cut its rating on Coty (NYSE:COTY) to Hold saying that the beauty company’s growing dependence on fragrances leaves it vulnerable as growth in the category moderates and rivals gain share.
Fragrances now generate more than 60% of Coty’s sales, but prestige fragrance grew only 2% last year while the company has ceded market share to smaller brands.
“The biz portfolio is now increasingly reliant on fragrance, with the co losing share as the category moderates. Lack of clear fundamental drivers and mgmt credibility impair our FY outlook,” analysts at Jefferies said.
Jefferies said doubling down on the segment looks reactive as peers diversify.
The broker said Coty’s fiscal fourth-quarter like-for-like sales fell 9%, with U.S. prestige down mid-single digits against 4% market growth and mass cosmetics down mid-teens versus a 1% industry decline.
Management acknowledged it was late in addressing weaknesses in U.S. execution, Jefferies noted, but has since scaled back investment in mass cosmetics, which it said may worsen declines.
Management has pulled back investment in mass cosmetics, which Jefferies said could deepen losses in that segment.
Frequent guidance changes have further eroded credibility. Coty has missed prior sales, earnings and leverage targets and is now banking on a second-half recovery. Jefferies said it sees few fundamental drivers to support that rebound amid tariffs, retailer inventory cuts and heightened promotions.