Coty Inc. COTY continues to adjust to a shifting landscape, as the exceptional growth in the beauty market over the recent years transitions to a more stabilized phase. Amid this shift, the company is battling several headwinds, from rising operational costs to struggles in key international markets.

As a result, the stock fell 24.8% over the past three months, underperforming both the broader industry and the Zacks Consumer Staple sector, which saw declines of 14.7% and 7.5%, respectively. In contrast, the S&P 500 has gained 3.2% during the same period. With these hurdles in mind, investors are questioning Coty’s prospects as they weigh the factors behind its recent struggles.

COTY Stock Price Performance

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Higher Costs Strain Coty

Coty’s first-quarter fiscal 2025 results reveal a rise in selling, general and administrative (SG&A) expenses, which came in at $808 million, up from $767.4 million reported in the year-ago quarter. As a percentage of net revenues, SG&A expenses came in at 48.3%, up from 46.8% reported in the year-ago quarter. Our model suggests that adjusted SG&A expenses will rise 0.4% year over year in fiscal 2025.

The company’s advertising and consumer promotions (A&CP) spending reflected nearly 25% of sales for the fiscal first quarter, increasing 40 basis points year over year. Management anticipates its A&CP investment to remain at a high 20% level of sales in fiscal year 2025. A rise in such costs, if not controlled, might continue to dent the company’s margins and profitability in the upcoming quarters.

Coty Faces Weakness in Chinese Mainland, Asia Travel Retail

The macroeconomic environment remains challenging, with the exceptional beauty market growth of recent years transitioning into a more normalized phase. Amid these headwinds, Coty continues to face headwinds in markets like the Chinese mainland and Asia Travel Retail. In the first quarter of fiscal 2025, Coty’s Asia Pacific segment reported net revenues of $190.2 million, marking a 5% decline on a reported basis due to lower revenues in the Prestige segment and divestiture of the Lacoste license.

On a like-for-like (LFL) basis, Asia Pacific net revenues declined by 5% in fiscal first-quarter. The region saw net revenue declines across the Prestige and Consumer Beauty divisions, driven by challenging market conditions in mainland China and the regional Travel Retail channel. Management continues to expect ongoing challenges in the Chinese mainland and Asia Travel Retail to persist in fiscal 2025. Our model suggests a decline of 1.2% in Asia Pacific LFL in fiscal 2025.

Unfavorable Currency Rates Hurt COTY Stock

Coty’s international presence keeps the company exposed to the risk of adverse currency fluctuations. The company’s first-quarter fiscal 2025 net revenues reflect a 1% adverse impact from unfavorable foreign currency exchange. The continuation of these headwinds remains a threat for Coty.

Final Words on COTY

While consumer demand for beauty products remains robust, Coty is navigating a more stabilized growth phase in the beauty market. The company faces challenges such as rising operational costs and struggles in certain markets, which have contributed to a drop in its stock price and raised concerns about its future growth. Coty currently holds a Zacks Rank #4 (Sell), signaling ongoing pressure unless the company can effectively address its obstacles.

Three Stocks Looking Red Hot

We have highlighted three top-ranked stocks, namely Deckers DECK, Abercrombie & Fitch Co. ANF and Urban Outfitters URBN.

Deckers, a footwear and accessories dealer, currently sports a Zacks Rank #1 (Strong Buy). DECK delivered an average earnings surprise of 41.1% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Deckers’ current financial-year sales and earnings indicates growth of 13.6% and 12.8%, respectively, from the year-ago reported figures.

Abercrombie, a leading casual apparel retailer, currently flaunts a Zacks Rank of 1. Abercrombie has a trailing four-quarter earnings surprise of 14.8%, on average.

The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 14.9% and almost 69%, respectively, from the year-ago reported figures.

Urban Outfitters, a fashion lifestyle specialty retailer, currently sports a Zacks Rank of 1. URBN delivered an average earnings surprise of 22.8% in the trailing four quarters.

The consensus estimate for Urban Outfitters’ current financial-year sales indicates growth of 6.6% from the year-ago figure.

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