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Will COTY Recover?

Dear Mr. Berko: I’ve never seen you talk about Coty. I bought 1,000 shares at $31 in 2016, and it crashed before my check cleared. My Wells Fargo broker says I should sell the stock and buy a fancy annuity that actually sounds good. What do you think? — PW, Rochester, Minn.

Dear PW: Coty (COTY-$13.48) completed its initial public offering in June 2013, selling 65 million shares at $17.50 each. Bank of America, Merrill Lynch, J.P. Morgan, “Wells Cargo” and Morgan Stanley headed the syndicate. And zip-a-dee-doo-dah, a few years later, COTY was trading between $30 and $33, with $4.6 billion in revenues and earnings of 50 cents a share. Then, in late 2016, COTY completed its overly big purchase of Procter & Gamble’s cosmetics business for $12.5 billion. This transaction crashed COTY’s market price to the low teens and blistered and traumatized normal balance sheet and income statement numbers. The purchase was too big to chew and a temporary setback. However, management on both teams has finally integrated the products. And according to one of the women at the office next door, the scents are still enchanting and seductive. You can prove it by me.

Today COTY, with a $12.55 book value, manufactures and sells Hugo Boss, Gucci, Calvin Klein, Dolce & Gabbana plus other premium lines. And to make distaff even sexier, this company aggressively encourages women to purchase its damnably expensive skin, nail, eye and hair care products, too, from such brands as CoverGirl and Max Factor. This year, estimated revenues of $9.4 billion from 77 brands should allow COTY to deposit earnings of 70 cents a share on its income statement. And the libidinous cosmetics models are so hauntingly beautiful it’s little wonder a man’s testosterone becomes highly elevated. Even famous Buffalo Bill Cody used a special fragrance by Francois Coty, who, in 1904, founded the company that is now Coty Inc. Buffalo Bill’s breath and body odor were so bad that public toilets automatically flushed when he walked by. Coty’s fragrance masked the stink from Buffalo Bill so he could engage the ladies. The company’s motto then was “sell sex appeal,” and today it’s still selling sex appeal.

COTY’s ridiculously expensive products, in collectible Lalique and Baccarat bottles, were designed for the luxury market. COTY’s other fragrances and products are mass-produced but designed to convey images of intimacy, luxury and sex. Yep, intimacy, luxury and sex are responsible for trillions of dollars of our nation’s retail sales. Sex appeal certainly sells more effectively than logic or reason. Just observe the commercials for beer, cars, clothing, mattresses, cola, recreational products and vacation packages ad nauseam. Sex appeal has the whole wide retail world in its hands.

COTY may be the world’s largest manufacturer and distributor of men’s and women’s fragrances, cosmetics, and skin and body care products. Because of the 2016 purchase of P&G’s cosmetics, fragrance and coloring products — plus partnerships with Lady Gaga, David Beckham and Jennifer Lopez — COTY’s revenues grew from $4.35 billion in 2016 to $7.65 billion last year. Net profits have improved from $480 million in 2016 to an expected $530 million this year. And if well-thought-out acquisitions — such as this year’s purchases of Younique and Burberry Beauty — continue, revenues and net income could improve by 70 percent in the coming three to four years. Certainly, the fundamental outlook for this personal care product sub-industry continues to look strong. For the first six months of this year, the S&P index for personal care products increased by 9.8 percent, compared with a 0.6 percent decline for the S&P 500. Wall Street believes that S&P’s personal care index will do even better in 2019, especially as more men (even some who are my age) begin to use these beauty products.

In the coming three years, as P&G products segue into COTY’s business model, share earnings, return on total capital and shareholder equity could double. Therefore, COTY could be a $25-$30 stock in a few years. Hold COTY. I think it will return to the $30s by 2023.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

 

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.