Shares of Coty Inc fell 22% as the manufacturer of the cosmetic brand CoverGirl has faced unprecedented violations of the supply chain in the United States and Europe, which led to lower-than-expected drop in sales in the first quarter.
The company is working to resolve problems with the supply associated with the rationalization of the distribution centers organization in the U.S. and Europe that began after the acquisition in 2016, around 40 beauty brands at Procter & Gamble. In addition, Coty faced the problem of shortage of packaging from its key suppliers that have stopped shipments to retail stores. The effects of hurricane Florence, which in September of this year caused US a loss of $ 17 billion.
However, the company expects to fully restore the supply of goods, which were suspended by a hurricane in the festive season. Problems with the supply chain cost the company 60 million US dollars in the first quarter, well above forecasts of losses Coty, amounting to $ 50 million for the entire year. Coty also stated that he does not expect full recovery of the financial implications of the first quarter in the remainder of the fiscal year, which ends in June 2019.
“We are very disappointed by violations in the supply chain that have occurred during the last quarter, and as a result, have caused poor financial results for the first quarter,” said chief Executive officer Camillo Pan.
Sales in Europe, the largest market for Coty, fell by 10% in the first quarter, while the hurricane caused a drop in sales of 14% in North America. It is worth noting that the brands of decorative cosmetics, in particular, Rimmel and Max Factor, remained a painful point for the company, falling by almost 21%. This was due to increased competition and the current problems with distribution.
Premium income in the business segment Coty, which owns perfume brands from Gucci, Tiffany and Chloe, fell by 14% in the quarter. Thus, the profit of the company decreased by 9.2% to 2.03 billion U.S. dollars. Coty shares fell 21.8% to a record low of 8.74 dollar on 7 November, adding to losses this year to about 44%.