Coty slides as turnaround plan comes with $3bn writedown

Bloomberg

Cosmetics maker Coty Inc will take a $3 billion writedown — about a third of its market capitalisation — as its aging mass-market brands face new competition from savvy upstarts in the booming beauty industry.
The company, under pressure to turn its business around as revenues stagnate, laid out the first steps of a turnaround plan intended to revive margins, reduce leverage and better keep up with its rivals. Coty — which acknowledged a 60 percent of its brands are “margin dilutive” — plans to simplify its management structure and concentrate on a fewer number of product lines. It didn’t specify which brands might be on the chopping block.
“We are fundamentally going to simplify our portfolio,” CEO  Pierre Laubies said. “The percentage of brands that are margin dilutive is just too high.”
Shares fell as much as 13 percent in New York, the most intraday since November.
Coty is feeling pressure to make a change. Earlier this year, it took a $965 million writedown on the value of the brands it agreed to purchase from Procter & Gamble Co in 2015, including Covergirl and Clairol.
Coty shares have lost more than half of their value since that deal was announced. Meanwhile, rival cosmetics companies have been rapidly acquiring hot new brands as they search for the next big hit, often picking labels that attract younger, trendier shoppers.
“The $3 billion dollar impairment is a confirmation that they realise some brands have suffered beyond recovery,” said Bloomberg Intelligence analyst Deborah Aitken. “A $3 billion writedown of underperforming brands, which follows a recent near $1 billion writeoff, won’t be end-game in the vulnerable consumer mass-beauty segment.”