Coty beats quarterly sales on strong demand for luxury beauty products

© Reuters. Covergirl makeup, owned by Coty Inc., is seen for sale in Manhattan, New York City, U.S., February 7, 2022. REUTERS/Andrew Kelly/File Photo

(Reuters) - Coty (NYSE:COTY) Inc on Thursday beat Wall Street expectations for quarterly sales, as consumers undeterred by inflation-induced steeper prices splurge on luxury skin care and fragrance.

Lipstick and foundations are flying out of shelves with higher-income consumers indulging in smaller luxuries as decades-high inflation renders their plans for bigger purchases unattainable- a phenomenon known as the "lipstick effect".

This comes as an opportunity for luxury beauty companies that have struggled with sales due to pandemic lockdowns that had kept people at home and their cosmetics requirements limited.

Bigger rival Estee Lauder (NYSE:EL) also beat fourth-quarter results, but forecast full-year sales and profit below estimates last week due to a larger exposure to China, where recent COVID-19 lockdowns hit traffic at retailers.

While Coty's smaller China exposure has it better placed, Chief Executive Officer Sue Nabi told Reuters in an interview the company would undertake further price increases this year, following an initial round in fiscal 2022, to boost profit margins.

"We are offsetting quite strongly the effect of the inflation on cost of goods," Nabi said, adding that supply chain costs have been easing from pandemic-highs.

Coty has also been accelerating marketing investments such as livestreaming and promotions on social media sites such as TikTok, which play a big part in influencing young consumers' shopping decisions.

For fiscal 2023, it expects to increase spending on media and marketing by over 20% from last year.

Net sales in the fourth quarter ended June 30 rose 10% to $1.17 billion, beating analysts' average estimate of $1.14 billion, according to IBES data from Refinitiv.

The Hugo Boss perfume maker expects full-year 2023 adjusted profit per share to increase in the mid-teens compared to a year earlier.