Coty’s New CEO: Analysts Weigh In
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Coty’s announcement last week that it had signed a deal with Kim Kardashian West didn’t come as a big surprise to beauty insiders, but when it named Sue Y. Nabi chief executive officer two days later — now that was a bombshell.
Nabi succeeds Peter Harf, a founding partner of Coty’s majority owner, JAB, who has moved up to the role of executive chairman of Coty.
Nabi is Coty’s ninth ceo in 10 years, and its sixth since the company acquired P&G’s beauty brands in 2015 for $12.5 billion. She’s also the only one with significant beauty experience, and the only woman.
Coty is paying a premium for Nabi’s experience. She is to receive a base salary of 3 million euros and 10 million shares a year in August 2021, 2022 and 2023, with half being contributed by JAB, according to a research report written by Stifel analyst Mark Astrachan, who examined the company’s 8-K filings in depth.
At Coty’s current stock price, that means Nabi’s total compensation over the next three years will equal or exceed $140 million.
That puts her in the upper range of beauty ceo salaries, according to an analysis by WWD Beauty Inc. For 2019, the highest-paid ceo was Alex Gorsky of Johnson & Johnson, whose total compensation was $25.4 million, followed by Fabrizio Freda of the Estée Lauder Cos. Inc., who took home $21.4 million.
Analysts laud Nabi’s experience, but note the executive, who was at L’Oréal for 20 years before launching her own skin-care brand in 2017, certainly has her work cut out for her when it comes to transforming the troubled Coty into the industry leader that Harf and his team envisioned five years ago.
“The market is uncertain, but it’s because of the perpetualness of the change,” said Steph Wissink, managing director of Jefferies. “Each new executive brings a slightly different twist to the story. Peter’s twist was to get these big deals done. The question is, what will be her thumbprint? What will she do that is unique and different?”
On the plus side is Nabi’s background heading up both L’Oréal Paris and Lancôme. “She’s a graduate of the University of L’Oréal,” said Wissink. “What I hear from folks who have been part of Coty’s organization is that there is a hunger to win, but not necessarily a structure to win.
“L’Oréal has perfected both,” Wissink said. “I would expect some of that to shake off on the culture at Coty.”
“She’s a positive relative to what Coty has had,” agreed Astrachan. “She has her work cut out for her, but if anyone can do it, she is in a better position to do so.”
Still, Coty is a very different company than L’Oréal. “It’s one thing to have success at L’Oréal, where you have a very well-oiled machine,” said Ilya Seglin, managing director at Threadstone LP. “But she has no record of a turnaround, which is what Coty is. That, to me, is the bigger question. Reviving a brand is a different skill set than running a brand that has momentum and taking it to the next level.”
Nabi takes the reins at a moment of change for Coty, which inked a deal with KKR in May to sell 60 percent ownership of its professional and retail hair-care businesses. She will need to manage that transition, as well as the cost-cutting restructuring efforts that have been ongoing.
In terms of what to turn around, analysts agree that her first order of business should be fixing Coty’s Consumer Beauty division, whose brands include CoverGirl, Max Factor and Sally Hansen. “The big question is how do you make [those brands] relevant,” said Astrachan. “If you try to dissect the value of the stock, most would tell you that the luxury business, the licensed fragrances, is what’s worth the most. You’re getting the mass consumer business for close to nothing, so if she’s able to improve that, you can improve the value of the business.”
She will also need to build out and internationalize the KKW and Kylie businesses, for which Coty has spent collectively $800 million thus far, as well as strengthen the company’s existing relationships with key licensees.
As one analyst who spoke not for attribution said, “She will have to maintain the momentum of the luxury business and figure out pretty quickly why [Gucci parent company] Kering keeps trashing Coty publicly. If Kering pulls Gucci, Coty is in deep trouble, because that is by far their best brand and the one they have the most ambition for.”
For her part, Wissink sees the first few years of Nabi’s tenure spent on the nuts and bolts of the business. Years four and five, provided she lasts that long, will be the true litmus test. “That’s when we’ll see the new Coty with two distinct divisions — consumer and luxury — with a reconstituted cost base more aligned with the duality of the revenue model,” Wissink said. “The business should be growing at that point. Whether it is above or below the industry average — that’s what her scorecard will be ultimately graded on.”
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