AP NEWS
Press release content from Business Wire. The AP news staff was not involved in its creation.
PRESS RELEASE: Paid content from Business Wire
Press release content from Business Wire. The AP news staff was not involved in its creation.

Coty Inc. Reports Fiscal First Quarter 2020 Results

November 6, 2019 GMT

NEW YORK--(BUSINESS WIRE)--Nov 6, 2019--

Coty Inc. (NYSE: COTY) today announced financial results for the first quarter of fiscal year 2020, ended September 30, 2019.

Results at a glance

 

Three Months Ended
September 30, 2019

 

 

 

 

Change YoY

(in millions, except per share data)

 

 

 

Reported
Basis

 

Organic
(LFL)

Net revenues

 

$

 

 

 

 

 

1,942.8

 

 

(4.4

%)

 

(1.1

%)

Operating income (loss) - reported

 

 

126.0

 

 

>100%

 

 

Operating income - adjusted*

 

 

154.7

 

 

10

%

 

 

Net income (loss) - reported

 

 

52.3

 

 

>100%

 

 

Net income - adjusted*

 

 

50.5

 

 

(37

%)

 

 

EPS (diluted) - reported

 

$

 

 

 

 

 

0.07

 

 

>100%

 

 

EPS (diluted) - adjusted*

 

$

 

 

 

 

 

0.07

 

 

(36

%)

 

 

 *

These measures, as well as “free cash flow,” “adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)” and “net debt,” are Non-GAAP Financial Measures. Refer to “Non-GAAP Financial Measures” for discussion of these measures. Net Income represents Net Income Attributable to Coty Inc. Reconciliations from reported to adjusted results can be found at the end of this release.

Highlights

Commenting on the operating results, Pierre Laubies, Coty CEO said:

“Q1 marked the first quarter of implementing our turnaround plan. With Younique excluded from our results as of September, we have also begun to see some improvements in the Consumer Beauty division. These improvements include revenue growth and market share gains on select brands in Europe, strong performance in Sally Hansen U.S., and some early progress on Covergirl. Throughout the organization, our teams are building a better business, including making trade-offs in favor of healthy, sustainable sales. Our strong Q1 gross margin improvement is a reflection of our progress in this area. With the consistent delivery of our Luxury division in a more volatile environment, and the strong performance of the Professional Beauty division, our Q1 is well on the path of our turnaround deployment.”

Commenting on the financial results, Pierre-André Terisse, Coty CFO said:

“The beginning of the year was in-line with our expectations on all key financial metrics, including net revenues, adjusted operating income, adjusted EPS, and free cash flow. More importantly, our equation is healthier as the significant gross margin improvement allowed us to reinvest behind our brands. This gives me confidence in our ability to deliver our targets for the year. As we continue to explore how to accelerate the transformation of Coty, with a strategic review which has already attracted strong interest, we will in the coming quarters continue to focus on the fundamentals of our turnaround: deploying operational excellence, improving the performance of our supply chain, expanding gross margin to support our brands, streamlining the organization and maintaining discipline on cash and costs.”

FY20 Outlook

The FY20 outlook remains unchanged:

Financial Results

Revenues:

Gross Margin:

Operating Income:

Net Income:

Earnings Per Share (EPS):

Operating Cash Flow:

Dividend and Net Debt:

First Quarter Fiscal 2020 Business Review by Segment

 

Luxury

 

 

Three Months Ended September 30, 2019

 

Actual

Reported Basis
YoY

LFL

Net Revenues

806.7

 

1.7

%

4.4

%

 

 

 

 

 

Reported

Adjusted

 

Operating Income

90.3

 

128.3

 

 

Operating Margin

11.2

%

15.9

%

 

In 1Q20, reported Luxury net revenues of $806.7 million increased by 1.7% versus the prior year. On a LFL basis, Luxury net revenues increased by 4.4%, fueled by growth in Europe and ALMEA. The luxury fragrance market continued to grow at a steady pace of 3-4%, with consistent trends in each of our key regions. While we recovered the majority of the shipment disruptions in the prior-year period, this was partially offset by geopolitical disruptions in Hong Kong and the surrounding Travel Retail corridor.

Solid 1Q20 results were supported by strength in Gucci, Burberry, Hugo Boss, and Chloe fragrances. Our expansion in the luxury cosmetics category continued successfully, with strong growth in both the Gucci lipstick line as well as Burberry cosmetics in Asia Pacific. We expect this momentum in luxury cosmetics to be fueled in the coming quarters through a gradual expansion of doors and product lines.

The Luxury division delivered reported operating income of $90.3 million, an increase of 85% vs. the prior-year period. 1Q20 adjusted operating income was $128.3 million, reflecting very strong 26% growth from the prior year. The 1Q20 adjusted operating margin was 15.9%, an increase of 310 bps versus 1Q19, driven by gross margin expansion and strong fixed cost leverage.

Consumer Beauty

 

 

Three Months Ended September 30, 2019

 

Actual

Reported Basis
YoY

LFL

Net Revenues

716.5

 

(13.5

%)

(9.7

)%

 

 

 

 

 

Reported

Adjusted

 

Operating (Loss) Income

(43.3

)

(14.2

)

 

Operating Margin

(6.0

)%

(2.0

)%

 

1Q20 Consumer Beauty net revenues of $716.5 million declined 13.5% on a reported basis and declined 9.7% LFL. Younique contributed approximately $56 million of net revenue in the quarter. The business decline in Younique negatively impacted the Consumer Beauty LFL result by approximately 2%. Global sell-out for our brands continued to decline in the high single digits, though showed some sequential improvement in trend. By region, Europe delivered low single digit revenue growth, reflecting lower comparables in the prior-year period following the supply disruptions as well as improved sell-out trends. In North America, revenues continue to be pressured by shelf space reductions and the continued low single digit declines in the mass beauty market segment. ALMEA sales were soft as we pro-actively reduced sales to lower value channels in select countries in support of our gross margin expansion agenda.

By category, net revenue in color cosmetics continued to decline high single digits. Within this core category, we saw pockets of improvement as we began implementing our turnaround plan, including Sally Hansen share gains in its core U.S. market segment, Rimmel share gains in its core U.K. market segment, moderate growth in CoverGirl’s core sub-brands and broad-based improvement in Max Factor resulting in a low single digit sell-out decline. In retail hair, revenues remained pressured. In body care and mass fragrances, revenues declined mid-single digits, though our core brands adidas and Bruno Banani both drove sell-out growth. Importantly, as we actively reallocated nearly all working media to our priority brand and country combinations and stepped up our media investments, revenues in our Consumer Beauty priority brand and country combinations declined low single digits in the quarter, an improvement from high single digit declines in FY19.

Reported operating loss in 1Q20 of $43.3 million compared to reported operating loss of $18.6 million in the prior year period. The 1Q20 adjusted operating loss of $14.2 million, with Younique contributing approximately $4 million of the loss, decreased from income of $14.8 million in the prior year period, resulting in an adjusted operating margin of (2.0)%. The profit performance reflected a decline in gross profit as a result of the revenue decline coupled with a step-up in A&CP, particularly working media.

Professional Beauty

 

 

Three Months Ended September 30, 2019

 

Actual

Reported Basis
YoY

LFL

Net Revenues

419.6

 

2.4

%

5.1

%

 

 

 

 

 

Reported

Adjusted

 

Operating Income

24.4

 

41.6

 

 

Operating Margin

5.8

%

9.9

%

 

Professional Beauty 1Q20 net revenues of $419.6 million rose by 2.4%, with LFL increasing 5.1%. The quarter was driven by particular strength in North America, as it lapped last year’s supply chain issues and key customers’ destocking. Europe and ALMEA also delivered solid growth during the quarter. ghd continued to generate very robust growth across channels and regions.

Professional Beauty reported operating income of $24.4 million increased from $5.0 million in the prior year period, while adjusted operating income grew 75% to $41.6 million. The Professional Beauty division adjusted operating margin of 9.9% grew 410 bps, driven by strong gross margin performance and fixed cost reduction.

First Quarter Fiscal 2020 Business Review by Geographic Region

 

 

 

Three Months Ended September 30,

 

 

Net Revenues

 

Change

(in millions)

 

2019

 

2018

 

Reported
Basis

 

Organic
(LFL)

North America

 

$

 

586.6

 

 

$

 

644.9

 

 

(9.0

%)

 

(7.1

%)

Europe

 

 

869.6

 

 

 

872.2

 

 

(0.3

%)

 

4.4

%

ALMEA

 

 

486.6

 

 

 

514.2

 

 

(5.4

%)

 

(3.1

%)

Total

 

$

 

1,942.8

 

 

$

 

2,031.3

 

 

(4.4

%)

 

(1.1

%)

North America

Europe

ALMEA

Cash Flows

Other Company Developments

Other company developments include:

Conference Call

Coty Inc. will host a conference call at 8:00 a.m. (ET) today, November 6, 2019 to discuss its results. The dial-in number for the call is (866) 834-4311 in the U.S. or (720) 405-2213 internationally (conference passcode number: 9369578). The live audio webcast and presentation slides will be available at http://investors.coty.com. The conference call will be available for replay.

About Coty Inc.

Coty is one of the world’s largest beauty companies with an iconic portfolio of brands across fragrance, color cosmetics, hair color and styling, and skin and body care. Coty is the global leader in fragrance, a strong number two in professional hair color & styling, and number three in color cosmetics. Coty’s products are sold in over 150 countries around the world. Coty and its brands are committed to a range of social causes as well as seeking to minimize its impact on the environment. For additional information about Coty Inc., please visit www.coty.com.

Forward Looking Statements

Certain statements in this Earnings Release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, the Company’s turnaround plan announced on July 1, 2019 (the “Turnaround Plan”), strategic planning, targets, segment reporting and outlook for future reporting periods (including the extent and timing of revenue, expense and profit trends and changes in operating cash flows and cash flows from operating activities and investing activities), the strategic review of its Professional Beauty business, associated hair and nail brands sold by the Consumer Beauty division and Brazilian operations and any transaction related thereto (the “Strategic Review”), including timing of such Strategic Review and any transaction and the use of proceeds from any such transaction, its future operations and strategy, ongoing and future cost efficiency and restructuring initiatives and programs, strategic transactions (including their expected timing and impact), investments, licenses and portfolio changes, synergies, savings, performance, cost, timing and integration of acquisitions, future cash flows, liquidity and borrowing capacity, timing and size of cash outflows and debt deleveraging, the performance of launches or relaunches, the timing and impact of current or future destocking or shelf spaces losses, impact and timing of supply chain disruptions and the resolution thereof, timing and extent of any future impairments, and synergies, savings, impact, cost, timing and implementation of the Company’s Turnaround Plan, including operational and organizational structure changes, segment reporting changes, operational execution and simplification initiatives, the move of the Company’s headquarters, and the priorities of senior management. These forward-looking statements are generally identified by words or phrases, such as “anticipate”, “are going to”, “estimate”, “plan”, “project”, “expect”, “believe”, “intend”, “foresee”, “forecast”, “will”, “may”, “should”, “outlook”, “continue”, “temporary”, “target”, “aim”, “potential” and similar words or phrases. These statements are based on certain assumptions and estimates that we consider reasonable, but are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual events or results (including our financial condition, results of operations, cash flows and prospects) to differ materially from such statements, including:

When used herein, the term “includes” and “including” means, unless the context otherwise indicates, “including without limitation”. More information about potential risks and uncertainties that could affect the Company’s business and financial results is included under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 and other periodic reports the Company has filed and may file with the SEC from time to time.

All forward-looking statements made in this release are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this release, and the Company does not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such, and should only be viewed as historical data.

Non-GAAP Financial Measures

The Company operates on a global basis, with the majority of net revenues generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect results of operations. Therefore, to supplement financial results presented in accordance with GAAP, certain financial information is presented excluding the impact of foreign currency exchange translations to provide a framework for assessing how the underlying businesses performed excluding the impact of foreign currency exchange translations (“constant currency”). Constant currency information compares results between periods as if exchange rates had remained constant period-over-period, with the current period’s results calculated at the prior-year period’s rates. The Company calculates constant currency information by translating current and prior-period results for entities reporting in currencies other than U.S. dollars into U.S. dollars using constant foreign currency exchange rates. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different to the functional currency of that entity when exchange rates fluctuate. The constant currency information presented may not be comparable to similarly titled measures reported by other companies. The Company discloses the following constant currency financial measures: net revenues, organic like-for-like (LFL) net revenues, adjusted gross profit and adjusted operating income.

The Company presents period-over-period comparisons of net revenues on a constant currency basis as well as on an organic (LFL) basis. The Company believes that organic (LFL) better enables management and investors to analyze and compare the Company’s net revenues performance from period to period. For the periods described in this release, the term “like-for-like” describes the Company’s core operating performance, excluding the financial impact of (i) acquired brands or businesses in the current year period until we have twelve months of comparable financial results, (ii) the divested brands or businesses or early terminated brands, generally, in the prior year non-comparable periods, to maintain comparable financial results with the current fiscal year period and (iii) foreign currency exchange translations to the extent applicable. For a reconciliation of organic (LFL) period-over-period, see the table entitled “Reconciliation of Reported Net Revenues to Like-For-Like Net Revenues”.

The Company presents operating income, operating income margin, gross profit, gross margin, effective tax rate, net income, net income margin, net revenues and EPS (diluted) on a non-GAAP basis and specifies that these measures are non-GAAP by using the term “adjusted”. The Company believes these non-GAAP financial measures better enable management and investors to analyze and compare operating performance from period to period. In calculating adjusted operating income, operating income margin, gross profit, gross margin, effective tax rate, net income, net income margin and EPS (diluted), the Company excludes the following items:

The estimated supply chain impact to adjusted operating income in the prior year only includes the direct impact on net revenues and the associated impact on cost of sales, while the Company assumed no impact from any other operating expenses.

The Company has provided a quantitative reconciliation of the difference between the non-GAAP financial measures and the financial measures calculated and reported in accordance with GAAP. For a reconciliation of adjusted gross profit to gross profit, adjusted EPS (diluted) to EPS (diluted), and adjusted net revenues to net revenues, see the table entitled “Reconciliation of Reported to Adjusted Results for the Consolidated Statements of Operations.” For a reconciliation of adjusted operating income to operating income and adjusted operating income margin to operating income margin, see the tables entitled “Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income” and “Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income by Segment.” For a reconciliation of adjusted effective tax rate to effective tax rate, see the table entitled “Reconciliation of Reported Income (Loss) Before Income Taxes and Effective Tax Rates to Adjusted Income Before Income Taxes and Adjusted Effective Tax Rates.” For a reconciliation of adjusted net income and adjusted net income margin to net income (loss), see the table entitled “Reconciliation of Reported Net Income (Loss) to Adjusted Net Income.”

The Company also presents free cash flow, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) and net debt. Management believes that these measures are useful for investors because it provides them with an important perspective on the cash available for debt repayment and other strategic measures and provides them with the same measures that management uses as the basis for making resource allocation decisions. Free cash flow is defined as net cash provided by operating activities, less capital expenditures, adjusted EBITDA is defined as adjusted operating income less depreciation and net debt is defined as total debt less cash and cash equivalents. For a reconciliation of Free Cash Flow, see the table entitled “Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow,” for adjusted EBITDA, see the table entitled “Reconciliation of Adjusted Operating Income to Adjusted EBITDA” and for net debt, see the table entitled “Reconciliation of Total Debt to Net Debt.”

These non-GAAP measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

To the extent that the Company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of such forward-looking non-GAAP measures to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for restructuring, integration and acquisition-related expenses, amortization expenses, adjustments to inventory, and other charges reflected in our reconciliation of historic numbers, the amount of which, based on historical experience, could be significant.

COTY INC.

SUPPLEMENTAL SCHEDULES INCLUDING NON-GAAP FINANCIAL MEASURES

 

COTY INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended
September 30,

(in millions, except per share data)

2019

 

2018

Net revenues

$

 

1,942.8

 

 

$

 

2,031.3

 

Cost of sales

 

738.4

 

 

 

809.1

 

as % of Net revenues

 

38.0

%

 

 

39.8

%

Gross profit

 

1,204.4

 

 

 

1,222.2

 

Gross margin

 

62.0

%

 

 

60.2

%

 

 

 

 

Selling, general and administrative expenses

 

1,072.6

 

 

 

1,122.3

 

as % of Net revenues

 

55.2

%

 

 

55.3

%

Gain on sale of business

 

(84.5

)

 

 

Amortization expense

 

84.3

 

 

 

92.5

 

Restructuring costs

 

6.0

 

 

 

15.5

 

Asset impairment charges

 

 

 

12.6

 

Operating income (loss)

 

126.0

 

 

 

(20.7

)

as % of Net revenues

 

6.5

%

 

 

(1.0

%)

Interest expense, net

 

77.4

 

 

 

64.1

 

Other expense, net

 

2.2

 

 

 

2.7

 

Income (loss) before income taxes

 

46.4

 

 

 

(87.5

)

as % of Net revenues

 

2.4

%

 

 

(4.3

%)

Benefit for income taxes

 

(9.9

)

 

 

(77.4

)

Net income (loss)

 

56.3

 

 

 

(10.1

)

as % of Net revenues

 

2.9

%

 

 

(0.5

%)

Net income attributable to noncontrolling interests

 

2.8

 

 

 

1.2

 

Net income attributable to redeemable noncontrolling interests

 

1.2

 

 

 

0.8

 

Net income (loss) attributable to Coty Inc.

$

 

52.3

 

 

$

 

(12.1

)

as % of Net revenues

 

2.7

%

 

 

(0.6

%)

Net income (loss) attributable to Coty Inc. per common share:

 

 

 

Basic

$

 

0.07

 

 

$

 

(0.02

)

Diluted

$

 

0.07

 

 

$

 

(0.02

)

Weighted-average common shares outstanding:

 

 

 

Basic

 

754.2

 

 

 

750.8

 

Diluted

 

758.9

 

 

 

750.8

 

COTY INC.

SUPPLEMENTAL SCHEDULES INCLUDING NON-GAAP FINANCIAL MEASURES

 

RECONCILIATION OF REPORTED TO ADJUSTED RESULTS FOR THE CONSOLIDATED STATEMENTS OF OPERATIONS

 

These supplemental schedules provide adjusted Non-GAAP financial information and a quantitative reconciliation of the difference between the Non-GAAP financial measure and the financial measure calculated and reported in accordance with GAAP.

 

 

 

Three Months Ended September 30, 2019

(in millions)

 

Reported
(GAAP)

 

Adjustments (a)

 

Adjusted
(Non-GAAP)

 

Foreign Currency
Translation

 

Adjusted Results at
Constant Currency

Net revenues

 

$

 

1,942.8

 

 

 

 

$

 

1,942.8

 

 

$

 

48.6

 

 

$

 

1,991.4

 

Gross profit

 

 

1,204.4

 

 

 

 

 

1,204.4

 

 

 

31.4

 

 

 

1,235.8

 

Gross margin

 

 

62.0

%

 

 

 

 

62.0

%

 

 

 

 

62.1

%

Operating income

 

 

126.0

 

 

 

28.7

 

 

 

154.7

 

 

 

6.0

 

 

 

160.7

 

as % of Net revenues

 

 

6.5

%

 

 

 

 

8.0

%

 

 

 

 

8.1

%

Net income attributable to Coty Inc.

 

$

 

52.3

 

 

$

 

(1.8

)

 

$

 

50.5

 

 

 

 

 

as % of Net revenues

 

 

2.7

%

 

 

 

 

2.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPS (diluted)

 

$

 

0.07

 

 

 

 

$

 

0.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

(in millions)

 

Reported
(GAAP)

 

Adjustments (a)

 

Adjusted
(Non-GAAP)

 

 

 

 

Net revenues

 

$

 

2,031.3

 

 

 

 

$

 

2,031.3

 

 

 

 

 

Gross profit

 

 

1,222.2

 

 

 

5.2

 

 

 

1,227.4

 

 

 

 

 

Gross margin

 

 

60.2

%

 

 

 

 

60.4

%

 

 

 

 

Operating (loss) income

 

 

(20.7

)

 

 

161.5

 

 

 

140.8

 

 

 

 

 

as % of Net revenues

 

 

(1.0

%)

 

 

 

 

6.9

%

 

 

 

 

Net (loss) income attributable to Coty Inc.

 

$

 

(12.1

)

 

$

 

92.6

 

 

$

 

80.5

 

 

 

 

 

as % of Net revenues

 

 

(0.6

%)

 

 

 

 

4.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPS (diluted)

 

$

 

(0.02

)

 

 

 

$

 

0.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

See “Reconciliation of Reported Operating Income (Loss) to Adjusted Operated Income” and “Reconciliation of Reported Net Income (Loss) to Adjusted Net Income” for a detailed description of adjusted items.

RECONCILIATION OF REPORTED OPERATING INCOME (LOSS) TO ADJUSTED OPERATING INCOME

 

 

 

Three Months Ended September 30,

(in millions)

 

2019

 

2018

 

Change

Reported Operating Income (Loss)

 

126.0

 

 

(20.7

)

 

>100%

% of Net revenues

 

6.5

%

 

(1.0

%)

 

 

Amortization expense (a)

 

84.3

 

 

92.5

 

 

(9

%)

Restructuring and other business realignment costs (b)

 

28.9

 

 

56.4

 

 

(49

%)

Gain on sale of business (c)

 

(84.5

)

 

 

 

N/A

Asset impairment charges (d)

 

 

 

12.6

 

 

(100

%)

Total adjustments to Reported Operating Income

 

28.7

 

 

161.5

 

 

(82

%)

Adjusted Operating Income

 

154.7

 

 

140.8

 

 

10

%

% of Net revenues

 

8.0

%

 

6.9

%

 

 

(a)

In the three months ended September 30, 2019, amortization expense decreased to $84.3 from $92.5 in the three months ended September 30, 2018. In the three months ended September 30, 2019, amortization expense of $38.0, $29.1, and $17.2 was reported in the Luxury, Consumer Beauty and Professional Beauty segments, respectively. In three months ended September 30, 2018, amortization expense of $40.3, $33.4, and $18.8 was reported in the Luxury, Consumer Beauty, and Professional Beauty segments, respectively.

(b)

In the three months ended September 30, 2019, we incurred restructuring and other business structure realignment costs of $28.9. We incurred Restructuring costs of $6.0 primarily related to the Turnaround Plan, included in the Condensed Consolidated Statements of Operations. We incurred business structure realignment costs of 22.9 primarily related to the Turnaround Plan, included in Selling, general and administrative expenses in the Consolidated Statement of Operations. In the three months ended September 30, 2018, we incurred restructuring and other business structure realignment costs of $56.4. We incurred Restructuring costs of $15.5 primarily related to our global integration activities and 2018 restructuring actions, included in the Condensed Consolidated Statements of Operations. We incurred business structure realignment costs of $40.9 primarily related to our Global Integration Activities and certain other programs. This amount primarily includes $35.7 in Selling, general and administrative expense and $5.2 in Cost of sales

(c)

In the three months ended September 30, 2019, we completed the divestiture of Younique resulting in income of $84.5 included in Gain on sale of business in the Condensed Consolidated Statements of Operations. In three months ended September 30, 2018, we did not divest any business.

(d)

In the three months ended September 30, 2019, we did not incur any asset impairment charges. In the three months ended September 30, 2018, the Company acquired a trademark associated with a preexisting license. As a result of the acquisition, the preexisting license was effectively terminated, and accordingly the Company recorded $12.6 of asset impairment charges in the Condensed Consolidated Statement of Operations related to the license agreement.

RECONCILIATION OF REPORTED INCOME (LOSS) BEFORE INCOME TAXES AND EFFECTIVE TAX RATES TO
ADJUSTED INCOME BEFORE INCOME TAXES AND ADJUSTED EFFECTIVE TAX RATES

 

 

 

Three Months Ended September 30, 2019

 

Three Months Ended September 30, 2018

(in millions)

 

Income
Before
Income
Taxes

 

(Benefit)
Provision
for Taxes

 

Effective
Tax Rate

 

(Loss)
Income
Before
Income
Taxes

 

(Benefit)
Provision
for Taxes

 

Effective
Tax Rate

Reported Income (Loss) Before Taxes

 

$

 

 

46.4

 

 

$

 

 

(9.9

)

 

(21.3

)%

 

$

 

 

(87.5

)

 

$

 

 

(77.4

)

 

88.5

%

Gain on sale of business adjustment (a) (b)

 

 

(84.5

)

 

 

4.8

 

 

 

 

 

 

 

 

 

Other adjustments to reported operating income (a) (b)

 

 

113.2

 

 

 

22.7

 

 

 

 

 

161.5

 

 

 

65.1

 

 

 

Adjusted Income Before Taxes

 

$

 

 

75.1

 

 

$

 

 

17.6

 

 

23.4

%

 

$

 

 

74.0

 

 

$

 

 

(12.3

)

 

(16.6

%)

(a)

See a description of adjustments under “Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income”.

(b)

The tax effects of each of the items included in adjusted income are calculated in a manner that results in a corresponding income tax benefit/provision for adjusted income. In preparing the calculation, each adjustment to reported income is first analyzed to determine if the adjustment has an income tax consequence. The benefit/provision for taxes is then calculated based on the jurisdiction in which the adjusted items are incurred, multiplied by the respective statutory rates and offset by the increase or reversal of any valuation allowances commensurate with the non–GAAP measure of profitability.

The adjusted effective tax rate was 23.4% for the three months ended September 30, 2019 compared to (16.6%) for the three months ended September 30, 2018. The differences were primarily due to a $30.0 tax benefit recognized as a result of a favorable Swiss tax ruling in the prior period.

RECONCILIATION OF REPORTED NET INCOME (LOSS) TO ADJUSTED NET INCOME

 

 

 

Three Months Ended September 30,

(in millions)

 

2019

 

2018

 

Change

Reported Net Income (Loss) Attributable to Coty Inc.

 

$

 

52.3

 

 

$

 

(12.1

)

 

>100%

% of Net revenues

 

 

2.7

%

 

 

(0.6

%)

 

 

Adjustments to Reported Operating Income (a)

 

 

28.7

 

 

 

161.5

 

 

(82

%)

Adjustments to noncontrolling interests (b)

 

 

(3.0

)

 

 

(3.8

)

 

21

%

 

Change in tax provision due to adjustments to Reported Net Income Attributable to Coty Inc.

 

 

(27.5

)

 

 

(65.1

)

 

58

%

Adjusted Net Income Attributable to Coty Inc.

 

$

 

50.5

 

 

$

 

80.5

 

 

(37

%)

% of Net revenues

 

 

2.6

%

 

 

4.0

%

 

 

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

 

Adjusted weighted-average common shares

 

 

 

 

 

 

Basic

 

 

754.2

 

 

 

750.8

 

 

 

Diluted

 

 

758.9

 

 

 

752.7

 

 

 

Adjusted Net Income Attributable to Coty Inc. per Common Share

 

 

 

 

 

 

Basic

 

$

 

0.07

 

 

$

 

0.11

 

 

 

Diluted

 

$

 

0.07

 

 

$

 

0.11

 

 

 

(a)

See a description of adjustments under “Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income”.

(b)

The amounts represent the impact of non-GAAP adjustments to Net income attributable to noncontrolling interest related to the Company’s majority-owned consolidated subsidiaries. The amounts are based on the relevant noncontrolling interest’s percentage ownership in the related subsidiary, for which the non-GAAP adjustments were made.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW

 

 

Three Months Ended September 30,

(in millions)

2019

 

2018

Net cash provided by operating activities

$

 

39.9

 

 

$

 

(81.9

)

Capital expenditures

 

(86.4

)

 

 

(133.6

)

Free cash flow

$

 

(46.5

)

 

$

 

(215.5

)

RECONCILIATION OF TOTAL DEBT TO NET DEBT

 

(in millions)

 

September 30, 2019

Total debt

 

$

 

7,716.5

 

Cash and cash equivalents

 

 

350.4

 

Net debt

 

$

 

7,366.1

 

RECONCILIATION OF ADJUSTED OPERATING INCOME TO ADJUSTED EBITDA

 

(in millions)

 

Twelve Months Ended
September 30, 2019

Adjusted operating income (a)

 

$

963.6

 

Depreciation (b)

 

382.4

 

Pension Adjustment (c)

 

1.5

 

Adjusted EBITDA

 

1,347.5

 

(a)

Adjusted operating income for the twelve months ended September 30, 2019 represents the summation of the adjusted operating income for each of the three months ended December 31, 2018, March 31, 2019, June 30, 2019, and September 30, 2019. For a reconciliation of adjusted operating income to operating income for each of those periods, see the tables entitled “Reconciliation of Reported Operating Income to Adjusted Operating Income” and "Reconciliation of Reported Operating Income to Adjusted Operating Income by Segment" for each of those periods.

(b)

The depreciation adjustment for the twelve months ended September 30, 2019 represents the summation of depreciation expense for each of the three months ended December 31, 2018, March 31, 2019, June 30, 2019, and September 30, 2019 as adjusted by $1.5, $0.2, $0, and $0.2 respectively, for accelerated depreciation.

(c)

The pension expense adjustment for the twelve months ended September 30, 2019 represents the summation of the non-service cost components of net periodic pension cost for each of the three months ended December 31, 2018, March 31, 2019, June 30, 2019, and September 30, 2019.

NET DEBT/ADJUSTED EBITDA

 

 

 

September 30, 2019

Net Debt

 

7,366.1

 

EBITDA

 

1,347.5

 

Net Debt/Adjusted EBITDA

 

5.47

 

NET REVENUES AND ADJUSTED OPERATING INCOME BY SEGMENT

 

 

 

Three Months Ended September 30,

 

 

Net Revenues

 

Change

 

Reported Operating
Income

 

Adjusted Operating
Income

(in millions)

 

2019

 

2018

 

Reported
Basis

 

Constant
Currency

 

2019

 

Change

 

2019

 

Change

Luxury

 

$

 

806.7

 

 

$

 

792.9

 

 

2

%

 

4

%

 

$

 

90.3

 

 

85

%

 

$

 

128.3

 

 

26

%

Consumer Beauty

 

 

716.5

 

 

 

828.8

 

 

(14

%)

 

(12

%)

 

 

(43.3

)

 

<(100%)

 

 

(14.2

)

 

<(100)%

Professional

 

 

419.6

 

 

 

409.6

 

 

2

%

 

5

%

 

 

24.4

 

 

>100%

 

 

41.6

 

 

75

%

Corporate

 

 

 

 

 

N/A

 

%

 

 

54.6

 

 

>100%

 

 

(1.0

)

 

<(100)%

Total

 

$

 

1,942.8

 

 

$

 

2,031.3

 

 

(4

%)

 

(2

%)

 

$

 

126.0

 

 

>100%

 

$

 

154.7

 

 

10

%

 

NET REVENUES BY GEOGRAPHIC REGION

 

 

 

Three Months Ended September 30,

 

 

Net Revenues

 

Change

(in millions)

 

2019

 

2018

 

Reported Basis

 

Constant
Currency

North America

 

$

586.6

 

 

$

644.9

 

 

(9

%)

 

(9

%)

Europe

 

869.6

 

 

872.2

 

 

%

 

4

%

ALMEA

 

486.6

 

 

514.2

 

 

(5

%)

 

(3

%)

Total

 

$

1,942.8

 

 

$

2,031.3

 

 

(4

%)

 

(2

%)

RECONCILIATION OF REPORTED OPERATING INCOME (LOSS) TO ADJUSTED OPERATING INCOME BY SEGMENT

 

 

 

Three Months Ended September 30, 2019

(in millions)

 

Reported
(GAAP)

 

Adjustments (a)

 

Adjusted
(Non-GAAP)

 

Foreign
Currency
Translation

 

Adjusted
Results at
Constant
Currency

OPERATING INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

Luxury

 

$

90.3

 

 

$

(38.0

)

 

$

128.3

 

 

$

0.6

 

 

$

128.9

 

Consumer Beauty

 

(43.3

)

 

(29.1

)

 

(14.2

)

 

3.1

 

 

(11.1

)

Professional Beauty

 

24.4

 

 

(17.2

)

 

41.6

 

 

2.3

 

 

43.9

 

Corporate

 

54.6

 

 

55.6

 

 

(1.0

)

 

 

 

(1.0

)

Total

 

$

126.0

 

 

$

(28.7

)

 

$

154.7

 

 

$

6.0

 

 

$

160.7

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING MARGIN

 

 

 

 

 

 

 

 

 

 

Luxury

 

11.2

%

 

 

 

15.9

%

 

 

 

15.6

%

Consumer Beauty

 

(6.0

%)

 

 

 

(2.0

%)

 

 

 

(1.5

%)

Professional Beauty

 

5.8

%

 

 

 

9.9

%

 

 

 

10.2

%

Corporate

 

N/A

 

 

 

N/A

 

 

 

N/A

Total

 

6.5

%

 

 

 

8.0

%

 

 

 

8.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2018

 

 

 

 

(in millions)

 

Reported
(GAAP)

 

Adjustments (a)

 

Adjusted
(Non-GAAP)

 

 

 

 

OPERATING (LOSS) INCOME

 

 

 

 

 

 

 

 

 

 

Luxury

 

$

48.7

 

 

$

(52.9

)

 

$

101.6

 

 

 

 

 

Consumer Beauty

 

(18.6

)

 

(33.4

)

 

14.8

 

 

 

 

 

Professional Beauty

 

5.0

 

 

(18.8

)

 

23.8

 

 

 

 

 

Corporate

 

(55.8

)

 

(56.4

)

 

0.6

 

 

 

 

 

Total

 

$

(20.7

)

 

$

(161.5

)

 

$

140.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING MARGIN

 

 

 

 

 

 

 

 

 

 

Luxury

 

6.1

%

 

 

 

12.8

%

 

 

 

 

Consumer Beauty

 

(2.2

%)

 

 

 

1.8

%

 

 

 

 

Professional Beauty

 

1.2

%

 

 

 

5.8

%

 

 

 

 

Corporate

 

N/A

 

 

 

N/A

 

 

 

 

Total

 

(1.0

%)

 

 

 

6.9

%

 

 

 

 

(a)

See “Reconciliation of Reported Operating Income (Loss) to Adjusted Operated Income” for a detailed description of adjusted items.

RECONCILIATION OF REPORTED NET REVENUES TO LIKE-FOR-LIKE NET REVENUES

 

 

 

Three Months Ended September 30, 2019 vs. Three Months Ended September 30,
2018
Net Revenue Change

Net Revenues Change YoY

 

Reported Basis

 

Constant Currency

 

Impact from
Divestiture 1

 

Organic (LFL)

Luxury

 

2

%

 

4

%

 

%

 

4

%

Consumer Beauty

 

(14

)%

 

(12

)%

 

(2

)%

 

(10

)%

Professional Beauty

 

2

%

 

5

%

 

%

 

5

%

Total Company

 

(4

)%

 

(2

)%

 

(1

)%

 

(1

)%

1

Divestiture reflects the incremental net revenues in the three months ended September 30, 2018 for the full month of September 2018 as compared to a 16 day contribution during the month ended September 2019 from Younique during the three months ended September 30, 2019.

COTY INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(in millions)

September
30, 2019

 

June 30,
2019

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

 

350.4

 

 

$

 

340.4

 

Restricted cash

 

31.0

 

 

 

40.0

 

Trade receivables

 

1,036.6

 

 

 

1,161.2

 

Inventories

 

1,150.8

 

 

 

1,153.3

 

Prepaid expenses and other current assets

 

563.9

 

 

 

577.8

 

Total current assets

 

3,132.7

 

 

 

3,272.7

 

Property and equipment, net

 

1,469.9

 

 

 

1,600.6

 

Goodwill

 

4,917.3

 

 

 

5,073.8

 

Other intangible assets, net

 

6,963.8

 

 

 

7,422.3

 

Operating lease right-of-use assets (a)

 

491.9

 

 

 

Other noncurrent assets

 

307.9

 

 

 

296.0

 

TOTAL ASSETS

$

 

17,283.5

 

 

$

 

17,665.4

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

 

1,548.1

 

 

$

 

1,732.7

 

Short-term debt and current portion of long-term debt

 

185.4

 

 

 

193.8

 

Current operating lease liabilities (a)

 

96.5

 

 

 

Other current liabilities

 

1,407.4

 

 

 

1,550.6

 

Total current liabilities

 

3,237.4

 

 

 

3,477.1

 

Long-term debt, net

 

7,453.5

 

 

 

7,469.9

 

Long-term operating lease liabilities (a)

 

457.9

 

 

 

Other noncurrent liabilities

 

1,575.8

 

 

 

1,673.2

 

Total liabilities

 

12,724.6

 

 

 

12,620.2

 

REDEEMABLE NONCONTROLLING INTERESTS

 

94.6

 

 

 

451.8

 

Total Coty Inc. stockholders’ equity

 

4,455.0

 

 

 

4,586.9

 

Noncontrolling interests

 

9.3

 

 

 

6.5

 

Total equity

 

4,464.3

 

 

 

4,593.4

 

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

$

 

17,283.5

 

 

$

 

17,665.4

 

(a)

Reflects the July 1, 2019 modified retrospective adoption of ASU 2016-02, Leases.

COTY INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended
September 30,

(in millions)

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net income (loss)

$

 

56.3

 

 

$

 

(10.1

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

179.2

 

 

 

185.6

 

Operating lease right-of-use asset amortization (a)

 

26.1

 

 

 

Deferred income taxes

 

(32.6

)

 

 

(99.8

)

Share-based compensation

 

6.2

 

 

 

6.4

 

Gain on sale of business

 

(84.5

)

 

 

Other

 

31.2

 

 

 

39.3

 

Change in operating assets and liabilities, net of effects from purchase of acquired companies and sale of
business:

 

 

 

Trade receivables

 

71.7

 

 

 

35.6

 

Inventories

 

(72.9

)

 

 

(109.5

)

Accounts payable

 

(103.2

)

 

 

(83.2

)

Operating lease liabilities (a)

 

(26.7

)

 

 

Other

 

(10.9

)

 

 

(46.2

)

Net cash provided by (used in) operating activities

 

39.9

 

 

 

(81.9

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Capital expenditures

 

(86.4

)

 

 

(133.6

)

Proceeds from sale of business, net of cash disposed (b)

 

25.6

 

 

 

Payment for asset acquisitions

 

 

 

(40.8

)

Net cash used in investing activities

 

(60.8

)

 

 

(174.4

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

Proceeds from debt, net

 

146.6

 

 

 

466.2

 

Dividend payment

 

(63.3

)

 

 

(93.8

)

Purchase of remaining mandatorily redeemable noncontrolling interest

 

(45.0

)

 

 

Other financing activities

 

(1.6

)

 

 

(20.6

)

Net cash provided by financing activities

 

36.7

 

 

 

351.8

 

EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

(14.8

)

 

 

(4.5

)

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

1.0

 

 

 

91.0

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period

 

380.4

 

 

 

362.2

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period

$

 

381.4

 

 

$

 

453.2

 

(a)

Reflects the July 1, 2019 modified retrospective adoption of ASU 2016-02, Leases.

(b)

On August 27, 2019, the Company entered into a Contribution and Redemption Agreement to transfer all of its membership interest in Foundation, LLC (“Foundation”), which held the net assets of Younique, LLC (“Younique”), to an existing noncontrolling interest holder. Consideration received at the Closing Date consisted of $50.0 cash and a secured promissory note with a face value of $27.9.

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20191106005264/en/

CONTACT: Investor RelationsOlga Levinzon, +1 212 389-7733

olga_levinzon@cotyinc.comMedia RelationsLisa Kessler, +1 917 348-3373

lisa_kessler@cotyinc.comArnaud Leblin, +33 1 58 71 72 00

arnaud_leblin@cotyinc.com

KEYWORD: NEW YORK UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: COSMETICS RETAIL LUXURY DEPARTMENT STORES

SOURCE: Coty Inc.

Copyright Business Wire 2019.

PUB: 11/06/2019 06:30 AM/DISC: 11/06/2019 06:30 AM

http://www.businesswire.com/news/home/20191106005264/en