Coty Inc. Q3 Net Revenues In Line with Prior Year Like-for-Like

Year-to-Date Adjusted EPS Up 17%.

The Luxonomist. 11/05/2015
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Coty is a leading global beauty company with net revenues of $4.6 billion for the fiscal year ended June 30, 2014.  Founded in Paris in 1904, Coty is a pure play beauty company with a portfolio of well-known fragrances, color cosmetics and skin & body care products sold in over 130 countries and territories.  Coty’s product offerings include such power brands as adidas, Calvin Klein, Chloe, DAVIDOFF, Marc Jacobs, OPI, philosophy, Playboy, Rimmel and Sally Hansen.

Commenting on the Coty’s performance, Bart Becht, Chairman and Interim CEO said: «Q3 was our second consecutive quarter behind our new strategy of driving revenue growth on our Power brands and returning Coty to profitable growth behind efficiency programs. We have made excellent progress in driving profit growth behind efficiency programs, as shown by the 24% growth in Q3 adjusted operating profits. As our success in this area is very good, we will be looking to increase the $200 million target for our Global Efficiency Plan.  We will come back to this as part of our FY15 results discussion. Power brand and overall growth on the other hand is still muted despite some bright spots like Sally Hansen, Rimmel and Chloe. Now that we have created more space in the P&L through our efficiency programs, our objective is to re-invest part of those savings to steadily improve our growth track record going forward.

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In this respect, I am very happy with our recent recruitment of Elio Leoni Sceti, as CEO and Camillo Pane, as EVP of Category Development, two highly experienced managers with a proven track record of building successful, global brands in a broad variety of consumer-oriented businesses. I am confident that they will make a real difference in Coty’s performance and I am looking forward to working with both in my role as Chairman.

We are also excited to have closed the Bourjois transaction on April 1st with the Bourjois brand joining our portfolio and Chanel becoming a Coty shareholder. We view the Bourjois brand as very complementary to our portfolio, further strengthening Coty’s position in the global color cosmetics market.

Looking forward, we remain optimistic about Coty’s future and its ability to make steady progress under its new strategy. Specifically, for fiscal year 2015, adjusted earnings per diluted share are projected to be between $0.95 and $0.98, reflecting year-on-year growth between 17% and 21%.»

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Net revenues of $933.8 million were flat like-for-like and declined 7% as reported from the prior-year period. Continued strong like-for-like growth in Color Cosmetics was offset by declines in Fragrances and Skin & Body Care. The 6% like-for-like increase in the Color Cosmetics segment was driven by power brands, Sally Hansenand Rimmel. Fragrances declined 2% like-for-like as new launches could not offset pressure on select existing product lines. Skin & Body Care declined 4% like-for-like, driven primarily by lower net revenues from adidas and Playboy.

By geographic region, solid growth in the Americas was offset by declines in EMEA and Asia Pacific. Americas net revenues grew 5% like-for-like, reflecting growth in the U.S. business and the contribution from the Avon commercial partnership in Brazil. EMEA revenues decreased 3% like-for-like, as declines in the developed markets and Travel Retail were partially offset by growth in Eastern Europe, the Middle East and South AfricaAsia Pacific net revenues decreased 2% like-for-like, reflecting declines in China in part due to a change in business model, partially offset by growth in Australia, Korea, and Southeast Asia. Emerging markets grew 5% like-for-like in the quarter.

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Adjusted gross margin of 61.6% was in-line with the prior-year period. Adjusted SG&A expense as a percentage of adjusted net revenues decreased to 48.8% from 51.4% in the prior-year period. The percentage decrease was driven by lower fixed costs, lower advertising and consumer promotion spending focused on a reduction in non-working media such as advertising production and copyright fees, and a rationalization of spending on non-power brands, as well as due to foreign currency translation.

Operating income increased to $114.7 million from $(272.0) million in the prior-year period. The reported operating income increase primarily reflected the $316.9 million one-time asset impairment charge in the prior-year period.

Adjusted operating income increased 24% to $100.9 million from $81.4 million in the prior-year period. As a percentage of adjusted net revenues, adjusted operating margin increased 280 basis points to 10.9% from 8.1%.

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The Company remains focused on growing its power brands around the world through innovation, strong support levels and improved «in-market» execution. Coty remains focused on cost optimization opportunities to improve profitability and to provide for investment in its power brands.

As a result, FY15 adjusted earnings per diluted share, including the negative impact of foreign currency translation and the impact of the Bourjois acquisition, are projected to be between $0.95 and $0.98, reflecting year-on-year growth between 17% and 21%. Other noteworthy company developments:

  • On April 1st, the Company closed the Bourjois acquisition. Coty believes that Bourjois’ strength in key European color cosmetics markets is very complementary to its existing color portfolio.
  • As part of the Bourjois transaction, the Company’s foreign subsidiaries purchased approximately 15.4 million Class A shares from Coty Inc. for $373.5 million in available cash and subsequently exchanged these shares with Chanel for Bourjois shares. Coty Inc. used the cash proceeds from its foreign subsidiaries to repay debt, reducing total debt from $3.6 billion as of March 31 to $3.2 billion. The transaction did not impact the Company’s net debt levels.
  • During the quarter, the Company successfully completed an $800 million term loan financing, using the proceeds to pay down debt and extend debt maturities.

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