Sales Growth Well Ahead of Beauty Market,
with Strong Gross Margin and Profit Expansion Prestige
Double-Digit Sell-Out Growth Continues to Lead, Fueled by Strong
Fragrance Demand FY23 Revenue and Profit Reaffirmed
Committed to Leverage Towards 4x Exiting CY22 and Towards 3x
Exiting CY23 Advancing ESG Strategy, with Top Quartile ESG
Rating from Sustainalytics
Coty Inc. (NYSE: COTY) ("Coty" or "the Company") today announced
its results for the first quarter of fiscal year 2023, ended
September 30, 2022. The Company continued to deliver strong
financial progress, with further execution across each of its
strategic growth pillars.
Coty's Q1 sales performance was once again well ahead of the
underlying beauty market, putting Coty amongst the best in its
competitive set. Q1 sales increased 1% as reported including over
7% of FX headwinds, with sales up 9% on a LFL basis, which includes
approximately 200 bps of negative impact from the Russia business
exit. As a result, LFL sales growth surpassed the Company's
upwardly-revised guidance, which called for +8-9% LFL growth
adjusting for the impact of the Russia exit.
During the quarter, consumer demand for beauty products,
particularly prestige fragrances, remained robust, with estimated
sell-out in Coty's Prestige division growing in the low double
digits1. This performance is ahead of the estimated sell-out in
Coty's Consumer Beauty division growing in the mid-to-high single
digits. At the same time, the Company delivered strong LFL growth
across both divisions, with Prestige growth constrained due to
industry-wide supply-chain pressures which were exacerbated by
strong fragrance demand which has surpassed expectations, the
impact of the Company's exit from Russia, and launch phasing.
Coty's Prestige business maintained its strong momentum in Q1,
supported by a robust fragrance market and Coty's leading
innovation. Q1 Prestige revenues declined 1% as reported and grew
7% LFL, which included approximately 300 bps of negative impact
from Coty's exit from Russia. The growth in Prestige sales was also
constrained by industry-wide fragrance component shortages as well
as difficult growth comparisons in the prior year when Coty shipped
several blockbuster launches. In Q1 Coty continued its track record
of launching successful fragrance innovations, with the recently
launched Gucci Flora Gorgeous Jasmine building on the momentum of
last year's top-selling Gucci Flora Gorgeous Gardenia, elevating
the Flora franchise to Top 10 in North America and Europe.
Similarly, the launch of Burberry Hero EDP built on the success of
Burberry Hero EDT, driving the Hero franchise to Top 10 in the U.S.
and the highest market share for Burberry in the UK. The Company
continued to expand its footprint on - and off-line across its
three prestige cosmetics brands, even as the periodic lockdowns in
China weighed on Coty's prestige cosmetics sales. Meanwhile, Coty
continued to build momentum in its Lancaster skincare brand, with
over 20% growth vs. the prior year period, in anticipation of its
key brand initiatives in second half FY23.
Coty's Consumer Beauty business delivered strong Q1 results,
supported by sustained market share momentum and strong activity.
Consumer Beauty Q1 revenues grew 5% as reported and 12% LFL. While
revenue growth in cosmetics and mass fragrances was broadly in-line
to ahead of sell-out, the division was boosted by a strong launch
pipeline and brand initiatives in its bodycare business, including
adidas' Skin & Mind premium and sustainable bodycare range,
Monange's silicone-free deodorant, and Bozzano's clinical range.
During the quarter, the global mass beauty category grew at a
moderate pace, while Coty continued to outperform the market and
expand its market share on a global basis, marking 10 consecutive
months of gains2.
Geographically, revenues grew in all regions on a constant
currency basis. EMEA sales declined 3% as reported but grew 11% LFL
fueled by significant Travel Retail momentum and double digit
growth across most markets. Americas saw strong momentum in Brazil
and Latin America, while the continued strength in U.S. demand was
counter-balanced by supply constraints. Asia Pacific grew 6% as
reported and 12% LFL, with strong momentum in Asia-ex-China and
Travel Retail, while China revenues returned to growth YoY.
Despite the heightened inflationary environment and a higher
contribution from the lower gross margin bodycare business, Coty
continued to generate solid gross margin expansion in the quarter,
while also maintaining an increased level of media activities to
further drive revenue and sell-out growth. In Q1, reported gross
margins expanded by 70 bps YoY to 63.9%, while adjusted gross
margin grew 70 bps YoY to 64.1%, even as inflationary headwinds
remained at ~2% of revenues in Q1. This solid gross margin
expansion was driven by favorable pricing as well as trade spend
improvement. Coty delivered Q1 reported operating income of $171.9
million, a 10x increase vs. the prior year period, and adjusted
operating income of $249.6 million, reflecting robust 24% growth
YoY. Adjusted EBITDA of $307.9 million also grew 11% YoY.
During Q1, Coty generated strong free cash flow of $88.2
million, driving Financial Net Debt lower to $4.2 billion at the
end of the quarter. As a result, the financial leverage ratio of
<4.5 exiting Q1 improved sequentially from the 4.7x at the end
of the previous quarter, putting Coty well on track for its target
to drive leverage towards 4x exiting CY22. The value of Coty's
retained 26% Wella stake increased to approximately $1.0 billion at
quarter-end, reflecting Wella's recent acquisition of a high-growth
haircare brand. This supported Coty's Economic Net Debt at
approximately $3.2 billion.
Commenting on the operating results, Sue Y. Nabi, Coty's CEO,
said:
"Our strong Q1 results, in the midst of a complex external
environment including ongoing component shortages, confirm the
strength and resilience of Coty's brands, teams, strategy and
operating model. This represents the ninth consecutive quarter of
Coty reporting results in-line to ahead of expectations. The
progress we continue to make should be evident across all key
financial KPIs, from sales to gross margins and adjusted EBITDA to
our deleveraging progress.
While Coty has certainly benefited from a resilient beauty
category, I am particularly pleased that our balanced growth
strategy remains in full force. We delivered robust growth across
all of our regions, each of our key categories including
fragrances, cosmetics, skincare and bodycare, and across both
divisions. This has allowed us to again report sales growth well
above the underlying beauty market and among the best in our
competitive set.
Our strong topline delivery and gross margin expansion has
enabled us to maintain our reinvestment in working media, and we
remain committed to continuing this trajectory, particularly during
the crucial Q2 holiday period. While FX has naturally weighed on
our reported sales, I am pleased that the close alignment between
our regional sales mix and regional cost mix have protected our
profit delivery.
In addition, we continued to execute on each of our strategic
pillars. In Consumer Beauty, we have continued the momentum, with
the 10th consecutive month of share gains.
Our Prestige fragrance business also continued to deliver
outstanding results, despite facing a very tough year-over-year
comparison in Q1. We are continuing to witness the "fragrance
index" at full force, as consumers turn to fragrances as
mood-boosting and affordable luxuries in an uncertain
environment.
In Prestige cosmetics, we continued to build out our footprint
across our 3 brands Burberry, Gucci and Kylie Cosmetics.
As we shared in September, growing our Skincare business is a
key strategic objective for us in the coming years. With Lancaster
as a critical building block in this targeted growth, it is very
encouraging that Lancaster sales grew over 20% in the quarter.
In Digital, our multi-pronged strategy continued to push Coty to
the forefront, whether through viral social commerce successes
around the Marc Jacobs Daisy Ever So Fresh launch, an exclusive,
digital-first partnership between Max Factor and Chinese fashion
brand Labelhood, or global success during Amazon Prime Week.
On China, our business returned to LFL growth despite the
continued intermittent lockdowns, with no change in our view about
the structural attractiveness of the Chinese beauty market in the
coming years, led by premium offerings.
Finally, on our sixth strategic pillar, becoming a leader in
sustainability, I am incredibly pleased that Coty's continued
improvements in its ESG transformation, disclosures and
policy-setting have been recognized by Sustainalytics. This leading
rating agency recently raised our ESG rating, putting Coty in the
top quartile of Personal Products companies. Our transformation
does not end there, with a major milestone in our Social agenda
with the recent announcement of Coty's market-leading
gender-neutral global parental leave policy. With more updates soon
to come on our Environmental agenda, we are excited by Coty's
progress to date and journey ahead."
*Adjusted financial metrics used in this
release are non-GAAP. See reconciliations of GAAP results to
Adjusted results in the accompanying tables.
1 Prestige sell-out based on sell-out data
covering over 70% of the Company's Prestige sales base
2 Consumer Beauty global market share data
available through August 2022
Highlights
- 1Q23 net revenue trends were driven by strong LFL growth in
both Prestige and Consumer Beauty, with sell-out growth in Prestige
in the low double digits and sell-out growth in Consumer Beauty in
the mid-to-high single digits.
- Reported operating income totaled $171.9 million in 1Q23.
- 1Q23 adjusted operating income increased 24% to $249.6 million,
with a margin of 18.0%, reflecting very strong 340 bps of margin
expansion.
- 1Q23 adjusted EBITDA grew 11% to $307.9 million, with a margin
of 22.2%, delivering strong margin expansion of 190 bps.
- 1Q23 reported EPS was $0.15. Adjusted EPS of $0.11 improved
from $0.08 last year, despite a $0.04 negative impact on EPS from
the mark-to-market on the equity swap.
- Savings totaled over $20M in Q1, with a clear roadmap to reach
savings of approximately $170 million in FY23.
- 1Q23 free cash flow was solid at $88.2 million.
- Financial Net Debt was $4.2 billion and Economic Net Debt
totaled $3.2 billion at quarter end, with Coty remaining fully on
track to drive financial leverage towards 4x exiting CY22
Outlook
Coty continues to see strong demand growth across nearly all
markets, particularly in Prestige fragrances, with Coty maintaining
strong launch activity in both Prestige and Consumer Beauty. At the
same time, this robust demand is contributing to component
shortages, which remain the primary limitation to near-term growth.
The Company remains confident in its FY23 outlook, which is inline
with its medium term growth algorithm.
Coty continues to target FY23 adjusted EBITDA of $955-965M based
on current FX rates, relatively in-line with its medium term growth
target of +9-11%, adjusting for the impact of the Russia exit.
Coty continues to expect FY23 adjusted EPS growth in the
mid-teens to $0.32-0.33, which excludes any mark-to-market
adjustments on the equity swap and assumes no significant changes
in the current tax regulations. The Company continues to anticipate
adjusted EPS growth acceleration in FY24 and beyond fueled by lower
interest expenses as part of its deleveraging efforts, consistent
with its medium-term targets.
The Company continues to expect FY23 revenues for the core
business, adjusting for the impact of the Russia exit, to grow 6-8%
LFL. The exit from Russia is estimated to negatively impact FY23
sales by approximately 2%. Based on current exchange rates, the
Company anticipates FX headwinds on FY23 revenues of 6-8%.
With strong Q1 results, 1H23 core business LFL revenue growth
trends are expected to be consistent with its annual growth target
of +6-8%, with demand remaining robust in Q2 and component
constraints the primary limitation to growth. Q2 sales results will
include the impact from exiting the Russia business, estimated at
approximately 3% of revenues, as well as an estimated FX headwind
on sales of 7-9% at current rates, with more moderate impact on
profit.
Coty continues to expect modest gross margin expansion in both
Q2 and in FY23, despite the elevated inflationary environment.
In addition, the Company continues to target leverage towards 4x
exiting CY22 based on CY22 adjusted EBITDA approaching $950M, and
continues to expect leverage of approximately 3x exiting CY23 and
2x exiting CY25.
Financial Results*
Refer to “Non-GAAP Financial Measures” for discussion of the
non-GAAP financial measures used in this release; reconciliations
from reported to adjusted results can be found at the end of this
release.
Revenues:
- 1Q23 reported net revenues of $1,390.0 million increased 1%
year-over-year, including a negative foreign exchange (FX) impact
of 7%. LFL revenue increased 9%, driven by a 7% increase in
Prestige and a 12% increase in Consumer Beauty. The exit from
Russia represented ~2% headwind to total Coty LFL, a ~3% headwind
to Prestige LFL, and a negligible impact to Consumer Beauty.
Gross Margin:
- 1Q23 reported gross margin of 63.9% increased from 63.2% in the
prior-year period, while adjusted gross margin of 64.1% increased
from 63.4% in 1Q22. The increase was driven by pricing and improved
trade spend, partially offset by COGS inflation.
Operating Income and EBITDA:
- 1Q23 reported operating income of $171.9 million improved from
a reported operating income of $17.2 million in the prior year due
to a $77.1 million reduction in stock based compensation, higher
gross profit, and a $15.9 million reduction in restructuring and
other business realignment costs.
- 1Q23 adjusted operating income of $249.6 million rose 24% from
$200.5 million in the prior year, driven by higher sales and gross
profit, and a $19.7 million reduction in depreciation expense. The
adjusted EBITDA of $307.9 million increased 11% from the prior
year. For 1Q23, the adjusted operating margin was 18.0%, a strong
increase of 340 bps YoY while the adjusted EBITDA margin was 22.2%,
increasing 190 bps YoY.
Net Income:
- 1Q23 reported net income of $125.3 million increased from a net
income of $103.0 million in the prior year, due to the increase in
reported operating income and decrease in the tax provision,
partially offset by a higher benefit in the prior year from a
change in Wella's fair value.
- The 1Q23 adjusted net income of $92.7 million increased from
$63.1 million in the prior year period, as the increase in adjusted
operating income was partially offset by a $38 million negative
impact from the mark-to-market on the equity swap, reflecting a
lower Coty share price at the end of Q1 as compared to the
beginning of the quarter.
Earnings Per Share (EPS) - diluted:
- 1Q23 reported earnings per share of $0.15 increased from a
reported earnings per share of $0.13 in the prior year due to the
increase in reported net income.
- 1Q23 adjusted EPS of $0.11 improved from $0.08 in the prior
year due to the improvement in adjusted net income, despite a $0.04
headwind from the mark-to-market on the equity swap.
Operating Cash Flow:
- 1Q23 cash from operations totaling $163.2 million decreased
from $285.7 million in the prior-year period, reflecting higher
working capital outflows, partially offset by an increase in net
income on a cash basis.
- 1Q23 free cash flow of $88.2 million declined from a free cash
flow of $240.7 million in the prior year driven by the $122.5
million decrease in operating cash flow and a $30.0 million
increase from timing of payments for capex.
Financial Net Debt:
- Financial Net Debt of $4,191.4 million on September 30, 2022,
decreased from $4,265.2 million on June 30, 2022, driven by the
free cash flow generation.
First Quarter Business Review by
Segment*
Prestige In 1Q23, Prestige net revenues of $863.4 million
or 62% of Coty sales, decreased by 1% on a reported basis versus
the prior year. On a LFL basis, Prestige net revenues delivered
robust growth of 7%, which includes 300 bps of impact from the
Russia exit, driven by strength across all regions including
continued recovery in most EMEA markets, Travel Retail, and Latin
America.
During Q1, the Prestige fragrance category across North America
and Europe continued to generate robust growth, rising high single
digits versus last year and over 20% versus 2019 levels, led in
particular by the U.S., Canada and Italy. At the same time, the
global Travel Retail maintained strong double digit growth, fueled
by both recovering travel and increasing beauty consumption. Coty's
performance continued to be driven by strong results from Calvin
Klein, Hugo Boss, Gucci Beauty, Burberry and Chloe. Encouragingly,
recent innovations - including Gucci Flora Gorgeous Jasmine, Marc
Jacobs Daisy Ever So Fresh, and Burberry Hero EDP - delivered very
strong sell-out performance during the quarter. Prestige cosmetics
consumption was impacted by the intermittent lockdowns in China.
During the quarter, Coty's overall Prestige sell-out grew in the
low double digits, exceeding the high single digit LFL revenue
growth which was constrained by the impact from the Russia exit,
the elevated growth comparisons in the prior year due to innovation
pipefill, as well as industry-wide component constraints in
fragrances.
The Prestige segment generated a reported operating income of
$170.3 million in 1Q23, compared to $132.1 million in the prior
year. The 1Q23 adjusted operating income was $207.3 million, up
from an adjusted operating income of $177.0 million in the prior
year, driven by strong gross margin improvement. Adjusted EBITDA
for the Prestige segment rose to $234.9 million from $215.0 million
in the prior year, with a margin of 27.2%, up 250 bps YoY.
Consumer Beauty In 1Q23, Consumer Beauty net revenues of
$526.6 million, or 38% of Coty sales, increased by 5% as reported
versus the prior year. On a LFL basis, Consumer Beauty net revenues
rose 12%, with strong performance across color cosmetics, mass
fragrances, body care, and skincare. Encouragingly, all regions
generated LFL growth in the quarter.
During the quarter, the total Coty Consumer Beauty business
continued to gain market share globally for the last 10 consecutive
months, fueled by momentum in Rimmel, Max Factor, Monange, and
Bruno Banani. While revenue growth in cosmetics and mass fragrances
was broadly in-line to ahead of sell-out, the division was boosted
by a strong launch pipeline and brand initiatives in its bodycare
business, including adidas' Skin & Mind premium and sustainable
bodycare range, Monange's silicone-free deodorant, and Bozzano's
clinical range.
The Consumer Beauty reported operating income was $32.0 million
in 1Q23, an increase from $11.4 million in the prior year. The 1Q23
adjusted operating income of $42.3 million increased from adjusted
operating income of $23.5 million in the prior year. During the
quarter, adjusted EBITDA increased to $73.0 million from $63.5
million in the prior year, with a margin of 13.9%, up 120 bps
YoY.
First Quarter Fiscal 2023 Business
Review by Region*
Americas
- In 1Q23, Americas net revenues of $607.6 million, or 44% of
Coty sales, increased 4% as reported and 5% LFL. This was driven by
growth of both Prestige and Consumer Beauty. The Prestige
performance was fueled by particularly strong growth throughout
most Latin American markets, with the U.S. Prestige business
lapping very tough comparisons in the year-ago period. Meanwhile,
in Consumer Beauty, nearly every region delivered growth. The
overall performance was also supported by strong innovation
performance during the quarter including Gucci Flora Gorgeous
Jasmine, Marc Jacobs Daisy Ever So Fresh, and Burberry Hero EDP on
the Prestige side, and CoverGirl Exhibitionist Stretch &
Strengthen mascara in Consumer Beauty.
EMEA
- In 1Q23, EMEA net revenues of $609.3 million, or 44% of Coty
sales, decreased 3% as reported driven by FX, but grew 11% LFL. The
exit from Russia negatively impacted LFL sales by 600 bps. The
performance was driven by strong increases in both Prestige and
Consumer Beauty, as markets continued to benefit from the
post-COVID re-opening.
Asia Pacific
- In 1Q23, Asia Pacific net revenues of $173.1 million, or 12% of
Coty sales, increased 6% as reported and 12% LFL. Both Prestige and
Consumer Beauty delivered solid growth. Encouragingly, nearly all
markets delivered double-digit growth during the quarter. Although
China sales increased during Q1, performance continued to be
impacted by COVID-related restrictions.
Noteworthy Company
Developments Other noteworthy company developments
include:
- On September 21, Coty provided a comprehensive update on its
Skincare strategy, one of its six strategic pillars. The company
detailed its distinct and superior skincare intellectual property,
upcoming operational and portfolio milestones, early evidence of
success, and financial goals through FY25 and beyond, including its
goal to double skincare sales by FY25.
- On September 26, Coty announced the expansion of its
partnership with Cruelty Free International, the leading global
organization working to end animal testing. Coty powerhouse brands
Rimmel, Manhattan, and Risque are now approved under the Cruelty
Free International Leaping Bunny Program.
- On October 6, Coty unveiled its new corporate identity,
centered around the value of fearless kindness. Coty also announced
its new company purpose: together, we unleash every vision of
beauty.
Conference Call Coty Inc.
will issue pre-recorded remarks at approximately 7:20 AM (ET)
today, November 8, 2022 and will hold a live question and answer
session beginning at 8:15 AM (ET). The pre-recorded remarks and
live question and answer session will be available at
http://investors.coty.com. The dial-in number for the live question
and answer session is (800) 343-4849 in the U.S. or (785) 424-1699
internationally (conference passcode number: COTY1Q23).
About Coty Inc. Founded in
Paris in 1904, Coty is one of the world’s largest beauty companies
with a portfolio of iconic brands across fragrance, color
cosmetics, and skin and body care. Coty serves consumers around the
world, selling prestige and mass market products in more than 130
countries and territories. Coty and our brands empower people to
express themselves freely, creating their own visions of beauty;
and we are committed to making a positive impact on the planet.
Learn more at coty.com or on LinkedIn and Instagram.
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 the
Company's current views with respect to, among other things, the
Company’s comprehensive transformation agenda (the “Transformation
Plan”), strategic planning, targets 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
wind down of the Company’s operations in Russia (including timing
and expected impact), the Company’s future operations and strategy
(including the expected implementation and related impact of its
strategic priorities), ongoing and future cost efficiency,
optimization and restructuring initiatives and programs, strategic
transactions (including their expected timing and impact),
expectations and/or plans with respect to joint ventures (including
Wella and the timing and size of any related distribution or return
of capital), the Company’s capital allocation strategy and payment
of dividends (including suspension of dividend payments and the
duration thereof and any plans to resume cash dividends on common
stock or to continue to pay dividends in cash on preferred stock),
investments, licenses and portfolio changes, product launches,
relaunches or rebranding (including the expected timing or impact
thereof), synergies, savings, performance, cost, timing and
integration of acquisitions, including the strategic partnerships
with Kylie Jenner and Kim Kardashian West, future cash flows,
liquidity and borrowing capacity (including any refinancing or
deleveraging activities), timing and size of cash outflows and debt
deleveraging, the timing and extent of any future impairments, and
synergies, savings, impact, cost, timing and implementation of the
Company’s Transformation Plan (including operational and
organizational structure changes, operational execution and
simplification initiatives, fixed cost reductions and supply chain
changes), expected impact, cost, timing and implementation of
e-commerce and digital initiatives, the impact, cost, timing and
implementation of sustainability initiatives (including progress,
plans and goals), the impact of COVID-19, the expected impact of
geopolitical risks including the ongoing war in Ukraine on our
business operations, sales outlook and strategy, the expected
impact of global supply chain challenges and/or inflationary
pressures (including as a result of COVID-19 and/or the war in
Ukraine) and expectations regarding future service levels, 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”,
“goal” 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 risks and uncertainties relating to:
- the Company’s ability to successfully implement its
transformation agenda and compete effectively in the beauty
industry, achieve the benefits contemplated by its strategic
initiatives (including revenue growth, cost control, gross margin
growth and debt deleveraging) and successfully implement its
strategic priorities (including stabilizing its consumer beauty
brands through leading innovation and improved execution,
accelerating its prestige fragrance brands and ongoing expansion
into prestige cosmetics, building a comprehensive skincare
portfolio, enhancing its e-commerce and direct-to-consumer
capabilities, and expanding its presence in China through prestige
products and select consumer beauty brands, and establishing Coty
as an industry leader in sustainability) in each case within the
expected time frame or at all;
- the Company’s ability to anticipate, gauge and respond to
market trends and consumer preferences, which may change rapidly,
and the market acceptance of new products, including new products
related to Kylie Jenner’s or Kim Kardashian West’s existing beauty
businesses, any relaunched or rebranded products and the
anticipated costs and discounting associated with such relaunches
and rebrands, and consumer receptiveness to our current and future
marketing philosophy and consumer engagement activities (including
digital marketing and media);
- use of estimates and assumptions in preparing the Company’s
financial statements, including with regard to revenue recognition,
income taxes (including the expected timing and amount of the
release of any tax valuation allowance), the assessment of
goodwill, other intangible and long-lived assets for impairments,
the market value of inventory, the fair value of the equity
investment, and the fair value of acquired assets and liabilities
associated with acquisitions;
- the impact of any future impairments;
- managerial, transformational, operational, regulatory, legal
and financial risks, including diversion of management attention to
and management of cash flows, expenses and costs associated with
the Company's response to COVID-19, the Company's transformation
agenda, its global business strategies, the integration of the
strategic partnerships with Kylie Jenner and Kim Kardashian West,
and future strategic initiatives, and, in particular, the Company's
ability to manage and execute many initiatives simultaneously
including any resulting complexity, employee attrition or diversion
of resources;
- the timing, costs and impacts of divestitures and the amount
and use of proceeds from any such transactions;
- future divestitures and the impact thereof on, and future
acquisitions, new licenses and joint ventures and the integration
thereof with, our business, operations, systems, financial data and
culture and the ability to realize synergies, manage supply chain
challenges and avoid future supply chain and other business
disruptions, reduce costs (including through the Company’s cash
efficiency initiatives), avoid liabilities and realize potential
efficiencies and benefits (including through our restructuring
initiatives) at the levels and at the costs and within the time
frames contemplated or at all;
- increased competition, consolidation among retailers, shifts in
consumers’ preferred distribution and marketing channels (including
to digital and prestige channels), distribution and shelf-space
resets or reductions, compression of go-to-market cycles, changes
in product and marketing requirements by retailers, reductions in
retailer inventory levels and order lead-times or changes in
purchasing patterns, impact from COVID-19 on retail revenues, and
other changes in the retail, e-commerce and wholesale environment
in which the Company does business and sells its products and the
Company’s ability to respond to such changes (including its ability
to expand its digital, direct-to-consumer and e-commerce
capabilities within contemplated timeframes or at all);
- the Company and its joint ventures’, business partners’ and
licensors’ abilities to obtain, maintain and protect the
intellectual property used in its and their respective businesses,
protect its and their respective reputations (including those of
its and their executives or influencers), public goodwill, and
defend claims by third parties for infringement of intellectual
property rights;
- any change to the Company’s capital allocation and/or cash
management priorities, including any change in the Company’s
dividend policy or, if the Company's Board declares dividends on
the Company's common stock, the Company’s stock dividend
reinvestment program;
- any unanticipated problems, liabilities or integration or other
challenges associated with a past or future acquired business,
joint ventures or strategic partnerships which could result in
increased risk or new, unanticipated or unknown liabilities,
including with respect to environmental, competition and other
regulatory, compliance or legal matters, and specifically in
connection with the strategic partnerships with Kylie Jenner and
Kim Kardashian, risks related to the entry into a new distribution
channel, the potential for channel conflict, risks of retaining
customers and key employees, difficulties of integration (or the
risks associated with limiting integration),ability to protect
trademarks and brand names, litigation or investigations by
governmental authorities, and changes in law, regulations and
policies that affect KKW Holdings, LLC’s (“KKW Holdings”) business
or products, including risk that direct selling laws and
regulations may be modified, interpreted or enforced in a manner
that results in a negative impact to KKW Holdings’ business model,
revenue, sales force or business;
- the Company’s international operations and joint ventures,
including enforceability and effectiveness of its joint venture
agreements and reputational, compliance, regulatory, economic and
foreign political risks, including difficulties and costs
associated with maintaining compliance with a broad variety of
complex local and international regulations;
- the Company’s dependence on certain licenses (especially in the
fragrance category) and the Company’s ability to renew expiring
licenses on favorable terms or at all;
- the Company’s dependence on entities performing outsourced
functions, including outsourcing of distribution functions, and
third-party manufacturers, logistics and supply chain suppliers,
and other suppliers, including third-party software providers,
web-hosting and e-commerce providers;
- administrative, product development and other difficulties in
meeting the expected timing of market expansions, product launches,
re-launches and marketing efforts, including in connection with new
products related to Kylie Jenner’s or Kim Kardashian West’s
existing beauty businesses or new products related to Orveda;
- changes in the demand for the Company’s products due to
declining or depressed global or regional economic conditions, and
declines in consumer confidence or spending, whether related to the
economy (such as austerity measures, tax increases, high fuel
costs, or higher unemployment), wars, natural or other disasters,
weather, pandemics, security concerns, terrorist attacks or other
factors;
- global political and/or economic uncertainties, disruptions or
major regulatory or policy changes, and/or the enforcement thereof
that affect the Company’s business, financial performance,
operations or products, including the impact of the war in Ukraine
and any related escalation or expansion thereof, Brexit (and
related business or market disruption), recent elections in Brazil,
the current U.S. administration and mid-term elections, changes in
the U.S. tax code, and recent changes and future changes in
tariffs, retaliatory or trade protection measures, trade policies
and other international trade regulations in the U.S., the European
Union and Asia and in other regions where the Company operates;
recent and future changes in sanctions regulations including in
connection with the war in Ukraine and any escalation or expansion
thereof;
- currency exchange rate volatility and currency devaluation
and/or inflation;
- the number, type, outcomes (by judgment, order or settlement)
and costs of current or future legal, compliance, tax, regulatory
or administrative proceedings, investigations and/or litigation,
including product liability cases (including asbestos and
talc-related litigation for which indemnities and/or insurance may
not be available), distributor or licensor litigation, and
compliance, litigation or investigations relating to the Company's
joint ventures or strategic partnerships;
- the Company’s ability to manage seasonal factors and other
variability and to anticipate future business trends and
needs;
- the impact of COVID-19 (or future similar events), including
demand for the Company’s products, illness, quarantines, government
actions, facility closures, store closures or other restrictions in
connection with the COVID-19 pandemic, and the extent and duration
thereof, the widespread distribution of effective vaccines, related
impact on the Company's ability to meet customer needs and on the
ability of third parties on which the Company relies, including its
suppliers, customers, contract manufacturers, distributors,
contractors, commercial banks and joint-venture partners, to meet
their obligations to the Company, in particular collections from
customers, and the ability to successfully implement measures to
respond to such impacts;
- disruptions in the availability and distribution of raw
materials and components needed to manufacture the Company's
products;
- disruptions in operations, sales and in other areas, including
due to disruptions in our supply chain, restructurings and other
business alignment activities, manufacturing or information
technology systems, labor disputes, extreme weather and natural
disasters, impact from COVID-19 or similar global public health
events, the outbreak of war or hostilities (including the war in
Ukraine and any escalation or expansion thereof), impact of global
supply chain challenges, and the impact of such disruptions on the
Company’s ability to generate profits, stabilize or grow revenues
or cash flows, comply with its contractual obligations and
accurately forecast demand and supply needs and/or future
results;
- the Company's ability to adapt its business to address climate
change concerns and to respond to increasing governmental and
regulatory measures relating to environmental, social and
governance matters, including expanding mandatory and voluntary
reporting, diligence and disclosure, as well as new taxes
(including on energy and plastic), and the impact of such measures
on its costs, business operations and strategy;
- restrictions imposed on the Company through its license
agreements, credit facilities and senior unsecured bonds or other
material contracts, its ability to generate cash flow to repay,
refinance or recapitalize debt and otherwise comply with its debt
instruments, and changes in the manner in which the Company
finances its debt and future capital needs;
- increasing dependency on information technology, including as a
result of remote working in response to COVID-19, and the Company’s
ability to protect against service interruptions, data corruption,
cyber-based attacks or network security breaches, including
ransomware attacks, costs and timing of implementation and
effectiveness of any upgrades or other changes to information
technology systems, and the cost of compliance or the Company’s
failure to comply with any privacy or data security laws (including
the European Union General Data Protection Regulation, the
California Consumer Privacy Act and similar state laws, the Brazil
General Data Protection Law, and the China Data Security and
Personal Information Protection Law) or to protect against theft of
customer, employee and corporate sensitive information;
- the Company's ability to attract and retain key personnel and
the impact of senior management transitions and organizational
structure changes;
- the distribution and sale by third parties of counterfeit
and/or gray market versions of the Company’s products;
- the impact of the Company's transformation agenda on the
Company’s relationships with key customers and suppliers and
certain material contracts;
- the Company’s relationship with Cottage Holdco B.V., as the
Company’s majority stockholder, and its affiliates, and any related
conflicts of interest or litigation;
- the Company’s relationship with KKR, whose affiliate KKR Bidco
is an investor in the Wella Business, and any related conflicts of
interest or litigation;
- future sales of a significant number of shares by the Company’s
majority stockholder or the perception that such sales could occur;
and
- other factors described elsewhere in this document and in
documents that the Company files with the SEC from time to
time.
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 year ended June 30, 2022 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, EBITDA, and EPS (diluted) on a
non-GAAP basis and specifies that these measures are non-GAAP by
using the term “adjusted” (collectively the Adjusted Performance
Measures). The reconciliations of these non-GAAP financial measures
to the most directly comparable financial measures calculated and
presented in accordance with GAAP are shown in tables below. These
non-GAAP financial measures should not be considered in isolation
from, or as a substitute for or superior to, financial measures
reported in accordance with GAAP. Moreover, these non-GAAP
financial measures have limitations in that they do not reflect all
the items associated with the operations of the business as
determined in accordance with GAAP. Other companies, including
companies in the beauty industry, may calculate similarly titled
non-GAAP financial measures differently than we do, limiting the
usefulness of those measures for comparative purposes.
Adjusted operating income/Adjusted EBITDA from continuing
operations excludes restructuring costs and business structure
realignment programs, amortization, acquisition- and
divestiture-related costs and acquisition accounting impacts,
stock-based compensation, and asset impairment charges and other
adjustments as described below. For adjusted EBITDA, in addition to
the preceding, we exclude the adjusted depreciation as defined
below. We do not consider these items to be reflective of our core
operating performance due to the variability of such items from
period-to-period in terms of size, nature and significance. They
are primarily incurred to realign our operating structure and
integrate new acquisitions, and exclude divestitures, and fluctuate
based on specific facts and circumstances. Additionally, Adjusted
net income attributable to Coty Inc. and Adjusted net income
attributable to Coty Inc. per common share are adjusted for certain
interest and other (income) expense and deemed preferred stock
dividends, as described below, and the related tax effects of each
of the items used to derive Adjusted net income as such charges are
not used by our management in assessing our operating performance
period-to-period.
- Adjusted Performance Measures reflect adjustments based on the
following items:
- Costs related to acquisition and divestiture activities: The
Company has excluded acquisition- and divestiture-related costs and
the accounting impacts such as those related to transaction costs
and costs associated with the revaluation of acquired inventory in
connection with business combinations because these costs are
unique to each transaction. Additionally, for divestitures, the
Company excludes write-offs of assets that are no longer
recoverable and contract related costs due to the divestiture. The
nature and amount of such costs vary significantly based on the
size and timing of the acquisitions and divestitures, and the
maturities of the businesses being acquired or divested. Also, the
size, complexity and/or volume of past transactions, which often
drives the magnitude of such expenses, may not be indicative of the
size, complexity and/or volume of any future acquisitions or
divestitures.
- Restructuring and other business realignment costs: The Company
has excluded the costs associated with restructuring and business
structure realignment programs to allow for comparable financial
results to historical operations and forward-looking guidance. In
addition, the nature and amount of such charges vary significantly
based on the size and timing of the programs. By excluding the
referenced expenses from the non-GAAP financial measures,
management is able to further evaluate the Company's ability to
utilize existing assets and estimate their long-term value.
Furthermore, our management believes that the adjustment of these
items supplements the GAAP information with a measure that can be
used to assess the sustainability of operating performance.
- Asset impairment charges: The Company has excluded the impact
of asset impairments as such non-cash amounts are inconsistent in
amount and frequency and are significantly impacted by the timing
and/or size of acquisitions. Our management believes that the
adjustment of these items supplements the GAAP information with a
measure that can be used to assess the sustainability of our
operating performance.
- Amortization expense: The Company has excluded the impact of
amortization of finite-lived intangible assets, as such non-cash
amounts are inconsistent in amount and frequency and are
significantly impacted by the timing and/or size of acquisitions.
Our management believes that the adjustment of these items
supplements the GAAP information with a measure that can be used to
assess the sustainability of our operating performance. Although we
exclude amortization of intangible assets from our non-GAAP
expenses, our management believes that it is important for
investors to understand that such intangible assets contribute to
revenue generation. Amortization of intangible assets that relate
to past acquisitions will recur in future periods until such
intangible assets have been fully amortized. Any future
acquisitions may result in the amortization of additional
intangible assets.
- Costs related to market exit: The Company has excluded the
impact of direct incremental costs related to our decision to wind
down our business operations in Russia. We believe that these
direct and incremental costs are inconsistent and infrequent in
nature. Consequently, our management believes that the adjustment
of these items supplements the GAAP information with a measure that
can be used to assess the sustainability of our operating
performance.
- Gains on sale of real estate: The Company has excluded the
impact of Gains on sale of real estate as such amounts are
inconsistent in amount and frequency and are significantly impacted
by the size of the sale. Our management believes that the
adjustment of these items supplements the GAAP information with a
measure that can be used to assess the sustainability of our
operating performance.
- Stock-based compensation: Although stock-based compensation is
a key incentive offered to our employees, we have excluded the
effect of these expenses from the calculation of adjusted operating
income and adjusted EBITDA. This is due to their primarily non-cash
nature; in addition, the amount and timing of these expenses may be
highly variable and unpredictable, which may negatively affect
comparability between periods.
- Depreciation and Adjusted depreciation: Our adjusted operating
income excludes the impact of accelerated depreciation for certain
restructuring projects that affect the expected useful lives of
Property, Plant and Equipment, as such charges vary significantly
based on the size and timing of the programs. Further, we have
excluded adjusted depreciation, which represents depreciation
expense net of accelerated depreciation charges, from our adjusted
EBITDA. Our management believes that the adjustment of these items
supplements the GAAP information with a measure that can be used to
assess the sustainability of our operating performance.
- Other (income) expense: The Company has excluded the impact of
pension curtailment (gains) and losses and pension settlements as
such events are triggered by our restructuring and other business
realignment activities and the amount of such charges vary
significantly based on the size and timing of the programs.
Further, we have excluded the change in fair value of the
investment in Wella, as our management believes these unrealized
(gains) and losses do not reflect our underlying ongoing business,
and the adjustment of such impact helps investors and others
compare and analyze performance from period to period. We have
excluded the gain on the exchange of Series B Preferred Stock. Such
transactions do not reflect our operating results and we have
excluded the impact as our management believes that the adjustment
of these items supplements the GAAP information with a measure that
can be used to assess the sustainability of our operating
performance.
- Noncontrolling interest: This adjustment represents the
after-tax impact of the non-GAAP adjustments included in Net income
attributable to noncontrolling interests based on the relevant
noncontrolling interest percentage.
- Tax: This adjustment represents the impact of the tax effect of
the pretax items excluded from Adjusted net income. The tax impact
of the non-GAAP adjustments is based on the tax rates related to
the jurisdiction in which the adjusted items are received or
incurred. Additionally, adjustments are made for the tax impact of
any intra-entity transfer of assets and liabilities.
- Deemed Preferred Stock Dividends: The Company has excluded
preferred stock deemed dividends related to the First Exchange and
the Second Exchange from our calculation of adjusted net income
attributable to Coty Inc. These deemed dividends are non-monetary
in nature, the transactions were entered into to simplify our
capital structure and do not reflect our underlying ongoing
business. Management believes that this adjustment helps investors
and others compare and analyze our performance from period to
period.
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 ("adjusted
EBITDA"), immediate liquidity, Financial Net Debt and Economic 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, excluding adjusted depreciation and non-cash
stock-based compensation. Net debt or Financial Net Debt (which the
Company referred to as "net debt" in prior reporting periods) is
defined as total debt less cash and cash equivalents, and Economic
Net Debt is defined as total debt less cash and cash equivalents
less the value of the Wella Stake. 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 Financial Net Debt and
Economic Net Debt, see the tables entitled “Reconciliation of Total
Debt to Financial Net Debt and Economic Net Debt.” Further, our
immediate liquidity is defined as the sum of available cash and
cash equivalents and available borrowings under our Revolving
Credit Facility (please see table "Immediate Liquidity").
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, non-cash stock-based compensation,
adjustments to inventory, and other charges reflected in our
reconciliation of historic numbers, the amount of which, based on
historical experience, could be significant.
- Tables Follow -
COTY INC. SUPPLEMENTAL SCHEDULES
INCLUDING NON-GAAP FINANCIAL MEASURES(a)
RESULTS AT A GLANCE
Three Months Ended September
30, 2022
(in millions, except per share data)
Change YoY
COTY, INC.
Reported Basis
(LFL)
Net revenues
$
1,390.0
1%
9%
Operating income - reported
171.9
>100%
Operating income - adjusted*
249.6
24%
EBITDA - adjusted
307.9
11%
Net income attributable to common
shareholders - reported**
125.3
22%
Net income attributable to common
shareholders - adjusted* **
92.7
47%
EPS attributable to common shareholders
(diluted) - reported
$
0.15
15%
EPS attributable to common shareholders
(diluted) - adjusted*
$
0.11
38%
* These measures, as well as “free cash flow,” “adjusted
earnings before interest, taxes, depreciation and amortization
(adjusted EBITDA),” "immediate liquidity," “financial net debt,”
and "economic net debt" are Non-GAAP Financial Measures. Refer to
“Non-GAAP Financial Measures” for discussion of these measures.
Reconciliations from reported to adjusted results can be found at
the end of this release. ** Net income for Continuing Operations
and Coty Inc. are net of the Convertible Series B Preferred Stock
dividends.
FIRST QUARTER BY SEGMENT (CONTINUING OPERATIONS)
Three Months Ended September
30,
Net Revenues
Change
Reported Operating Income
(Loss)
Adjusted Operating
Income
(in millions)
2022
2021
Reported Basis
LFL
2022
Change
Margin
2022
Change
Margin
Prestige
$
863.4
$
870.7
(1
%)
7
%
$
170.3
29
%
20
%
$
207.3
17
%
24
%
Consumer Beauty
526.6
501.0
5
%
12
%
32.0
>100%
6
%
42.3
80
%
8
%
Corporate
—
—
N/A
N/A
(30.4
)
76
%
N/A
—
N/A
N/A
Total
$
1,390.0
$
1,371.7
1
%
9
%
$
171.9
>100%
12
%
$
249.6
25
%
18
%
Adjusted EBITDA
Three Months Ended September
30,
(in millions)
2022
2021
Prestige
$
234.9
$
215.0
Consumer Beauty
73.0
63.5
Corporate
—
—
Total
$
307.9
$
278.5
FIRST QUARTER FISCAL 2023 BY REGION
Continuing Operations
Three Months Ended September
30,
Net Revenues
Change
(in millions)
2022
2021
Reported Basis
LFL
Americas
$
607.6
$
581.5
4
%
5
%
EMEA
609.3
627.1
(3
) %
11
%
Asia Pacific
173.1
163.1
6
%
12
%
Total
$
1,390.0
$
1,371.7
1
%
9
%
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
(in millions, except per share
data)
2022
2021
Net revenues
$
1,390.0
$
1,371.7
Cost of sales
501.3
504.8
as % of Net revenues
36.1
%
36.8
%
Gross profit
888.7
866.9
Gross margin
63.9
%
63.2
%
Selling, general and administrative
expenses
670.7
776.3
as % of Net revenues
48.3
%
56.6
%
Amortization expense
47.3
57.0
Restructuring costs
(1.2
)
12.4
Acquisition-and divestiture- related
costs
—
4.0
Operating income
171.9
17.2
as % of Net revenues
12.4
%
1.3
%
Interest expense, net
65.9
59.8
Other income, net
(98.2
)
(386.1
)
Income from continuing operations before
income taxes
204.2
343.5
as % of Net revenues
14.7
%
25.0
%
Provision for income taxes on continuing
operations
69.7
114.6
Net income from continuing operations
134.5
228.9
as % of Net revenues
9.7
%
16.7
%
Net income
134.5
228.9
Net (loss) income attributable to
noncontrolling interests
—
(0.5
)
Net income attributable to redeemable
noncontrolling interests
5.9
3.4
Net income attributable to Coty Inc.
$
128.6
$
226.0
Amounts attributable to Coty
Inc.
Net income from continuing
operations
$
128.6
$
226.0
Convertible Series B Preferred Stock
dividends
(3.3
)
(123.0
)
Net income from continuing operations
attributable to common stockholders
$
125.3
$
103.0
Net income attributable to common
stockholders
$
125.3
$
103.0
Earnings per common share:
Basic for Continuing Operations
$
0.15
$
0.13
Diluted for Continuing Operations(a)
$
0.15
$
0.13
Basic for Coty Inc.
$
0.15
$
0.13
Diluted for Coty Inc.(a)
$
0.15
$
0.13
Weighted-average common shares
outstanding:
Basic
842.0
777.6
Diluted(a)(b)
882.2
787.7
Depreciation - Continuing Operations
$
59.2
$
80.8
(a)
Diluted EPS is adjusted by the effect of
dilutive securities, including awards under the Company's equity
compensation plans, the convertible Series B Preferred Stock, and
the Forward Repurchase Contracts. When calculating any potential
dilutive effect of stock options and Series A Preferred Stock,
restricted stock and RSUs, the Company uses the treasury method and
the if-converted method for the Convertible Series B Preferred
Stock and the Forward Repurchase Contracts. The treasury method
typically does not adjust the net income attributable to Coty Inc.,
while the if-converted method requires an adjustment to reverse the
impact of the preferred stock dividends of $3.3 and $123.0, and
fair market value adjustments of $27.7 and $0.0, respectively, if
dilutive, for the three months ended September 30, 2022 and 2021 on
net income applicable to common stockholders during the period.
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, 2022
COTY INC.
(in millions)
Reported
(GAAP)
Adjustments(a)
Adjusted
(Non-GAAP)
Net revenues
$
1,390.0
$
—
$
1,390.0
Gross profit
888.7
2.7
891.4
Gross margin
63.9
%
64.1
%
Operating income
171.9
77.7
249.6
as % of Net revenues
12.4
%
18.0
%
Net income
125.3
(32.6
)
92.7
as % of Net revenues
9.0
%
6.7
%
Adjusted EBITDA
307.9
as % of Net revenues
22.2
%
EPS (diluted)
$
0.15
$
0.11
Three Months Ended September
30, 2021
COTY INC.
(in millions)
Reported
(GAAP)
Adjustments(a)
Adjusted
(Non-GAAP)
Net revenues
$
1,371.7
$
—
$
1,371.7
Gross profit
866.9
2.7
869.6
Gross margin
63.2
%
63.4
%
Operating income
17.2
183.3
200.5
as % of Net revenues
1.3
%
14.6
%
Net income
103.0
(39.9
)
63.1
as % of Net revenues
7.5
%
4.6
%
Adjusted EBITDA
278.5
as % of Net revenues
20.3
%
EPS (diluted)
$
0.13
$
0.08
(a)
See “Reconciliation of Reported Operating
Income (Loss) to Adjusted Operated Income” and “Reconciliation of
Reported Net (Loss) Income to Adjusted Net Income” for a detailed
description of adjusted items.
RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED
OPERATING INCOME AND ADJUSTED EBITDA
CONTINUING OPERATIONS
Three Months Ended September
30,
(in millions)
2022
2021
Change
Reported Operating income
$
171.9
$
17.2
>100%
% of Net revenues
12.4
%
1.3
%
Amortization expense (a)
47.3
57.0
(17
%)
Restructuring and other business
realignment costs (b)
(0.8
)
15.1
<(100%)
Stock-based compensation
31.1
108.2
(71
%)
Acquisition- and divestiture-related costs
(c)
—
4.0
(100
%)
(Gain) on sale of real estate (d)
(1.0
)
(1.0
)
0
%
Costs related to market exit
1.1
—
N/A
Total adjustments to reported operating
income
77.7
183.3
(58
%)
Adjusted Operating income
$
249.6
$
200.5
24
%
% of Net revenues
18.0
%
14.6
%
Adjusted depreciation (e)
58.3
78.0
(25
%)
Adjusted EBITDA
$
307.9
$
278.5
11
%
% of Revenues
22.2
%
20.3
%
(a)
In the three months ended September 30,
2022, amortization expense of $37.0 and $10.3 was reported in the
Prestige and Consumer Beauty segments, respectively. In the three
months ended September 30, 2021, amortization expense of $44.9 and
$12.1 was reported in the Prestige and Consumer Beauty segments,
respectively.
(b)
In the three months ended September 30,
2022, we incurred a credit in restructuring and other business
structure realignment costs of $(0.8). We incurred a credit in
restructuring costs of $(1.2) primarily related to the
Transformation Plan due to change in estimate, included in the
Condensed Consolidated Statements of Operations; and business
structure realignment costs of $0.4 primarily related to the
Transformation Plan and certain other programs. This amount
includes $(0.5) reported in Selling, general and administrative
expenses, and $0.9 reported in Cost of sales in the Condensed
Consolidated Statement of Operations. In the three months ended
September 30, 2021, we incurred restructuring and other business
structure realignment costs of $15.1. We incurred restructuring
costs of $12.4 primarily related to the Transformation Plan,
included in the Condensed Consolidated Statements of Operations;
and credit in business structure realignment costs of $2.7
primarily related to the Transformation Plan and certain other
programs. This amount includes nil reported in Selling, general and
administrative expenses, and $2.7 reported in Cost of sales in the
Condensed Consolidated Statement of Operations.
(c) In the three months ended September 30, 2022 and
September 30, 2021, we incurred acquisition- and
divestiture-related costs of nil and $4.0, respectively. In the
three months ended September 30, 2021, these costs were primarily
associated with the Wella Transaction. (d)
In the three months ended September 30,
2022 and September 30, 2021, we recognized gains of $1.0 related to
sale of real estate.
(e) In the three months ended September 30, 2022, adjusted
depreciation expense of $27.6 and $30.7 was reported in the
Prestige and Consumer Beauty segments, respectively. In the three
months ended September 30, 2021, adjusted depreciation expense of
$38.0 and $40.0 was reported in the Prestige and Consumer Beauty
segments, respectively.
RECONCILIATION OF REPORTED INCOME BEFORE INCOME TAXES AND
EFFECTIVE TAX RATES TO ADJUSTED INCOME BEFORE INCOME TAXES AND
ADJUSTED EFFECTIVE TAX RATES FOR CONTINUING OPERATIONS
Three Months Ended September
30, 2022
Three Months Ended September
30, 2021
(in millions)
(Loss) income before income
taxes
(Benefit) Provision for income
taxes
Effective tax rate
(Loss) income before income
taxes
Provision for income
taxes
Effective tax rate
Reported Income before income taxes -
Continuing Operations
$ 204.2
$ 69.7
34.1 %
$ 343.5
$ 114.6
33.4 %
Adjustments to Reported Operating Income
(a)
77.7
183.3
Change in fair value of investment in
Wella Business (c)
(135.0)
(390.0)
Other adjustments (d)
0.2
0.2
Total Adjustments (b)
(57.1)
(26.2)
(206.5)
(74.8)
Adjusted Income before income taxes -
Continuing Operations
$ 147.1
$ 43.5
29.6%
$ 137.0
$ 39.8
29.1%
The adjusted effective tax rate was 29.6%
for the three months ended September 30, 2022 compared to 29.1% for
the three months ended September 30, 2021. The differences were
primarily due to the resolution of foreign uncertain tax positions
in the prior period.
(a)
See a description of adjustments under
“Adjusted Operating Income (Loss) for Continuing Operations.”
(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 expense/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
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. (c)
The amount represents the realized and
unrealized gain recognized for the change in the fair value of the
investment in Wella.
(d)
For the three months ended September 30,
2022 and three months ended September 30, 2021, this primarily
represents adjustments for equity loss from KKW.
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
FOR COTY INC.
Three Months Ended September
30,
(in millions)
2022
2021
Change
Net income from Coty Inc., net of
noncontrolling interests
$
128.6
$
226.0
(43
%)
Convertible Series B Preferred Stock
dividends (c)
(3.3
)
(123.0
)
97
%
Reported Net income attributable to
Coty Inc.
$
125.3
$
103.0
22
%
% of Net revenues
9.0
%
7.5
%
Adjustments to Reported Operating income
(a)
77.7
183.3
(58
%)
Change in fair value of investment in
Wella Business (d)
(135.0
)
(390.0
)
65
%
Adjustments to other expense (e)
0.2
0.2
0
%
Adjustments to noncontrolling interests
(b)
(1.7
)
(1.8
)
6
%
Change in tax provision due to adjustments
to Reported Net income attributable to Coty Inc.
26.2
74.8
(65
%)
Adjustment for deemed Series B Preferred
Stock dividends related to the First and Second Exchanges (f)
—
93.6
(100
%)
Adjusted Net income attributable to
Coty Inc.
$
92.7
$
63.1
47
%
Per Share Data
Adjusted weighted-average common
shares
Basic
842.0
777.6
Diluted (c)
858.5
787.7
Adjusted Net income attributable to
Coty Inc. per Common Share
Basic
$
0.11
$
0.08
Diluted (c)
$
0.11
$
0.08
(a)
See a description of adjustments under
“Adjusted Operating Income (loss) for Coty Inc.”
(b)
The amounts represent the after-tax impact
of the non-GAAP adjustments included in Net income attributable to
noncontrolling interest based on the relevant noncontrolling
interest percentage in the Condensed Consolidated Statements of
Operations.
(c)
Adjusted Diluted EPS is adjusted by the
effect of dilutive securities. For the three months ended September
30, 2022, convertible Series B Preferred Stock (23.7 million
weighted average dilutive shares were excluded) and the Forward
Repurchase Contracts (3.1 million weighted average dilutive shares
were excluded) were antidilutive. Accordingly, we excluded these
shares from the diluted shares and did not adjust the earnings for
the related dividend ($3.3) and change in fair value ($27.7). For
the three months ended September 30, 2021, the convertible Series B
Preferred Stocked was antidilutive. Accordingly, we excluded the
convertible series B Preferred Stock from the diluted shares and
did not adjust the earnings for the related dividend.
(d)
The amount represents the realized and
unrealized gain recognized for the change in the fair value of the
investment in Wella.
(e) For the three months ended September 30, 2022 and 2021,
this primarily represents the loss from equity investment in KKW.
(†) For the three months ended September 30, 2021, this
adjustment represents the deemed dividend from the Exchange
Agreement on September 30, 2021. The deemed dividend is the result
of carrying the Convertible Series B Preferred Stock at fair value.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW
COTY INC.
Three Months Ended September
30,
(in millions)
2022
2021
Net cash provided by operating
activities
$
163.2
$
285.7
Capital expenditures
(75.0
)
(45.0
)
Free cash flow
$
88.2
$
240.7
RECONCILIATION OF TOTAL DEBT TO ECONOMIC NET DEBT
COTY INC.
As of
(in millions)
September 30, 2022
Total debt
$
4,407.1
Less: Cash and cash equivalents
215.7
Financial Net debt
$
4,191.4
Less: Value of Wella stake
965.0
Economic Net debt
$
3,226.4
IMMEDIATE LIQUIDITY
COTY INC.
As of
(in millions)
September 30, 2022
Cash and cash equivalents
$
215.7
Unutilized revolving credit facility
1,710.4
Immediate Liquidity
$
1,926.1
RECONCILIATION OF ADJUSTED OPERATING INCOME TO ADJUSTED
EBITDA
Twelve months ended
September 30, 2022
(in millions)
CONTINUING OPERATIONS
Adjusted operating income (a)
$
664.6
Add: Adjusted depreciation(b)
270.1
Adjusted EBITDA
$
934.7
(a)
Adjusted operating income for the twelve
months ended September 30, 2022 represents the summation of the
adjusted operating income (loss) for continuing operations for each
of the quarters ended December 31, 2021, March 31, 2022, June 30,
2022 and September 30, 2022. For a reconciliation of adjusted
operating income (loss) to operating income (loss) for continuing
operations for each of those periods, see the table entitled
“Reconciliation of Reported Operating Income (loss) to Adjusted
Operating Income for Continuing Operations” for each of those
periods.
(b)
Adjusted depreciation for the twelve
months ended September 30, 2022 represents depreciation expense for
continuing operations for the period, excluding accelerated
depreciation.
FINANCIAL NET DEBT/ADJUSTED EBITDA
September 30, 2022
Financial Net Debt - Coty Inc.
$
4,191.4
Adjusted EBITDA - Continuing
operations
934.7
Financial Net Debt/Adjusted
EBITDA
4.48
RECONCILIATION OF REPORTED NET REVENUES TO LIKE-FOR-LIKE NET
REVENUES
Three Months Ended September
30, 2022 vs. Three Months Ended September 30, 2021
Net Revenue Change
Net Revenues Change YoY
Reported Basis
Constant Currency
Impact from Acquisitions and
Divestitures
LFL
Prestige
(1
) %
7
%
—
%
7
%
Consumer Beauty
5
%
12
%
—
%
12
%
Total Continuing Operations
1
%
9
%
—
%
9
%
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
September 30,
2022
June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
215.7
$
233.3
Restricted cash
35.4
30.5
Trade receivables, net
483.0
364.6
Inventories
676.4
661.5
Prepaid expenses and other current
assets
419.5
392.0
Total current assets
1,830.0
1,681.9
Property and equipment, net
668.6
715.5
Goodwill
3,796.4
3,914.7
Other intangible assets, net
3,714.6
3,902.8
Equity investments
976.7
842.6
Operating lease right-of-use assets
299.6
320.9
Other noncurrent assets
662.0
737.7
TOTAL ASSETS
$
11,947.9
$
12,116.1
LIABILITIES, MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
1,229.7
$
1,268.3
Short-term debt and current portion of
long-term debt
32.7
23.0
Other current liabilities
1,348.2
1,274.3
Total current liabilities
2,610.6
2,565.6
Long-term debt, net
4,312.8
4,409.1
Long-term operating lease liabilities
265.0
282.2
Other noncurrent liabilities
1,304.7
1,301.2
TOTAL LIABILITIES
8,493.1
8,558.1
CONVERTIBLE SERIES B PREFERRED
STOCK
142.4
142.4
REDEEMABLE NONCONTROLLING
INTERESTS
69.3
69.8
Total Coty Inc. stockholders’
equity
3,051.8
3,154.5
Noncontrolling interests
191.3
191.3
Total equity
3,243.1
3,345.8
TOTAL LIABILITIES, MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY
$
11,947.9
$
12,116.1
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
September 30,
2022
2021
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
$
134.5
228.9
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization
106.6
137.8
Non-cash lease expense
16.0
18.2
Deferred income taxes
59.5
89.9
Provision (releases) for bad debts
(3.3
)
1.9
Provision for pension and other
post-employment benefits
2.3
4.1
Share-based compensation
31.1
108.2
Losses on disposals of long-term assets,
net
2.4
3.3
Realized and unrealized gains from equity
investments, net
(134.1
)
(389.4
)
Other
59.5
3.3
Change in operating assets and
liabilities, net of effects from purchase of acquired
companies:
Trade receivables
(133.8
)
(183.5
)
Inventories
(42.1
)
(24.4
)
Prepaid expenses and other current
assets
(58.4
)
(2.6
)
Accounts payable
50.6
82.9
Accrued expenses and other current
liabilities
119.1
231.0
Operating lease liabilities
(18.0
)
(20.4
)
Other assets and liabilities, net
(28.7
)
(3.5
)
Net cash provided by operating
activities
163.2
285.7
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures
(75.0
)
(45.0
)
Net cash used in investing
activities
(75.0
)
(45.0
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from revolving loan
facilities
220.7
285.3
Repayments of revolving loan
facilities
(208.9
)
(365.5
)
Repayments of term loans and other long
term debt
(5.6
)
(6.0
)
Dividend payment on Class A Common
Stock
(3.6
)
(4.3
)
Net (repayments for) proceeds from foreign
currency contracts
(89.5
)
(11.0
)
Purchase of remaining mandatorily
redeemable noncontrolling interest
—
(7.1
)
Payment of deferred financing fees
—
(10.4
)
All other
(0.9
)
(3.7
)
Net cash provided by financing
activities
(87.8
)
(122.7
)
EFFECT OF EXCHANGE RATES ON CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
(13.1
)
(6.0
)
NET (DECREASE)/INCREASE IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
(12.7
)
112.0
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH—Beginning of period
263.8
310.4
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH—End of period
$
251.1
$
422.4
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221108005245/en/
For more information:
Investor Relations Olga
Levinzon, +1 212 389-7733 olga_levinzon@cotyinc.com
Media Antonia
Werther, +31 621 394495 / Antonia_Werther@cotyinc.com
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