Q1 Sales Growth Accelerates Exceeding
Expectations Again
Continued Strength in Both Prestige and
Consumer Beauty
Increasing FY24 Revenue and Profit
Guidance
Fully on Track to Reach Leverage of ~3x
Exiting CY23 and ~2.5x Exiting CY24
Coty Inc. (NYSE: COTY) ("Coty" or "the Company") today announced
its results for the first quarter of fiscal year 2024, ended
September 30, 2023. The Company continued to deliver strong
financial momentum, with growth once again ahead of the beauty
market, while consistently executing across its strategic growth
pillars. This marks the 13th consecutive quarter of operational
results inline to ahead of expectations.
Coty's strong Q1 sales growth of 18%, as reported and LFL, came
in well ahead of expectations and recently raised guidance of
+10-12% for the first half of FY24. The Company once again
delivered a balanced growth equation, with low-single-digit
percentage volume growth, estimated high-single-digit percentage
pricing contribution, and high-single-digit percentage benefit from
mix and other.
Prestige revenues grew at a very strong rate in Q1, accelerating
to 23% growth as reported and 22% growth LFL. The momentum in
prestige fragrance demand evidenced in recent years continued in
Q1, with the prestige fragrance category continuing to grow at over
10%. Against this backdrop, Coty's prestige fragrance sales grew
approximately 25% LFL, driven by momentum in its core fragrance
lines, outstanding results for Coty's recent innovations and
improved service levels. In particular, the recently launched
Burberry Goddess Eau de Parfum has been the #1 female fragrance
launch in key markets, while simultaneously elevating the sales of
other Burberry fragrance icons including Hero and Her. The
strengthening of Coty’s fragrance icons was evidenced by three
franchises – Burberry Goddess, Gucci Flora, and Burberry Her –
reaching the Top 10 female fragrances in the U.S. for the first
time in the company’s history. Coty continued to advance its
skincare strategy, with key brands philosophy and Lancaster both
growing revenues at a double-digit percentage pace LFL in both Q1
and the last 6 months.
Coty's Consumer Beauty Q1 revenues grew by 10% as reported and
LFL, growing inline with the global mass beauty market, where
demand remains resilient. During the quarter, the Company saw
strength in its color cosmetics, mass fragrances, and mass skin
& bodycare sales. The Consumer Beauty business saw particular
momentum in e-commerce, with over 25% LFL sales growth, delivering
share gains in the channel. As part of the Company's strategy to
accelerate its influencer and social media strategy, Coty reached
key milestones in its core U.K. market, with two of its cosmetics
brands - Rimmel and Max Factor - ranking within the Top 10 brands
in terms of Earned Media Value and Visibility, Impact and
Trust.
Geographically, all regions generated double-digit percentage
revenue growth. EMEA sales expanded 20% as reported and 18% LFL in
Q1, driven by double-digit percentage growth across most markets
and Travel Retail. Americas sales rose 17% as reported and LFL,
driven by strong momentum in all markets and Travel Retail. Asia
Pacific sales grew 16% as reported and 19% LFL in Q1, with strength
in broader Asia and Travel Retail. In China, sell-out growth in
Coty's Prestige business was well ahead of the market, growing by
double digits percentage in mainland China and triple digits
percentage in Hainan.
The strong Q1 sales momentum translated into significant profit
expansion. While gross margins declined as anticipated, on the back
of elevated inflation and normalization in fragrance giftsets as
part of the mix, Coty's Q1 reported operating income of $197.5
million grew 15% YoY, adjusted operating income of $302.2 million
grew 21% YoY, and adjusted EBITDA of $360.3 million grew 17%, aided
by strong operating leverage.
During Q1, Coty's free cash flow totaled $124.0 million,
reflecting a strong $35.8M improvement versus the prior year. This
drove Financial Net Debt to $3.9 billion and the financial leverage
ratio to approximately 3.8x exiting Q1, which does not factor in
the secondary share issuance proceeds received in early Q2. The
value of Coty's retained 25.9% Wella stake was stable at $1.06
billion at quarter-end, supporting Coty's Economic Net Debt at
approximately $2.9 billion.
Coty also continued to progress on its ESG agenda, with 3 of its
global manufacturing plants now carbon neutral. The Company will
provide additional details on its progress and ambitions in its
upcoming 2023 Sustainability report.
Commenting on the operating results, Sue Nabi, Coty's CEO,
said:
"We are proud of our great Q1 results, with sales growth once
again amongst the best in our peer set and ahead of the beauty
market. Coty continues to deliver on our balanced growth agenda,
with strong LFL growth across both divisions and all regions, with
growth contribution from volumes and premiumized mix, complemented
by targeted pricing, and from our key categories including
fragrances, cosmetics, and skincare.
While the external environment remains complex and consumers are
being considered in their spending, the beauty category remains
advantaged, at the nexus of affordable luxury, self-care, and
confidence boosting. We remain well positioned to benefit from this
strong beauty performance, while capitalizing on the multiple white
space opportunities in our portfolio, including female fragrances,
ultra premium fragrances, skincare, China and Travel Retail. These
opportunities and our strong Q1 delivery enable us to raise our
FY24 guidance for the second time this fiscal year.
The exceptional performance of our recent fragrance launches,
and in particular Burberry Goddess which has become the #1 female
fragrance launch in key markets, reaffirms Coty's position as a
leading fragrance expert with best in class end-to-end
capabilities, from developing a winning scent which resonates with
consumers across all regions to activating distinctive marketing
campaigns, and launching disruptive in-store and online
activations.
Even as we invest to fuel our near and medium term growth
ambitions, we continue to deliver robust profit growth, cash
generation, and deleveraging. Our strong and consistent execution
on our strategy and financial framework paved the way for the next
major Coty milestone, as we successfully listed our shares and
issued equity on the Euronext Paris Exchange, in a substantially
oversubscribed transaction. At the same time, we intend to minimize
the dilution to less than 1% exiting FY24 by executing the first
phase of our equity swap for 27 million shares by the end of Q3. We
anticipate further share count reduction in the coming years, by
executing the second phase of our equity swap for 23 million shares
in FY25 as we continue to target reducing our diluted share count
toward 800 million by FY26.
In short, on the eve of our 120th anniversary, Coty has returned
to our Parisian roots, now providing both U.S. and European
investors with the perfect opportunity to join our accelerating
growth trajectory and success."
*Adjusted financial metrics used
in this release are non-GAAP. See reconciliations of GAAP results
to Adjusted results in the accompanying tables.
Highlights
- 1Q24 net revenues increased 18% as reported and LFL, fueled by
double-digit percentage LFL growth in both Prestige and Consumer
Beauty.
- 1Q24 reported operating income grew 15% to $197.5 million.
- 1Q24 adjusted operating income increased 21% to $302.2 million,
with an adjusted operating margin of 18.4% reflecting 40 basis
points of margin expansion.
- 1Q24 adjusted EBITDA grew 17% to $360.3 million, with the
adjusted EBITDA margin of 22.0%.
- 1Q24 reported EPS was $0.00.
- 1Q24 adjusted EPS totaled $0.09, which includes a negative
non-operating EPS impact of $0.06 from the mark-to-market on the
equity swap due to the stock price decline in the first quarter, as
well as a discrete one-time non-cash tax impact of $0.03 from a
change in the Swiss statutory rate.
- Savings totaled approximately $35 million in Q1. Coty continues
to target savings of over $100 million in FY24 and $75 million in
FY25.
- 1Q24 free cash flow totaled as $124.0 million, up 41% YoY.
- Financial Net Debt was $3.9 billion and Economic Net Debt
totaled $2.9 billion at quarter end, resulting in financial
leverage of approximately 3.8x.
Outlook
Several months into FY24, the beauty market remains a strong and
outperforming category, with ongoing premiumization trends. Coty
continues to benefit from this attractive market dynamic, with
momentum across its core categories, strong launch results, and
early wins in key white spaces. Against this favorable backdrop and
given Coty's strong Q1 delivery, the Company now expects FY24 LFL
revenue growth of +9-11%, ahead of its recently raised guidance of
+8-10%. For the first half FY24, Coty now expects LFL revenue
growth of +11-13%, an increase from its previous outlook of
+10-12%. Reported FY24 revenues are expected to include neutral to
2% benefit from FX, primarily in first half of FY24, and a 1-2%
scope headwind from the divestiture of the Lacoste license,
concentrated in the second half of FY24.
Coty is targeting FY24 adjusted EBITDA margin expansion of 10-30
bps on the stronger revenue outlook, with similar performance in
1H24 and 2H24. As a result, Coty now sees FY24 adjusted EBITDA of
$1,080-1,090M based on current FX rates, above its recently raised
EBITDA outlook of $1,075-1,085M. Within this outlook, Coty expects
steady improvement in the YoY gross margin trajectory, driving
modest FY24 gross margin expansion YoY, with strong expansion in
2H24. Coty continues to target FY24 adjusted EPS, excluding the
equity swap, of $0.44-0.47, implying strong +16-25% YoY growth,
with the incrementally higher profit outlook balanced by the
discrete one-time negative tax impact. As part of Coty's target to
manage its diluted share count toward approximately 800 million by
FY26, Coty expects to execute a 27 million share buyback in Q3 via
its first equity swap and a 23 million buyback in FY25 via its
second equity swap.
In light of Coty’s strong free cash flow trajectory in first
half FY24, its successful Paris dual listing, and given
misalignment on final deal terms, Coty and its counterparties have
decided to end the partial sale of its Wella stake. Coty remains
fully on track to reach its targeted leverage of ~3x exiting CY23
driven by its strong free cash flow trajectory and its successful
Paris dual listing, as well as leverage of ~2.5x exiting CY24 and
~2x exiting CY25, as it continues to target the full divestiture of
its Wella stake by end of 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:
- 1Q24 net revenues of $1,641.4 million increased 18% as reported
and LFL. This was driven by a 22% LFL increase in Prestige and a
10% LFL increase in Consumer Beauty.
Gross Margin:
- 1Q24 reported gross margin of 63.5% decreased 40 basis points
from the same period in the prior year, while adjusted gross margin
of 63.5% decreased by 60 basis points from 64.1% in 1Q23. The
decline in gross margin was driven by COGS inflation of
approximately 2% of revenues, a normalization of fragrance gift
sets as a percentage of the mix, and increased excess &
obsolescence tied to the inventory build-up in the Prestige
business to support strong service levels. These impacts were
partially offset by targeted pricing, positive mix management and
supply chain productivity.
Operating Income and EBITDA:
- 1Q24 reported operating income of $197.5 million increased by
15% from the prior year, driven by higher gross profit.
- 1Q24 adjusted operating income of $302.2 million rose 21% from
$249.6 million in the prior year, driven by higher gross profit.
The adjusted EBITDA of $360.3 million grew 17% from $307.9 million
in the prior year, due to higher sales and gross profit, partially
offset by higher A&CP.
- For 1Q24, the adjusted operating margin was 18.4% reflecting 40
basis points of margin expansion, fueled by fixed cost operating
leverage, while adjusted EBITDA margin of 22.0% decreased 20 basis
points.
Net Income:
- 1Q24 reported net loss of $1.7 million decreased from net
income of $125.3 million in the prior year, due to a higher benefit
in the prior year from a change in Wella's fair value.
- The 1Q24 adjusted net income of $74.1 million decreased from
$92.7 million in the prior year, as the increase in adjusted
operating income was more than offset by a $58 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, as well as a $24 million discrete
one-time non-cash tax impact from a change in the Swiss statutory
rate.
Earnings Per Share (EPS) - diluted:
- 1Q24 reported earnings per share of $0.00 decreased from a
reported earnings per share of $0.15 in the prior year, while the
1Q24 adjusted EPS of $0.09 decreased from an adjusted EPS of $0.11
in the prior year.
- The decline was primarily due to the one-time non-cash discrete
tax impact of $0.03 and a higher negative impact from the equity
swap mark-to-market of $0.06, compared with a $0.04 negative impact
from the mark-to-market on the equity swap in the prior year.
Operating Cash Flow:
- 1Q24 cash from operations totaling $186.2 million increased
from $163.2 million during the same period in the prior year.
- 1Q24 free cash flow of $124.0 million increased by $35.8
million from free cash flow of $88.2 million in the prior year,
driven by the $23.0 million increase in operating cash flow and a
$12.8 million decrease in capex.
Financial Net Debt:
- Financial Net Debt of $3,932.1 million on September 30, 2023,
decreased from $4,034.7 million on June 30, 2023, driven by solid
free cash flow generation.
First Quarter Business Review by
Segment*
Prestige
In 1Q24, Prestige net revenues of $1,064.7 million or 65% of
Coty sales, increased by 23% on a reported basis and 22% on a LFL
basis, supported by strong momentum in prestige beauty demand,
which led to double-digit percentage growth in all regions, and
outperformance in Americas, APAC and Travel Retail.
During Q1, the Prestige fragrance category continued to see
robust growth across North America and Europe, with nearly all
major markets generating double-digit percentage growth, led by the
U.S., Canada, Germany and Spain. Coty's Prestige fragrance revenue
grew approximately 25% LFL in Q1, maintaining momentum driven by
strong beauty demand, ongoing premiumization and fueled by existing
icons and new launches. Global Travel Retail trends were very
robust across all regions with growth of over 20% LFL in Q1,
propelled by the continued recovery of international travel and
Coty's expansion in the travel retail channel. In addition, Coty's
service levels exceeded expectations in the quarter, supported by
successful dual sourcing and build up of component inventory. At
the same time, Coty's recent launch of the Burberry Goddess
fragrance is setting new market records and overall Burberry
fragrance revenues have nearly doubled year on year. Additionally,
Coty's other recent innovations including Gucci Flora Gorgeous
Magnolia, Gorgeous Jasmine and Gorgeous Gardenia, Burberry Hero and
Her, Boss Bottled Elixir and Chloe Atelier des Fleurs continued to
deliver very strong performances in the quarter. While Coty's
Prestige makeup business was constrained by the gradual recovery in
China, the Company's Burberry makeup line delivered strong
double-digit percentage growth LFL. Finally, Coty's leading
Prestige skincare brands, philosophy and Lancaster, grew
double-digit percentage growth LFL in Q1, building momentum since
relaunching in spring 2023.
The Prestige segment generated reported operating income of
$221.6 million, compared to $170.3 million in the prior year. 1Q24
adjusted operating income was $260.3 million, up from $207.3
million in the prior year. Adjusted EBITDA rose to $287.6 million
from $234.9 million in the prior year, with a margin of 27.0%.
Consumer Beauty
In 1Q24, Consumer Beauty net revenues of $576.7 million, or 35%
of Coty sales, increased by 10% as reported and LFL, led by growth
in color cosmetics, mass fragrance and mass skin & bodycare.
Most regions generated strong LFL growth in the quarter, including
North America, Europe, Brazil and Latin America.
During the quarter, revenues grew in the mid-single-digit to
high-double-digits percentage LFL across cosmetics, mass fragrances
and mass skin & bodycare. Coty saw momentum in Q1 in many of
its brands, with solid LFL revenue growth in CoverGirl, Rimmel,
Sally Hansen, Monange, Risque, Beckham, and Nautica. The Consumer
Beauty business saw particular momentum in e-commerce, with over
25% sales growth LFL, delivering share gains in the channel.
The Consumer Beauty business reported operating income of $32.0
million in 1Q24, which was stable compared with the prior year.
1Q24 adjusted operating income of $41.9 million decreased slightly
from an adjusted operating income of $42.3 million in the prior
year. During the quarter, adjusted EBITDA was relatively flat at
$72.7 million, with a margin of 12.6%.
First Quarter Fiscal 2024 Business
Review by Region*
Americas
- In 1Q24, Americas net revenues of $708.0 million, or 43% of
Coty sales, increased 17% as reported and LFL. This was driven by
strong double-digit percentage growth in both Prestige and Consumer
Beauty. The regional performance was supported by double-digit
percentage growth in nearly all markets, with particularly strong
momentum in the U.S., Canada, Latin America and regional Travel
Retail.
EMEA
- In 1Q24, EMEA net revenues of $732.2 million, or 45% of Coty
sales, increased 20% as reported and 18% LFL. The performance was
driven by strong double-digit percentage growth LFL in Prestige and
high-single-digit percentage growth LFL in Consumer Beauty. In
Prestige, nearly all markets in the region delivered double-digit
percentage growth supported by continued strong fragrance demand
for existing Coty icons and recent innovations. In Consumer Beauty,
most markets delivered strong revenue growth.
Asia Pacific
- In 1Q24, Asia Pacific net revenues of $201.2 million, or 12% of
Coty sales, increased 16% as reported and 19% LFL. Prestige
delivered solid growth in nearly all markets and performance was
supported by double-digit percentage growth in South East Asia,
Hong Kong, Taiwan and regional Travel Retail. In Consumer Beauty,
Japan, Australia and New Zealand grew in the double-digits
percentage. In China, Coty's Prestige revenues grew, with Coty's
sell-out in mainland China growing double digits and in Hainan more
than doubling YoY, in both cases well ahead of the market, while
Coty Consumer Beauty sales were lower due to elevated
inventory.
Noteworthy Company
Developments
Other noteworthy company developments include:
- On August 18, 2023, Coty announced that it had renewed its
long-term license agreement with adidas. The partnership has been
focused on the intersection of personal care, wellness, sports and
sports lifestyle, with pioneering research and innovation into
areas such as the impact of fragrance on sports performance.
- On August 21, 2023, Coty announced that it had expanded and
extended its long-term license agreement with Marc Jacobs. As
long-standing partners in the fragrance category, Coty and Marc
Jacobs added Beauty to the license agreement. Coty’s license with
Marc Jacobs now extends for over 15 years.
- On September 12, 2023, Coty announced pricing of €500 million
aggregate principal amount of 5.75% Senior Secured Notes due
2028.
- On September 28, 2023, Coty announced the pricing of its global
offering of 33 million shares of outstanding Class A common stock,
at a price of $10.80 or €10.28. Coty also announced the admission
to listing and trading of its Class A Common Stock on the
professional segment of Euronext Paris. Coty intends to minimize
the dilution to less than 1% exiting FY24 by executing the first
phase of its equity swap for 27 million shares by the end of
Q3.
Conference Call
Coty Inc. will issue pre-recorded remarks at approximately 4:30
PM (ET) / 10:30 PM (CET) on November 7, 2023 and will hold a live
question and answer session on November 8, 2023 beginning at 7:30
AM (ET) / 1:30 PM (CET). 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
800-343-5172 in the U.S. or 203-518-9765 internationally
(conference passcode number: COTY1Q24).
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 over 125 countries and territories. Coty and our brands
empower people to express themselves freely, creating their own
visions of beauty; and we are committed to protecting 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,
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 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, expectations of the impact of
inflationary pressures and the timing, magnitude and impact of
pricing actions to offset inflationary costs, 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 divestiture,
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 and expectations for stick
repurchases), 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, 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 ongoing transformation agenda (including operational and
organizational structure changes, operational execution and
simplification initiatives, fixed cost reductions, continued
process improvements and supply chain changes), the impact, cost,
timing and implementation of e-commerce and digital initiatives,
the expected impact, cost, timing and implementation of
sustainability initiatives (including progress, plans and goals),
the impact of COVID-19, the wind down of the Company’s operations
in Russia (including timing and expected impact), the expected
impact of geopolitical risks including the ongoing war in Ukraine
and/or the armed conflict in the Middle East 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 the war in Ukraine and/or armed conflict
in the Middle East) and expectations regarding future service
levels and inventory levels, the impact of the dual-listing of the
Company's Class A common stock on Euronext Paris, 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 multi-year
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
in the Company's skincare and prestige cosmetics portfolio, 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, and the fair value of equity
investments;
- 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 transformation agenda, its global business
strategies, the integration and management of the strategic
partnerships with Kylie Jenner and Kim Kardashian, 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 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 and any change in our stock repurchase plans;
- 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) and management of the
partnerships, the Company's relationships with Kylie Jenner and Kim
Kardashian, the Company's ability to protect trademarks and brand
names, litigation or investigations by governmental authorities,
and changes in law, regulations and policies that affect King Kylie
LLC ("King Kylie") and/or 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 King Kylie and/or 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 in the Company's skincare and prestige cosmetics
portfolio;
- 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 and other hostiles and armed
conflicts, 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 escalation or expansion thereof, armed conflict in the
Middle East, elections in Brazil, the current U.S. administration
and future 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, potential regulatory limits on
payment terms in the European Union, recent and future changes in
sanctions regulations including in connection with the war in
Ukraine and armed conflict in the Middle East and any escalation or
expansion thereof, regulatory uncertainty impacting the wind-down
of our business in Russia, and recent and future changes in
regulations impacting the beauty industry, including regulatory
measures addressing products, formulations, raw materials and
packaging;
- currency exchange rate volatility and currency devaluation
and/or inflation;
- our ability to implement and maintain pricing actions to
effectively mitigate increased costs and inflationary pressures,
and the reaction of customers or consumers to such pricing
actions;
- 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, 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, and the Company's ability to effectively manage its
production and inventory levels in response to supply
challenges;
- 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, including through the implementation of new or
unproven technologies or processes, 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 practices, and the Company’s ability or
the ability of any of the third-party service providers the Company
uses to support its business, 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 Law 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;
- 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 and continued
process improvements on the Company’s relationships with key
customers and suppliers and certain material contracts;
- the Company’s relationship with JAB Beauty 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 Coty Inc 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.
- Gain on sale and early license termination: We have excluded
the impact of gain on sale and early license termination as such
amounts are inconsistent in amount and frequency and are
significantly impacted by the size of the sale and early license
termination.
- Costs related to market exit: We have 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: We have 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 well as expenses related to potential or
actual sales transactions reducing equity investments, 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
RESULTS AT A GLANCE
Three Months Ended September
30,
2023
(in millions, except per share
data)
Change YoY
COTY, INC.
Reported
Basis
(LFL)
Net revenues
$
1,641.4
18
%
18
%
Operating income - reported
197.5
15
%
Operating income - adjusted*
302.2
21
%
EBITDA - adjusted
360.3
17
%
Net income attributable to common
shareholders - reported **
(1.7
)
<(100%)
Net income attributable to common
shareholders - adjusted* **
74.1
(20
%)
EPS attributable to common
shareholders (diluted) - reported
$
0.00
(100
%)
EPS attributable to common
shareholders (diluted) - adjusted*
$
0.09
(18
%)
* These measures, as well as “free cash
flow,” “adjusted earnings before interest, taxes, depreciation and
amortization (adjusted EBITDA),” “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 Coty Inc. is net of the
Convertible Series B Preferred Stock dividends.
FIRST QUARTER BY SEGMENT (COTY
INC)
Three Months Ended September
30,
Net Revenues
Change
Reported Operating
Income
(Loss)
Adjusted Operating Income
(Loss)
(in millions)
2023
2022
Reported
Basis
LFL
2023
Change
Margin
2023
Change
Margin
Prestige
$
1,064.7
$
863.4
23
%
22
%
$
221.6
30
%
21
%
$
260.3
26
%
24
%
Consumer Beauty
576.7
526.6
10
%
10
%
32.0
0
%
6
%
41.9
(1
%)
7
%
Corporate
—
—
N/A
N/A
(56.1
)
(85
%)
N/A
—
N/A
N/A
Total
$
1,641.4
$
1,390.0
18
%
18
%
$
197.5
15
%
12
%
$
302.2
21
%
18
%
Adjusted EBITDA
Three Months Ended
September 30,
(in millions)
2023
2022
Prestige
$
287.6
$
234.9
Consumer Beauty
72.7
73.0
Corporate
—
—
Total
$
360.3
$
307.9
FIRST QUARTER FISCAL 2024 BY REGION
Coty, Inc.
Three Months Ended September
30,
Net Revenues
Change
(in millions)
2023
2022
Reported
Basis
LFL
Americas
$
708.0
$
607.6
17
%
17
%
EMEA
732.2
609.3
20
%
18
%
Asia Pacific
201.2
173.1
16
%
19
%
Total
$
1,641.4
$
1,390.0
18
%
18
%
COTY INC. &
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
(in millions, except per share
data)
2023
2022
Net revenues
$
1,641.4
$
1,390.0
Cost of sales
599.5
501.3
as % of Net revenues
36.5
%
36.1
%
Gross profit
1,041.9
888.7
Gross margin
63.5
%
63.9
%
Selling, general and administrative
expenses
767.4
670.7
as % of Net revenues
46.8
%
48.3
%
Amortization expense
48.6
47.3
Restructuring costs
28.4
(1.2
)
Operating income
197.5
171.9
as % of Net revenues
12.0
%
12.4
%
Interest expense, net
69.8
65.9
Other expense (income), net
76.6
(98.2
)
Income before income taxes
51.1
204.2
as % of Net revenues
3.1
%
14.7
%
Provision for income taxes
40.9
69.7
Net income
10.2
134.5
as % of Net revenues
0.6
%
9.7
%
Net income (loss) attributable to
noncontrolling interests
1.1
—
Net income attributable to redeemable
noncontrolling interests
7.5
5.9
Net income attributable to Coty Inc.
$
1.6
$
128.6
Amounts attributable to Coty
Inc.
Net income
$
1.6
$
128.6
Convertible Series B Preferred Stock
dividends
(3.3
)
(3.3
)
Net (loss) income attributable to
common stockholders
$
(1.7
)
$
125.3
Earnings per common share:
Basic for Coty Inc.
$
—
$
0.15
Diluted for Coty Inc.(a)
$
—
$
0.15
Weighted-average common shares
outstanding:
Basic
854.3
842.0
Diluted(a)(b)
854.3
882.2
Depreciation - Coty Inc.
$
58.1
$
59.2
(a)
Adjusted Diluted EPS is adjusted
by the effect of dilutive securities. For the three months ended
September 30, 2023, shares for the Forward Repurchase Contracts
were excluded from the computation of adjusted diluted EPS as Coty
is in the position to receive shares from the counterparties and as
such their inclusion would be anti-dilutive. For the three months
ended September 30, 2022, the Forward Repurchase Contracts (3.1
million weighted average dilutive shares) were anti-dilutive.
Accordingly, we excluded these shares from the diluted shares and
did not adjust the earnings for the fair market value loss of
$27.7. For the three months ended September 30, 2023 and 2022,
convertible Series B Preferred Stock (23.7 million weighted average
dilutive shares) were anti-dilutive. Accordingly, we excluded these
shares from the diluted shares and did not adjust the earnings for
the related dividend of $3.3.
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, 2023
COTY INC.
(in millions)
Reported
(GAAP)
Adjustments(a)
Adjusted
(Non-GAAP)
Net revenues
$
1,641.4
$
—
$
1,641.4
Gross profit
1,041.9
—
1,041.9
Gross margin
63.5
%
63.5
%
Operating income
197.5
104.7
302.2
as % of Net revenues
12.0
%
18.4
%
Net (loss) income
(1.7
)
75.8
74.1
as % of Net revenues
(0.1
%)
4.5
%
Adjusted EBITDA
360.3
as % of Net revenues
22.0
%
EPS (diluted)
$
—
$
0.09
Adjusted diluted EPS includes ($0.06)
related to the net impact of the Total Return Swaps in the three
months ended September 31, 2023.
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
(a) See “Reconciliation of
Reported Operating Income (Loss) to Adjusted Operated Income” and
“Reconciliation of Reported Net Income to Adjusted Net Income” for
a detailed description of adjusted items.
RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED
OPERATING INCOME AND ADJUSTED EBITDA
COTY INC.
Three Months Ended September
30,
(in millions)
2023
2022
Change
Reported Operating income
$
197.5
$
171.9
15
%
% of Net revenues
12.0
%
12.4
%
Amortization expense (a)
48.6
47.3
3
%
Restructuring and other business
realignment costs (b)
27.3
(0.8
)
>100%
Stock-based compensation
29.7
31.1
(5
%)
(Gain) on sale of real estate
(1.7
)
(1.0
)
(70
%)
Early license termination and market exit
costs
0.8
1.1
(27
%)
Total adjustments to reported operating
income
104.7
77.7
35
%
Adjusted Operating income
$
302.2
$
249.6
21
%
% of Net revenues
18.4
%
18.0
%
Adjusted depreciation (c)
58.1
58.3
0
%
Adjusted EBITDA
$
360.3
$
307.9
17
%
% of Revenues
22.0
%
22.2
%
(a)
In the three months ended
September 30, 2023, amortization expense of $38.7 and $9.9 was
reported in the Prestige and Consumer Beauty segments,
respectively. 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.
(b)
In the three months ended
September 30, 2023, we incurred restructuring and other business
structure realignment costs of $27.3. We incurred restructuring
costs of $28.4 primarily related to the 2024 Restructuring Action,
included in the Condensed Consolidated Statements of Operations;
and a credit in business structure realignment costs of (1.1). 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, included in the
Condensed Consolidated Statements of Operations; and incurred
business structure realignment costs of $0.4 primarily related to
the Transformation Plan and certain other programs which was
reported in Cost of sales in the Condensed Consolidated Statement
of Operations.
(c)
In the three months ended
September 30, 2023, adjusted depreciation expense of $27.3 and
$30.8 was reported in the Prestige and Consumer Beauty segments,
respectively. 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.
RECONCILIATION OF REPORTED INCOME BEFORE INCOME TAXES AND
EFFECTIVE TAX RATES TO ADJUSTED INCOME BEFORE INCOME TAXES AND
ADJUSTED EFFECTIVE TAX RATES FOR COTY INC.
Three Months Ended September
30,
2023
Three Months Ended September
30,
2022
(in millions)
Income
before
income
taxes
(Benefit)
Provision
for
income
taxes
Effective tax
rate
Income
before
income
taxes
Provision
for
income
taxes
Effective tax
rate
Reported Income before income
taxes
$
51.1
$
40.9
80.0
%
$
204.2
$
69.7
34.1
%
Adjustments to Reported Operating Income
(a)
104.7
77.7
Change in fair value of investment in
Wella Business (c)
(4.0
)
(135.0
)
Other adjustments (d)
3.9
0.2
Total Adjustments (b)
104.6
27.1
(57.1
)
(26.2
)
Adjusted Income before income
taxes
$
155.7
$
68.0
43.7
%
$
147.1
$
43.5
29.6
%
The adjusted effective tax rate was 43.7%
for the three months ended September 30, 2023 compared to 29.6% for
the three months ended September 30, 2022. The differences were
primarily due to an expense of $24.3 in the current period
recognized on the revaluation of the Company's deferred tax
liabilities due to a tax rate increase enacted in Switzerland.
(a) See a description of
adjustments under “Adjusted Operating Income for Coty Inc.
(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) loss recognized for the change in
the fair value of the investment in Wella.
(d) For the three months ended
September 30, 2023, this primarily represents adjustments for
divestiture-related costs related to our equity investments and
equity loss from KKW. For the three months ended September 30,
2022, 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)
2023
2022
Change
Net income from Coty Inc., net of
noncontrolling interests
$
1.6
$
128.6
(99
%)
Convertible Series B Preferred Stock
dividends (c)
(3.3
)
(3.3
)
0
%
Reported Net (loss) income attributable
to Coty Inc.
$
(1.7
)
$
125.3
<(100%)
% of Net revenues
(0.1
%)
9.0
%
Adjustments to Reported Operating income
(a)
104.7
77.7
35
%
Change in fair value of investment in
Wella Business (d)
(4.0
)
(135.0
)
97
%
Adjustments to other expense (e)
3.9
0.2
>100%
Adjustments to noncontrolling interests
(b)
(1.7
)
(1.7
)
0
%
Change in tax provision due to adjustments
to Reported Net income attributable to Coty Inc.
(27.1
)
26.2
<(100%)
Adjusted Net income attributable to
Coty Inc.
$
74.1
$
92.7
(20
%)
% of Net revenues
4.5
%
6.7
%
Per Share Data
Adjusted weighted-average common
shares
Basic
854.3
842.0
Diluted (c)
867.3
858.5
Adjusted Net income attributable to
Coty Inc. per Common Share
Basic
$
0.09
$
0.11
Diluted (c)
$
0.09
$
0.11
Adjusted diluted EPS includes ($0.06)
related to the net impact of the Total Return Swaps in the three
months ended September 31, 2023.
(a)
See a description of adjustments
under “Adjusted Operating Income 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, 2023, shares for the Forward Repurchase Contracts
were excluded from the computation of adjusted diluted EPS as Coty
is in the position to receive shares from the counterparties and as
such their inclusion would be anti-dilutive. For the three months
ended September 30, 2022, the Forward Repurchase Contracts (3.1
million weighted average dilutive shares) were anti-dilutive.
Accordingly, we excluded these shares from the diluted shares and
did not adjust the earnings for the fair market value loss of
$27.7. For the three months ended September 30, 2023 and 2022,
convertible Series B Preferred Stock (23.7 million weighted average
dilutive shares) were anti-dilutive. Accordingly, we excluded these
shares from the diluted shares and did not adjust the earnings for
the related dividend of $3.3.
(d)
The amount represents the
realized and unrealized (gain) loss recognized for the change in
the fair value of the investment in Wella.
(e)
For the three months ended
September 30, 2023, this primarily represents divestiture-related
costs related to our equity investments and loss from equity
investment in KKW. For the three months ended September 30, 2022,
this primarily represents adjustments for equity loss from KKW.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW
COTY INC.
Three Months Ended
September 30,
(in millions)
2023
2022
Net cash provided by operating
activities
$
186.2
$
163.2
Capital expenditures
(62.2
)
(75.0
)
Free cash flow
$
124.0
$
88.2
RECONCILIATION OF TOTAL DEBT TO ECONOMIC NET DEBT
COTY INC.
As of
(in millions)
September 30, 2023
Total debt
$
4,212.1
Less: Cash and cash equivalents
280.0
Financial Net debt
$
3,932.1
Less: Value of Wella stake
1,064.0
Economic Net debt
$
2,868.1
RECONCILIATION OF ADJUSTED OPERATING INCOME TO ADJUSTED
EBITDA
Twelve months ended
September 30, 2023
(in millions)
COTY INC.
Adjusted operating income (a)
$
791.4
Add: Adjusted depreciation(b)
233.8
Adjusted EBITDA
$
1,025.2
(a)
Adjusted operating income for the
twelve months ended September 30, 2023 represents the summation of
the adjusted operating income for Coty Inc for each of the quarters
ended September 30, 2023, June 30, 2023, March 31, 2023 and
December 31, 2022. For a reconciliation of adjusted operating
income to operating income for Coty Inc for each of those periods,
see the table entitled “Reconciliation of Reported Operating Income
to Adjusted Operating Income for Coty Inc” for each of those
periods.
(b)
Adjusted depreciation for the
twelve months ended September 30, 2023 represents depreciation
expense for Coty Inc for the period, excluding accelerated
depreciation.
FINANCIAL NET DEBT/ADJUSTED EBITDA
September 30, 2023
Financial Net Debt - Coty Inc.
$
3,932.1
Adjusted EBITDA
1,025.2
Financial Net Debt/Adjusted
EBITDA
3.84
RECONCILIATION OF REPORTED NET REVENUES TO LIKE-FOR-LIKE NET
REVENUES
Three Months Ended September
30, 2023 vs. Three Months Ended September 30, 2022
Net Revenue
Change
Net Revenues Change
YoY
Reported Basis
Constant Currency
Impact from
Acquisitions and
Divestitures and Market
Exit from Russia (a)
LFL and Core Business
Excluding Russia
Prestige
23
%
20
%
(2
)%
22
%
Consumer Beauty
10
%
7
%
(3
)%
10
%
Total Coty Inc.
18
%
15
%
(3
)%
18
%
(a)
The Company ceased commercial
activities in Russia at the end of the second quarter of fiscal
2023. As a result, there are no revenues from Russia after the end
of the second quarter of fiscal 2023. To maintain comparability, we
have excluded the first quarter fiscal 2023 financial contribution
of the Russian subsidiary, in calculating the LFL revenue
change.
COTY INC. &
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in millions)
September 30,
2023
June 30,
2023
ASSETS
Current assets:
Cash and cash equivalents
$
280.0
$
246.9
Restricted cash
37.7
36.9
Trade receivables, net
534.9
360.9
Inventories
845.4
853.4
Prepaid expenses and other current
assets
545.5
553.6
Total current assets
2,243.5
2,051.7
Property and equipment, net
689.5
712.9
Goodwill
3,927.5
3,987.9
Other intangible assets, net
3,688.4
3,798.0
Equity investments
1,072.1
1,068.9
Operating lease right-of-use assets
281.1
286.7
Other noncurrent assets
714.8
755.5
TOTAL ASSETS
$
12,616.9
$
12,661.6
LIABILITIES, MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
1,375.4
$
1,444.7
Short-term debt and current portion of
long-term debt
40.8
57.9
Other current liabilities
1,411.9
1,234.2
Total current liabilities
2,828.1
2,736.8
Long-term debt, net
4,095.4
4,178.2
Long-term operating lease liabilities
244.3
247.5
Other noncurrent liabilities
1,299.4
1,265.8
TOTAL LIABILITIES
8,467.2
8,428.3
CONVERTIBLE SERIES B PREFERRED
STOCK
142.4
142.4
REDEEMABLE NONCONTROLLING
INTERESTS
98.6
93.5
Total Coty Inc. stockholders’
equity
3,721.3
3,811.1
Noncontrolling interests
187.4
186.3
Total equity
3,908.7
3,997.4
TOTAL LIABILITIES, MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY
$
12,616.9
$
12,661.6
COTY INC. &
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended
September 30,
2023
2022
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
$
10.2
134.5
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization
106.8
106.6
Non-cash lease expense
15.8
16.0
Deferred income taxes
22.8
59.5
Provision (releases) for bad debts
1.0
(3.3
)
Provision for pension and other
post-employment benefits
2.5
2.3
Share-based compensation
29.7
31.1
(Gains) losses on disposals of long-term
assets, net
(1.0
)
2.4
Realized and unrealized gains from equity
investments, net
(3.2
)
(134.1
)
Other
85.1
59.5
Change in operating assets and
liabilities, net of effects from purchase of acquired
companies:
Trade receivables
(190.8
)
(133.8
)
Inventories
(9.9
)
(42.1
)
Prepaid expenses and other current
assets
(47.4
)
(58.4
)
Accounts payable
(22.4
)
50.6
Accrued expenses and other current
liabilities
183.8
119.1
Operating lease liabilities
(16.0
)
(18.0
)
Other assets and liabilities, net
19.2
(28.7
)
Net cash provided by operating
activities
186.2
163.2
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures
(62.2
)
(75.0
)
Net cash used in investing
activities
(62.2
)
(75.0
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from revolving loan
facilities
834.0
220.7
Repayments of revolving loan
facilities
(962.0
)
(208.9
)
Proceeds from issuance of other long-term
debt
1,284.3
—
Repayments of term loans and other long
term debt
(1,186.6
)
(5.6
)
Dividend payment on Class A Common Stock
and Class B Preferred Stock
(3.3
)
(3.6
)
Net (repayments for) proceeds from foreign
currency contracts
(4.0
)
(89.5
)
Payment related to forward repurchase
contracts
(3.9
)
—
Payment of deferred financing fees
(36.0
)
—
All other
(1.1
)
(0.9
)
Net cash provided by financing
activities
(78.6
)
(87.8
)
EFFECT OF EXCHANGE RATES ON CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
(11.5
)
(13.1
)
NET (DECREASE)/INCREASE IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
33.9
(12.7
)
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH—Beginning of period
283.8
263.8
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH—End of period
$
317.7
$
251.1
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231107851250/en/
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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