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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
NEW YORK--(BUSINESS WIRE)-- 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 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 |
|
| ||
