Improved Operational Results Driven by Better Sales Trends Across All Coty Core Regions in both its Prestige and Mass Businesses
Wella Divestiture Expected to Close as Planned by End of CY20, Which Will Result in Significant Net Debt Reduction
NEW YORK--(BUSINESS WIRE)-- Coty Inc. (NYSE: COTY) today announced significantly improved financial results for the first quarter of fiscal year 2021, ended September 30, 2020.
Since the previous quarter, net revenues improved each month, resulting in a 19% LFL decline for Coty's Continuing Operations, an improvement of over 40 percentage points as compared to the change in net revenues from Continuing Operations in the previous quarter. Fixed costs savings were approximately $80 million in 1Q21, and are on track to deliver over $200 million of savings in FY21, while still maintaining focused marketing investments. The operational improvements and stringent cost controls resulted in $81.1 million in adjusted operating income from Continuing Operations, an increase of 24% versus last year. Total Coty adjusted EPS, which includes Wella, grew 57% to $0.11 for the quarter, while reported EPS was $0.24.
The Wella divestiture is expected to close as planned by the end of CY20, which - together with positive cash flow in 2Q21 - will lower the Financial Net Debt from $7.9 billion today to around $5.0 billion. Taking into account the retained 40% Wella stake (worth $1.3 billion), the Economic Net Debt will stand below $4.0 billion.
Against this backdrop, Coty has made substantive progress on its key priorities including innovation and performance in both prestige and mass channels, strengthened positioning in its core markets, stronger e-commerce momentum and presence, and growth from its footholds in both skincare and in China. With its early progress, Coty is strengthening its brands and reinforcing their connection with consumers around the world.
Commenting on the operating results, Sue Y. Nabi, Coty's CEO, said:
"Our first quarter results are a testament that a stronger, more focused and more flexible Coty, is emerging in the middle of the COVID-19 pandemic and better prepared to face any future market disruptions. Impressively, the organization has continued to adapt to the new normal, executing on our financial and operational priorities, including profit and cash flow protection, strong innovation performance, e-commerce momentum, and strengthened positioning in core markets.
Our results met or exceeded our expectations by all measures, showing significant improvement from 4Q20 across all of our regions, and across our prestige and mass businesses. Our stringent cost control enabled over 20% growth in our adjusted operating income and over 50% growth of the total company EPS.
The success of our recent launches, including Marc Jacobs Perfect, Gucci's Bloom Profumo di Fiori, Sally Hansen's good.kind.pure, and CoverGirl's Clean Fresh, confirm the strength and enduring potential of our brand portfolio. As we have leaned into our digital efforts and activation, we have seen double-to-triple digit e-commerce sell-out growth across most markets, with our e-commerce penetration as a percentage of our overall sales doubling to 13%. As a result, we have strengthened our positions in our core markets, gaining market share in prestige fragrances across the U.S., U.K, and Germany, and stabilizing our mass color cosmetics market share in the U.S. These milestones, along with the strengthening of our executive leadership team with Isabelle Bonfanti as Chief Commercial Officer of Luxury and Jean-Denis Mariani as Chief Digital Officer, put us well on the path to the new, future Coty.
We remain focused on diligent cost control and delivering on our FY21 financial commitments, including being profitable on an adjusted operating income basis for Continuing Operations and being cash positive for the year, supporting improved like-for-like Financial Net Debt.
More than ever, Coty is committed to reigniting our mass color cosmetics business, especially CoverGirl. Likewise, we will accelerate Coty's prestige business growth through makeup by leveraging our designer brands portfolio, including Gucci and Burberry, especially in Asia. We will continue building further growth engines, leveraging the potential of our skincare brands powered by our new DTC capabilities, starting with Kylie skincare.
After several months in the CEO role, I am as convinced as ever that we've put in place the right foundations to unleash Coty's huge potential. Coty is now ready to grow in all core regions, categories and price positions across the market."
Highlights
Financial Results
Note: Discussions of "Total Coty" results reflect the current full scope of Coty's revenues and costs; "Continuing Operations" results reflect Total Coty results less the revenues and directly attributable costs of the soon-to-be-divested Wella business; "Ongoing Coty" results reflect Continuing Operations plus a partial cost recovery expected under the Wella transitional service agreement (the “Wella TSA”) which the Company believes is useful information to investors to analyze the balance of costs for the ongoing business.
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.
Total Coty
Revenues:
Gross Margin:
Operating Income:
Net Income:
Earnings Per Share (EPS) - diluted:
Operating Cash Flow:
Financial Net Debt:
Immediate Liquidity:
Continuing Operations
Revenues:
Gross Margin:
Operating Income:
Net Income:
Earnings Per Share (EPS) - diluted:
First Quarter Business Review by Segment (Continuing Operations)
Americas
In 1Q21, Americas net revenues of $470.6 million or 42% of total Coty Continuing Operations, decreased by 3.7% versus the prior year. On a LFL basis, Americas net revenues decreased by 4.5%, showing a meaningful improvement over the prior quarter's -51.5% LFL decline, particularly within the United States which saw a slight LFL decline and Brazil which returned to growth. The improvement in 1Q21 trends was supported by a number of factors, including: 1) pent up demand driving consumption as lockdowns eased; 2) winning innovations; and 3) continued strength within e-commerce.
During the quarter, we grew market share within U.S. prestige fragrances, with Marc Jacobs, Gucci, and Burberry having particularly strong performances. Marc Jacobs Perfect has been the #1 Fall fragrance launch, helping to propel the Marc Jacobs overall brand ranking up 6 spots, from #10 to #4. Gucci saw strong sell-out across both fragrances and cosmetics, with fragrance growth fueled by Gucci Bloom Profumo in female and Gucci Guilty in male, and Gucci cosmetics maintaining momentum, becoming the #1 ranked lipstick and #3 bronzer in Sephora US and Canada in recent data. We continued to make progress in our U.S. mass beauty business, with our mass cosmetics brands maintaining stable market share in retail. This share stabilization was supported by strong growth in Sally Hansen, fueled by the leading launch of the clean nail polish line good.kind.pure and the relaunch of the Miracle Gel line, as well as the continued range expansion of the CoverGirl Clean Fresh franchise. In Brazil, our value-priced local brands were positioned well in the current market context, with strong sell-out growth across our body care brands as well as the Risque nail color brand, which strengthened its position with the launch of its Diamond Gel line.
During the quarter, e-commerce penetration as a percentage of sales in the Americas region doubled to the low teens, with e-commerce sales for both prestige and mass brands nearly doubling from the prior year period.
The reported sales for the Americas segment benefited from the contribution from the Kylie Jenner joint venture. During 1Q21, the joint venture was pressured due to reduced supply related to its cosmetics third party manufacturer. However, Kylie Skin continued to deliver very solid growth during the quarter.
The Americas segment generated a reported operating income of $21.3 million in 1Q21, compared to a reported operating loss of $17.5 million in the prior year. The 1Q21 adjusted operating income was $47.4 million, up from an adjusted operating loss of $4.8 million in the prior year, driven by close management of marketing investment and strong fixed cost reduction more than offsetting the sales decline. The adjusted operating margin was 10.1% versus (1.0)% in the prior year.
EMEA
In 1Q21, EMEA net revenues of $530.4 million, or 47% of total Coty continuing operations, declined by 21.6% versus the prior year. On a LFL basis, EMEA net revenues declined 24.4%. Sales trends in 1Q21 improved sequentially from the 67% LFL decline in 1Q20, but remained in decline due primarily to softer overall market trends in both prestige fragrances and mass cosmetics, as well as continued significant weakness in the travel retail channel.
In our prestige fragrance business, we gained market share in our core markets, Germany and the U.K., fueled by the strong performance of recent key launches including Hugo Boss Alive, Hugo Boss Bottled, Jil Sander Sun EDP and Marc Jacobs Perfect. Hugo Boss Alive, which was the #1 female launch in Germany in the spring, continued to perform well and now stands as the #8 female brand line in the market, while the men's lines were supported by the strong performance of Hugo Boss Bottled. Marc Jacobs Perfect was the #1 prestige fragrance launch in the U.K., driving strong market share growth for the overall brand. In our mass beauty business, while the cosmetics category remained pressured, we saw areas of improvement as Rimmel - U.K.'s #1 mass cosmetics brand - continued grow its leading share, and the consumer shift to at-home manicures drove market share gains for Sally Hansen across U.K., Italy, France and the Netherlands.
1Q21 e-commerce penetration as a percentage of sales in the EMEA region grew strongly to the low teens, with double digit growth in e-commerce sales for both prestige and mass brands.
Reported operating income was $13.0 million in 1Q21 versus reported operating income of $28.2 million in the prior year. The 1Q21 adjusted operating income of $45.8 million declined from $60.1 million in the prior year, driven by the lower sales, partially offset by controlled marketing spend and solid fixed cost reductions. For 1Q21, the adjusted operating margin stayed constant at 8.6%.
Asia Pacific
1Q21 Asia Pacific net revenues of $123.1 million, or 11% of total Coty continuing operations, decreased 35.3% on a reported basis and declined 36.6% LFL. The vast majority of the decline was driven by the continued significant pressure in the travel retail channel as well as the continued active reduction of sales to low value channels, particularly in the prestige business, which we began in 2HFY20. Encouragingly, sell-out trends for our prestige brands in the Asia Pacific region were very strong during the quarter, increasing double-digits both off-line and online. In our mass business, we gained market share in our core business in Australia, driven by Sally Hansen and CoverGirl.
China sales trends continued to improve during 1Q21, with prestige brick & mortar and e-commerce sell-out increasing in the double-digits. While China currently accounts for a low single digit percentage of Coty sales, our prestige brands have continued to strengthen their positions, with double digit growth across Gucci, Burberry, Tiffany, Miu Miu and Chloe. Within Gucci and Burberry, we have been actively expanding the brands beyond the core fragrance offerings into prestige cosmetics, with cosmetics now accounting for ~20% of sales across these two brands in China.
Reported operating loss in 1Q21 of $19.0 million declined from reported operating income of $8.5 million in the prior year. The 1Q21 adjusted operating loss of $12.5 million declined from adjusted operating income of $14.7 million in the prior year, fueled by the operating deleverage on the declining sales, partially offset by reduced fixed costs and lower marketing investments. The 1Q21 adjusted operating margin of (10.2)% declined from 7.7% in the prior year.
First Quarter Fiscal 2021 Business Review by Channel (Continuing Operations)
Prestige
Mass
Discontinued Operations
Wella Business
Noteworthy Company Developments
Other noteworthy company developments include:
Conference Call
Coty Inc. will host a conference call at 8:00 a.m. (ET) today, November 6, 2020 to discuss its results. The dial-in number for the call is (866) 834-4311 in the U.S. or (720) 405-2213 internationally (conference passcode number: 3589374). The live audio webcast and presentation slides will be available at http://investors.coty.com. The conference call will be available for replay.
About Coty Inc.
Coty is one of the world’s largest beauty companies with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care. Coty is the global leader in fragrance, and number three in color cosmetics. Coty’s products are sold in over 150 countries around the world. Coty and its brands are committed to a range of social causes as well as seeking to minimize its impact on the environment. For additional information about Coty Inc., please visit www.coty.com.
Forward Looking Statements
Certain statements in this Earnings Release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company's current views with respect to, among other things, the impact of COVID-19 and potential recovery scenarios, the Company’s comprehensive transformation agenda (the "Transformation Plan"), strategic planning, targets, segment reporting and outlook for future reporting periods (including the extent and timing of revenue, expense and profit trends and changes in operating cash flows and cash flows from operating activities and investing activities), the sale of the Professional and Retail Hair business, including the Wella, Clairol, OPI and ghd brands (the “Wella Business”) and the investment by Rainbow UK Bidco Limited ((“KKR Bidco”) an affiliate of funds and/or separately managed accounts advised and/or managed by Kohlberg Kravis Roberts & Co. L.P. and its affiliates (collectively, "KKR")) in connection with the standalone business (the “Wella Transaction”), including timing of the Wella Transaction and the use of proceeds from the Wella Transaction, the Company’s future operations and strategy (including the expected implementation and related impact of its strategic priorities), ongoing and future cost efficiency and restructuring initiatives and programs, strategic transactions (including their expected timing and impact), the Company’s capital allocation strategy and payment of dividends (including suspension of dividend payments and the duration thereof), investments, licenses and portfolio changes, synergies, savings, performance, cost, timing and integration of acquisitions, including the strategic partnership with Kylie Jenner and the announced pending transaction with Kim Kardashian West, future cash flows, liquidity and borrowing capacity, timing and size of cash outflows and debt deleveraging, the availability of local government funding or reimbursement programs in connection with COVID-19 (including expected timing and amounts), 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, supply chain changes, e-commerce and digital initiatives, 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:
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 Quarterly Report on Form 10-K for the year ended June 30, 2020 and other periodic reports the Company has filed and may file with the SEC from time to time.
All forward-looking statements made in this release are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this release, and the Company does not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such, and should only be viewed as historical data.
Non-GAAP Financial Measures
The Company operates on a global basis, with the majority of net revenues generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect results of operations. Therefore, to supplement financial results presented in accordance with GAAP, certain financial information is presented excluding the impact of foreign currency exchange translations to provide a framework for assessing how the underlying businesses performed excluding the impact of foreign currency exchange translations (“constant currency”). Constant currency information compares results between periods as if exchange rates had remained constant period-over-period, with the current period’s results calculated at the prior-year period’s rates. The Company calculates constant currency information by translating current and prior-period results for entities reporting in currencies other than U.S. dollars into U.S. dollars using constant foreign currency exchange rates. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different to the functional currency of that entity when exchange rates fluctuate. The constant currency information presented may not be comparable to similarly titled measures reported by other companies. The Company discloses the following constant currency financial measures: net revenues, organic like-for-like (LFL) net revenues, adjusted gross profit and adjusted operating income.
The Company presents period-over-period comparisons of net revenues on a constant currency basis as well as on an organic (LFL) basis. The Company believes that organic (LFL) better enables management and investors to analyze and compare the Company's net revenues performance from period to period. For the periods described in this release, the term “like-for-like” describes the Company's core operating performance, excluding the financial impact of (i) acquired brands or businesses in the current year period until we have twelve months of comparable financial results, (ii) the divested brands or businesses or early terminated brands, generally, in the prior year non-comparable periods, to maintain comparable financial results with the current fiscal year period and (iii) foreign currency exchange translations to the extent applicable. For a reconciliation of organic (LFL) period-over-period, see the table entitled “Reconciliation of Reported Net Revenues to Like-For-Like Net Revenues”.
The Company presents operating income, operating income margin, gross profit, gross margin, effective tax rate, net income, net income margin, net revenues and EPS (diluted) on a non-GAAP basis and specifies that these measures are non-GAAP by using the term “adjusted” (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 from continuing operations excludes restructuring costs and business structure realignment programs, amortization, acquisition- and divestiture-related costs and acquisition accounting impacts, asset impairment charges and other adjustments as described 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 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:
The Company has provided a quantitative reconciliation of the difference between the non-GAAP financial measures and the financial measures calculated and reported in accordance with GAAP. For a reconciliation of adjusted gross profit to gross profit, adjusted EPS (diluted) to EPS (diluted), and adjusted net revenues to net revenues, see the table entitled “Reconciliation of Reported to Adjusted Results for the Consolidated Statements of Operations.” For a reconciliation of adjusted operating income to operating income and adjusted operating income margin to operating income margin, see the tables entitled “Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income” and "Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income by Segment." For a reconciliation of adjusted effective tax rate to effective tax rate, see the table entitled “Reconciliation of Reported Income (Loss) Before Income Taxes and Effective Tax Rates to Adjusted Income Before Income Taxes and Adjusted Effective Tax Rates.” For a reconciliation of adjusted net income and adjusted net income margin to net income (loss), see the table entitled “Reconciliation of Reported Net Income (Loss) to Adjusted Net Income.”
The Company also presents free cash flow, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), 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 less depreciation. 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, 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, 2020 | ||||||
(in millions, except per share data) |
|
|
| Change YoY | ||||
CONTINUING OPERATIONS |
|
|
| Reported Basis |
| Organic (LFL) | ||
Net revenues |
| $ | 1,124.1 |
|
| (20%) |
| (19%) |
Operating loss - reported |
| (66.0) |
|
| 100% |
|
| |
Net loss attributable to common shareholders - adjusted* ** |
| (15.9) |
|
| 100% |
|
| |
EPS attributable to common shareholders (diluted) - adjusted* |
| $ | (0.02) |
|
| (100%) |
|
|
|
|
|
|
|
|
| ||
COTY, INC. |
|
|
|
|
|
| ||
Net revenues*** |
| $ | 1,690.5 |
|
| (13%) |
| (12%) |
Operating income - reported*** |
| 79.4 |
|
| 100% |
|
| |
Net income attributable to common shareholders - adjusted* ** |
| 83.6 |
|
| 66% |
|
| |
EPS attributable to common shareholders (diluted) - reported |
| $ | 0.24 |
|
| >100% |
|
|
EPS attributable to common shareholders (diluted) - adjusted* |
| $ | 0.11 |
|
| 57% |
|
|
* These measures, as well as “free cash flow,” “adjusted earnings before interest, taxes, depreciation and amortization (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. Net income (loss) represents Net income (loss) Attributable to Coty Inc. Reconciliations from reported to adjusted results can be found at the end of this release. ** Net income (loss) for Continuing Operations and Coty Inc. are net of the Convertible Series B Preferred Stock dividends. *** Coty Inc Net revenues, Operating income (loss) -reported and Operating income (loss) -Adjusted, shows the combined activities of the total Coty Inc. to allow investors to compare to our prior financial results.
FIRST QUARTER BY SEGMENT (CONTINUING OPERATIONS)
Americas
| Three Months Ended September 30, 2020 | |||||
| Actual |
| Reported Basis YoY |
| Organic (LFL) | |
Net Revenues | $470.6 |
| (3.7%) |
| (4.5)% | |
|
|
|
|
|
| |
| Reported |
| Adjusted |
|
| |
Operating income | $21.3 |
| $47.4 |
|
| |
Operating Margin | 4.5% |
| 10.1% |
|
|
EMEA
| Three Months Ended September 30, 2020 | |||||
| Actual |
| Reported Basis YoY |
| Organic (LFL) | |
Net Revenues | $530.4 |
| (21.6%) |
| (24.4%) | |
|
|
|
|
|
| |
| Reported |
| Adjusted |
|
| |
Operating Income | $13.0 |
| $45.8 |
|
| |
Operating Margin | 2.5 |
| 8.6% |
|
|
Asia Pacific
| Three Months Ended September 30, 2020 | |||||
| Actual |
| Reported Basis YoY |
| Organic (LFL) | |
Net Revenues | 123.1 |
| (35.3%) |
| (36.6%) | |
|
|
|
|
|
| |
| Reported |
| Adjusted |
|
| |
Operating Loss | (19.0) |
| (12.5) |
|
| |
Operating Margin | (15.4)% |
| (10.2)% |
|
|
FIRST QUARTER FISCAL 2021 BY CHANNEL
Continuing Operations
|
| Three Months Ended September 30, | ||||||||||||
|
| Net Revenues |
| Change | ||||||||||
(in millions) |
| 2020 |
| 2019 |
| Reported Basis |
| Organic (LFL) | ||||||
Prestige |
| $ | 644.1 |
|
| $ | 806.7 |
|
| (20) | % |
| (25) | % |
Mass |
| 479.8 |
|
| 604.4 |
|
| (20) | % |
| (10) | % | ||
Corporate |
| 0.2 |
|
| 0.1 |
|
| N/M |
| N/M | ||||
Total |
| $ | 1,124.1 |
|
| $ | 1,411.2 |
|
| (20) | % |
| (19) | % |
Discontinued Operations
|
| Three Months Ended September 30, | ||||||||||||
|
| Net Revenues |
| Change | ||||||||||
(in millions) |
| 2020 |
| 2019 |
| Reported Basis |
| Organic (LFL) | ||||||
Wella Business |
| $ | 566.4 |
|
| $ | 531.6 |
|
| 6.5 | % |
| 6.5 | % |
COTY INC. & SUBSIDIARIES | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
| Three Months Ended September 30, | ||||||
(in millions, except per share data) | 2020 |
| 2019 | ||||
Net revenues | $ | 1,124.1 |
|
| $ | 1,411.2 |
|
Cost of sales | 464.9 |
|
| 561.9 |
| ||
as % of Net revenues | 41.4 | % |
| 39.8 | % | ||
Gross profit | 659.2 |
|
| 849.3 |
| ||
Gross margin | 58.6 | % |
| 60.2 | % | ||
|
|
|
| ||||
Selling, general and administrative expenses | 583.4 |
|
| 806.7 |
| ||
as % of Net revenues | 51.9 | % |
| 57.2 | % | ||
Amortization expense | 65.4 |
|
| 58.3 |
| ||
Restructuring costs | 30.1 |
|
| 4.8 |
| ||
Acquisition-and divestiture- related costs | 46.3 |
|
| — |
| ||
Gain on divestitures and sale of brand assets | — |
|
| (84.5) |
| ||
Operating (loss) income | (66.0) |
|
| 64.0 |
| ||
as % of Net revenues | (5.9 | %) |
| 4.5 | % | ||
Interest expense, net | 62.1 |
|
| 63.1 |
| ||
Loss from continuing operations before income taxes | (122.3) |
|
| (1.4) |
| ||
as % of Net revenues | (10.9 | %) |
| (0.1 | %) | ||
Benefit for income taxes on continuing operations | (244.9) |
|
| (18.2) |
| ||
Net income from continuing operations | 122.6 |
|
| 16.8 |
| ||
as % of Net revenues | 10.9 | % |
| 1.2 | % | ||
Net income from discontinued operations | 104.7 |
|
| 39.5 |
| ||
Net income | 227.3 |
|
| 56.3 |
| ||
Net income attributable to noncontrolling interests | 0.4 |
|
| 2.8 |
| ||
Net income attributable to redeemable noncontrolling interests | 5.5 |
|
| 1.2 |
| ||
Net income attributable to Coty Inc. | $221.4 |
| $ | 52.3 |
| ||
Amounts attributable to Coty Inc. |
|
|
| ||||
Net income from continuing operations | $ | 116.7 |
|
| $ | 12.8 |
|
Convertible Series B Preferred Stock dividends | (20.8) |
|
| — |
| ||
Income from continuing operations attributable to common stockholders | $95.9 |
| $ | 12.8 |
| ||
Net income from discontinued operations | 104.7 |
|
| 39.5 |
| ||
Net income attributable to common stockholders | $200.6 |
| $ | 52.3 |
| ||
|
|
|
| ||||
Net income attributable to Coty Inc. per common share: |
|
|
| ||||
Basic for Continuing Operations | $ | 0.13 |
|
| $ | 0.02 |
|
Diluted for Continuing Operations(a) | $ | 0.13 |
|
| $ | 0.02 |
|
Basic for Coty Inc | $ | 0.26 |
|
| $ | 0.07 |
|
Diluted for Coty Inc.(a) | $ | 0.24 |
|
| $ | 0.07 |
|
Weighted-average common shares outstanding: |
|
|
| ||||
Basic | 763.9 |
|
| 754.2 |
| ||
Diluted(a) | 916.7 |
|
| 758.9 |
| ||
|
|
|
| ||||
Depreciation - Continuing Operations | $ | 80.8 |
|
| $ | 84.7 |
|
(a) | Diluted EPS is adjusted by the effect of dilutive securities, including awards under our equity compensation plans and the convertible Series B Preferred Stock. We use the if-converted method for calculating any potential dilutive effect of the convertible Series B Preferred Stock, which requires an adjustment to reverse the impact of the preferred stock dividends of $20.8 on 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, 2020 | ||||||||||||||
| CONTINUING OPERATIONS |
| DISCONTINUED OPERATIONS | ||||||||||||
(in millions) | Reported (GAAP) |
| Adjustments(a) |
| Adjusted (Non-GAAP) |
| Adjusted (Non-GAAP) | ||||||||
Net revenues | $ | 1,124.1 |
|
| $ | — |
|
| $ | 1,124.1 |
|
| $ | 566.4 |
|
Gross profit | 659.2 |
|
| — |
|
| 659.2 |
|
| 385.4 |
| ||||
Gross margin | 58.6 | % |
|
|
| 58.6 | % |
| 68.0 | % | |||||
Operating (loss) income | (66.0) |
|
| 147.1 |
|
| 81.1 |
|
| 145.4 |
| ||||
as % of Net revenues | (5.9 | %) |
|
|
| 7.2 | % |
| 25.7 | % | |||||
Net income (loss) | 95.9 |
|
| (111.8) |
|
| (15.9) |
|
| 104.7 |
| ||||
as % of Net revenues | 8.5 | % |
|
|
| (1.4 | %) |
|
| ||||||
| COTY INC. |
|
| ||||||||||||
Net income attributable to Coty Inc. | 200.6 |
|
| (117.0) |
|
| 83.6 |
|
|
| |||||
|
|
|
|
|
|
|
| ||||||||
EPS (diluted) | $ | 0.24 |
|
|
|
| $ | 0.11 |
|
|
| ||||
|
|
|
|
|
|
|
| ||||||||
| Three Months Ended September 30, 2019 | ||||||||||||||
(in millions) | Reported (GAAP) |
| Adjustments(a) |
| Adjusted (Non-GAAP) |
| Adjusted (Non-GAAP) | ||||||||
Net revenues | $ | 1,411.2 |
|
| $ | — |
|
| $ | 1,411.2 |
|
| $ | 531.6 |
|
Gross profit | 849.3 |
|
| — |
|
| 849.3 |
|
| 355.1 |
| ||||
Gross margin | 60.2 | % |
|
|
| 60.2 | % |
| 66.8 | % | |||||
Operating income | 64.0 |
|
| 1.4 |
|
| 65.4 |
|
| 62.0 |
| ||||
as % of Net revenues | 4.5 | % |
|
|
| 4.6 | % |
| 11.7 | % | |||||
Net income (loss) | 12.8 |
|
| (20.3) |
|
| (7.5) |
|
| 39.5 |
| ||||
as % of Net revenues | 0.9 | % |
|
|
| (0.5 | %) |
|
| ||||||
| COTY INC. |
|
| ||||||||||||
Net income attributable to Coty Inc. | 52.3 |
|
| (1.8) |
|
| 50.5 |
|
|
| |||||
|
|
|
|
|
|
|
| ||||||||
EPS (diluted) | $ | 0.07 |
|
|
|
| $ | 0.07 |
|
|
| ||||
|
|
|
|
|
|
|
|
(a) | See “Reconciliation of Reported Operating (Loss) Income 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 (LOSS) INCOME TO ADJUSTED OPERATING INCOME
CONTINUING OPERATIONS |
| Three Months Ended September 30, | |||||||||
(in millions) |
| 2020 |
| 2019 |
| Change | |||||
Reported Operating loss (income) |
| $ | (66.0) |
|
| $ | 64.0 |
|
| 100% | |
Adjusted Operating income |
| $ | 81.1 |
|
| $ | 65.4 |
|
| 24 | % |
% of Net revenues |
| 7.2 | % |
| 4.6 | % |
|
|
(a) | In the three months ended September 30, 2020, amortization expense increased to $65.4 from $58.3 in the three months ended September 30, 2019. In the three months ended September 30, 2020, amortization expense of $26.1, $32.8 and $6.5 was reported in the Americas, EMEA and Asia Pacific segments, respectively. In the three months ended September 30, 2019, amortization expense of $12.7, $31.9, $6.3 and $7.4 was reported in the Americas, EMEA, Asia Pacific and Other segments, respectively. | |
(b) | In the three months ended September 30, 2020, we incurred restructuring and other business structure realignment costs of $35.4. We incurred restructuring costs of $30.1 primarily for charges related to the Transformation Plan, included in the Condensed Consolidated Statements of Operations; and business structure realignment costs of $5.3 primarily related to the Transformation Plan and certain other programs. This amount includes $5.3 reported in selling, general and administrative expenses, primarily related to severance, consulting costs and accelerated depreciation costs and nil reported in cost of sales in the Condensed Consolidated Statement of Operations. In the three months ended September 30, 2019, we incurred business structure realignment costs of $27.6, including restructuring costs of $4.8 primarily for charges related to the Transformation Plan, included in the Condensed Consolidated Statements of Operations. In addition, we incurred business structure realignment costs of $22.8 primarily related to our Global Integration Activities and certain other programs. This amount includes $22.8 reported in selling, general and administrative expenses and nil reported in cost of sales in the Condensed Consolidated Statements of Operations, primarily due to costs incurred for the realignment of the business due to the P&G Beauty Business. | |
(c) | In the three months ended September 30, 2020, we incurred acquisition and divestiture related costs of $46.3. These costs were associated with the Wella Transaction. In the three months ended September 30, 2019, we did not incur any acquisition and divestiture related costs. | |
(d) | In the three months ended September 30, 2020, there were no gains on divestitures and sale of brand assets. In the three months ended September 30, 2019, as a result of the divestiture of Younique, we recorded income of $84.5 included in gain on divestitures and sale of brand assets included in the Condensed Consolidated Statements of Operations. |
RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED OPERATING INCOME
COTY INC. |
| Three Months Ended September 30, | |||||||||
(in millions) |
| 2020 |
| 2019 |
| Change | |||||
Reported Operating income |
| $ | 79.4 |
|
| $ | 126.0 |
|
| (37 | %) |
Amortization expense (b) |
| 65.4 |
|
| 84.3 |
|
| (22 | %) | ||
Restructuring and other business realignment costs (c) |
| 35.4 |
|
| 28.9 |
|
| 22 | % | ||
Acquisition- and divestiture-related costs (d) |
| 46.3 |
|
| — |
|
| N/A | |||
Gain on divestitures and sale of brand assets(e) |
| — |
|
| (84.5) |
|
| 100 | % | ||
Total adjustments to reported Operating income |
| 147.1 |
|
| 28.7 |
|
| >100% | |||
Adjusted Operating Income |
| $ | 226.5 |
|
| $ | 154.7 |
|
| 46 | % |
(a) | In the three months ended September 30, 2020, amortization expense decreased to $65.4 from $84.3 in the three months ended September 30, 2019. In the three months ended September 30, 2020, amortization expense of $26.1, $32.8 and $6.5 was reported in the Americas, EMEA and Asia Pacific segments, respectively. In the three months ended September 30, 2019, amortization expense of $12.7, $31.9, $6.3, $7.4, and $26.0 was reported in the Americas, EMEA, Asia Pacific and Other segments and discontinued operations, respectively. | |
(b) | In the three months ended September 30, 2020, we incurred restructuring and other business structure realignment costs of $35.4. We incurred restructuring costs of $30.1 primarily for charges related to the Transformation Plan, included in the Condensed Consolidated Statements of Operations; and business structure realignment costs of $5.3 primarily related to the Transformation Plan and certain other programs. This amount includes $5.3 reported in selling, general and administrative expenses, primarily related to severance, consulting costs and accelerated depreciation costs and nil reported in cost of sales in the Condensed Consolidated Statement of Operations. In the three months ended September 30, 2019, we incurred business structure realignment costs of $27.6, including restructuring costs of $4.8 primarily for charges related to the Transformation Plan, included in the Condensed Consolidated Statements of Operations. In addition, we incurred business structure realignment costs of $22.8 primarily related to our Global Integration Activities and certain other programs. This amount includes $22.8 reported in selling, general and administrative expenses and nil reported in cost of sales in the Condensed Consolidated Statements of Operations, primarily due to costs incurred for the realignment of the business due to the P&G Beauty Business. | |
(c) | In the three months ended September 30, 2020, we incurred acquisition and divestiture related costs of $46.3. These costs were associated with the Wella Transaction. In the three months ended September 30, 2019, we did not incur any acquisition and divestiture related costs. | |
(d) | In the three months ended September 30, 2020, there were no gains on divestitures and sale of brand assets. In the three months ended September 30, 2019, as a result of the divestiture of Younique, we recorded income of $84.5 included in gain on divestitures and sale of brand assets included in the Condensed Consolidated Statements of Operations. |
RECONCILIATION OF REPORTED (LOSS) 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, 2020 |
| Three Months Ended September 30, 2019 | ||||||||||||||||||
(in millions) |
| (Loss) income before income taxes |
| (Benefit) Provision for income taxes |
| Effective tax rate |
| (Loss) income before income taxes |
| (Benefit) provision for income taxes |
| Effective tax rate | ||||||||||
Reported Loss before income taxes - Continuing Operations |
| (122.3) |
|
| $ | (244.9) |
|
| 200.2 | % |
| (1.4) |
|
| $ | (18.2) |
|
| 1,300.0 | % | ||
Adjustments to Reported Operating (Loss)(a)(b) |
| 147.1 |
|
| 33.0 |
|
|
|
| 85.9 |
|
| 13.9 |
|
|
| ||||||
Gain on divestitures and sale of brand assets( (a)(b) |
| — |
|
| — |
|
|
|
| (84.5) |
|
| 4.8 |
|
|
| ||||||
Tax impact from intra-entity transfer of assets (c) |
| — |
|
| 220.5 |
|
|
|
| — |
|
| — |
|
|
| ||||||
Other adjustments(b) |
| $ | (5.3) |
|
| $ | (1.1) |
|
|
|
| $ | — |
|
| $ | — |
|
|
| ||
Adjusted Income before income taxes - Continuing Operations |
| $ | 19.5 |
|
| $ | 7.5 |
|
| 38.5 | % |
| $ | — |
|
| $ | 0.5 |
|
| — | % |
The adjusted effective tax rate was 38.5% for the three months ended September 30, 2020 compared to 0.0% for the three months ended September 30, 2019. The difference was primarily due to the jurisdictional mix of income. | ||
| ||
See a description on adjustments under “Reconciliation of Reported Operating (Loss) Income to Adjusted Operating (Loss) Income”. | ||
(a) | See a description of adjustments under “Adjusted Operating (Loss) 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) | Tax benefit of $220.5 is the result of a tax rate differential on the deferred taxes recognized on the transfer of assets and liabilities, following the relocation of our main principal location from Geneva to Amsterdam. This amount will be finalized when negotiations with the tax authorities are completed. |
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, 2020 |
| Three Months Ended September 30, 2019 | ||||||||||||||||||
(in millions) |
| income (Loss) before income taxes |
| (Benefit) Provision for income taxes |
| Effective tax rate |
| income (Loss) before income taxes |
| (Benefit) provision for income taxes |
| Effective tax rate | ||||||||||
Reported income before income taxes |
| $ | 11.2 |
|
| $ | (216.1) |
|
| (1929.5) | % |
| $ | 46.4 |
|
| $ | (9.9) |
|
| (21.3) | % |
Adjustments to Reported Operating income(a)(b) |
| 147.1 |
|
| 38.2 |
|
|
|
| 113.2 |
|
| 22.7 |
|
|
| ||||||
Gain on sale of business adjustment (a)(b) |
| — |
|
| — |
|
|
|
| (84.5) |
|
| 4.8 |
|
|
| ||||||
Tax impact from intra-entity transfer of assets (c) |
| — |
|
| 220.5 |
|
|
|
| — |
|
| — |
|
|
| ||||||
Other adjustments (a)(b) |
| (5.3) |
|
| (1.1) |
|
|
|
| — |
|
| — |
|
|
| ||||||
Adjusted income before income taxes - Coty Inc. |
| $ | 153.0 |
|
| $ | 41.5 |
|
| 27.1 | % |
| $ | 75.1 |
|
| $ | 17.6 |
|
| 23.4 | % |
The adjusted effective tax rate was 27.1% for the three months ended September 30, 2020 compared to 23.4% for the three months ended September 30, 2019. The difference was primarily due to the jurisdictional mix of income. | ||
(a) | See a description of adjustments under “Adjusted Operating (Loss) 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) | Tax benefit of $220.5 is the result of a tax rate differential on the deferred taxes recognized on the transfer of assets and liabilities, following the relocation of our main principal location from Geneva to Amsterdam. This amount will be finalized when negotiations with the tax authorities are completed. |
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET LOSS FOR CONTINUING OPERATIONS
| Three Months Ended September 30, | |||||||||||||||||||||||||
(in millions) | 2020 |
| 2019 |
| Change | |||||||||||||||||||||
Net income from Continuing Operations, net of noncontrolling interests | $ | 116.7 |
|
| $ | 12.8 |
|
| >100% | |||||||||||||||||
Convertible Series B Preferred Stock dividends | (20.8) |
|
| — |
|
| N/A | |||||||||||||||||||
Reported Net income attributable to Continuing Operations. | $95.9 |
| $ | 12.8 |
|
| >100% | |||||||||||||||||||
% of Net revenues | 10.4 |
|
| 0.9 | % |
|
| |||||||||||||||||||
Adjustments to Reported Operating Income (a) | 147.1 |
|
| 1.4 |
|
| >100% | |||||||||||||||||||
Adjustments to other (income) expense | (5.3) |
|
| — |
|
| N/A | |||||||||||||||||||
Adjustments to noncontrolling interest expense (b) | (1.2) |
|
| (3.0) |
|
| 60% | |||||||||||||||||||
|
| |||||||||||||||||||||||||
Change in tax provision due to adjustments to Reported Net income attributable to Continuing Operations | (252.4) |
|
| (18.7) |
|
| 100% | |||||||||||||||||||
% of Net revenues | 12.6 | % |
| 2.7 | % |
|
| |||||||||||||||||||
Adjustments to Reported Operating income (a) | 147.1 |
|
| 28.7 |
|
| >100% | |||||||||||||||||||
Adjustments to other (income) expense) | (5.3) |
|
| — |
|
| N/A | |||||||||||||||||||
Adjustments to noncontrolling interest expense (b) | (1.2) |
|
| (3.0) |
|
| 60% | |||||||||||||||||||
| ||||||||||||||||||||||||||
Change in tax provision due to adjustments to Reported Net income attributable to Coty Inc. | (257.6) |
|
| (27.5) |
|
| 100% |
| $ | 47.4 |
|
| >100% | |||||||||||||
EMEA |
| 530.4 |
|
| 676.7 |
|
| (22 | %) |
| (22 | %) |
| 13.0 |
|
| (54%) |
| 45.8 |
|
| (24%) | ||||
Asia Pacific |
| 123.1 |
|
| 190.2 |
|
| (35 | %) |
| (35 | %) |
| (19.0) |
|
|