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
NEW YORK--(BUSINESS WIRE)-- 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
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:
Gross Margin:
Operating Income and EBITDA:
Net Income:
Earnings Per Share (EPS) - diluted:
Operating Cash Flow:
Financial Net Debt:
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
EMEA
Asia Pacific
Noteworthy Company Developments
Other noteworthy company developments include:
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:
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:
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% | |||||
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% | ||
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 |
|
|