Prestige Launches Drive Sales Momentum and
Consumer Beauty Back to Growth
Strong Gross Margin Expansion and Cost
Control Fuel Reinvestment And Progress on Each Strategic
Pillar
FY22 Sales Growth Outlook Raised to Low to
Mid Teens Growth at Current FX Levels
November 18th Investor Day to Detail
Strategic Progress and Medium Term Trajectory
Coty Inc. (NYSE: COTY) ("Coty" or "the Company") today announced
another quarter of improvement in its financial results and further
progress across each of its strategic growth pillars for the first
quarter of fiscal year 2022, ended September 30, 2021.
In Q1, revenues increased 22%, or 20.6% LFL, surpassing guidance
of high-teens LFL growth, with a combination of strong brick &
mortar growth and 23% growth in e-commerce. Coty's Prestige
business delivered superior 35% reported and 34% LFL growth in the
quarter, despite a low single digit negative impact from the
continued reduction of sales in low quality channels. Prestige
fragrance sales increased strongly across nearly all brands, with
particularly strong performance from Gucci, Burberry, Hugo Boss,
Marc Jacobs, Calvin Klein, and Chloe. This momentum was fueled by a
very strong fragrance launch calendar in Q1 with particular
standout results from Gucci Flora Gorgeous Gardenia and Burberry
Hero. At the same time, Prestige cosmetics sales more than doubled
year-on-year, led by Gucci makeup and the relaunch of Kylie
Cosmetics. Regionally, the U.S. and China continued to deliver very
robust performance, Travel Retail more than doubled led in
particular by Asia and Europe, while trends in many Western
European markets continued to improve.
During the quarter, Consumer Beauty revenues increased 4% as
reported and 3% LFL, as the global mass beauty category returned to
growth and Coty continued to make progress towards share
stabilization. CoverGirl generated double digit percent sell-in and
sell-out growth, growing market share in 4 of the last 7 months,
with outsized momentum in the Magnificent 8 franchises. Meanwhile,
the re-positioning of both Rimmel and Max Factor, which kicked off
in the summer, have also been showing solid progress across key
European markets. Rimmel's Wonder'Extension mascara has become its
most successful mascara launch in the critical UK and German
markets, with momentum building exiting Q1 with the launch of
Rimmel's first-to-mass Kind & Free range of clean, vegan and
cruelty free cosmetics products. At the same time, Max Factor's
launch of its Facefinity foundation with Priyanka Chopra Jonas as
spokesperson have propelled Max Factor to market share gains in the
UK for the first time in years.
The strong topline growth was matched by very robust
profitability growth in Q1, supported by both significant gross
margin expansion and additional cost reductions, enabling a
significant step-up in marketing spend, with working media doubling
year-on-year. Reported gross margins expanded 460 bps in the
quarter to 63.2%, while adjusted gross margin was up 480 bps to
63.4%, above pre-pandemic levels, driven by a combination of
product and channel mix, improved excess & obsolescence,
pricing and mix benefits, and higher production volumes. This
substantial expansion fueled reinvestment behind key strategic
initiatives. In addition, Coty continued to lower its cost base,
with year-over-year savings of approximately $60 million, showing
significant progress towards the FY22 savings target of over $90
million. The Company has now cumulatively achieved close to $400M
of cost savings versus the FY20 baseline, and remains on track to
achieve approximately $600M of savings by FY23. The gross margin
improvement and cost reductions allowed Coty to continue to
reinvest behind its brands and highest ROI opportunities, as
working media more than doubled versus last year, and total
A&CP remained consistent sequentially at ~26% of sales. At the
same time, Coty delivered 1Q22 reported operating income of $17.2
million and adjusted EBITDA of $278.5 million, increasing 67% from
last year and resulting in an adjusted EBITDA margin of 20.3% or
550 bps improvement versus 1Q21.
Financial Net Debt improved by approximately $200 million to
just under $5 billion at the end of 1Q. Free cash flow was strong
in a seasonally weaker quarter at $240.7 million. With an increase
in the value of Coty's 40% Wella stake at quarter end to
approximately $1.65 billion at quarter-end, the Company's Economic
Net Debt totaled approximately $3.3 billion.
Commenting on the operating results, Sue Y. Nabi, Coty's CEO,
said:
"Our objective coming into fiscal 2022 was to build on the great
results we delivered last year and further execute on our strategic
growth pillars. I am very pleased to say that we are off to a great
start, building upon our success. Q1 marks the fifth consecutive
quarter of Coty delivering results inline to ahead of expectations.
Importantly, our Q1 results exemplify the virtuous cycle that we
have been working to create, where our strong topline performance
coupled with sustained gross margin expansion and cost initiatives,
fuel both profit expansion and targeted re-investments to support
future growth.
Coty's successful execution across each of our strategic pillars
is exemplified in our Q1 performance. The repositioning of three
key Consumer Beauty brands - CoverGirl, Rimmel and Max Factor - are
taking hold, returning the overall segment to growth and pushing
the Consumer Beauty business to share stabilization. Gucci Flora
and Burberry Hero are well on their way to becoming global
fragrance icons, helping to accelerate our prestige fragrance
portfolio, while the assortment and distribution expansion of Gucci
and Kylie cosmetics are solidifying Coty as a key player in
prestige cosmetics. In skincare, Lancaster is building momentum in
Hainan as the lead market for its repositioning, with several
exciting initiatives to come in our skincare portfolio in the
coming months. Our e-commerce sales continued its momentum, with
strong growth across both Prestige and Consumer Beauty, with total
e-commerce sales up 23%. And the combination of these areas fueled
close to 50% growth in China. Finally, on sustainability, we have
concluded our footprint study reflecting Coty's scope following the
Wella divestiture, and will be publishing our second sustainability
report very soon.
Importantly, even as we tracked industry-wide headwinds ranging
from select component shortages, supply chain bottlenecks, and
inflationary pressure in materials and freight, the strength of our
business model and the agility of our teams allowed to us to exceed
our sales guidance and deliver nearly 500 bps of gross margin
expansion. We feel confident about our prospects for the remainder
of the year and we are therefore raising our FY22 sales outlook to
low-to-mid teens growth from our previous guidance of low teens
growth. While inflation impact is expected to step up in the second
half of FY22, we believe the impact is quite manageable,
particularly as we double-down on accretive innovations and
premiumizing our portfolio. As a result, we continue to expect
gross margin expansion for the year as compared to FY21. We expect
FY22 adjusted EBITDA of $900M at a minimum, as we are intentionally
reinvesting our gross margin gain and costs savings in our brands
to maximize value.
Fifteen months into our turnaround, I am highly encouraged by
the strength of our portfolio, our people, and our strategic path,
which together are delivering results in record time as we
transform Coty into a true leader in beauty. I look forward to
sharing more details on our progress and medium term trajectory at
our Investor Day in New York City next week on November 18th."
*Adjusted financial metrics used in this
release are non-GAAP. See reconciliations of GAAP results to
Adjusted results in the accompanying tables.
1Based on fair market value, reflecting
the Wella capital structure as of September 30, 2021
Highlights
- 1Q22 net revenues increased 22% as reported and 20.6% LFL. Net
revenue trends were led by robust Prestige growth and growth in
Consumer Beauty, as well as e-commerce channels.
- Reported operating income was $17.2 million.
- 1Q22 adjusted operating income increased to $200.5 million from
an adjusted operating income of $85.7 million, with 700 bps of
margin expansion to 14.6%.
- 1Q22 adjusted EBITDA of $278.5 million, increased 67%, with an
adjusted EBITDA margin of 20.3% reflecting over 500bps of margin
expansion.
- 1Q22 reported EPS of $0.13 and adjusted EPS of $0.08, improved
from $(0.01) last year.
- Cost reductions remained solid with approximately $60 million
of additional reductions.
- 1Q22 free cash flow of $240.7 million improved by $269.0
million from last year driven by higher cash generating net income,
strong working capital improvement, and reductions to capex
spend.
- Financial Net Debt in line with expectations at $4,955.1
million, which decreased sequentially fueled by the free cash flow
generation, bringing the financial leverage to 5.7x. Economic Net
Debt is now $3,305.1 million at quarter end.
Outlook
Entering 2Q22, Coty continues to see beauty market momentum,
including continued strength in the U.S. and China, a strong
rebound in Travel Retail, and steady improvement in Western Europe.
Given this market backdrop, coupled with very strong performance of
Coty's recent product launches, Coty raises its FY22 LFL sales
outlook to low-to-mid teens percentage growth, up from its previous
guidance of low teens growth.
The Company also expects FY22 adjusted EBITDA of $900 million at
a minimum, on a constant currency basis, as Coty intentionally
reinvests gross margin gain and costs savings in its brands to
maximize value. This reflects strong EBITDA margin expansion YoY.
With significant progress made to date in simplifying its capital
structure, Coty anticipates FY22 adjusted EPS in the $0.19-0.23
range.
In addition, the Company continues to target leverage moving
towards 5x exiting CY21, and a further reduction in leverage to
approximately 4x exiting CY22.
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:
- 1Q22 reported net revenues of $1,371.7 million increased 22.0%
year-over-year, including a positive foreign exchange (FX) impact
of 1.4%. LFL revenue increased 20.6%, driven by a 33.6% increase in
Prestige, and a 3.0% increase in Consumer Beauty.
Gross Margin:
- 1Q22 reported gross margin of 63.2% increased from 58.6% in the
prior-year period, while adjusted gross margin of 63.4% increased
from 58.6% in 1Q21. The increase was due positive mix-shift,
including in both Prestige and Consumer Beauty, excess &
obsolescence improvement, better absorption, and improved
volumes.
Operating Income and EBITDA:
- 1Q22 reported operating income of $17.2 million improved from a
reported operating loss of $66.0 million in the prior year due to a
$20.3 million reduction in restructuring and other business
realignment costs, a $42.3 million reduction in acquisition and
divestiture related expenses, and higher gross margin, partially
offset by higher SG&A expenses stemming from increased
marketing investment.
- 1Q22 adjusted operating income of $200.5 million rose from
$85.7 million in the prior year, while the adjusted EBITDA of
$278.5 million increased 67% from $166.6 million in the prior year.
The increase was driven by a higher gross margin and continued
fixed cost reductions, partially offset by higher A&CP
expenses, primarily within working media. For 1Q22, the adjusted
operating margin increased 700 bps to 14.6%, while the adjusted
EBITDA margin increased 550 bps to 20.3%.
Net Income:
- 1Q22 reported net income of $103.0 million improved from a net
income of $95.9 million in the prior year, primarily due to the
$390.0 million change in fair value of investment in Wella and the
aforementioned increase in reported operating income, partially
offset by higher taxes compared to the year-ago period.
- The 1Q22 adjusted net income of $63.1 million increased from a
loss of $9.8 million in the prior year period.
Earnings Per Share (EPS) - diluted:
- 1Q22 reported earnings per share of $0.13 remained consistent
with a reported earnings per share of $0.13 in the prior year.
- 1Q22 adjusted EPS of $0.08 improved from $(0.01) in the prior
year.
Operating Cash Flow:
- 1Q22 cash from operations totaling $285.7 million improved from
$42.6 million in the prior-year period, reflecting an increase in
net income on a cash basis and strong working capital.
- 1Q22 free cash flow of $240.7 million improved from a free cash
outflow of $28.3 million in the prior year driven by the increase
in operating cash flow of $243.1 million coupled with a $25.9
million reduction in capex.
Financial Net Debt:
- As expected, Financial Net Debt of $4,955.1 million on
September 30, 2021 decreased from $5,228.0 million on June 30,
2021. The decrease was driven by the strong free cash flow
generated in the quarter.
Immediate Liquidity:
- Coty ended Q4 with $376.9 million in cash and cash equivalents,
and immediate liquidity of $2,526.8 million.
First Quarter Business Review by
Segment*
Prestige
In 1Q22, Prestige net revenues of $870.7 million or 63% of Coty
sales, increased by 35.1% versus the prior year. On a LFL basis,
Prestige net revenues delivered robust growth of 33.6%, driven by
continued strength in the U.S. and China, as well as many key
markets in the EMEA region and Travel Retail. In addition, LFL
growth was broad-based across fragrances and makeup.
During the quarter, our U.S. Prestige fragrance sell-out
continued to generate very robust growth, up strong double-digits
versus last year, with particularly favorable performance from
Burberry, Marc Jacobs, Gucci, and Chloe. Encouragingly, our recent
key innovations such as Gucci Flora Gorgeous Gardenia and Burberry
Hero are delivering stellar early results. In the EMEA region,
Prestige fragrance continued to improve in 1Q22 as many markets
remained on their re-opening trajectories. Similar to the U.S., the
EMEA region also benefited from very strong results of the recent
Prestige fragrance launches. Despite a resurgence of COVID-19
during the quarter, China continued to deliver solid results, with
revenue increasing almost 50%.
Coty continued to execute on its newest growth pillars:
expanding its presence in Prestige skincare and cosmetics. Within
cosmetics, Gucci generated robust triple-digit sell-out growth
across many key markets including in the U.S. and China. On
skincare, the revitalization of Lancaster in Hainan continues to
take hold with traffic and sales rebounding in September, following
a brief COVID-related slowdown in August.
E-commerce sales for the segment continued to increase 21% in
Q1, with solid growth across regions. E-commerce penetration was in
the 20% level at the end of 1Q22.
The Prestige segment generated a reported operating income of
$132.1 million in 1Q22, compared to a reported operating income of
$34.0 million in the prior year. The 1Q22 adjusted operating income
was $177.0 million, up from an adjusted operating income of $85.7
million in the prior year, driven by gross margin improvement and
fixed cost reduction, partially offset by higher working media
expenses. Adjusted EBITDA for the Prestige segment rose to $215.0
million from $119.8 million in the prior year, with a margin of
24.7%.
Consumer Beauty
In 1Q22, Consumer Beauty net revenues of $501.0 million, or 37%
of Coty sales, increased by 4.4% versus the prior year. On a LFL
basis, Consumer Beauty net revenues increased 3.0%.
During the quarter, Coty progressed towards share stabilization
in Consumer Beauty. In the U.S., CoverGirl continues to prove it is
on significantly stronger footing, with the Magnificent 8
franchises outperforming the cosmetics category and the brand
returning to market share gains exiting Q1 and into Q2. Meanwhile,
Sally Hansen also continued to deliver strong performance, gaining
share throughout the quarter with sell-out tracking above 2019
levels.
Coty's stabilization efforts in Europe continue to take hold
through the re-positioning of Rimmel and Max Factor. Capitalizing
on the success the Company has had with clean beauty in the U.S.,
Coty recently launched Rimmel Kind & Free, the biggest Consumer
Beauty launch of FY22. Meanwhile, Max Factor is already realizing
solid market share gains in the UK and Netherlands, with the
overall brand maintaining or gaining share in over 75% of its
markets.
1Q22 Consumer Beauty e-commerce sales grew 27%, driving
e-commerce penetration as a percentage of sales to the
high-single-digit percentage level.
Reported operating income was $11.4 million in 1Q22 versus
reported operating loss of $13.7 million in the prior year. The
1Q22 adjusted operating income of $23.5 million increased from an
adjusted operating loss of $0.0 million in the prior year, driven
by a higher gross margin and solid fixed cost reductions, partially
offset by a reinvestment in marketing expenses, particularly
towards working media. During the quarter, adjusted EBITDA
increased to $63.5 million from $46.8 million in the prior year,
with a margin of 12.7%.
First Quarter Fiscal 2021 Business
Review by Region*
Americas
- In 1Q22, Americas net revenues of $581.5 million, or 42% of
Coty sales, increased 23.6% as reported and increased 22.9% LFL.
This was driven by particularly strong growth of Prestige, and to a
lesser extent, Consumer Beauty sales growth. Prestige fragrances
continued to benefit from robust category trends in the U.S.,
coupled with Coty's strong pipeline of fragrance innovations.
CoverGirl grew in the double digits, with good market share
momentum exiting Q1 and into Q2, while Sally Hansen also gained
share.
EMEA
- In 1Q22, EMEA net revenues of $627.1 million, or 46% of Coty
sales, increased 18.2% as reported and 16.6% LFL. Similar to what
we experienced in the Americas region, Prestige sales growth was
strongest, while Consumer Beauty grew at a more moderate pace.
Asia Pacific
- In 1Q22, Asia Pacific net revenues of $163.1 million, or 12% of
Coty sales, increased 32.5% as reported and 29.0% LFL. Sales were
driven by strong performance in China, particularly within Prestige
fragrances, while prestige skincare and cosmetics also delivered
very robust growth.
*As previously disclosed, we have
realigned our reportable segments to a principally product
category-based structure, comprised of a Prestige business segment
and a Consumer Beauty business segment. In addition, we have
amended the definition of stock compensation expense for use in
certain Non-GAAP Financial Measures. In order to reflect these
changes, the Company has recast reported net revenue by segment,
reported operating income (loss) by segment, adjusted operating
income (loss) by segment and total, adjusted EBITDA by segment, and
total adjusted income (loss) before income taxes and total adjusted
net income (loss) from continuing operations for all comparative
periods shown.
Noteworthy Company
Developments
Other noteworthy company developments include:
- On September 27, 2021, Coty announced a multi-channel agreement
with leading beauty tech solutions provider Perfect Corp. that will
embed a suite of best-in-class augmented reality and artificial
intelligence experiences into the digital marketing toolkits of its
beauty brands.
- On October 1, 2021, Coty announced a definitive agreement to
sell an approximate 9% stake in Wella to KKR in exchange for the
redemption of approximately half of KKR's remaining convertible
preferred shares in Coty, reducing its total shareholding in the
professional beauty company to 30.6%.
- As of November 5, 2021, Coty has obtained binding commitments
from lenders under the 2018 Coty Credit Agreement to replace its
two existing classes of revolving commitments, having an aggregate
principal amount of $2,750.0 million, with a single class of
revolving commitments, having an aggregate principal amount of
$2,000.0 million. The resulting class of revolving commitments will
have substantially the same terms as the new class of revolving
commitments established pursuant to the 2021 Coty Revolving Credit
Facility, including a maturity in April 2025, and will be subject
to customary closing conditions. Coty expects the transaction to
close in the second quarter of FY22.
- On November 8, 2021, Coty announced a definitive agreement to
sell an additional approximate 4.7% stake in Wella to KKR in
exchange for the redemption of approximately 56% of KKR's remaining
convertible preferred shares in Coty, reducing its total
shareholding in the professional beauty company to 25.9%. The two
Wella exchange transactions reflect a key milestone in the
simplification of Coty's capital structure and result in
approximately $65 million in annual dividend cash savings, when
combined with the KKR secondary share offering that closed in
September.
Conference Call Coty Inc.
will host a conference call at 8:00 a.m. (ET) today, November 8,
2021 to discuss its results. The dial-in number for the call is
(800) 895-3361 in the U.S. or (785) 424-1062 internationally
(conference passcode number: COTY1Q22). 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 markets, sells and distributes the products in
approximately 130 countries and territories. 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 impact of the Wella divestiture and the related
transition services (the “Wella TSA”), the Company’s future
operations and strategy (including the expected implementation and
related impact of its strategic priorities), ongoing and future
cost efficiency, optimization and restructuring initiatives and
programs, strategic transactions (including their expected timing
and impact), 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 or to
continue to pay dividends in cash on preferred stock) ,
investments, licenses and portfolio changes, synergies, savings,
performance, cost, timing and integration of acquisitions,
including the strategic partnership with Kylie Jenner and the
strategic partnership with Kim Kardashian West, future cash flows,
liquidity and borrowing capacity (including any debt refinancing
activities), timing and size of cash outflows and debt
deleveraging, the timing and extent of any future impairments, and
synergies, savings, impact, cost, timing and implementation of the
Company’s Transformation Plan, including operational and
organizational structure changes, operational execution and
simplification initiatives, fixed cost reductions, supply chain
changes, e-commerce and digital initiatives, the expected impact of
global supply chain challenges or inflationary pressures, and the
priorities of senior management. These forward-looking statements
are generally identified by words or phrases, such as “anticipate”,
“are going to”, “estimate”, “plan”, “project”, “expect”, “believe”,
“intend”, “foresee”, “forecast”, “will”, “may”, “should”,
“outlook”, “continue”, “temporary”, “target”, “aim”, “potential”,
“goal” and similar words or phrases. These statements are based on
certain assumptions and estimates that we consider reasonable, but
are subject to a number of risks and uncertainties, many of which
are beyond our control, which could cause actual events or results
(including our financial condition, results of operations, cash
flows and prospects) to differ materially from such statements,
including risks and uncertainties relating to:
- the impact of COVID-19 (or future similar events), including
demand for the Company’s products, illness, quarantines, government
actions, facility closures, store closures or other restrictions in
connection with the COVID-19 pandemic, and the extent and duration
thereof, the availability and widespread distribution of a safe and
effective vaccine, related impact on the Company's ability to meet
customer needs and on the ability of third parties on which the
Company relies, including its suppliers, customers, contract
manufacturers, distributors, contractors, commercial banks and
joint-venture partners, to meet their obligations to the Company,
in particular collections from customers, the extent that
government funding and reimbursement programs in connection with
COVID-19 are available to the Company, and the ability to
successfully implement measures to respond to such impacts;
- the Company’s ability to successfully implement its multi-year
Transformation Plan, including its management realignment,
reporting structure changes, operational and organizational
changes, and the initiatives to further reduce the Company’s cost
base, and to develop and achieve its global business strategies
(including mix management, select price increases, more disciplined
promotions, and foregoing low value sales), compete effectively in
the beauty industry, achieve the benefits contemplated by its
strategic initiatives (including revenue growth, cost control,
gross margin growth and debt deleveraging) and successfully
implement its strategic priorities (including innovation
performance in prestige and mass channels, strengthening its
positions in core markets, accelerating its digital and e-commerce
capabilities, building on its skincare portfolio, and expanding its
presence in China) in each case within the expected time frame or
at all;
- the Company’s ability to anticipate, gauge and respond to
market trends and consumer preferences, which may change rapidly,
and the market acceptance of new products, including new products
related to Kylie Jenner’s or Kim Kardashian West’s existing beauty
business, any relaunched or rebranded products and the anticipated
costs and discounting associated with such relaunches and rebrands,
and consumer receptiveness to our current and future marketing
philosophy and consumer engagement activities (including digital
marketing and media);
- use of estimates and assumptions in preparing the Company’s
financial statements, including with regard to revenue recognition,
income taxes (including the expected timing and amount of the
release of any tax valuation allowance), the assessment of
goodwill, other intangible and long-lived assets for impairments,
the market value of inventory, the fair value of the equity
investment, and the fair value of acquired assets and liabilities
associated with acquisitions;
- the impact of any future impairments;
- managerial, transformational, operational, regulatory, legal
and financial risks, including diversion of management attention to
and management of cash flows, expenses and costs associated with
the Company's response to COVID-19, the Transformation Plan, the
Wella TSA, the integration of the King Kylie transaction and the
KKW transaction, and future strategic initiatives, and, in
particular, the Company's ability to manage and execute many
initiatives simultaneously including any resulting complexity,
employee attrition or diversion of resources;
- the timing, costs and impacts of divestitures and the amount
and use of proceeds from any such transactions;
- future divestitures and the impact thereof on, and future
acquisitions, new licenses and joint ventures and the integration
thereof with, our business, operations, systems, financial data and
culture and the ability to realize synergies, avoid future supply
chain and other business disruptions, reduce costs (including
through the Company’s cash efficiency initiatives), avoid
liabilities and realize potential efficiencies and benefits
(including through our restructuring initiatives) at the levels and
at the costs and within the time frames contemplated or at
all;
- increased competition, consolidation among retailers, shifts in
consumers’ preferred distribution and marketing channels (including
to digital and prestige channels), distribution and shelf-space
resets or reductions, compression of go-to-market cycles, changes
in product and marketing requirements by retailers, reductions in
retailer inventory levels and order lead-times or changes in
purchasing patterns, impact from COVID-19 on retail revenues, and
other changes in the retail, e-commerce and wholesale environment
in which the Company does business and sells its products and the
Company’s ability to respond to such changes (including its ability
to expand its digital, direct-to-consumer and e-commerce
capabilities within contemplated timeframes or at all);
- the Company and its joint ventures’, business partners’ and
licensors’ abilities to obtain, maintain and protect the
intellectual property used in its and their respective businesses,
protect its and their respective reputations (including those of
its and their executives or influencers), public goodwill, and
defend claims by third parties for infringement of intellectual
property rights, and specifically in connection with the strategic
partnerships with Kylie Jenner and Kim Kardashian, risks related to
the entry into a new distribution channel, the potential for
channel conflict, risks of retaining customers and key employees,
difficulties of integration (or the risks associated with limiting
integration),ability to protect trademarks and brand names,
litigation or investigations by governmental authorities, and
changes in law, regulations and policies that affect KKW Holdings,
LLC’s (“KKW Holdings”) business or products, including risk that
direct selling laws and regulations may be modified, interpreted or
enforced in a manner that results in a negative impact to KKW
Holdings’ business model, revenue, sales force or business;
- any change to the Company’s capital allocation and/or cash
management priorities, including any change in the Company’s
dividend policy or, if the Company's Board declares dividends, the
Company’s stock dividend reinvestment program;
- any unanticipated problems, liabilities or integration or other
challenges associated with a past or future acquired business,
joint ventures or strategic partnerships which could result in
increased risk or new, unanticipated or unknown liabilities,
including with respect to environmental, competition and other
regulatory, compliance or legal matters;
- the Company’s international operations and joint ventures,
including enforceability and effectiveness of its joint venture
agreements and reputational, compliance, regulatory, economic and
foreign political risks, including difficulties and costs
associated with maintaining compliance with a broad variety of
complex local and international regulations;
- the Company’s dependence on certain licenses (especially in the
fragrance category) and the Company’s ability to renew expiring
licenses on favorable terms or at all;
- the Company’s dependence on entities performing outsourced
functions, including outsourcing of distribution functions, and
third-party manufacturers, logistics and supply chain suppliers,
and other suppliers, including third-party software providers,
web-hosting and e-commerce providers;
- administrative, product development and other difficulties in
meeting the expected timing of market expansions, product launches,
re-launches and marketing efforts, including in connection with new
products related to Kylie Jenner’s or Kim Kardashian West’s
existing beauty businesses;
- global political and/or economic uncertainties, disruptions or
major regulatory or policy changes, and/or the enforcement thereof
that affect the Company’s business, financial performance,
operations or products, including the impact of Brexit (and related
business or market disruption), the current U.S. administration and
elections, changes in the U.S. tax code, and recent changes and
future changes in tariffs, retaliatory or trade protection
measures, trade policies and other international trade regulations
in the U.S., the European Union and Asia and in other regions where
the Company operates;
- currency exchange rate volatility and currency devaluation
and/or inflation;
- the number, type, outcomes (by judgment, order or settlement)
and costs of current or future legal, compliance, tax, regulatory
or administrative proceedings, investigations and/or litigation,
including litigation relating to the tender offer by Cottage Holdco
B.V. (the “Cottage Tender Offer”) and product liability cases
(including asbestos and talc-related litigation for which
indemnities and/or insurance may not be available), distributor or
licensor litigation, and litigation or investigations relating to
the strategic partnerships with Kylie Jenner and Kim Kardashian
West;
- the Company’s ability to manage seasonal factors and other
variability and to anticipate future business trends and
needs;
- disruptions in operations, sales and in other areas, including
due to disruptions in our supply chain, restructurings and other
business alignment activities, the Wella divestiture and related
carve-out and transition activities, manufacturing or information
technology systems, labor disputes, extreme weather and natural
disasters, impact from COVID-19 or similar global public health
events, impact of global supply chain challenges, and the impact of
such disruptions on the Company’s ability to generate profits,
stabilize or grow revenues or cash flows, comply with its
contractual obligations and accurately forecast demand and supply
needs and/or future results;
- restrictions imposed on the Company through its license
agreements, credit facilities and senior unsecured bonds or other
material contracts, its ability to generate cash flow to repay,
refinance or recapitalize debt and otherwise comply with its debt
instruments, and changes in the manner in which the Company
finances its debt and future capital needs;
- increasing dependency on information technology, including as a
result of remote working in response to COVID-19, and the Company’s
ability to protect against service interruptions, data corruption,
cyber-based attacks or network security breaches, including
ransomware attacks, costs and timing of implementation and
effectiveness of any upgrades or other changes to information
technology systems, and the cost of compliance or the Company’s
failure to comply with any privacy or data security laws (including
the European Union General Data Protection Regulation, the
California Consumer Privacy Act and the Brazil General Data
Protection Law) or to protect against theft of customer, employee
and corporate sensitive information;
- the Company's ability to attract and retain key personnel and
the impact of senior management transitions and organizational
structure changes;
- the distribution and sale by third parties of counterfeit
and/or gray market versions of the Company’s products;
- the impact of the Transformation Plan as well as the Wella
Transaction on the Company’s relationships with key customers and
suppliers and certain material contracts;
- the Company’s relationship with Cottage Holdco B.V., as the
Company’s majority stockholder, and its affiliates, and any related
conflicts of interest or litigation;
- the Company’s relationship with KKR, whose affiliates KKR
Rainbow Aggregator L.P. and KKR Bidco are respectively a
significant stockholder in Coty and an investor in the Wella
Business, and any related conflicts of interest or litigation;
- future sales of a significant number of shares by the Company’s
majority stockholder or the perception that such sales could occur;
and
- other factors described elsewhere in this document and in
documents that the Company files with the SEC from time to
time.
When used herein, the term “includes” and “including” means,
unless the context otherwise indicates, “including without
limitation”. More information about potential risks and
uncertainties that could affect the Company’s business and
financial results is included under the heading “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in the Company’s Quarterly Report on Form
10-Q for the period ended September 30, 2021 and annual report on
Form 10-K for the year ended June 30, 2021 and other periodic
reports the Company has filed and may file with the SEC from time
to time.
All forward-looking statements made in this release are
qualified by these cautionary statements. These forward-looking
statements are made only as of the date of this release, and the
Company does not undertake any obligation, other than as may be
required by applicable law, to update or revise any forward-looking
or cautionary statements to reflect changes in assumptions, the
occurrence of events, unanticipated or otherwise, or changes in
future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not
intended to express any future trends or indications of future
performance unless expressed as such, and should only be viewed as
historical data.
Non-GAAP Financial Measures
The Company operates on a global basis, with the majority of net
revenues generated outside of the U.S. Accordingly, fluctuations in
foreign currency exchange rates can affect results of operations.
Therefore, to supplement financial results presented in accordance
with GAAP, certain financial information is presented excluding the
impact of foreign currency exchange translations to provide a
framework for assessing how the underlying businesses performed
excluding the impact of foreign currency exchange translations
(“constant currency”). Constant currency information compares
results between periods as if exchange rates had remained constant
period-over-period, with the current period’s results calculated at
the prior-year period’s rates. The Company calculates constant
currency information by translating current and prior-period
results for entities reporting in currencies other than U.S.
dollars into U.S. dollars using constant foreign currency exchange
rates. The constant currency calculations do not adjust for the
impact of revaluing specific transactions denominated in a currency
that is different to the functional currency of that entity when
exchange rates fluctuate. The constant currency information
presented may not be comparable to similarly titled measures
reported by other companies. The Company discloses the following
constant currency financial measures: net revenues, organic
like-for-like (LFL) net revenues, adjusted gross profit and
adjusted operating income.
The Company presents period-over-period comparisons of net
revenues on a constant currency basis as well as on an organic
(LFL) basis. The Company believes that organic (LFL) better enables
management and investors to analyze and compare the Company's net
revenues performance from period to period. For the periods
described in this release, the term “like-for-like” describes the
Company's core operating performance, excluding the financial
impact of (i) acquired brands or businesses in the current year
period until we have twelve months of comparable financial results,
(ii) the divested brands or businesses or early terminated brands,
generally, in the prior year non-comparable periods, to maintain
comparable financial results with the current fiscal year period
and (iii) foreign currency exchange translations to the extent
applicable. For a reconciliation of organic (LFL)
period-over-period, see the table entitled “Reconciliation of
Reported Net Revenues to Like-For-Like Net Revenues”.
The Company presents operating income, operating income margin,
gross profit, gross margin, effective tax rate, net income, net
income margin, net revenues, EBITDA, and EPS (diluted) on a
non-GAAP basis and specifies that these measures are non-GAAP by
using the term “adjusted” (collectively the Adjusted Performance
Measures). The reconciliations of these non-GAAP financial measures
to the most directly comparable financial measures calculated and
presented in accordance with GAAP are shown in tables below. These
non-GAAP financial measures should not be considered in isolation
from, or as a substitute for or superior to, financial measures
reported in accordance with GAAP. Moreover, these non-GAAP
financial measures have limitations in that they do not reflect all
the items associated with the operations of the business as
determined in accordance with GAAP. Other companies, including
companies in the beauty industry, may calculate similarly titled
non-GAAP financial measures differently than we do, limiting the
usefulness of those measures for comparative purposes.
Adjusted operating income/Adjusted EBITDA from continuing
operations excludes restructuring costs and business structure
realignment programs, amortization, acquisition- and
divestiture-related costs and acquisition accounting impacts,
stock-based compensation, and asset impairment charges and other
adjustments as described below. For adjusted EBITDA, in addition to
the preceding, we exclude the adjusted depreciation as defined
below. We do not consider these items to be reflective of our core
operating performance due to the variability of such items from
period-to-period in terms of size, nature and significance. They
are primarily incurred to realign our operating structure and
integrate new acquisitions, and exclude divestitures, and fluctuate
based on specific facts and circumstances. Additionally, Adjusted
net income attributable to Coty Inc. and Adjusted net income
attributable to Coty Inc. per common share are adjusted for certain
interest and other (income) expense and deemed preferred stock
dividends, as described below, and the related tax effects of each
of the items used to derive Adjusted net income as such charges are
not used by our management in assessing our operating performance
period-to-period.
Adjusted Performance Measures reflect adjustments based on the
following items:
- Costs related to acquisition and divestiture activities: The
Company excludes acquisition- and divestiture-related costs and the
accounting impacts such as those related to transaction costs and
costs associated with the revaluation of acquired inventory in
connection with business combinations because these costs are
unique to each transaction. Additionally, for divestitures, the
Company excludes write-offs of assets that are no longer
recoverable and contract related costs due to the divestiture. The
nature and amount of such costs vary significantly based on the
size and timing of the acquisitions and divestitures, and the
maturities of the businesses being acquired or divested. Also, the
size, complexity and/or volume of past transactions, which often
drives the magnitude of such expenses, may not be indicative of the
size, complexity and/or volume of any future acquisitions or
divestitures.
- Restructuring and other business realignment costs: The Company
excludes costs associated with restructuring and business structure
realignment programs to allow for comparable financial results to
historical operations and forward-looking guidance. In addition,
the nature and amount of such charges vary significantly based on
the size and timing of the programs. By excluding the referenced
expenses from the non-GAAP financial measures, management is able
to further evaluate the Company’s ability to utilize existing
assets and estimate their long-term value. Furthermore, management
believes that the adjustment of these items supplement the GAAP
information with a measure that can be used to assess the
sustainability of the Company’s operating performance.
- Asset impairment charges: The Company excludes the impact of
asset impairments as such non-cash amounts are inconsistent in
amount and frequency and are significantly impacted by the timing
and/or size of acquisitions. Our management believes that the
adjustment of these items supplement the GAAP information with a
measure that can be used to assess the sustainability of our
operating performance.
- Amortization expense: We have excluded the impact of
amortization of finite-lived intangible assets, as such non-cash
amounts are inconsistent in amount and frequency and are
significantly impacted by the timing and/or size of acquisitions.
Our management believes that the adjustment of these items
supplement the GAAP information with a measure that can be used to
assess the sustainability of our operating performance. Although we
exclude amortization of intangible assets from our non-GAAP
expenses, our management believes that it is important for
investors to understand that such intangible assets contribute to
revenue generation. Amortization of intangible assets that relate
to past acquisitions will recur in future periods until such
intangible assets have been fully amortized. Any future
acquisitions may result in the amortization of additional
intangible assets.
- Loss/(Gain) on divestitures and sale of brand assets: The
Company excludes the impact of Loss/(gain) on divestitures and sale
of brand assets as such amounts are inconsistent in amount and
frequency and are significantly impacted by the size of
divestitures. Our management believes that the adjustment of these
items supplement the GAAP information with a measure that can be
used to assess the sustainability of our operating
performance.
- Stock-based compensation: Although stock-based compensation is
a key incentive offered to our employees, we have excluded the
effect of these expenses from the calculation of adjusted operating
income and adjusted EBITDA. This is due to their primarily non-cash
nature; in addition, the amount and timing of these expenses may be
highly variable and unpredictable, which may negatively affect
comparability between periods.
- Depreciation and Adjusted depreciation: Our adjusted operating
income excludes the impact of accelerated depreciation for certain
restructuring projects that affect the expected useful lives of
Property, Plant and Equipment, as such charges vary significantly
based on the size and timing of the programs. Further, we have
excluded adjusted depreciation, which represents depreciation
expense net of accelerated depreciation charges, from our adjusted
EBITDA. Our management believes that the adjustment of these items
supplement the GAAP information with a measure that can be used to
assess the sustainability of our operating performance.
- Other (income) expense: We have excluded the write-off of
deferred financing fees and discounts that resulted from the pay
down of our term debt from the proceeds of the Wella sale, due to
the requirements of the 2018 Coty Credit Agreement, as amended. Our
management believes these costs do not reflect our underlying
ongoing business, and the adjustment of such costs helps investors
and others compare and analyze performance from period to period.
We have also excluded the impact of pension curtailment (gains) and
losses and pension settlements as such events are triggered by our
restructuring and other business realignment activities and the
amount of such charges vary significantly based on the size and
timing of the programs. Further, we have excluded the change in
fair value of the investment in Wella, as our management believes
these unrealized (gains) and losses do not reflect our underlying
ongoing business, and the adjustment of such impact helps investors
and others compare and analyze performance from period to
period.
- Noncontrolling interest: This adjustment represents the
after-tax impact of the non-GAAP adjustments included in Net income
attributable to noncontrolling interests based on the relevant
non-controlling interest percentage.
- Tax: This adjustment represents the impact of the tax effect of
the pretax items excluded from Adjusted net income. The tax impact
of the non-GAAP adjustments is based on the tax rates related to
the jurisdiction in which the adjusted items are received or
incurred. Additionally, adjustments are made for the tax impact of
any intra-entity transfer of assets and liabilities.
- Deemed Preferred Stock Dividends: We have excluded preferred
stock deemed dividends related to the Exchange Agreement from our
calculation of adjusted net income attributable to Coty Inc. These
deemed dividends are non-monetary in nature and do not reflect our
underlying ongoing business. Management believes that this
adjustment helps investors and others compare and analyze our
performance from period to period.
The Company has provided a quantitative reconciliation of the
difference between the non-GAAP financial measures and the
financial measures calculated and reported in accordance with GAAP.
For a reconciliation of adjusted gross profit to gross profit,
adjusted EPS (diluted) to EPS (diluted), and adjusted net revenues
to net revenues, see the table entitled “Reconciliation of Reported
to Adjusted Results for the Consolidated Statements of Operations.”
For a reconciliation of adjusted operating income to operating
income and adjusted operating income margin to operating income
margin, see the tables entitled “Reconciliation of Reported
Operating Income (Loss) to Adjusted Operating Income” and
"Reconciliation of Reported Operating Income (Loss) to Adjusted
Operating Income by Segment." For a reconciliation of adjusted
effective tax rate to effective tax rate, see the table entitled
“Reconciliation of Reported Income (Loss) Before Income Taxes and
Effective Tax Rates to Adjusted Income Before Income Taxes and
Adjusted Effective Tax Rates.” For a reconciliation of adjusted net
income and adjusted net income margin to net income (loss), see the
table entitled “Reconciliation of Reported Net Income (Loss) to
Adjusted Net Income.”
The Company also presents free cash flow, adjusted earnings
before interest, taxes, depreciation and amortization ("adjusted
EBITDA"), immediate liquidity, Financial Net Debt and Economic Net
Debt. Management believes that these measures are useful for
investors because it provides them with an important perspective on
the cash available for debt repayment and other strategic measures
and provides them with the same measures that management uses as
the basis for making resource allocation decisions. Free cash flow
is defined as net cash provided by operating activities less
capital expenditures; adjusted EBITDA is defined as adjusted
operating income, excluding adjusted depreciation and non-cash
stock-based compensation. Net debt or Financial Net Debt (which the
Company referred to as "net debt" in prior reporting periods) is
defined as total debt less cash and cash equivalents, and Economic
Net Debt is defined as total debt less cash and cash equivalents
less the value of the Wella Stake. For a reconciliation of Free
Cash Flow, see the table entitled “Reconciliation of Net Cash
Provided by Operating Activities to Free Cash Flow,” for adjusted
EBITDA, see the table entitled “Reconciliation of Adjusted
Operating Income to Adjusted EBITDA” and for Financial Net Debt and
Economic Net Debt, see the tables entitled “Reconciliation of Total
Debt to Financial Net Debt and Economic Net Debt.” Further, our
immediate liquidity is defined as the sum of available cash and
cash equivalents and available borrowings under our Revolving
Credit Facility (please see table "Immediate Liquidity").
These non-GAAP measures should not be considered in isolation,
or as a substitute for, or superior to, financial measures
calculated in accordance with GAAP.
To the extent that the Company provides guidance, it does so
only on a non-GAAP basis and does not provide reconciliations of
such forward-looking non-GAAP measures to GAAP due to the inherent
difficulty in forecasting and quantifying certain amounts that are
necessary for such reconciliation, including adjustments that could
be made for restructuring, integration and acquisition-related
expenses, amortization expenses, non-cash stock-based compensation,
adjustments to inventory, and other charges reflected in our
reconciliation of historic numbers, the amount of which, based on
historical experience, could be significant.
- Tables Follow -
COTY INC.
SUPPLEMENTAL SCHEDULES
INCLUDING NON-GAAP FINANCIAL MEASURES(a)
RESULTS AT A GLANCE
Three Months Ended September
30,
2021
(in millions, except per share data)
Change YoY
CONTINUING OPERATIONS
Reported Basis
(LFL)
Net revenues
$
1,371.7
22
%
21
%
Operating income - reported
17.2
>100
%
Operating income - adjusted*
200.5
>100
%
EBITDA - adjusted
278.5
67
%
Net income attributable to common
shareholders - reported**
103.0
7
%
Net income attributable to common
shareholders - adjusted* **
63.1
>100
%
EPS attributable to common shareholders
(diluted) - reported
$
0.13
—
%
EPS attributable to common shareholders
(diluted) - adjusted*
$
0.08
>100
%
COTY, INC.
Net income attributable to common
shareholders - reported **
103.0
(49
%)
Net income attributable to common
shareholders - adjusted* **
63.1
(31
%)
EPS attributable to common shareholders
(diluted) - reported
$
0.13
(46
%)
EPS attributable to common shareholders
(diluted) - adjusted*
$
0.08
(33
%)
* 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)
2021
2020
Reported
Basis
LFL
2021
Change
Margin
2021
Change
Margin
Prestige
$
870.7
$
644.4
35
%
34
%
$
132.1
>100
%
15
%
$
177.0
>100%
20
%
Consumer Beauty
501.0
479.7
4
%
3
%
11.4
>100
%
2
%
23.5
N/A
5
%
Corporate
—
—
N/A
N/A
(126.3
)
(46
%)
N/A
—
N/A
N/A
Total
$
1,371.7
$
1,124.1
22
%
21
%
$
17.2
>100
%
1
%
$
200.5
>100%
15
%
(a) As previously disclosed, we have
realigned our reportable segments to a principally product
category-based structure, comprised of a Prestige business segment
and a Consumer Beauty business segment. In addition, we have
amended the definition of stock compensation expense for use in
certain Non-GAAP Financial Measures. In order to reflect these
changes, the Company has recast reported net revenue by segment,
reported operating income (loss) by segment, adjusted operating
income (loss) by segment and total, adjusted EBITDA by segment, and
total adjusted income (loss) before income taxes and total adjusted
net income (loss) from continuing operations for all comparative
periods shown.
Adjusted EBITDA
Three Months Ended
September 30,
(in millions)
2021
2020
Prestige
$
215.0
$
119.8
Consumer Beauty
63.5
46.8
Corporate
—
—
Total
$
278.5
$
166.6
FIRST QUARTER FISCAL 2022 BY
REGION
Continuing Operations
Three Months Ended September
30,
Net Revenues
Change
(in millions)
2021
2020
Reported
Basis
LFL
Americas
$
581.5
$
470.6
24
%
23
%
EMEA
627.1
530.4
18
%
17
%
Asia Pacific
163.1
123.1
32
%
29
%
Total
$
1,371.7
$
1,124.1
22
%
21
%
COTY INC. &
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
(in millions, except per share
data)
2021
2020
Net revenues
$
1,371.7
$
1,124.1
Cost of sales
504.8
464.9
as % of Net revenues
36.8
%
41.4
%
Gross profit
866.9
659.2
Gross margin
63.2
%
58.6
%
Selling, general and administrative
expenses
776.3
583.4
as % of Net revenues
56.6
%
51.9
%
Amortization expense
57.0
65.4
Restructuring costs
12.4
30.1
Acquisition-and divestiture- related
costs
4.0
46.3
Operating income (loss)
17.2
(66.0
)
as % of Net revenues
1.3
%
(5.9
%)
Interest expense, net
59.8
62.1
Other income, net
(386.1
)
(5.8
)
Income (loss) from continuing
operations before income taxes
343.5
(122.3
)
as % of Net revenues
25.0
%
(10.9
%)
Provision (benefit) for income taxes on
continuing operations
114.6
(244.9
)
Net income from continuing
operations
228.9
122.6
as % of Net revenues
16.7
%
10.9
%
Net income from discontinued
operations
—
104.7
Net income
228.9
227.3
Net (loss) income attributable to
noncontrolling interests
(0.5
)
0.4
Net income attributable to redeemable
noncontrolling interests
3.4
5.5
Net income attributable to Coty
Inc.
$
226.0
$
221.4
Amounts attributable to Coty
Inc.
Net income from continuing
operations
$
226.0
$
116.7
Convertible Series B Preferred Stock
dividends
(123.0
)
(20.8
)
Net income from continuing operations
attributable to common stockholders
$
103.0
$
95.9
Net income from discontinued
operations
—
104.7
Net income attributable to common
stockholders
$
103.0
$
200.6
Earnings per common share:
Basic for Continuing Operations
$
0.13
$
0.13
Diluted for Continuing Operations(a)
$
0.13
$
0.13
Basic for Coty Inc.
$
0.13
$
0.26
Diluted for Coty Inc.(a)
$
0.13
$
0.24
Weighted-average common shares
outstanding:
Basic
777.6
763.9
Diluted(a)
787.7
916.7
Depreciation - Continuing Operations
$
80.8
$
80.9
(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.
When calculating any potential dilutive effect of stock options,
Series A Preferred Stock, restricted stock and RSUs we use the
treasury method and the if-converted method for the Convertible
Series B Preferred Stock. 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 $123.0 million and $20.8 million
for the three months ended September 30, 2021 and 2020,
respectively, 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, 2021
CONTINUING OPERATIONS
(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
%
COTY INC.
Net income attributable to Coty
Inc.
103.0
(39.9
)
63.1
EPS (diluted)
$
0.13
$
0.08
Three Months Ended September
30, 2020
(in millions)
Reported
(GAAP)
Adjustments(a)
Adjusted
(Non-GAAP)
Discontinued
Operations
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
)
151.7
85.7
146.8
as % of Net revenues
(5.9
%)
7.6
%
26.0
%
Net income (loss)
95.9
(105.7
)
(9.8
)
101.1
as % of Net revenues
8.5
%
(0.9
%)
17.8
%
Adjusted EBITDA
166.6
146.8
as % of Net revenues
14.8
%
25.9
%
COTY INC.
Net income attributable to Coty
Inc.
200.6
(109.3
)
91.3
EPS (diluted)
$
0.24
$
0.12
(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 AND ADJUSTED
EBITDA
CONTINUING OPERATIONS
Three Months Ended September
30,
(in millions)
2021
2020
Change
Reported Operating income
(loss)
$
17.2
$
(66.0
)
>100
%
% of Net revenues
1.3
%
(5.9
%)
Amortization expense (a)
57.0
65.4
(13
%)
Restructuring and other business
realignment costs (b)
14.1
34.4
(59
%)
Stock-based compensation (c)
108.2
5.6
>100
%
Acquisition- and divestiture-related costs
(d)
4.0
46.3
(91
%)
Total adjustments to reported operating
income (loss)
183.3
151.7
21
%
Adjusted Operating income
$
200.5
$
85.7
>100
%
% of Net revenues
14.6
%
7.6
%
Adjusted depreciation (e)
78.0
80.9
(4
%)
Adjusted EBITDA
$
278.5
$
166.6
67
%
% of Revenues
20.3
%
14.8
%
(a)
In the three months ended
September 30, 2021, amortization expense of $44.9 and $12.1 was
reported in the Prestige and Consumer Beauty segments,
respectively. In the three months ended September 30, 2020,
amortization expense of $51.7 and $13.7 was reported in the
Prestige and Consumer Beauty segments, respectively.
(b)
In the three months ended
September 30, 2021, we incurred restructuring and other business
structure realignment costs of $14.1. We incurred restructuring
costs of $12.4 primarily related to the Transformation Plan,
included in the Condensed Consolidated Statements of Operations;
and business structure realignment costs of $1.7 primarily related
to the Transformation Plan and certain other programs. This amount
includes $(1.0) reported in selling, general and administrative
expenses, and $2.7 reported in cost of sales in the Condensed
Consolidated Statement of Operations. In the three months ended
September 30, 2020, we incurred restructuring and other business
structure realignment costs of $34.4. We incurred restructuring
costs of $30.1 primarily related to the Transformation Plan,
included in the Condensed Consolidated Statements of Operations;
and business structure realignment costs of $4.3 primarily related
to the Transformation Plan and certain other programs. This amount
includes $4.3 reported in selling, general and administrative
expenses, and nil reported in cost of sales in the Condensed
Consolidated Statement of Operations.
(c)
In the three months ended
September 30, 2021, stock-based compensation was $108.2 as compared
with $5.6 in the three months ended September 30, 2020. The
increase in stock-based compensation is primarily related to the
CEO grant made on June 30, 2021.
(d)
In the three months ended
September 30, 2021 and September 30, 2020, we incurred acquisition-
and divestiture-related costs of $4.0 and $46.3, respectively.
These costs were primarily associated with the Wella
Transaction.
(e)
In the three months ended
September 30, 2021, adjusted depreciation expense of $38.0 and
$40.0 was reported in the Prestige and Consumer Beauty segments,
respectively. In the three months ended September 30, 2020,
adjusted depreciation expense of $34.1 and $46.8 was reported in
the Prestige and Consumer Beauty segments, respectively.
RECONCILIATION OF REPORTED
INCOME (LOSS) 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, 2021
Three Months Ended September
30, 2020
(in millions)
(Loss)
income
before
income
taxes
(Benefit)
Provision
for
income
taxes
Effective tax
rate
(Loss)
income
before
income
taxes
Provision
for
income
taxes
Effective tax
rate
Reported Income (Loss) before income
taxes - Continuing Operations
$
343.5
$
114.6
33.4
%
$
(122.3
)
$
(244.9
)
200.2
%
Adjustments to Reported Operating Income
(a)
183.3
151.7
Change in fair value of investment in
Wella Business (c)
(390.0
)
—
Other adjustments (d)
0.2
(5.3
)
Total Adjustments (b) (e)
(206.5
)
(74.8
)
146.4
250.9
Adjusted Income before income taxes -
Continuing Operations
$
137.0
$
39.8
29.1
%
$
24.1
$
6.0
24.9
%
The adjusted effective tax rate
was 29.1% for the three months ended September 30, 2021 compared to
24.9% for the three months ended September 30, 2020. The difference
was primarily due to the jurisdictional mix of income.
(a)
See a description of adjustments
under “Adjusted Operating (Loss) Income for Continuing
Operations.”
(b)
The tax effects of each of the
items included in adjusted income are calculated in a manner that
results in a corresponding income tax expense/provision for
adjusted income. In preparing the calculation, each adjustment to
reported income is first analyzed to determine if the adjustment
has an income tax consequence. The provision for taxes is then
calculated based on the jurisdiction in which the adjusted items
are incurred, multiplied by the respective statutory rates and
offset by the increase or reversal of any valuation allowances
commensurate with the non-GAAP measure of profitability.
(c)
The amount represents the
unrealized gain recognized for the change in the fair value of the
investment in Wella.
(d)
For the three months ended
September 30, 2021, this primarily represents the loss from the
equity investment in KKW. For the three months ended September 30,
2020, this primarily represents the pension curtailment gain.
(e)
The total tax impact on
adjustments in the prior period includes a $220.5 benefit recorded
as 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
on July 1, 2020.
RECONCILIATION OF REPORTED NET
INCOME TO ADJUSTED NET INCOME (LOSS) FOR CONTINUING
OPERATIONS
Three Months Ended September
30,
(in millions)
2021
2020
Change
Net income from Continuing Operations, net
of noncontrolling interests
$
226.0
$
116.7
94
%
Convertible Series B Preferred Stock
dividends (c)
(123.0
)
(20.8
)
<(100
%)
Reported Net income attributable to
Continuing Operations
$
103.0
$
95.9
7
%
% of Net revenues
7.5
%
8.5
%
Adjustments to Reported Operating Income
(a)
183.3
151.7
21
%
Change in fair value of investment in
Wella Business (d)
(390.0
)
—
N/A
Adjustments to other (income) expense
(e)
0.2
(5.3
)
>100
%
Adjustments to noncontrolling interest
expense (b)
(1.8
)
(1.2
)
(50
%)
Change in tax provision due to adjustments
to Reported Net income attributable to Continuing Operations
74.8
(250.9
)
>100
%
Adjustment for deemed Series B Preferred
Stock dividends related to the Exchange Agreement (c) (f)
93.6
—
N/A
Adjusted Net income (loss) attributable
to Continuing Operations
$
63.1
$
(9.8
)
>100
%
% of Net revenues
4.6
%
(0.9
%)
Per Share Data
Adjusted weighted-average common
shares
Basic
777.6
763.9
Diluted (c) (f)
787.7
763.9
Adjusted Net income (loss) attributable
to Continuing Operations per Common Share
Basic
$
0.08
$
(0.01
)
Diluted (c)
$
0.08
$
(0.01
)
(a)
See a description of adjustments
under “Adjusted Operating Income for Continuing Operations.”
(b)
The amounts represent the
after-tax impact of the non-GAAP adjustments included in Net income
attributable to noncontrolling interest based on the relevant
noncontrolling interest percentage in the Condensed Consolidated
Statements of Operations.
(c)
Adjusted Diluted EPS is adjusted
by the effect of dilutive securities, including awards under our
equity compensation plans and the convertible Series B Preferred
Stock. For both periods presented, the convertible Series B
Preferred Stock was antidilutive. Accordingly, we excluded the
convertible Series B Preferred Stock from the diluted shares and
did not adjust the earnings for the related dividend.
(d)
The amount represents the
unrealized gain recognized for the change in the fair value of the
investment in Wella.
(e)
For the three months ended
September 30, 2021, this primarily represents the loss from equity
investment in KKW. For the three months ended September 30, 2020,
this primarily represents the pension curtailment gain.
(f)
This adjustment represents the
deemed dividend that was caused by the entering into the Exchange
Agreement on September 30, 2021. The deemed dividend is the
difference between the carrying value and the fair value of the
Convertible Series B Preferred Stock to be exchanged.
RECONCILIATION OF REPORTED NET INCOME
TO ADJUSTED NET INCOME FOR COTY INC.
Three Months Ended September
30,
(in millions)
2021
2020
Change
Net income from Coty Inc. net of
noncontrolling interests
$
226.0
$
221.4
2
%
Convertible Series B Preferred Stock
dividends (c)
(123.0
)
(20.8
)
<(100
%)
Reported Net income attributable to
Coty Inc.
$
103.0
$
200.6
(49
%)
% of Net revenues
7.5
%
11.9
%
Adjustments to Reported Operating income
(a)
183.3
153.1
20
%
Change in fair value of investment in
Wella Business (d)
(390.0
)
—
N/A
Adjustments to other (income) expense
(e)
0.2
(5.3
)
>100
%
Adjustments to noncontrolling interest
expense (b)
(1.8
)
(1.2
)
(50
)
%
Change in tax provision due to adjustments
to Reported Net income (loss) attributable to Coty Inc.
74.8
(255.9
)
>100
%
Adjustment for deemed Series B Preferred
Stock dividends related to the Exchange Agreement (c) (f)
93.6
—
N/A
Adjusted Net income attributable to
Coty Inc.
$
63.1
$
91.3
(31
)
%
Per Share Data
Adjusted weighted-average common
shares
Basic
777.6
763.9
Diluted (c) (f)
787.7
763.9
Adjusted Net income attributable to
Coty Inc. per Common Share
Basic
$
0.08
$
0.12
Diluted (c)
$
0.08
$
0.12
(a)
See a description of adjustments under “Adjusted Operating
Income (loss) for Coty Inc.”
(b)
The amounts represent the after-tax impact of the non-GAAP
adjustments included in Net income attributable to noncontrolling
interest based on the relevant noncontrolling interest percentage
in the Condensed Consolidated Statements of Operations.
(c)
Adjusted Diluted EPS is adjusted by the effect of dilutive
securities, including awards under our equity compensation plans
and the convertible Series B Preferred Stock. For both periods
presented, the convertible Series B Preferred Stock was
antidilutive. Accordingly, we excluded the convertible Series B
Preferred Stock from the diluted shares and did not adjust the
earnings for the related dividend.
(d)
The amount represents the unrealized gain recognized for the
change in the fair value of the investment in Wella.
(e)
For the three months ended September 30, 2021, this primarily
represents adjustment for the change in the fair value of
investment in KKW.
(f)
This adjustment represents the deemed dividend that was caused
by the entering into the Exchange Agreement on September 30, 2021.
The deemed dividend is the difference between the carrying value
and the fair value of the Convertible Series B Preferred Stock to
be exchanged.
RECONCILIATION OF NET CASH
PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
COTY INC.
Three Months Ended
September
30,
(in millions)
2021
2020
Net cash provided by operating
activities
$
285.7
$
42.6
Capital expenditures
(45.0
)
(70.9
)
Free cash flow
$
240.7
$
(28.3
)
RECONCILIATION OF TOTAL DEBT TO
ECONOMIC NET DEBT
COTY INC.
As of
(in millions)
September 30, 2021
Total debt
$
5,332.0
Less: Cash and cash
equivalents
376.9
Financial Net debt
$
4,955.1
Less Value of Wella stake
1,650.0
Economic Net debt
$
3,305.1
IMMEDIATE LIQUIDITY
COTY INC.
As of
(in millions)
September 30, 2021
Cash and cash equivalents
$
376.9
Unutilized revolving credit
facility
2,149.9
Immediate Liquidity
$
2,526.8
RECONCILIATION OF ADJUSTED OPERATING
INCOME TO ADJUSTED EBITDA
Twelve months ended
September 30, 2021
(in millions)
CONTINUING
OPERATIONS
Adjusted operating income (a)
$
551.0
Add: Adjusted depreciation(b)
322.9
Adjusted EBITDA
$
873.9
(a)
Adjusted operating income (loss)
for the twelve months ended September 30, 2021 represents the
summation of the adjusted operating income (loss) for each of the
quarters ended December 31, 2020, March 31, 2021, June 30, 2021 and
September 30, 2021. For a reconciliation of adjusted operating
income (loss) to operating income (loss) for each of those periods,
see the table entitled “Reconciliation of Reported Operating Income
(loss) to Adjusted Operating Income (loss)” for each of those
periods.
(b)
Adjusted depreciation for the
twelve months ended September 30, 2021 represents depreciation
expense for continuing operations for the period, excluding
accelerated depreciation.
FINANCIAL NET DEBT/ADJUSTED
EBITDA
September 30, 2021
Financial Net Debt - Coty Inc.
$
4,955.1
Adjusted EBITDA - Continuing
operations
873.9
Financial Net Debt/Adjusted
EBITDA
5.67
RECONCILIATION OF REPORTED NET
REVENUES TO LIKE-FOR-LIKE NET REVENUES
Three Months Ended September
30, 2021 vs. Three Months Ended September 30, 2020
Net Revenue Change
Net Revenues Change YoY
Reported Basis
Constant Currency
Impact from Acquisitions
and Divestitures
LFL
Prestige
35
%
34
%
—
%
34
%
Consumer Beauty
4
%
3
%
—
%
3
%
Total Continuing Operations
22
%
21
%
—
%
21
%
COTY INC. &
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in millions)
September 30,
2021
June 30,
2021
ASSETS
Current assets:
Cash and cash equivalents
$
376.9
$
253.5
Restricted cash
45.5
56.9
Trade receivables, net
517.8
348.0
Inventories
660.7
650.8
Prepaid expenses and other current
assets
459.3
473.9
Total current assets
2,060.2
1,783.1
Property and equipment, net
847.1
918.1
Goodwill
4,037.4
4,118.1
Other intangible assets, net
4,336.0
4,463.0
Equity investments
1,665.6
1,276.2
Operating lease right-of-use assets
302.6
318.5
Other noncurrent assets
789.5
814.4
TOTAL ASSETS
$
14,038.4
$
13,691.4
LIABILITIES, MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
1,232.5
$
1,166.1
Mandatorily redeemable Convertible Series
B Preferred Stock
394.2
—
Short-term debt and current portion of
long-term debt
24.0
24.2
Other current liabilities
1,421.1
1,225.1
Total current liabilities
3,071.8
2,415.4
Long-term debt, net
5,250.0
5,401.0
Long-term operating lease liabilities
257.8
269.3
Other noncurrent liabilities
1,477.5
1,423.1
TOTAL LIABILITIES
10,057.1
9,508.8
CONVERTIBLE SERIES B PREFERRED
STOCK
453.7
1,036.3
REDEEMABLE NONCONTROLLING
INTERESTS
83.4
84.1
Total Coty Inc. stockholders’
equity
3,243.4
2,860.7
Noncontrolling interests
200.8
201.5
Total equity
3,444.2
3,062.2
TOTAL LIABILITIES, MEZZANINE EQUITY AND
STOCKHOLDERS’ EQUITY
$
14,038.4
$
13,691.4
COTY INC. &
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended
September 30,
2021
2020
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
$
228.9
227.3
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization
137.8
146.2
Non-cash lease expense
18.2
18.0
Deferred income taxes
89.9
(216.0
)
Provision (releases) for bad debts
1.9
(3.4
)
Provision for pension and other
post-employment benefits
4.1
2.1
Share-based compensation
108.2
7.0
Unrealized gains from equity investments,
net
(389.4
)
—
Other
6.6
26.6
Change in operating assets and
liabilities, net of effects from purchase of acquired
companies:
Trade receivables
(183.5
)
(149.7
)
Inventories
(24.4
)
(15.5
)
Prepaid expenses and other current
assets
(2.6
)
9.2
Accounts payable
82.9
(103.9
)
Accrued expenses and other current
liabilities
231.0
152.6
Operating lease liabilities
(20.4
)
(34.9
)
Other assets and liabilities, net
(3.5
)
(23.0
)
Net cash provided by operating
activities
285.7
42.6
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures
(45.0
)
(70.9
)
Proceeds from sale of business, net of
cash disposed
—
27.0
Termination of currency swaps designated
as net investment hedges
—
(37.6
)
Net cash used in investing
activities
(45.0
)
(81.5
)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from short-term debt,
original maturity less than three months
—
1.6
Proceeds from revolving loan
facilities
285.3
637.4
Repayments of revolving loan
facilities
(365.5
)
(554.2
)
Repayments of term loans and other long
term debt
(6.0
)
(48.3
)
Dividend payment on Class A Common
Stock
(0.8
)
(0.8
)
Dividend payment on Convertible Series B
Preferred Stock
(3.5
)
—
Proceeds from issuance of Convertible
Series B Preferred Stock
—
227.2
Net proceeds from foreign currency
contracts
(11.0
)
3.3
Purchase of remaining mandatorily
redeemable noncontrolling interest
(7.1
)
—
Distributions to noncontrolling interests,
redeemable noncontrolling interests and mandatorily redeemable
financial instruments
—
(0.5
)
Payment of financing fees
(10.4
)
—
All other
(3.7
)
(1.5
)
Net cash provided by financing
activities
(122.7
)
264.2
EFFECT OF EXCHANGE RATES ON CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
(6.0
)
(2.0
)
NET INCREASE IN CASH, CASH EQUIVALENTS
AND RESTRICTED CASH
112.0
223.3
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH—Beginning of period
310.4
352.0
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH—End of period
$
422.4
$
575.3
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211108005390/en/
Investor Relations Olga
Levinzon, +1 212 389-7733 olga_levinzon@cotyinc.com
Media Antonia
Werther, +31 621 394495 / Antonia_Werther@cotyinc.com
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