Coty's Q4 loss shrinks to US$62.3M from US$357.3M a year ago on improved revenues; company posts fiscal 2013 earnings of US$168M on growth in fragrances and color cosmetics segments

NEW YORK , September 17, 2013 (press release) – Coty Inc. (NYSE: COTY) today announced financial results for the fourth quarter and fiscal year ended June 30, 2013.

Fiscal 2013 Summary

  • Net revenues of $4,649.1 million increased 2% like-for-like and 1% as reported
  • Adjusted operating income of $572.8 million increased 8% at constant currency and 7% at actual rates from $535.9 million in the prior-year period
  • Adjusted net income of $323.2 million increased 7% from $300.7 million in the prior-year period
  • Adjusted earnings per diluted share increased to $0.82 from $0.78 in the prior-year period
  • Net cash provided by operating activities, excluding cash used for private company stock option exercises, was $618.4 million compared to $593.3 million in the prior-year period. Free cash flow, excluding cash used for private company stock option exercises, was $394.5 million for fiscal 2013 compared to $385.9 million in fiscal 2012
Fourth Quarter Fiscal 2013 Summary
  • Net revenues of $1,058.8 million increased 4% like-for-like and 3% as reported
  • Adjusted operating income of $45.4 million increased from $11.6 million in the prior-year period
  • Adjusted net income of $9.9 million increased from ($2.3) million in the prior-year period
  • Adjusted earnings per diluted share increased to $0.03 from ($0.01) in the prior-year period
  • Net cash provided by operating activities, excluding cash used for private company stock option exercises, was $214.1 million compared to $183.4 million in the prior-year period
Commenting on the Company's performance, Michele Scannavini, CEO of Coty Inc., said,
"Coty delivered another year of positive financial performance. Our increase in net revenues was driven by growth in our Fragrances and Color Cosmetics segments as well as positive developments across all regions, particularly the emerging markets. Operating and net income grew faster than revenues, contributing to margin expansion and demonstrating our ongoing focus on operational efficiency. We continue to show strong ability to convert earnings into cash, enabling us to keep investing to support our growth. We remain committed to our long term strategy to grow revenues in line or faster than the markets and segments where we compete, and to grow earnings faster than sales, driving continuous margin expansion."

Basis of Presentation and Exceptional Items

The term "like-for-like" describes the performance of the business on a comparable basis, excluding material acquisitions, disposals, discontinued operations and foreign currency exchange translations to the extent applicable. The term "adjusted" excludes the impact of non-recurring items, private company share-based compensation expense and restructuring costs to the extent applicable. Refer to "Non-GAAP Financial Measures" for a definition of free cash flow.

Net revenues are reported by segment and geographic region and are discussed below on a constant currency basis. Operating income is reported by segment. All changes in margin percentage are described in basis points rounded to the nearest tenth of a percent.

Net revenues, adjusted selling, general and administrative expense (SG&A) and adjusted operating income are presented on an actual and a constant currency basis. SG&A, operating income, effective tax rate, net income and earnings per share (EPS) are presented on a reported (GAAP) basis and an adjusted (non-GAAP) basis. Adjusted SG&A, adjusted operating income, adjusted effective tax rate, adjusted net income and adjusted EPS on an actual and constant currency basis, net revenues on a constant currency basis and like-for-like are non-GAAP financial measures. A reconciliation between GAAP and non-GAAP results can be found in the tables and footnotes at the end of this release.

Fiscal 2013 Summary Operating Review

Net revenues of $4,649.1 million increased 2% like-for-like and 1% as reported from the prior-year period. LFL growth was driven by solid increases in the Color Cosmetics and Fragrances segments, with strong performance in our power brands Rimmel, Marc Jacobs, Chloe, and Playboy. This growth was partially offset by lower net revenues in the Skin & Body Care segment. By geographic region, all regions reflected higher net revenues at constant currency led by Asia Pacific with 5% growth. Despite continued economic weakness in Southern European markets, at constant currency EMEA was 1% higher than the previous year.

Gross margin decreased to 60.0% compared to 60.4%. This decline primarily reflected the negative impact of higher customer discounts and allowances necessary to compete in the difficult and highly promotional European market. The decline more than offset the cost of goods savings from our supply chain savings program. Since its implementation in fiscal 2010, the supply chain savings program has contributed to improvements in manufacturing costs resulting from more streamlined manufacturing processes, procurement savings programs with suppliers, and supply chain redesign including improved management of third-party contractors.

Adjusted SG&A expense was flat at constant currency and declined 2% at actual rates. As a percentage of net revenues, adjusted SG&A expense decreased 110 basis points to 45.7%. The reduction was related to lower administrative costs, efficiencies in indirect spending, and a shift of some advertising and consumer promotion spending toward customer discounts and allowances in the last part of the year to keep competitiveness in a highly promotional environment in the mass business, particularly in Southern Europe and in the U.K.

Operating income increased to $394.4 million from $(209.5) million. The reported operating loss in the previous year primarily reflected an asset impairment charge in the Skin & Body Care segment related to acquisitions made in fiscal 2011 and higher share-based compensation.

Adjusted operating income at constant currency increased 8% to $576.3 million from $535.9 million. As a percentage of net revenues, adjusted operating margin increased 70 basis points to 12.3% from 11.6%, primarily driven by lower SG&A expense and amortization expense, partially offset by a decrease in gross margin.

Adjusted effective tax rate was 28.2% in fiscal 2013 compared to 27.7% in the prior year. The increase was primarily due to a change in jurisdictional mix with higher profits in countries with higher tax rates. The cash tax rate for the year was 16.9%.

Net income increased to $168.0 million from $(324.4) million.

Adjusted net income increased to $323.2 million from $300.7 million, primarily reflecting higher operating income and lower interest expense. As a percentage of net revenues, adjusted net income margin increased 50 basis points to 7.0% from 6.5%.

Cash Flows

Net cash provided by operating activities for fiscal 2013 was $618.4 million, excluding the $154.5 million cash used for private company stock option exercises, compared to $593.3 million in the prior year, which excludes $4.0 million used for private company stock option exercises. This increase was driven in part by higher net income and improved management of inventory and accounts receivable.

Net debt decreased by $141.1 million to $1,709.8 million from $1,850.9 million at June 30, 2012.

Free cash flow, excluding cash used for private company stock option exercises, was $394.5 million in fiscal 2013 compared to $385.9 million in fiscal 2012.

The Company believes that cash on hand, cash generated from operations, available credit lines and access to credit markets will be adequate to support its planned business operations on both a near- and long-term basis.

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