Coty Inc. Reports Third Quarter Fiscal 2016 Results

On Track to Deliver Full Year 2016 Profit Targets

Very Good Progress on the P&G Merger and Hypermarcas Integration

NEW YORK–(BUSINESS WIRE)–Coty Inc. (NYSE:COTY) today announced financial results for the third
quarter of fiscal year 2016, ended March 31, 2016.

                     
Results at a glance       Three Months Ended March 31, 2016       Nine Months Ended March 31, 2016
      Change YoY       Change YoY
(in millions, except per share data)     Reported Basis      

     Constant     
     Currency     

  Reported Basis      

     Constant     
     Currency     

Net revenues $       950.7 2 % 5 % $     3,273.5 (3 %) 4 %
Like-for-like* (1 %) (1 %)
Operating income – reported 23.0 (80 %) 257.1 (39 %)
Operating income – adjusted* 81.7 (19 %) (18 %) 469.7 % 7 %
Net (loss) income – reported (26.8 )

<(100

%)

187.9 (11 %)
Net income – adjusted* 31.5 (50 %) 387.0 17 %
EPS (diluted) – reported $ (0.08 )

<(100

%)

$ 0.53 (10 %)
EPS (diluted) – adjusted*       $       0.09         (50 %)               $     1.08         19 %        

* These measures, as well as “free cash flow,” are Non-GAAP
Financial Measures. Refer to “Basis of Presentation and Exceptional
Items” and “Non-GAAP Financial Measures” for discussion of these
measures. Net Income represents Net Income Attributable to Coty Inc.
Reconciliations from reported to adjusted results can be found at the
end of this release.

Third Quarter Fiscal 2016 Summary

  • Net revenues of $950.7 million declined 1% like-for-like and increased
    2% as reported
  • Adjusted operating income of $81.7 million decreased 19% from $100.9
    million in the prior-year period
  • Reported net (loss) income of $(26.8) million decreased from $75.5
    million in the prior-year period
  • Adjusted net income of $31.5 million decreased from $63.6 million in
    the prior-year period
  • Adjusted earnings per diluted share of $0.09 decreased from $0.18 in
    the prior-year period
  • Net cash (used in) provided by operating activities was $(71.8)
    million compared to $33.2 million in the prior-year period


First Nine Months Fiscal 2016 Summary

  • Net revenues of $3,273.5 million declined 1% like-for-like and
    decreased 3% as reported
  • Adjusted operating income of $469.7 million was flat with the
    prior-year period
  • Reported net income of $187.9 million decreased from $211.5 million in
    the prior-year period
  • Adjusted net income of $387.0 million increased from $329.8 million in
    the prior-year period, reflecting the favorable tax settlement of
    $113.3 million in the first nine months of fiscal 2016 compared to the
    favorable tax settlement of $32.5 million in the first nine months of
    fiscal 2015
  • Adjusted earnings per diluted share of $1.08 increased from $0.91 in
    the prior-year period
  • Net cash provided by operating activities was $445.3 million compared
    to $388.2 million in the prior-year period


Commenting on the merger progress and Q3 financial results, Bart Becht,
Chairman and Interim CEO said:

“Q3 revenues were consistent with our expectations for muted
like-for-like trends through the end of the fiscal year, as we gradually
rationalize non-strategic product lines and businesses. Power brands on
the other hand continued to outperform the overall business both for the
quarter and fiscal year-to-date. While Q3 adjusted operating income was
down due to one-off items and fiscal year-to-date adjusted operating
income is largely flat, we continue to target high single digit growth
for the full year adjusted operating income at constant rates largely
offset by negative FX impact.

On the merger and acquisition side, integration efforts are well
underway for both the Bourjois business and the Brazilian Beauty
Business acquired from Hypermarcas. We remain confident regarding the
financial benefits of both transactions. Regarding the P&G Beauty Brands
transaction, on April 22 we filed a Registration Statement on Form S-4
detailing the transaction and the historical results of the P&G Beauty
Brands, as well as a Supplemental Financial Overview with bridged
revenue and EBITDA. We will provide a more comprehensive update on the
transaction, including estimated cost synergies, which we expect to be
higher, one-time costs, and working capital benefits, on the investor
call at 8:00am EDT. We have made very good progress both in terms of
preparing for the integration and the steps needed to realize the
financial benefits of this transaction, and we now expect the
transaction to close in October.

In summary, we believe we are well on track to build a healthy platform
for Coty to become a global leader and challenger in the beauty industry
and provide the right basis to drive profitable growth and deliver
shareholder value over time.”


Basis of Presentation and Exceptional Items

The term “like-for-like” describes the performance of the business on a
comparable basis, excluding material acquisitions, all divestitures,
discontinued operations and foreign currency exchange translations to
the extent applicable. “Like-for-like” does not exclude net revenues
from joint venture consolidations and conversion from third-party to
direct distribution. The term “adjusted” excludes the impact of
acquisition related costs, nonrecurring items, private company
share-based compensation expense, impairment charges 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 like-for-like 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 and adjusted operating income are presented on an actual
and a constant currency basis. Net revenues are also reported on an
adjusted basis and like-for-like. Operating income, net income and
earnings per diluted share (EPS (diluted)) are presented on a reported
(GAAP) basis and an adjusted (non-GAAP) basis. Selling, general and
administrative expense (SG&A), effective tax rate, cash tax rate, gross
margin, net income, operating income and operating income margin are
presented on an adjusted (non-GAAP) basis. Net revenues on a constant
currency basis and like-for-like, adjusted net revenues, adjusted
operating income on a constant currency basis, adjusted operating
income, adjusted operating income margin, adjusted effective tax rate,
adjusted cash tax rate, adjusted net income, adjusted gross margin,
adjusted EPS (diluted), adjusted SG&A and free cash flow 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.


Third Quarter Fiscal 2016 Summary Operating
Review

Net revenues of $950.7 million decreased 1% like-for-like and
increased 2% as reported from the prior-year period. Moderate
like-for-like growth in Color Cosmetics was offset by modest
like-for-like declines in Fragrances and pressure in Skin & Body Care.
The 1% like-for-like increase in the Color Cosmetics segment was driven
by growth in our power brand Rimmel, while lower Sally Hansen revenues
reflected the decline in the U.S. retail nail market. Fragrances
modestly declined 1% like-for-like, as growth in Marc Jacobs supported
by innovation did not offset declines in several brands. Skin & Body
Care declined 5% like-for-like as continued strength in adidas was
offset by a decline in philosophy and Playboy. The acquisition of the
Brazilian Beauty Business from Hypermarcas, which closed on February 1,
2016, contributed $14.3 million in revenues, with revenues negatively
impacted by a change in commercial terms to conform with Coty’s
standards. By geographic region, strong like-for-like growth in Asia
Pacific and EMEA was offset by declines in the Americas. Asia Pacific
net revenues grew 6% like-for-like, reflecting growth in China,
Australia, Japan and Travel Retail. EMEA revenues increased 4%
like-for-like, as growth in Germany, Eastern Europe, and the Middle East
was partially offset by declines in the UK and regional exports.
Americas net revenues decreased 8% like-for-like, reflecting declines
primarily in the U.S.

Adjusted gross margin of 61.8% increased from 61.6% in the
prior-year period, driven primarily by a lower level of promotional and
discounted pricing activity.

Adjusted SG&A expense increased from the prior year period.
As a percentage of net revenues, adjusted SG&A increased to 51.0% from
48.8% in the prior-year period, primarily driven by higher share based
compensation as well as the incurrence of costs related to the Brazilian
Beauty Business, without a commensurate level of revenue.

Operating income decreased to $23.0 million from $114.7 million
in the prior-year period. The reported operating income decrease
primarily reflected acquisition related costs and higher SG&A expense.

Adjusted operating income decreased 19% to $81.7 million from
$100.9 million in the prior-year period, in part reflecting the one-time
non-recurring negative impact of the Brazilian Beauty Business. As a
percentage of net revenues, adjusted operating margin decreased 230
basis points to 8.6% from 10.9%.

Adjusted effective tax rate was 26.4% compared to 16.1% in the
prior-year period. The adjusted cash tax rate for the nine months ending
March 31, 2016 was 22.2%.

Net (loss) income decreased to $(26.8) million from $75.5 million
in the prior-year period, reflecting lower operating income and higher
interest and other expenses.

Adjusted net income decreased to $31.5 million from $63.6 million
in the prior-year period, primarily reflecting lower adjusted operating
income and higher interest expense. As a percentage of net revenues,
adjusted net income margin decreased to 3.3% from 6.9% in the prior-year
period.

Cash Flows

  • Net cash (used in) provided by operating activities in the quarter was
    $(71.8) million, compared to $33.2 million in the prior-year period,
    primarily as a result of acquisition and restructuring costs, and the
    Brazilian Beauty Business acquisition.
  • Free cash flow was $(108.7) million in the quarter compared to $(28.7)
    million in the prior-year period.
  • No shares were repurchased during the quarter.
  • Net debt increased by $1,470.5 million to $3,763.9 million from
    $2,293.4 million at June 30, 2015 driven by borrowings in connection
    with the acquisition of the Brazilian Beauty Business, and the shares
    repurchased in the first half of the fiscal year, partially offset by
    strong free cash flow.

Third Quarter Fiscal 2016 Business Review by
Segment

 
      Three Months Ended March 31,
Net Revenues     Change    

Adjusted Operating
Income

    Change
(in millions)   2016     2015

   Reported
   Basis

   

   Constant   
   Currency   

    Like-for-like 2016     2015

   Reported
   Basis

   

   Constant   
   Currency   

Fragrances $       415.4 $       431.3 (4 %) (1 %) (1 %) $         31.4 $       59.0 (47 %) (47 %)
Color Cosmetics 374.3 336.6 11 % 15 % 1 % 47.8 39.5 21 % 25 %
Skin & Body Care 146.7 165.9 (12 %) (9 %) (5 %) 9.1 2.4

>100

%

>100

%

Brazil Acquisition $       14.3   $        

   N/A

 N/A

N/A

$         (6.6 ) $        

    N/A

          N/A

Total $       950.7   $       933.8   2 % 5 % (1 %) $         81.7   $       100.9   (19 %) (18 %)
 

Fragrances

  • Fragrances net revenues modestly decreased 1% like-for-like as
    continued portfolio improvement efforts, particularly in the celebrity
    and lifestyle fragrances in the mass channel, were not offset by
    growth in Marc Jacobs and contribution from Miu Miu.
  • Adjusted operating income for Fragrances decreased 47% to $31.4
    million from $59.0 million in the prior-year period, resulting in a
    7.6% adjusted operating income margin, a decrease of 610 basis points
    versus the prior-year period, partially driven by increased
    advertising & promotion investment.

Color Cosmetics

  • Color Cosmetics net revenues increased 1% like-for-like driven by
    strong growth in Rimmel, while lower Sally Hansen revenues reflected
    the decline in the U.S. retail nail market.
  • Adjusted operating income for Color Cosmetics increased 21% to $47.8
    million from $39.5 million in the prior-year period, resulting in a
    12.8% adjusted operating income margin, an increase of 110 basis
    points compared to the prior-year period.

Skin & Body Care

  • Skin & Body Care net revenues declined 5% like-for-like as continued
    strength in adidas was offset by a decline in philosophy and Playboy.
  • Adjusted operating income for Skin & Body Care increased to $9.1
    million from $2.4 million in the prior-year period, resulting in a
    6.2% adjusted operating income margin, an increase of 470 basis points
    compared to the prior-year period.

Brazil Acquisition

  • The acquisition of the Brazilian Beauty Business, which closed on
    February 1, 2016, contributed $14.3 million in revenues, with revenues
    negatively impacted by a change in commercial terms to conform with
    Coty’s standards. On a sell-out basis for the quarter, the business
    significantly outperformed the segments in which it competes in Brazil.
  • Consequently, the adjusted operating loss for the Brazilian Beauty
    Business totaled $(6.6) million driven by the incurrence of the costs
    related to the Brazilian Beauty Business, without a commensurate level
    of revenue.

Third Quarter Fiscal 2016 Business Review by
Geographic Region

 
        Three Months Ended March 31,
Net Revenues     Change
(in millions)     2016       2015 Reported Basis    

     Constant     
     Currency     

   

   Like-for-like   

Americas $       366.0 $       394.8 (7 %) (4 %) (8 %)
EMEA 467.6 419.5 11 % 15 % 4 %
Asia Pacific 117.1   119.5   (2 %) 2 % 6 %
Total $       950.7   $       933.8   2 % 5 % (1 %)
 

Americas

  • The net revenues like-for-like decrease in the region reflects
    declines primarily in the U.S. and Travel Retail.
  • Key growth brands in the region include power brands Marc Jacobs and
    adidas.

Europe, the Middle East & Africa

  • The like-for-like increase in net revenues in the region was driven by
    growth in Germany, Eastern Europe, and the Middle East, partially
    offset by declines in the UK and regional exports.
  • Key growth brands in the region include power brands Marc Jacobs,
    Davidoff, and Rimmel.

Asia Pacific

  • Net revenues like-for-like growth in the region reflected growth in
    China, Travel Retail, Japan and Australia.
  • Key growth brands in the region include power brands Marc Jacobs,
    Rimmel and adidas.


Outlook for Fiscal 2016 Full Year

The Company remains focused on growing its power brands around the world
through innovation, strong support levels and improved “in-market”
execution. The Company remains focused on cost optimization
opportunities to improve profitability and to provide for investment in
its power brands. For the full fiscal year, like-for-like revenue
performance is expected to remain consistent with the year-to-date
trend. Adjusted operating income is expected to be in line with the
prior year due to the impact of foreign exchange, with high single digit
growth on a constant currency basis.

Other noteworthy company developments include:

  • Unconditional antitrust approval was received from the European
    Commission in connection with the P&G Beauty Brands transaction. The
    Company had previously received antitrust approval from the U.S., and
    several other countries.
  • An incremental EUR 465 million term loan financing was secured under
    its existing credit facilities.
  • On April 22, the Company filed a Registration Statement on Form S-4
    related to the transaction with the P&G Beauty Brands.


Conference Call

Coty Inc. will host a conference call at 8:00 a.m. (ET) today, May 3,
2016 to discuss its results and provide an update on the P&G Beauty
Brands transaction. The dial-in number for the call is (855) 889-8783 in
the U.S. or (720) 634-2929 internationally (conference passcode number:
4003430). The call will also be webcast live at http://investors.coty.com.
The conference call will be available for replay. The replay dial-in
number is (855) 859-2056 in the U.S. or (404) 537-3406 outside the U.S.
(conference passcode number: 4003430).


About Coty Inc.

Coty is a leading global beauty company with net revenues of $4.4
billion for the fiscal year ended June 30, 2015. Founded in Paris in
1904, Coty is a pure play beauty company with a portfolio of well-known
fragrances, color cosmetics and skin & body care products sold in over
130 countries and territories. Coty’s product offerings include such
power brands as adidas, Calvin Klein, Chloé, DAVIDOFF, Marc Jacobs, OPI,
philosophy, Playboy, Rimmel and Sally Hansen.

For additional information about Coty Inc., please visit www.coty.com.


Forward Looking Statements

Certain statements in this release are forward-looking statements. These
forward-looking statements reflect Coty Inc.’s (the “Company”) current
views with respect to, among other things, its future operations and
financial performance; new brand and business partnerships; expected
growth; its ability to support its planned business operation on a near-
and long-term basis and its outlook for the full year fiscal 2016. These
forward-looking statements are generally identified by words or phrases,
such as “anticipate”, “estimate”, “plan”, “project”, “expect”,
“believe”, “intend”, “foresee”, “forecast”, “will”, “may”, “should”,
“outlook”, “continue”, “target”, “committed”, “aim” and similar words or
phrases. Reported results should not be considered an indication of
future performance, and actual results may differ materially from the
results predicted due to risks and uncertainties including:

  • the Company’s ability to achieve its global business strategy and
    compete effectively in the beauty industry;
  • the Company’s ability to anticipate, gauge and respond to market
    trends and consumer preferences, which may change rapidly, and market
    acceptance of new products;
  • the Company’s ability to identify suitable acquisition targets and
    managerial, integration, operational and financial risks associated
    with those acquisitions, including its acquisitions of Bourjois,
    Beamly, and the Brazilian Beauty Business, and the Company’s expected
    transactions with The Procter & Gamble Company (“P&G”) to acquire
    certain assets related to P&G’s global fine fragrances, salon
    professional, retail hair & cosmetics businesses, along with select
    hair styling brands (the “P&G Beauty Brands”);
  • the Company’s ability to implement the Acquisition Integration Program
    and Organizational Redesign restructuring program as planned and the
    success of the programs in delivering anticipated improvements and
    efficiencies;
  • risks related to the Company’s international operations, including
    reputational, regulatory, economic and foreign political risks, such
    as the political instability in Eastern Europe and the Middle East,
    the debt crisis and economic environment in Europe and fluctuations in
    currency exchange rates;
  • dependence on certain licenses, entities performing outsourced
    functions and third-party suppliers;
  • the Company’s and its brand partners’ and licensors’ ability to
    obtain, maintain and protect the intellectual property rights used in
    the Company’s products and the Company’s and its brand partners’
    abilities to protect their respective reputations;
  • the ability and willingness of the Company’s business partners to
    deliver under the Company’s agreements with them;
  • administrative, development or other difficulties in meeting the
    expected timing of market expansions, product launches and marketing
    efforts;
  • impairments to the Company’s goodwill and other assets;
  • global political and/or economic uncertainties or disruptions,
    including a general economic downturn, a sudden disruption in business
    conditions affecting consumer purchases of the Company’s products and
    volatility in the financial markets;
  • the Company’s ability to manage seasonal variability;
  • consolidation among retailers, shifts in consumers’ preferred
    distribution channels, and other changes in the retail environment in
    which the Company sells its products;
  • disruptions in operations;
  • increasing dependency on information technology and the Company’s
    ability to protect against service interruptions, data corruption,
    cyber-based attacks or network security breaches; changes in laws,
    regulations and policies that affect the Company’s business or products
    and
  • the illegal distribution and sale by third parties of counterfeit
    versions of the Company’s products.

More information about potential risks and uncertainties that could
affect the Company’s business and financial results is included under
“Risk Factors” and “Management Discussion and Analysis of Financial
Condition and Results of Operations” in the Company’s Annual Report on
Form 10-K for the fiscal year ended June 30, 2015 under “Cautionary
Statement on Forward-Looking Statements”, “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations of P&G Beauty Brands” in the Company’s Registration
Statement on Form S-4 filed on April 22, 2016, and other periodic
reports the Company may file with the Securities and Exchange Commission
from time to time.

The Company assumes no responsibility to update forward-looking
statements made herein or otherwise, except as required by law.

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 and adjusted operating income.

The Company presents growth on a like-for-like basis. The Company
believes that like-for-like growth better enables management and
investors to analyze and compare the Company’s organic growth from
period to period. In the periods described in this release,
like-for-like growth excludes the impact of foreign currency exchange
translations, the Bourjois acquisition, the Brazilian Beauty Business
acquisition the discontinuation of the TJoy brand, and the
reorganization of the Company’s mass business in China, and does not
exclude revenues from the acquisition or conversion of third-party
distributors. For reconciliation of the Company’s net revenues
like-for-like growth, see the table entitled “Reconciliation of Reported
Net revenues to Like-For-Like Net Revenues.” For a reconciliation of the
Company’s like-for-like growth by segment and geographic region, see the
tables entitled “Net Revenues and Adjusted Operating Income by Segment”
and “Net Revenues by Geographic Regions.”

The Company presents SG&A, operating income, operating income margin,
gross margin, effective tax rate, cash tax rate, net income, net income
margin, net revenues and EPS (diluted) on a non-GAAP basis and specifies
that these measures are non-GAAP by using the term “adjusted”.

Contacts

Coty Inc.
Investor Relations
Kevin Monaco,
212-389-6815
or
Media
Jennifer Friedman,
212-389-7175

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