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|Coty Inc. Reports Second Quarter Fiscal 2017 Results, the First Quarter After Successful Completion of the Merger with P&G Beauty Business|
Q2 Results Consistent with 2017 Being a Transitional Year
Commenting on the merger transaction and Q2 financial results and
“It is my privilege to be leading the new
Starting with the current business situation, let me review the key building blocks to realize Coty`s potential.
Consistent with our comments on the last earnings call, Q2 was a challenging quarter. The business was impacted by significantly higher-than-anticipated inventory levels in the market on the acquired P&G Beauty Business, competitive pressure in the Consumer Beauty division and the distraction associated with the merger integration efforts. Fiscal 2017 is a transitional year as previously discussed, and it is Year One in my five-year strategic framework. We believe the combined company net revenue decline in constant currency will slow down for the second half of fiscal 2017, excluding Younique and ghd.
While we are still in the midst of the P&G business integration, we have already started to tackle the growth challenges of our business. Specifically, my strategic vision includes strengthening our global brands, shifting more resources to fuel the growth of the brands with higher growth potential, stabilizing the remaining brands, and continuing to expand the geographic reach of our strong brand portfolio.
We aim to achieve these objectives through four key pillars. First, we are repositioning some of the brands, in order to reconnect these brands with consumers, building on their already-strong brand equity. Second, we are making significant changes to our innovation and product development process in parts of the organization. Third, we are accelerating our end-to-end digital transformation including e-commerce. And fourth, we are working to significantly revamp our in-store execution. I am convinced these efforts should gradually improve the revenue trends of our business.
On the P&G Beauty Business merger, we are reiterating our previously
On the M&A front, we are continuing to strengthen the
In sum, fiscal 2017 remains a transitional year, and, after the first
four months as CEO, I remain even more confident that we are setting the
stage to realize the enormous potential of
To supplement financial results presented in accordance with GAAP,
certain financial information is presented herein using the non-GAAP
financial measures described in this section. The term “combined
company” describes net revenues of
Net revenues are reported by segment and geographic region and are discussed below on a reported (GAAP) basis and combined company 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 are presented on an actual, combined company and combined company constant currency. Operating income, net income, operating income margin, gross margin and earnings per diluted share (EPS (diluted)) are presented on a reported (GAAP) basis and an adjusted (non-GAAP) basis. Adjusted EPS (diluted) is a performance measure and should not be construed as a measure of liquidity. Net revenues on a combined company basis, combined company constant currency basis, adjusted operating income, adjusted operating income on a constant currency basis, adjusted operating income margin, adjusted effective tax rate, adjusted net income, adjusted gross margin, adjusted EPS (diluted) and free cash flow are non-GAAP financial measures. Refer to "Non-GAAP Financial Measures" for additional discussion of these measures. A reconciliation between GAAP and non-GAAP results can be found in the tables and footnotes at the end of this release.
Net revenues of
Gross margin of 61.1% decreased from 61.4% for Legacy-Coty in the prior-year period, while adjusted gross margin of 63.6% increased from 61.4% for Legacy-Coty in the prior-year period, reflecting the addition of the higher gross margin P&G Beauty Business.
Operating income decreased to
Adjusted operating income increased 32% to
Reported effective tax rate was 174.4% compared to 11.8% for
Legacy-Coty in the prior-year period, reflecting a
Adjusted effective tax rate was 8.8% compared to 22.6% for
Legacy-Coty in the prior-year period. The decline reflected a
Net income decreased to
Adjusted net income increased to
Other noteworthy company developments include:
The Company expects the combined company net revenue decline in constant currency to slow down for the second half of fiscal 2017, excluding Younique and ghd.
For additional information about
Forward Looking Statements
Certain statements in this 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, its future operations and financial performance, expected growth (including revenue declines and trends), its ability to support its planned business operations on a near- and long-term basis, mergers and acquisitions, divestitures, plans, activities, synergies or growth from acquisitions, future dividend payments, and its outlook for the second half of fiscal 2017 and all other future reporting periods. 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”, “aim”, "potential" and similar words or phrases. These statements are based on certain assumptions and estimates that the Company considers reasonable and are subject to a number of risks and uncertainties, many of which are beyond the Company’s control, which could cause actual events or results to differ materially from such statements, including:
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 quarterly period ended
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 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: combined company net revenues and adjusted operating income.
The Company presents year-over-year comparisons on a combined company
and combined company constant currency basis. The Company believes that
combined company year-over-year and combined company constant currency
year-over-year better enable management and investors to analyze and
compare the Company's net revenues performance from period to period, as
the total business and individual divisions are being managed on a
combined company basis. In the periods described in this release,
combined company year-over-year and combined company constant currency
year-over-year give effect to the completion of the Merger for purposes
of the fiscal quarter ended
The Company presents operating income, operating income margin, gross margin, effective tax rate, net income, net income margin, net revenues and EPS (diluted) on a non-GAAP basis and specifies that these measures are non-GAAP by using the term “adjusted”. The Company believes these non-GAAP financial measures better enable management and investors to analyze and compare operating performance from period to period. In calculating adjusted operating income, operating income margin, gross margin, effective tax rate, net income, net income margin and EPS (diluted), the Company excludes following items:
The Company has provided a quantitative reconciliation of the difference between the non-GAAP financial measures and the financial measures calculated and reported in accordance with GAAP. For a reconciliation of adjusted gross margin to gross margin, 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 to Adjusted Operating Income” and "Reconciliation of Reported Operating Income to Adjusted Operating Income by Segment." For a reconciliation of adjusted effective tax rate and adjusted cash tax rate to effective tax rate, see the table entitled “Reconciliation of Reported Income Before Income Taxes and Effective Tax Rates to Adjusted Income Before Income Taxes, Effective Tax Rates and Cash Tax Rates.” For a reconciliation of adjusted net income and adjusted net income margin to net income, see the table entitled “Reconciliation of Reported Net Income to Adjusted Net Income.”
The Company also presents free cash flow. Free cash flow is defined as net cash provided by operating activities, less capital expenditures. Free cash flow excludes cash used for private company stock option exercises and cash used for acquisitions. Management believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for debt repayment and other strategic measures, after making necessary capital investments in property and equipment to support the Company's ongoing business operations, and provides them with the same measures that management uses as the basis for making resource allocation decisions. For a reconciliation of Free Cash Flow, see the table entitled “Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow.”
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.
- Tables Follow -