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|Coty Inc. Reports Third Quarter Fiscal 2017 Results|
Net Revenue Trends Improve in Q3
Third Quarter Fiscal 2017 Summary
Commenting on Q3 financial results and strategic outlook,
“Q3 was a better quarter. The underlying net revenue trend, excluding
the contributions from ghd, Younique and one month of the
Equally encouraging was the performance of our acquired businesses of
As to profits, our Q3 performance was very solid, with our adjusted operating income more than doubling in Q3 versus the prior year period, underlining the margin strength of our business.
It is clear that fiscal 2017 is a transitional year and the path to recovery will take some time and will not be a straight line. For example, we expect the constant currency net revenue trends in Q4 excluding Younique and ghd to weaken sequentially versus Q3.
In Q3, we continued to execute on the strategy I outlined last quarter
On the integration of the P&G Beauty Business, we are making good
progress and we just exited the Transitional Services Agreement in
Regarding acquisitions, the recently announced agreement to acquire the long term exclusive license of the Burberry Beauty business should further strengthen our Luxury portfolio of brands without a material impact to our leverage ratio, highlighting our disciplined approach to valuation, and maintaining a strong balance sheet.
In sum, I am confident that the strategies and action plans we are
deploying throughout the organization 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, effective tax rate, 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, net revenues on a 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 59.8% decreased from 61.2% for Legacy-Coty in the prior-year period, while adjusted gross margin of 63.3% increased from 61.8% for Legacy-Coty in the prior-year period, reflecting the addition of the higher gross margin P&G Beauty and Younique businesses.
Operating income decreased to
Adjusted operating income increased >100% to
Reported effective tax rate was 36.9% compared to (133.3)% for Legacy-Coty in the prior-year period.
Adjusted effective tax rate was 22.2% compared to 25.1% for Legacy-Coty in the prior-year period.
Net income decreased to
Adjusted net income increased to
Other noteworthy company developments include:
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, path to recovery, synergies or growth from acquisitions, future dividend payments, the success of the integration of the P&G Beauty Business, and its outlook for 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 of net revenues 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 three months and nine months 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.
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