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|Coty Inc. Reports First Quarter Fiscal 2018 Results|
Improving Net Revenue Trends as Strategy Starts to Deliver
Reported Operating Income Impacted by Acquisition and Restructuring Costs
Significant Growth in Adjusted Operating Income
First Quarter Fiscal 2018 Summary
“Q1 was a much better quarter. We saw strong growth in Luxury, continued
positive momentum in Professional and a reduced net revenue decline in
the Consumer Beauty division. While results are likely to be a bit
uneven from quarter to quarter going forward, the improving revenue
trend gives me confidence that the growth strategy I outlined earlier
this year is moving
We also delivered significant improvement in profits, driven by better gross margin performance and strong financial discipline on the cost structure.
I am pleased to announce that, as of
We are also satisfied with the contributions from our other strategic
Looking ahead to the remainder of fiscal 2018, we expect to continue to deliver on our announced synergies, finalize the streamlining of our brand portfolio and relaunch several of our key brands. With these programs, we aim to deliver improved net revenue growth trends for the remainder of the year, with an organic second half top line roughly comparable to prior year, as well as healthy margin improvement over the balance of the year.
I am highly confident that all of our efforts will lead to
Basis of Presentation
To supplement financial results presented in accordance with GAAP,
certain financial information is presented in this release 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 presented on a reported (GAAP), combined company 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.
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" below 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.
To the extent that
First Quarter Fiscal 2018 Summary Operating Review
Net revenues of
Gross margin of 60.9% increased from 58.8% for Legacy-Coty, while adjusted gross margin increased to 61.6% from 58.8%, driven by the acquisition of higher margin businesses and supply-chain and procurement synergies.
Reported operating income decreased to
Adjusted operating income increased 17% to
Reported effective tax rate was 61.1% compared to (108.5)% for Legacy-Coty.
Adjusted effective tax rate was 27.4% compared to 30.1% for Legacy-Coty.
Reported net income decreased to
Adjusted net income of
First Quarter Fiscal 2018 Business Review by Segment
First Quarter Fiscal 2018 Business Review by Geographic Region
Noteworthy Company Developments
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, establishing the Company as a
global leader and challenger in beauty, the Company’s future operations
and financial performance (including brand relaunches and returning to
profitable top line growth and other revenue trends), ongoing cost
efficiency initiatives and the timing and presentation of future cost
saving plans, mergers and acquisitions, divestitures (including brand
portfolio streamlining), synergies (including the timing and amount
thereof), growth from and future performance of acquisitions, the
success of the integration of the P&G Beauty Business, accelerating
digital & e-commerce innovation, future dividends and any outlook for
future reporting periods, including for the fiscal year ending
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 Annual
Report on Form 10-K for the fiscal year 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 period-over-period comparisons of net revenues on a
combined company, combined company constant currency, and combined
company constant currency excluding the impact of acquisitions other
than the acquisition of the P&G Beauty Business ("combined company
organic (LFL)") basis. The Company believes that combined company
period-over-period and combined company constant currency
period-over-period 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 period-over-period and combined company constant
currency period-over-period give effect to the completion of the Merger
for purposes of the three 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 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 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 -
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.
RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED OPERATING INCOME
RECONCILIATION OF REPORTED INCOME BEFORE INCOME TAXES AND EFFECTIVE TAX RATES TO ADJUSTED INCOME BEFORE INCOME TAXES, EFFECTIVE TAX RATES AND CASH TAX RATES
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
NET REVENUES AND ADJUSTED OPERATING INCOME BY SEGMENT
NET REVENUES BY GEOGRAPHIC REGION
RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED OPERATING INCOME BY SEGMENT
RECONCILIATION OF REPORTED NET REVENUES TO COMBINED COMPANY AND LIKE-FOR-LIKE NET REVENUES