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Tough Q2 For Coty

February 14, 2014

Softness in US mass fragrance and nail categories.

Coty has reported that net revenues for the first half of fiscal 2014 were $2.50 billion, down 3% like-for-like and 4% as reported relative to the prior-year period. Adjusted operating income of $369.4 million decreased from $423.7 million in the prior-year period and adjusted net income of $219.6 million decreased from $244.9 million in the prior-year period.
 
"We faced a challenging second quarter, as expected. U.S. market softness particularly in the mass fragrance and nail categories, and the high level of promotional activity through the holiday season, have impacted our performance in mature markets,” said Michele Scannavini, CEO of Coty Inc.. “On a more positive note, our investment in the emerging markets is starting to yield positive results, with solid growth driven by Brazil, Southeast Asia, and South Africa.

For the second quarter, net revenues came in at $1.3 billion, down 4% like-for-like and as reported relative to the prior-year period. Adjusted operating income of $183.3 million decreased from $220.7 million in the prior-year period and adjusted net income of $111.3 million decreased from $127.1 million in the prior-year period, the company said.

According to Coty, in the second quarter, positive gross sales growth was more than offset by increased discounts and allowances, reflecting high competitive pressure in this soft market dynamic. By region, the decline was driven by the Americas, reflecting challenging U.S. market conditions in the mass retail channel, particularly in nail and fragrances. EMEA net revenues marginally decreased in the quarter, as strong results in Eastern Europe and South Africa were more than offset by continued softness in Southern Europe. Asia Pacific increased 2% in the quarter. Emerging Markets had solid 6% growth, driven by Southeast Asia, Brazil, and South Africa, where the Company is positively leveraging the new commercial structures.

By segment, color cosmetics decreased 9% versus the prior year period driven by the decline in Sally Hansen, strongly affected by the negative dynamic in the US nail market and the unfavorable comparison with the substantial gel technology launch in the prior year period, the firm said. Net of Sally Hansen, Color Cosmetics grew, mainly thanks to strong Rimmel performance.

Fragrances declined 2% versus prior year, reflecting the timing of new launch activity, the impact of expired licenses, and high promotional activity, particularly in the declining mass fragrance market.

Skin and body care decreased 2%, as solid growth in philosophy was more than offset by the difficulties faced by the TJoy brand in China. Net of TJoy, skin and body care grew in the low single digits in the quarter and the last six months, according to Coty.
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