Declines in Fragrances Offset Coty’s Growth in Color

For the third quarter of fiscal year 2016, ended March 31, 2016, Coty Inc.’s net revenues were $950.7 million, a decline of 1% like-for-like and an increase 2% as reported. Adjusted operating income of $81.7 million decreased 19% from $100.9 million in the prior-year period, the company 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,” said Bart Becht, chairman and Interim CEO. “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.”
 
In Q3, moderate like-for-like growth in color cosmetics was offset by modest like-for-like declines in fragrances and pressure in skin and body care, noted Coty. The 1% like-for-like increase in the color cosmetics segment was driven by growth in Rimmel, while lower Sally Hansen revenues reflected the decline in the US 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 and 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, the firm said.
 
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 US.

On the merger and acquisition side, integration efforts are well underway for both the Bourjois business and the Brazilian beauty business acquired from Hypermarcas, said Becht.
 
“We remain confident regarding the financial benefits of both transactions,” the CEO said.
 
Becht also made a statement regarding the integration of the P&G business.

“We continue to make strong progress on the P&G transaction which we expect will make Coty a global leader and challenger in the Beauty Industry. We now expect the transaction to close in October 2016. We’ve also substantially increased our estimates for cost synergies compared to when we announced the transaction, significantly improving the outlook for Coty’s adjusted operating margin and adjusted earnings per share, excluding amortization.”
  
Becht says the firm believes “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.”