Mixed First Quarter Results for Coty

Coty said first quarter sales in fiscal 2016 slipped 6% to $1.1 billion for the quarter that ended Sept. 30, 2015. However, Coty’s operating income increased 4% to $173.4 million. According to the company, growth in color cosmetics was offset by declines in fragrances and skin and body care.

A 9% increase in the color cosmetics segment was driven by power brands Sally Hansen, Rimmel, and OPI. Fragrance sales declined 8% due to difficult innovation comparisons in the prior-year period and pressure on Calvin Klein. Skin and body care sales declined 1%, driven primarily by lower net revenues from Playboy and Philosophy, partially offset by growth in Adidas.

By geographic region, solid growth in Asia Pacific was offset by declines in EMEA and the Americas. Asia Pacific net revenues grew 4%, reflecting growth in Australia, Southeast Asia and regional exports. EMEA revenues decreased 3%, as declines in the UK and travel retail were partially offset by growth in Eastern Europe, the Middle East and Germany.

The Americas net revenues decreased 3%, reflecting moderate declines in the US, travel retail, and a decrease in Brazil as a result of difficult comparisons in the prior year period as well as underlying economic weakness.

“Results in the first quarter were mixed. Profits were very good. The operating profit and margin continued showing very strong progress and earnings per share growth was up well ahead of profit growth, also helped by a one-off tax benefit. This confirms that our global efficiency program continues to generate the benefits we have been targeting. On the other hand, revenue growth was not where we would like it to be,” said Bart Becht, chairman and interim CEO. “While color cosmetics growth continued to be very strong due to Sally Hansen and Rimmel, and skin and body care trends are improving, Fragrance growth is lacking.

“Fragrance revenues continue to suffer from a very large number of unsustainable historical launches, not being compensated by current brand building efforts and launches. We will be working hard to clean up past portfolio practices, while strengthening our innovation pipeline and improving our capabilities in the areas of innovation and sales and marketing execution.”

According to Becht, the company continues “to believe that our strategy of investment in growing our power brands while bringing Coty back to profitable growth behind our efficiency programs, remains the right basis for delivering shareholder value over time.”

In other news, 10 Procter & Gamble fragrance licenses will transfer to Coty upon regulatory approval and completion of the merger transaction, including Hugo Boss, Gucci, Lacoste, Bruno Banani, Escada, Mexx, James Bond, Gabriela Sabatini, Stella McCartney and Alexander McQueen. The licensors of the Dolce & Gabbana and Christina Aguilera Perfumes licenses did not provide their consent within the specified timetable, and in accordance with the transaction agreement and in the interest of staying on track with the transaction, it was agreed that these brands will not transfer upon completion of the merger.

As per the transaction agreement, the assumed debt from the P&G Specialty Beauty Business will be adjusted downward to reflect the fact that 10 out of the 12 available licenses, subject to regulatory approval, are transferred rather than all 12. The outcome of these formulas will be known at a later date, which Coty will disclose once determined.

Coty continues to anticipate a closure of the transaction in the second half of 2016.