According to Coty, the specific supply chain headwinds included:
• Warehouse and planning center consolidation disruptions in Europe and the US, which impacted all three divisions;
• Component shortages from certain external suppliers, which impacted Luxury; and
• The US Hurricane Florence in the second half of September, which significantly impacted our manufacturing plant and distribution center in North Carolina, which primarily impacted the Luxury division.
"We are very disappointed with the supply chain disruptions that we have experienced over the last quarter and the resulting poor Q1 financial performance. While we had anticipated some level of disruption in the first quarter from warehousing and planning consolidation, the increased scope of the disruptions resulted in much weaker results than previously expected,” “said CEO Camillo Pane.“We have been working to remedy the supply chain issues and expect to temper the headwinds in 2Q19, and have them be substantially resolved in 3Q19, although we do not expect to fully recover the 1Q19 financial impact in the balance of FY19.
As a result of the disruptions, Pane said Coty has decided to modify its distribution center consolidation plan for the remainder of the year to minimize business impact.
"By division, underlying consumer demand in Luxury and Professional Beauty remains strong, and if we exclude the supply chain disruptions, both divisions would have reported solid net revenue growth in 1Q19 consistent with their FY18 trend, driven by strong innovation and excellence in execution. However, Consumer Beauty's underlying high single digit revenue decline clearly reflects category weakness in developed markets, continued competitive pressure and performance challenges with some of our brands, as well as the repercussions of our severe supply chain disruptions on our Consumer Beauty gross-to-net, including customer penalties and increased promotional support,” noted Pane.
He continued, “From here, the pathway to stabilization of Consumer Beauty will focus on: 1) strengthening operational discipline, including restoring service levels; 2) actively improving gross-to-net as supply chain headwinds abate; 3) refocusing investment from lower priority to higher-potential brand-country combinations; 4) an increased focus on cost structure to reflect the top-line trajectory; and 5) a more pronounced shift in investments towards new growth channels.
Calling 1Q19 a “disappointing setback in achieving our financial targets and strategic goals,” Pane said the working is hard to solve the issues.
“With the P&G Beauty integration near completion, and after we have overcome the internal challenges, we will be better equipped to focus more externally, so that we can fully capitalize on the exciting and dynamic changes in the beauty industry. We remain absolutely convinced that the fast-paced and ambitious transformational agenda we are pursuing, including comprehensive upgrades to our systems, processes, culture, and people, is ultimately building a much stronger Coty for the long term,” he concluded.