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Coty reports financial results

Coty

Coty Inc. announced financial results for the fourth quarter and fiscal year ended 30th June, 2020.

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Peter Harf, Coty’s founder and Executive Chairman, said, “Coty’s fourth quarter was marked by external shocks, as the COVID-19 pandemic triggered a crisis in the real economy and supply. The severe sales contraction for total Coty, with revenues down $1.2 billion year-over-year, led to significant operating deleverage in the quarter, even as the company focused all its efforts on protecting free cash flow which came in inline with our expectations. Having said that, we now close this chapter and turn to the next, because Coty is back. In the last two months, we have seen a significant improvement in the business and we expect the positive momentum to continue, with a return to profit in Q1.”

Fiscal year 2020 reported net revenues of $4,717.8 million decreased 25.0% year-over-year, including a negative foreign exchange (FX) impact of 2.0%. Like-for-like (LFL) revenue decreased 20.3%. The LFL performance was driven by LFL decreases in EMEA of 18.5%, the Americas of 21.5%, and Asia Pacific of 22.4%.

Fourth quarter 2020 reported net revenues of $560.4 million decreased 62.8% year-over-year, including a negative foreign exchange (FX) impact of 2.0%. Like-for-like (LFL) revenue decreased 59.7%. The LFL performance was driven by LFL decreases in the EMEA segment of 67.2%, Asia Pacific of 57.5%, and Americas of 51.5%, with the mass business down 39% and the prestige business down a more meaningful 70% due to broad-based channel closures during the quarter.

Fiscal year 2020 reported gross margin of 57.8% decreased by 250 bps from the prior year, while the adjusted gross margin of 58.1% decreased by 230 bps, primarily due to the decline in sales volume related to COVID-19, increased excess and obsolescence expense, and underutilization expenses related to the temporary shutdown of certain manufacturing plants in response to COVID-19.

Fourth quarter 2020 reported gross margin of 40.0% decreased from 60.9% in the prior-year period, while the adjusted gross margin of 40.6% decreased from 60.8% in the prior-year period, primarily due to the decline in sales volume related to COVID-19, increased excess and obsolescence expense on the back of the sudden demand decline, and underutilization expenses related to the temporary shutdown of certain manufacturing plants.

Fiscal 2020 reported operating loss from continuing operations of $1,236.5 million improved compared to reported operating loss of $3,688.4 million in the prior year due to an impairment charge of $3.7 billion in the prior year. The fourth quarter reported operating loss from continuing operations of $920.5 million improved from a reported operating loss of $2,744.4 million due to an impairment charge of $2.8 billion in the prior-year period. Coty recorded an impairment charge of $393.6 million in fourth quarter driven by a higher discount rate as a function of the stock price decline.

Fiscal year 2020 adjusted operating loss for continuing operations totaled $161.7 million compared to adjusted operating income of $490.8 million in the prior year, with the fiscal year 2020 adjusted operating margin of (3.4%) declining from 7.8% in the prior year driven by the lower gross margin and fixed cost deleveraging during the second half of fiscal year 2020. Including the expected cost recovery under the Wella TSA, the fiscal year 2020 adjusted operating loss for ongoing Coty totaled $110 million with a margin of (2.3%) compared to adjusted operating income of $543 million and margin of 8.6% in the prior year.

Fourth quarter adjusted operating loss for continuing operations of $335.3 million declined from adjusted operating income of $126.2 million in the prior year. With the total Coty fourth quarter adjusted operating income declining by over $570 million, this year-over-year decline reflected roughly $50 million of non-recurring costs resulting from the COVID-19 pandemic, including incremental excess & obsolescence, bad debt and plant under-utilization costs, and over 40% drop-through on the $1.2 billion sales decline. Including the expected cost recovery under the Wella TSA, the fourth quarter adjusted operating loss for ongoing Coty of $322 million declined from income of $139 million in the prior year period.

Fiscal year 2020 reported net loss of $1,013.2 million improved from a reported net loss of $3,784.2 million in the prior year, and fourth quarter 2020 reported net loss of $772.8 million improved from a reported net loss of $2,799.4 million in the prior year period.
The fiscal year 2020 adjusted net loss of $192.7 million declined from adjusted net income of $487.6 million in the prior year. The fourth quarter 2020 adjusted net loss totaled $386.7 million versus adjusted net income of $123.6 million in the prior year.

Luxury net revenues for fiscal year 2020 was $2,606.4, or approximately 55% of Coty continuing operations, declined 20.9% as reported and declined 23.2% LFL. 4Q20 Luxury net revenues of $219.4 million, or approximately 39% of Coty continuing operations, declined 70.9% as reported and declined 73.3% LFL, with the reported sales aided by the inclusion of Kylie Beauty sales in the current quarter. Luxury experienced significant pressure during the fourth quarter with many of the channels closed during a meaningful portion of the quarter, including department stores, perfumeries, specialty retailers, and travel retail. As retailers opened their doors, trends improved from the April low, but continued to be pressured. However, as consumer purchases shifted to e-commerce channels, e-commerce accounted for approximately 30% of Luxury sales in the fourth quarter of 2020. Kylie cosmetics sales in the quarter were pressured by the closure and ensuing supply constraints of the brand’s third party partner, while Kylie skincare sales grew solidly supported by strong activations as well as the launch of the brand at Douglas in Europe.

SEE ALSO : Coty appoints Chief Executive Officer

Consumer Beauty net revenues for fiscal year 2020 was $2,111.0, or approximately 45% of Coty continuing operations, declined 29.5% as reported and declined 23.4% LFL. Consumer Beauty net revenues for the fourth quarter of 2020 was $340.7 million, or approximately 61% of Coty continuing operations, declined 54.7%as reported and declined 47.9% LFL, with the reported sales decline pressured by the inclusion of Younique revenues in the prior year period. Sales in this channel were pressured in the fourth quarter, as traffic to mass retailers and drugstores remained subdued globally, and consumers continued to emphasize purchasing of more essential personal care categories, resulting in underperformance for the color cosmetics category. At the same time, Coty saw significant growth in e-commerce sell-out across brick & click and pureplay e-retailers, including strong market share gains on Amazon in the U.S., U.K., and Germany. As a result, e-commerce accounted for approximately 10% of consumer beauty revenues in the fourth quarter.

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