Coty Continues Momentum in Q4, with Topline and Profit Exceeding Guidance

FY21 Results Above High End of Guidance

Accelerating Progress Across Each Pillar of Strategic Plan

Strong Momentum Into FY22, with Low Teens Sales Growth Expected at Current FX Levels

NEW YORK–(BUSINESS WIRE)–Coty Inc. (NYSE: COTY) (“Coty” or “the Company”) today announced another quarter of improvement in its financial results and demonstrated recovery across its operations for the fourth quarter of fiscal year 2021, ended June 30, 2021.

In Q4, revenues increased 89.6%, or 80.7% LFL, lapping the peak of COVID impact in the prior year, even as COVID-related restrictions continued in many markets. As a result, Coty ended the year with revenues of $4.63 billion, above the high end of its $4.5-4.6 billion guidance range. While all regions returned to YoY growth in Q4, the U.S. and China markets were standouts. The Americas region grew 67% in Q4 and 6% in FY21, with the full year performance driven by double-digit growth in U.S. prestige products, and growth in Brazil and Canada. Asia Pacific grew 59% in Q4, with China growing double digits on a quarterly and full-year basis both year-on-year and versus FY19. EMEA sales more than doubled in Q4, even as many markets remained under restrictions through most of the quarter, with the consumer beauty brands recording stable market share for the first time in over 5 years. Underpinning the global momentum was the continued strength in e-commerce, which grew nearly 19% in Q4 and 34% in FY21, resulting in a high-teens e-commerce penetration for the year.

Coty’s prestige brands sales more than doubled in Q4 and were nearly flat LFL in FY21, even as the Company continued to reduce sales in low quality channels, which represented a low teens negative impact to prestige brand sales in Q4 and a high single digit negative impact in FY21, relative to FY19. Nearly all prestige brands were up double- to triple-digits, with standout performance from Gucci, Marc Jacobs, Burberry, Calvin Klein, and Chloe, supplemented with expansion in Coty’s new growth engines, prestige cosmetics and skincare.

In the mass channel, Coty continued to strengthen its consumer beauty brands, reaching a key milestone with CoverGirl gaining market share for three consecutive months, a first for the brand in 5 years. Building on this momentum, Coty launched the new brand repositioning for Rimmel in June, followed by Max Factor in late July. Coty’s mass beauty revenues increased 37.9% LFL in Q4, with growth across each region.

Over the course of the year, Coty also advanced on its strategic pillar to become a beauty leader in sustainability. The Company announced its partnership with Lanzatech, becoming the first company in the fragrance industry to introduce sustainable ethanol, created using carbon-capture technology, into its fragrance products with the goal of having the majority of its fragrance portfolio using carbon-captured ethanol by 2023. On the cosmetics side, Coty has been leading with clean, vegan and cruelty-free formulations across brands such as CoverGirl, Sally Hansen, and Kylie Cosmetics. This has solidified Coty as the #2 player in clean cosmetics, as tracked by U.S. Nielsen.

During the quarter, Coty continued to reduce its cost base, with savings totaling approximately $70 million in the quarter. This brought the FY21 savings to over $330 million, exceeding the Company’s initial plan for the year by over $100 million. Coty remains on track to generate ~$600 million of savings by FY23, and is identifying additional savings opportunities beyond FY23. At the same time, Coty now expects one-time cash costs associated with the cost savings program to come in approximately $100 million below the original target, aided by the strong cash focus of the Company. The company’s efforts to drive gross margin expansion through a combination of product and channel mix, COGS savings and improved excess & obsolescence resulted in a reported and adjusted gross margin of ~60% for the year, up ~200bps YoY and in line with FY19 levels on a Continuing Operations basis, despite a lower sales base. The combination of gross margin expansion and accelerated cost savings allowed Coty to deliver profitability above expectations, while simultaneously reinvesting in the business. Specifically, in Q4 working media investments increased triple-digits versus last year and up over 30% versus 4Q19. At the same time, Coty delivered FY21 reported operating loss of $48.6 million and an adjusted EBITDA $760.4 million, exceeding guidance of ~$750 million and reflecting an adjusted EBITDA margin of 16.4%, delivering over 300 bps of margin expansion versus FY19. Q4 EPS totaled $(0.27) as reported and $(0.09) adjusted. The adjusted EPS is impacted by non-operational items including deferred financing fee write-offs, annual catch-up of tax expenses, and the impact of the convertible preferred shares on the diluted EPS calculation.

At the end of Q4, Financial Net Debt totaled approximately $5.2 billion. With an increase in the value of Coty’s retained Wella stake to approximately $1.26 billion¹ at quarter-end, the Company’s Economic Net Debt totaled approximately $4.0 billion. During the quarter, Coty successfully raised $900 million in secured notes in April and €700 million in secured notes in June 2021, significantly improving the maturity profile of its debt.

Commenting on the operating results, Sue Y. Nabi, Coty’s CEO, said:

“Today marks the completion of transformational year for Coty, as we advance on our journey in strengthening Coty’s position as a global beauty powerhouse. Over the last 12 months, we have built a leadership team of beauty and transformation experts, unveiled and began executing on our multi-year strategy, completed the divestiture Wella, significantly improved our leverage profile, and over-delivered on our savings, revenue, and profit objectives.

We have ended the year on a high note, with Q4 sales nearly doubling YoY. Sales in the Americas expanded in FY21, and we saw particular strength in the U.S. and China. This a true testament not only to the strength of our prestige brand portfolio, but also to our innovation capabilities, with Marc Jacobs Perfect the best performing U.S. fragrance launch in the industry over the last 3 years, Gucci Guilty Pour Homme and Burberry Her driving market share gains for the beauty brands, and Chloe Atelier des Fleurs solidifying its position as a leading ultra premium artisanal fragrance collection.

At the same time, we made great strides on our objectives of becoming a key player in prestige cosmetics and strengthening our skincare portfolio. Gucci and Burberry makeup are already amongst the Top 25 makeup brands in China overall only a couple of years post launch, and Gucci makeup now ranks in the Top 10 within the U.S. and Europe doors where it is present. We intend to capitalize on this momentum in FY22, significantly expanding both our distribution and assortment. On skincare, Lancaster is elevating its visibility with Chinese consumers, with 3 branded counters opening in Hainan in the last few months, while philosophy is capitalizing on its Top 10 skincare position in the U.S. by leaning into cleaner formulations and expanded distribution.

Finally, in our consumer beauty brands, we are clearly seeing CoverGirl’s transformation take hold with consumers, as the brand gained market share for three consecutive months, for the first time in 5 years. We are excited about the path ahead for Rimmel and Max Factor, as the new brand positioning, communication and visuals are being introduced now across European markets.

This operational and strategic progress was achieved without sacrificing our financial delivery, with FY21 gross margins of 60% back to FY19 levels and adjusted EBITDA margin of 16% up over 300 bps vs. FY19, setting the baseline for further expansion in the coming years.

Importantly, with two months into the new FY22 year, I am extremely encouraged by the momentum we are seeing across the business. In the market, we are seeing strong fragrance demand across the U.S. and China, some early signs of recovery in Europe and Travel Retail, and improving cosmetics trends. And we are capitalizing on this more favorable demand backdrop with a line-up of strong launches in each core area of the business. In fragrances we are already seeing very strong market reception for our launches including Gucci Flora Gorgeous Gardenia with Miley Cyrus, Burberry Hero with Adam Driver, Calvin Klein Defy with Richard Madden, and Tiffany Rose Gold. And in cosmetics, the newly relaunched Kylie cosmetics line is seeing great momentum on- and off-line in the U.S. and across Europe, while Sally Hansen is once again disrupting the nail market with its new concept, It Takes Two.

As we continue to make tangible progress in each of our focus areas, I am more confident than ever in the growth and value creation path in front of Coty.”

Highlights

• 4Q21 net revenues increased 89.6% as reported and 80.7% LFL. Despite COVID-related restrictions in certain markets during the quarter, 4Q21 net revenue trends showed strong improvement across all regions. For FY21, net revenues declined 2% as reported and 3.5% LFL, while showing sequential improvement through the year
• 4Q21 reported operating income was $1.8 million, while the FY21 reported operating loss was $48.6 million
• 4Q21 adjusted operating income increased to $44.3 million from an adjusted operating loss of $335.3 million.
• 4Q21 adjusted EBITDA of $127.3 million, increased significantly from $(246.6) million last year, with an adjusted EBITDA margin of 12.0%
• FY21 adjusted EBITDA of $760.4 million exceeded our guidance of $750 million, and was up from $174.6 million in FY20
• FY21 reported EPS of $(0.22) and adjusted EPS of $0.01, significantly improving from $(0.48) in FY20
• 4Q21 cost reductions remained solid with an additional approximately $70 million of reductions, bringing the FY21 total to over $330 million
• 4Q21 free cash was neutral, improving from an outflow of $316.4 million last year through cost reductions and lower cash paid for taxes, interest and capital projects.
• Financial Net Debt increased $121.4 million to $5,228.0 million primarily due to FX headwinds and refinancing costs as Coty significantly improved its debt maturity profile in 4Q21. Economic Net Debt now $3,968.0 million at quarter end.
• Strong immediate liquidity of $2,323.2 million at end-quarter and the Company is in compliance with our financial covenants. 

Outlook

Entering 1Q22, Coty continues to see fragrance market momentum in U.S. and China, with some signs of recovery in EMEA and in broader color cosmetics. The combination of this market backdrop and Coty’s strong launch calendar are fueling strong sales momentum in 1Q22, with very strong double digit growth in July and August to date. As a result, Coty expects 1Q22 LFL sales growth in the high teens percentage.

With the base year comparisons getting more difficult in subsequent quarters and some uncertainty in market conditions due to the Delta variant of COVID, Coty is targeting FY22 LFL sales growth in the low teens coupled with adjusted EBITDA of ~$900 million on a constant currency basis, reflecting strong EBITDA margin expansion YoY. The Company continues to target leverage moving towards 5x exiting CY21, and a further reduction in leverage to approximately 4x exiting CY22.

Additional Updates

Considering the dynamism of the beauty market, Coty is always on the lookout for opportunities to leverage its assets to create value and fuel growth.

In order to support the growth of the Brazil business and Coty’s personal care brands, Coty confirms that it is pursuing a partial IPO of its Brazil business. Earlier today, Coty completed its first filing at CVM – the Securities Commission which regulates capital markets – in Brazil to commence this partial IPO process. If the offering is successful, this will also help advance Coty’s deleveraging agenda.

Coty intends to remain a controlling shareholder of the Brazil affiliate.

Due to local Brazilian regulations, following its first filing Coty cannot offer further details at this time but will provide updates in due course. Additional information about the partial IPO of the Brazil business can be accessed on the CVM website.

Financial Results

Refer to “Non-GAAP Financial Measures” for discussion of the non-GAAP financial measures used in this release; reconciliations from reported to adjusted results can be found at the end of this release.

Revenues:

• 4Q21 reported net revenues of $1,062.4 million increased 89.6% year-over-year, including a positive foreign exchange (FX) impact of 8.9%. LFL revenue increased 80.7%, driven by LFL increases in the EMEA segment of 106.3%, the Americas of 67.2%, and Asia Pacific of 58.7%. By channel, LFL sales increased 147.1% in prestige and 37.9% in mass, even as cuts in low quality channels impacted prestige sales trends by a low teens percentage versus 2019.
• FY21 net revenues of $4,629.9 million decreased 1.9% year-over-year, including a positive FX impact of 1.7%. LFL revenue decreased 3.5%, driven by LFL decreases in EMEA of 10.1% and Asia Pacific of 5.4%, partly offset an increase in the Americas of 5.5%. By channel, LFL sales in prestige were nearly flat even as cuts in low quality channels impacted prestige sales trends by a high single digit percentage versus 2019, while mass LFL sales declined 6.9%.

Gross Margin:

• 4Q21 reported gross margin of 60.4% increased from 40.0% in the prior-year period, while adjusted gross margin of 60.9% increased from 40.6% in 4Q20. The increase was due to the year-over-year improvement in volumes, revenue mix, and lower excess & obsolescence.
• FY21 reported gross margin of 59.8% increased from 57.8% in the prior-year period, while adjusted gross margin of 60.0% increased from 58.1% in the prior year, primarily due revenue mix and lower excess & obsolescence.

Operating Income and EBITDA:

• 4Q21 reported operating income of $1.8 million improved from a reported operating loss of $920.5 million in the prior year due to a $393.6 million reduction in asset impairment costs, $114.5 million reduction in restructuring and other business realignment costs, a higher gross margin, lower SG&A expenses, and a $60.9 million reduction in acquisition and divestiture related expenses.
• 4Q21 adjusted operating income of $44.3 million rose from a loss of $335.3 million in the prior year, while the adjusted EBITDA of $127.3 million improved from $(246.6) million in the prior year. The $373.9 million increase was driven by a higher gross margin and continued fixed cost reductions across both people and non-people costs. For 4Q21, the adjusted operating margin increased 6,400 bps to 4.2%, while the adjusted EBITDA margin increased 5,600 bps to 12.0%.
• FY21 reported operating loss of $48.6 million improved from a reported operating loss of $1,236.5 million due primarily to a reduction in restructuring and other business realignment cost, no asset impairment costs, as well as lower media investments, fixed cost expenses, and a higher gross margin. FY21 adjusted operating income increased to $409.4 million from a loss of $161.7 million, with a margin of 8.8%, while the adjusted EBITDA totaled $760.4 with a margin of 16.4%.

Net Income:

• 4Q21 reported net loss of $221.1 million improved from a net loss of $696.2 million in the prior year, due to the aforementioned increase in reported operating income, partially offset by higher taxes and interest expense compared to the year-ago period.
• The 4Q21 adjusted net loss of $67.2 million compared to an adjusted net loss of $353.7 million in the prior year period.
• FY21 reported net loss of $166.3 million improved from a net loss of $1,100.4 million in the prior year. FY21 adjusted net income of $9.6 million improved from an adjusted net loss of $364.2 million in the prior year.

Earnings Per Share (EPS) – diluted:

• 4Q21 reported loss per share of $(0.29) improved from a reported loss per share of $(0.91) in the prior year.
• 4Q21 adjusted EPS of $(0.09) improved from $(0.46) in the prior year. The Q4 adjusted EPS included approximately 2 cents of impact from deferred financing fee write-offs following the refinancing transactions in the quarter and 3 cents from the expensing of the convertible preferred coupon based on accounting treatment during periods of negative net income.
• FY21 reported loss per share of $(0.22) improved from a reported net loss per share of $(1.45) in the prior year.
• FY21 adjusted EPS of $0.01 increased from $(0.48) in the prior year. 

Operating Cash Flow:

• 4Q21 cash provided by operations of $32.3 million improved from $(255.4) million in the prior-year period, primarily reflecting an increase in net income on a cash basis partially offset by working capital declines. Year-to-date operating cash flow totaled $318.7 million, an increase of $369.6 million from the same period of the prior year.
• 4Q21 free cash flow of $2.1 million improved from a free cash outflow of $316.4 million in the prior year driven by the increase in operating cash flow of $287.7 million coupled with a $30.8 million reduction in capex. FY21 free cash flow of $144.8 million increased from a free cash outflow of $318.3 million in the prior year.

Financial Net Debt:

• Financial Net Debt of $5,228.0 million on June 30, 2021 increased from $5,106.6 million on March 31, 2021, driven primarily by negative FX impact.

Immediate Liquidity:

• Coty ended 4Q21 with $253.5 million in cash and cash equivalents, and immediate liquidity of $2,323.2 million. 

Fourth Quarter Business Review by Segment

Americas

In 4Q21, Americas net revenues of $447.2 million or 42% of Coty sales, increased by 68.9% versus the prior year. On a LFL basis, Americas net revenues increased by 67.2%. Prestige brand sales generated very strong growth, increasing in the triple-digits with robust performance across fragrances, cosmetics, and skincare. Meanwhile, mass beauty product sales also delivered solid growth, up strong double-digits, as color cosmetics began to show improvement during the quarter. For FY21, Americas net revenues of $1,866.9 million rose 5.4% versus the prior year and increased 5.5% LFL.

During 4Q21, Coty’s U.S. prestige fragrance brands continued to generate very robust sell-out growth. Performance was particularly strong at Marc Jacobs, Gucci, Hugo Boss, and Burberry. Marc Jacobs continued to deliver very strong sell-out growth, up triple-digits versus last year in June, making it the fastest growing top 10 luxury fragrance brand, which was driven by continued strength of Marc Jacobs Perfect. Encouragingly, Marc Jacobs Perfect is the #1 launch in the U.S. market in the past 3 years* and the best Coty launch since 2005. Meanwhile, Burberry Her continued to excel during the quarter, with triple-digit sell-out growth. Similar to recent quarters, Gucci fragrance and cosmetic sell-out continues to be very strong. Within fragrances, the performance was led by Gucci Guilty Pour Homme, which is now the #5 male fragrance in the market. For cosmetics, Gucci delivered another quarter of triple-digit sell-out growth.

Within mass beauty brands, cosmetics and fragrances started to show improvement during 4Q21, though both categories remained below 2019 levels. However, the Company had encouraging results in its strategy of stabilizing the performance of its mass brands. In particular, CoverGirl gained nearly 1 point of share during the quarter. This performance was supported by the recent Lash Blast Clean launch, which delivered very strong sell-out in the quarter, outperforming the overall clean market and becoming the #11 mascara in the total U.S. market. In addition, Simply Ageless has also generated strong sell-out performance, with all top customers seeing double-digit growth for 3 consecutive months. Meanwhile, Sally Hansen also continued to gain market share in the U.S., with sell-out also remaining solidly up versus 2019 levels.

E-commerce sales increased 36% in Q4, despite lapping a difficult comparison last year. For FY21, e-commerce growth remained over 60% fiscal year-to-date. Fiscal year-to-date, e-commerce penetration is in the low double-digits, up a mid-single-digit percent from last year.

The Americas segment generated a reported operating loss of $18.8 million in 4Q21, compared to a reported operating loss of $128.5 million in the prior year. The 4Q21 adjusted operating income was $8.0 million, increased from an adjusted operating loss of $102.9 million in the prior year, driven by gross margin improvement and strong fixed cost reduction. The 4Q21 reported operating margin was (4.2%) and the adjusted operating margin was 1.8% versus (38.9)% in the prior year. Adjusted EBITDA for the Americas segment increased to $47.6 from $(58.8) in the prior year, with a margin of 10.6%. FY21 reported operating income of $36.5 million compared to a reporting operating loss of $164.8 million in the prior year. The FY21 adjusted operating income was $141.5 million versus $(89.5) million in the prior year. Adjusted EBITDA in FY21 was $301.1 million compared to $56.1 million in the prior year.

EMEA

In 4Q21, EMEA net revenues of $471.4 million, or 44% of Coty sales, increased by 123.4% versus the prior year. On a LFL basis, EMEA net revenues increased 106.3%. Despite COVID-related restrictions impacting many markets during the quarter, sales trends for both prestige and mass brands showed strong improvement, up triple-digits and double-digits, respectively. For FY21, EMEA net revenues of $2,183.7 million declined 5.4% reported from the prior year and 10.1% LFL.

EMEA prestige sales performance was led by Hugo Boss Bottled, Marc Jacobs Perfect. Meanwhile, Gucci Beauty continued its strong performance in the quarter, and remains in the top 5 makeup brands in the stores where its present in many key markets including France, Italy, and Russia. In the mass beauty channel, sell-out trends meaningfully improved during the quarter. Encouragingly, Coty commenced the repositioning of Rimmel towards the end of the quarter in June, with the brand holding its #1 position in the UK makeup market and achieving its highest market share in 10 consecutive months. More recently, Coty began the re-positioning of Max Factor earlier this month.

4Q21 EMEA e-commerce sales grew over 20% in 4Q. FY21 e-commerce penetration as a percentage of sales was in the high-teens percentage level, with strong growth in both prestige and mass.

Reported operating income was $0.1 million in 4Q21 versus reported operating loss of $318.0 million in the prior year. The 4Q21 adjusted operating income of $29.4 million increased from an adjusted operating loss of $182.4 million in the prior year, driven by a higher gross margin, and solid fixed cost reductions. For 4Q21, the reported operating margin was neutral and the adjusted operating margin increased to 6.2% from (86.4)% in the prior year. During the quarter, adjusted EBITDA increased to $63.8 million from $(150.7) million in the prior year, with a margin of 13.5%. For FY21, reported operating income increased to $129.8 million from a reported operating loss of $(248.4) million in the prior year. The FY21 adjusted operating income of $251.9 million increased from an adjusted operating loss of $(18.

Contacts

Investor Relations
Olga Levinzon, +1 212 389-7733

olga_levinzon@cotyinc.com

Media
Antonia Werther, +31 621 394495 /

Antonia_Werther@cotyinc.com

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