Strong travel retail sales not enough to stop Coty slide

By Kevin Rozario |

Good performances from the travel retail channel in all three global regions were not enough to prevent beauty house, Coty, from seeing sales slide back to $4,551.6m, down -1.6% like-for-like, and -2.1% as reported.


The company was hit badly by a challenging US market where pressure on the fragrance and mass colour cosmetics markets had a strong impact on Sally Hansen. The effect was a decline in the Americas of -10% (at constant currency) to $1,703.8m. Growth in Latin America and Travel Retail helped to offset the poor performance in the colour cosmetics segment (see table below and click to enlarge).


There was better news in Europe, Middle East & Africa (EMEA) and Asia Pacific which both made good gains, growing by +2% and +4% (at constant currency) to generate revenue of $2,302.9m and $544.9m respectively.


Coty says that EMEA benefited from strength in the UK, Travel Retail, Eastern Europe, the Middle East and South Africa. These markets helped to offset softness in Russia, Germany and Southern Europe.



Asia Pacific’s momentum came mainly from Southeast Asia, Australia, Korea, and Travel Retail. China grew in low single digits, driven by strength in prestige fragrance brands, Lancaster and Adidas, although TJoy had a revenue decline.


Globally, emerging markets were robust, growing by +10% during the year. They accounted for 29% of net revenues in fiscal 2014 compared to 26% in the prior year on a like-for-like basis.



At constant currency, fragrance – Coty’s biggest category by far – was the best performing with a marginal gain in fiscal 2014 to $2,498.2m, thanks to positive performances from power brands Calvin Klein (below left is the new Reveal scent), Marc Jacobs, Davidoff and Chloé (see table below and click to enlarge).



Skincare was down slightly by -1% to $687.2m supported by growth from Philosophy, Adidas, and Lancaster. However, colour cosmetics fell by -7% to $1,366.2m, heavily impacted by the sharp decline in the nail business.


The net effect was a decrease in operating income to $25.7m from $394.4m in the previous fiscal year. The decline primarily reflects a $316.9m non-cash asset impairment charge in the skincare segment, says Coty. Adjusted operating income decreased -13% to $500.6m from $572.8m in the prior-year. Adjusted net income decreased by -2% to $316.2m from $323.2m in fiscal 2013 (see table below).



Commenting on the results, Coty CEO, Michele Scannavini (right), says: “In fiscal 2014, Coty made good progress on its strategic objectives by rapidly expanding its business in emerging markets and growing most of its power brands. As a result, the company enjoyed strong performance in EMEA and Asia Pacific, which was more than offset by revenues softness in North America, where our nail and fragrance businesses were impacted by market contraction, trade destocking and increased promotional and competitive pressure, mainly in the mass channel.


“As we look to fiscal 2015, we are targeting to return to revenue growth, through competitive innovations, continuous expansion in emerging markets and by improving our mass business in North America.”


Scannavini adds that the implementation of a company-wide global efficiency plan is expected to generate over $200m in annual savings within the next three years, helping to fuel growth and expand margins.



Coty is targeting modest growth in the first half of FY2015 and says it will continue executing its share repurchase programme, with $300m remaining under the current authorisation.


In an effort to increase flexibility in Coty’s capital structure to support growth, Coty intends to prepay its 2010 Private Placement Notes. The company plans to borrow a new term loan to prepay the notes, with the intent to refinance the new term loan and other existing debt with longer term instruments later this fiscal year.

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