Coty Records 4% Revenue Drop for Its Q2 2014

Coty Inc. announced financial results for the fiscal second quarter and the six months ended December 31, 2013. For its second fiscal quarter 2014, net revenues were $1.323 billion, a 4% like-for-like decrease and as reported relative to the prior-year period. Adjusted operating income of $183.3 million, decreased from $220.7 million in the prior-year period, and adjusted net income of $111.3 million, decreased from $127.1 million in the prior-year period.

For its first six months fiscal 2014, Coty recorded net revenues of $2.5 billion, a 3% like-for-like decrease and 4% decrease as reported relative to the prior-year period. Adjusted operating income of $369.4 million decreased from $423.7 million in the prior-year period, and adjusted net income of $219.6 million decreased from $244.9 million in the prior-year period.

Commenting on the company's performance, Michele Scannavini, CEO of Coty, said, "We faced a challenging second quarter, as expected. U.S. market softness particularly in the mass fragrance and nail categories, and the high level of promotional activity through the holiday season, have impacted our performance in mature markets. On a more positive note, our investment in the emerging markets is starting to yield positive results, with solid growth driven by Brazil, Southeast Asia, and South Africa. While conditions in the U.S. and in certain European markets remain challenged heading into the current quarter, we continue to target returning to top-line growth in the second half of our fiscal year, fueled by strong initiatives and increased investment behind our power brands, and further acceleration of our business in the emerging markets. During this time, we will strive to optimize our cost structure and increase the cash generation from our business. The $200 million share repurchase program reaffirms our confidence in the company's strategy and long-term growth potential. It also demonstrates our on-going commitment to delivering value to our shareholders."

Positive gross sales growth for the company’s second fiscal quarter for 2014 was more than offset by increased discounts and allowances, reflecting high competitive pressure in this soft market dynamic. By region, the decline was driven by the Americas, reflecting challenging U.S. market conditions in the mass retail channel, particularly in nail and fragrances. EMEA net revenues marginally decreased in the quarter, as strong results in Eastern Europe and South Africa were more than offset by continued softness in Southern Europe. Asia Pacific increased 2% in the quarter. Emerging markets had solid 6% growth, driven by Southeast Asia, Brazil, and South Africa, where the company is positively leveraging the new commercial structures. By segment, color cosmetics decreased 9% versus the prior year period driven by the decline in Sally Hansen, strongly affected by the negative dynamic in the U.S. nail market and the unfavorable comparison with the substantial gel technology launch in the prior year period. Net of Sally Hansen, color cosmetics grew, mainly thanks to strong Rimmel performance. Fragrances declined 2% versus prior year, reflecting the timing of new launch activity, the impact of expired licenses, and high promotional activity, particularly in the declining mass fragrance market. Skin and body care decreased 2%, as solid growth in Philosophy was more than offset by the difficulties faced by the TJoy brand in China. Net of TJoy, skin and body care grew in the low single digits in the quarter and the last six months.

In regard to its outlook for fiscal 2014 third quarter and full year, the company expects the challenges coming from market softness to continue, particularly in the mass channel. In spite of these challenges, Coty continues to target returning to top-line growth, fueled by further acceleration of its growth in emerging markets, competitive innovation, and continuous marketing support to its power brands.

Additional details for this financial report from Coty are available here.

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