ABOUT THE COMPANY
$COTY is one of the world’s largest beauty companies with over $9 billion in revenue, an iconic portfolio of brands and a purpose to celebrate and liberate the diversity of consumers’ beauty. We believe the beauty of humanity lies in the individuality of its people; beauty is at its best when authentic; and beauty should make you feel happy, never sad. As the global leader in fragrance, a strong number two in professional salon hair color & styling, and number three in color cosmetics, Coty operates three divisions: Consumer Beauty, which is focused on mass color cosmetics, mass retail hair coloring and styling products, body care and mass fragrances with brands such as COVERGIRL, Max Factor, Sally Hansen and Rimmel; Luxury, which is focused on prestige fragrances and skincare with brands such as Calvin Klein, Burberry, Marc Jacobs, Hugo Boss, Gucci and philosophy; and Professional Beauty, which is focused on servicing salon owners and professionals in both hair and nail, with brands such as Wella Professionals, Sebastian Professional, OPI and ghd. Coty has approximately 20,000 colleagues globally and its products are sold in over 150 countries. Coty and its brands are committed to a range of social causes as well as seeking to minimize its impact on the environment.
Second Quarter Results Show Improved Sequential Trends in Revenues and Profit
•• Year-to-date reported net revenues of $4,542.5 million decreased by 6.8%, with a LFL revenue decline of 3.2%. We estimate that the underlying LFL net revenue trend was a decline of approximately 2% in 1H19, excluding the temporary factors above.
•• Year-to-date reported gross margin of 61.1% was flat with the prior-year, while the adjusted gross margin of 61.3% decreased by 20 bps, fueled by the gross margin contraction in 1Q19 connected to supply chain disruptions.
•• In 1H19, we estimate that adjusted operating income was adversely impacted by temporary factors of approximately $48 million, including over $90 million from the supply chain disruptions. Excluding these temporary impacts, the 1H19 underlying adjusted operating income would have declined approximately 6% year over year, with an operating margin of approximately 11%.
•• Year-to-date reported net loss of $972.7 million compared to reported net income of $89.5 million in the prior-year, while the adjusted net income of $262.4 million decreased 16%.
Earnings Per Share:
•• Year-to-date reported earnings per share of $(1.30) declined from $0.12 in the prior-year, and the adjusted EPS of $0.35 declined from $0.42 in the prior year.
Operating Cash Flow & Net Debt:
• Net debt of $7,488.5 million on December 31, 2018 decreased by $172.8 million from the balance of $7,661.3 million on September 30, 2018 driven by positive free cash flow and a benefit from foreign exchange. This resulted in a last twelve months Net debt to adjusted EBITDA ratio of 5.8x, consistent with the reported ratio on September 30, 2018. of 5.3x.
As we focus on building a healthier business model, we anticipate a profit trend recovery in the second half of FY19. We expect that FY19 constant currency adjusted operating income will be moderately below FY18. We continue to expect positive free cash flow for FY19.
First Quarter Fiscal 2019 Business Review by Segment
The Luxury division delivered reported operating income of $113.6 million, an increase of 33% vs. the prior-year period. 2Q19 adjusted operating income was $176.9 million, reflecting very strong 41% growth from the prior year, driven by the reported net revenue growth and solid fixed cost reductions. The adjusted operating margin was 17.4%, an increase of over 400 bps versus 2Q18.
The 2Q19 adjusted operating income of $54.1 million declined from $131.9 million in the prior year period, resulting in an adjusted operating margin of 5.6%. Despite reductions in fixed costs, the adjusted operating margin was pressured by net revenue contraction and gross margin pressure linked to the supply chain disruptions.
Professional Beauty reported operating income of $73.8 million was flat to the prior year period, while adjusted operating income grew 1% to $91.1 million. The Professional Beauty division adjusted operating margin of 17.3% grew 80 bps, despite the supply chain impacts, driven by strong gross margin performance and good fixed cost reduction.
• North America net revenues of $742.2 million, or approximately 29% of total net revenues, was flat as reported and increased 2% on an adjusted basis reflecting strong growth in Luxury partially offset by lower revenues in Professional Beauty, as a result of the supply chain disruptions, coupled with continued pressure in Consumer Beauty. In the United States, incremental revenues from Burberry and continued innovation from Gucci, together with higher year-over-year revenues from CoverGirl, were offset by lower net revenues from Younique within the United States due to a decline in product sales and presenter sponsorship as we continue to refine our product offerings and compensation plan structure to drive improvements in presenter sales activity, recruitment and retention.
• Europe net revenues of $1,201.6 million, or approximately 48% of total net revenues, declined 7% on a reported basis and declined 1% on a LFL basis driven by weakness in Consumer Beauty as a result of performance challenges and supply chain disruptions, largely offset by growth in Luxury. On a brand level, declines in Bourjois and Rimmel in the U.K. and Eastern Europe were compounded by declines in mass fragrances in Western Europe and were offset by strong performances by Burberry and Calvin Klein across the region.
•• Cash and cash equivalents of $417.5 million decreased modestly from $423.3 million on September 30, 2018. Total debt of $7,906.0 million decreased by $178.6 million from September 30, 2018, with net debt of $7,488.5 million down $172.8 million from the balance of $7,661.3 million on September 30, 2018. This net debt decrease reflects positive free cash flow and a benefit from foreign exchange, as well as the payment of $94.6 million of dividends.
Other Company Developments
Other company developments include:
• On November 11, 2018, Pierre Laubies was appointed as Coty CEO and Peter Harf assumed the position of Chairman of the Coty Board of Directors.
• On January 11, 2019, Coty announced a series of executive leadership changes to support its ongoing transformation and future growth. Pierre-André Terisse was appointed Chief Financial Officer and a member of the Executive Committee, effective February 1, 2019. Pierre Laubies assumed leadership for the formulation and implementation of the strategic vision for the Consumer Beauty division, supported by Gianni Pieraccioni who joined Coty as Chief Operating Officer, Consumer Beauty, and as a member of the Executive Committee, effective January 14, 2019. Luc Volatier was appointed Chief Global Supply Officer and a member of the Executive Committee, effective January 14, 2019.
• On January 14, 2019, Coty announced that Bart Becht resigned from Coty's Board of Directors and Anna-Lena Kamenetzky joined the Board of Directors.
• On February 8, 2019, Coty announced a dividend of $0.125 per share payable on March 15, 2019 to holders of record on February 28, 2019. This dividend will be considered a return of capital.
OPINION WITH CHART
It has been falling down from january of 2018 to january of 2019. After this bearish trend, it seems it is starting to recover. However it has not gone through its last lowest minimum point yet. To get out of such situation it should reach 13.36$. Actually, it is on its way but, how long is it going to take to complete the movement?. Something that I have realized, it usually makes great green candles, but after it, it usually stays over there for a couple of days or it falls so rapid (monthly charts). You know what the say, esay come, easy go. In my point of view, it's possible for the stock to reach the last green line of the showed image but it will be in long-term. I would dare to say medium-term. Let's see what it is able to do, but something that we must keep in mind, it has potential to generate a new uptrend.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in COTY over the next 72 hours.