Coty Inc.‘s numbers declined for its second fiscal quarter of 2017 — the first quarter since the business completed its deal for 41 beauty brands from Procter & Gamble.
Net income decreased 47 percent to $46.8 million. The company posted $2.29 billion in net revenues for the quarter, down 7 percent on a combined company basis. Coty said the figure was negatively affected by foreign currency exchange rates and slowdowns in the underlying business related to the P&G beauty acquisition. Diluted adjusted earnings per share were 30 cents, down 32 percent.
The Luxury division posted $835 million in sales, down 7 percent in combined company year-over-year figures but up 52 percent in actual year-over-year numbers. Consumer beauty had $1 billion in net sales, down 13 percent in combined company year-over-year and up 68 percent in actual year-over-year comparisons. The professional division was up 11 percent in combined company year-over-year sales, with $460 million in net revenues, up more than 100 percent in actual year-over-year sales.
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Those figures are compared to Coty’s previous organizational structure, which broke out sales by division. For the previous quarter, sales in the fragrances division were down 10 percent, to $492.6 million from $548.1 million in the year-ago period. Higher sales of Chloe and Davidoff were not enough to offset lower sales from celebrity fragrances and Calvin Klein, the company said. Color cosmetics sales were also down 10 percent, to $352.7 million from $390.9 million. Those figures were impacted 1 percent by the divestiture of Cutex, but more significantly by the slowdown at Sally Hansen, which Coty said was partially because of a double-digit decline in the U.S. nail market. Skin and body care sales dipped 7 percent in the quarter, to $161.9 million from $173.3 million. Lower Adidas and Playboy sales offset gains from Philosophy in that segment, according to Coty.
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The company closed the deal for P&G’s specialty beauty portfolio, which contained CoverGirl, Wella, and the Hugo Boss and Gucci fragrance licenses, among other brands, on Oct. 1. The company said it paid $11.6 billion — up from a previously disclosed $11.4 billion, and down from the original $12.5 billion. That figure includes $1.9 billion in assumed debt. The business expects $750 million in synergies from the transaction by 2020.
“This is a long term journey and will require time and effort, as we will need to tackle short term challenges like the ones we faced in the first semester, complete the P&G Beauty Business integration and most importantly implement new programs to drive growth and further strengthen our brand portfolio and management capabilities,” said Camillo Pane, chief executive officer of Coty.
“The business was impacted by significantly higher-than-anticipated inventory levels in the market on the acquired P&G beauty business, competitive pressure in the Consumer Beauty division and the distraction associated with the merger integration efforts,” Pane continued. “Fiscal 2017 is a transitional year as previously discussed, and it is year one in my five-year strategic framework. We believe the combined company net revenue decline in constant currency will slow down for the second half of fiscal 2017, excluding Younique and ghd.
“Specifically, my strategic vision includes strengthening our global brands, shifting more resources to fuel the growth of the brands with higher growth potential, stabilizing the remaining brands, and continuing to expand the geographic reach of our strong brand portfolio,” Pane added. “We aim to achieve these objectives through four key pillars. First, we are repositioning some of the brands, in order to reconnect these brands with consumers, building on their already-strong brand equity. Second, we are making significant changes to our innovation and product development process in parts of the organization. Third, we are accelerating our end-to-end digital transformation including e-commerce. And fourth, we are working to significantly revamp our in-store execution …
“On the M&A front, we are continuing to strengthen the Coty portfolio through acquisitions and planned portfolio rationalization. The recent acquisitions of Younique and ghd are highly strategic and expected to be accretive Year One to both revenue growth and adjusted earnings. From a strategic perspective, ghd expands our assortment of premium products for the Salon channel, while the partnership with Younique will combine Younique’s high growth e-commerce platform and social selling direct-to-consumer business model with Coty’s beauty product R&D and innovation know-how as well as extensive manufacturing and supply chain capabilities.
“On the portfolio rationalization, we have identified the non-core portfolio of brands and are now exploring potential alternatives for these brands including divestitures.”