Quarterly results from some of the top beauty companies revealed a sector that is in transition.
At Coty Inc., the company’s second-quarter results were hamstrung by hefty expenses due to acquisitions-related restructuring costs, but top- and bottom-line results were better than Wall Street estimates. For Elizabeth Arden Inc., currency headwinds continued to impact business, but the company’s work on transforming itself is paying off as it narrowed its loss in the second quarter. Meanwhile, at Sally Beauty Holdings, initiatives aimed at bolstering gross margins and strengthening same-store sales buoyed its bottom line.
Traders celebrated the results with shares of Coty finishing the day with a 15.2 percent gain to $28.36 while Sally Beauty closed up 13.1 percent to $30.13. Elizabeth Arden’s results were after market, but shares finished up 1.5 percent at the bell to $8.02.
For the second quarter ended Dec. 31, Coty reported a 29 percent dive in net income as the firm swallowed higher expenses. Revenues dropped 4 percent to $1.2 billion, a 4 percent decrease. Gross profits came in at $742.8 million for the quarter, down from $750.7 million in 2014. On an adjusted basis, net income attributable to Coty fell 17 percent to $135.8 million, and adjusted earnings per share were 38 cents for the quarter, and 98 cents for the six-month period.
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Results reflect the cost of the deal spree Coty has undertaken and the organizational restructuring those acquisitions have spurred. For the six-month period, Coty incurred $72.7 million in restructuring costs, mostly from its acquisition integration program and $64.9 million in acquisition-related costs. Of those charges, $1.1 million was related specifically to the acquisition of cosmetics brand Bourjois, which the company added in April.
Coty is working to rationalize non-strategic product lines and businesses, something it will continue to do after it closes the deal for 41 beauty brands from Procter & Gamble, said Bart Becht, the company’s chairman and interim chief executive officer. That process includes removing lines from certain channels. Selling nail polish line OPI in hardware stores, for example, “is probably not the smartest thing we could do,” Becht said.
The business has been involved in a handful of deals — inking a licensing agreement with Tiffany & Co. and making other acquisitions. Aside from the Bourjois and P&G deals, Coty added digital marketing firm Beamly and closed a $1 billion deal for beauty brands from Brazil-based Hypermarcas on Feb. 1. The Hypermarcas transaction gives Coty infrastructure, including manufacturing, logistics and management capabilities that it didn’t have in the region, Becht said.
The P&G transaction is slated to close in the latter half of 2016, and has received U.S. regulatory approval. The deal still requires approval from European regulators. Coty was originally slated to buy 43 brands, but Dolce & Gabbana fragrances and Christina Aguilera Perfumes did not consent to the transaction. Becht declined to provide further insight into the P&G brands, but said the company would file paperwork with the Securities and Exchange Commission that would give a clear picture of the businesses in mid-April.
Color cosmetics had net revenues of $374.8 million, a 10 percent increase from $340.5 million in the year-ago period. Coty’s fragrance net revenues were $627 million, down 9 percent from $691.7 million year-over-year. Skin and body care was also down, bringing in $208.7 million in net revenues from $227.4 million in the year-ago period, an 8 percent decline.
Growth in color cosmetics revenue was offset by revenue declines in fragrance. Color cosmetics net revenues were up, driven by Sally Hansen and Rimmel. In skin and body care, the company reported growth for Adidas and Philosophy, but the category was pulled down by lower net revenues from Playboy.
At Elizabeth Arden Inc., net sales for the second quarter fell 5.2 percent to $316.2 million from $333.6 million in the same period last year as the loss narrowed to $5.6 million, or 19 cents per share, from $56.8 million, or $1.90. At constant currency, sales dropped 1 percent. And the adjusted earnings per share came in at 10 cents.
Management said in the quarterly report that results are “in line with the company’s internal plans, and its business transformation initiatives continue to drive down costs and improve efficiencies.”
The company also said it was ahead of plan in “achieving its cash flow budget.” Regarding efforts to cut costs, management said it was on track to “achieve or exceed the high-end of its previously communicated estimate of approximately $47 million to $50 million of annualized savings.”
By region, Elizabeth Arden’s net sales rose 9 percent in Europe and 18 percent in China. The company said it was restructuring the leadership team in China “to improve the capability in this priority market. The company’s joint ventures in Southeast Asia and the Middle East are also now fully operational and focused on accelerating sales.”
The company noted that sales of Elizabeth Arden-branded products rose 3 percent, “with growth driven by higher fragrance and skin-care sales,” increasing by 8 percent and 2 percent, respectively. Non-Elizabeth Arden branded fragrances fell by 4 percent while net sales of the designer fragrances increased by 7 percent “during the period behind strong momentum in the John Varvatos fragrance brand and growth in Juicy Couture fragrances, but were offset by lower sales of celebrity fragrances.”
For Sally Beauty Holdings, first-quarter net sales rose 3.5 percent to $998 million from $964.5 million — which beat the FactSet estimate of $990 million. Net income dropped 23.1 percent to $42.2 million, or 28 cents a share, from $54.9 million, or 35 cents, in the same period last year. On an adjusted basis, earnings rose 16.4 percent to $65.9 million from $56.6 million in the prior year. Earnings per share were better than the FactSet estimate of 36 cents.
“We are off to a solid start for fiscal year 2016,” stated Chris Brickman, president and chief executive officer. “We drove same-store sales improvement in our Sally business, and our BSG business continued to grow sales and gain channel share. In addition, implementation of our pricing and margin improvement initiatives resulted in gross profit margin expansion consistent with our previously stated guidance.”
Consolidated gross profit for the fiscal 2016 first quarter was $494 million, an increase of 4.3 percent over last year’s gross profit of $473 million for the same period.
Sales growth was driven by same-store sales growth and net new store openings. First quarter same-store sales growth of 3.9 percent easily topped last year’s growth of 2.3 percent. Sally Beauty took selective price increases in certain parts of the country and fewer discounts in this quarter versus the last quarter.
The store count increased by 106 over the fiscal 2015 first quarter for a total store count of 3,711.