Coty Ends FY22 With Double-Digit Sales And Profit Growth Ahead of Guidance

NEW YORK - August 25, 2022-- Coty Inc. (NYSE: COTY) ("Coty" or "the Company") today announced its results for the fourth quarter of fiscal year 2022, ended June 30, 2022. The Company delivered its eighth consecutive quarter of results in-line to ahead of expectations, while also continuing to progress across each of its strategic growth pillars.

In Q4, Coty's sales increased 10% as reported and 16% on a LFL basis, including over 150 bps of negative impact from exiting its Russia business, ahead of its prior guidance for low-double-digit LFL growth in Q4. As a result, Coty ended FY22 with reported sales growth of 15% and LFL sales growth of 16%, above its original target of low-teens LFL sales growth and well ahead of the underlying beauty market, putting Coty amongst the best in its competitive set.

Coty's sales were driven by strong and consistent momentum in both divisions, with Prestige growing 20% as reported and 22% LFL in FY22, and Consumer Beauty growing 7% as reported and 8% LFL in FY22. Geographically, revenue improvement was fueled by double-digit growth across nearly all EMEA markets, the doubling of sales in Travel Retail enabled by Coty's category expansion and premiumization strategy, double digit growth in Brazil which continues to successfully manage the highly inflationary environment, and continued momentum in the U.S.

E-commerce continued its strong performance, with double-digit sales growth in Q4 and FY22, supporting high teens e-commerce penetration for the year.

Coty's Prestige segment led during the quarter with reported sales growth of 16% versus the prior year and 23% growth on a LFL basis. Prestige fragrance sales remained robust, delivering another quarter of growth over 20% in Q4 and ahead of the overall category. Nearly all brands in the segment delivered robust double-digit growth, with particular strength from Hugo Boss, Burberry, Chloé, Calvin Klein, and Gucci Beauty. The performance was driven by the continued in-market success of Coty's FY22 fragrance innovations, including Burberry Hero and Burberry Her EDT, Hugo Boss The Scent Le Parfum and Boss Bottled Marine, and Gucci Flora Gorgeous Gardenia. Prestige cosmetics also continued to deliver strong double-digit growth in Q4.

Consumer Beauty revenue rose 3% as reported and 7% LFL in Q4, with growth across all product categories and nearly all key brands. During the quarter, the total global mass beauty market increased at a mid-single-digit rate versus last year, while Coty outperformed the market and continued to gain share on a global basis. In fact, June marked the eighth consecutive month of market share growth, with the largest year-over-year increase in market share to date. Encouragingly, CoverGirl's share performance improved exiting the quarter, driven by the very strong in-market performance of the recently launched Exhibitionist Stretch & Strengthen Mascara and as its temporary supply constraints on key products subsided. During June, Rimmel and Max Factor both gained global market share. Rimmel's performance was supported by the continued strength of its Kind & Free line of clean, vegan beauty, and Max Factor by the launch of its Miracle Pure skinified foundation and re-activation of its iconic franchises. Complementing the strength in its cosmetics category, Coty also gained share in bodycare and mass fragrances, led by key brands Bruno Banani, David Beckham, and Monange.

During Q4, Coty continued to generate very robust gross margin expansion, allowing for an increased level of media investment, in turn further fueling revenue and sell-out performance. In the quarter, reported gross margins increased by 140 bps YoY to 61.8%, while adjusted gross margin grew 120 bps YoY to 62.1%. For FY22, Coty delivered a reported gross margin of 63.5% and adjusted gross margin to 63.7%, a robust expansion of 370 bps YoY, even as inflationary headwinds worsened throughout the year to over 2% of revenues in Q4. Coty's Q4 gross margin improvement was driven by strong pricing and mix momentum in both Prestige and Consumer Beauty, divisional mixshift, and stronger absorption from volume growth.

Coty delivered Q4 reported operating loss of $77.4 million and adjusted EBITDA of $132.4 million. Coty delivered FY22 adjusted EBITDA of $905.3 million, slightly ahead of guidance of approximately $900M, reflecting 19% growth YoY. Driven by the strong profit expansion and significant improvement in Coty's capital structure - including a substantial reduction in convertible preferred stock and lower interest expense through our deleveraging efforts - Coty's reported FY22 EPS grew to $0.08 and adjusted FY22 EPS grew by 5x YoY to $0.28.

Financial Net Debt at the end of Q4 sequentially remained relatively stable at $4.3 billion and improved substantially by $0.9B versus the prior year through Coty's active deleveraging efforts, including free cash flow generation of $552.5 million. As a result, Coty's Q4 financial leverage ratio of 4.7x remained consistent with Q3, a decline of over 2 turns versus the prior year. During the year, Coty received multiple ratings upgrades from the leading rating agencies, reflecting its strong progress in strengthening its balance sheet. At quarter end and based on Coty's methodology, Coty's Wella Company stake was valued at approximately $0.8 billion, reflecting Wella's exit from Russia as well as the market driven increase in the discount rate. At the same time, Wella continues to perform ahead of plan and with Wella having recently completed the acquisition of a high growth haircare company, Coty would expect this to drive value expansion in Wella over time. Factoring in the retained Wella stake, Coty's Economic Net Debt totaled approximately $3.4 billion.

Commenting on the operating results, Sue Y. Nabi, Coty's CEO, said:

"Today marks the end of another successful year at Coty as we continued to make significant progress strategically, operationally, and financially. We have also demonstrated the sustainability of Coty's turnaround in the business by delivering eight consecutive quarters of results in-line to ahead of expectations. While the external environment became increasingly complex through the year, Coty proved resilient through operational excellence that enabled us to surpass our guidance and deliver double-digit sales and EBITDA growth. We have generated sales growth in both Q4 and FY22 that is well above the underlying beauty market and among the best in our competitive set.

While macro concerns continue to dominate headlines, it's important to remember that beauty is amongst the most resilient discretionary categories. It is upon us and our peers to inspire consumers and create new demand through innovative products, new looks, and disruptive campaigns. We therefore remain committed to protecting our media investments going forward. In this context, Coty's presence in both premiumized mass beauty and prestige beauty is a crucial asset in the current macroeconomic environment.

I am also pleased to say that we continued to make strong progress across each of our strategic pillars. Starting with Consumer Beauty, the business continued to gain market share globally during Q4, marking eight consecutive months of expanding market share. This momentum was supported by the re-positioning of our key brands, including CoverGirl, Rimmel, and Max Factor. Importantly, we are just getting underway with the repositioning of Adidas, and I look forward to sharing these results with you in the coming quarters.

Our Prestige fragrance business continued to deliver outstanding growth, increasing 18% as reported and 26% LFL during the quarter, supported by robust category trends, which remain nicely above pre-pandemic levels, coupled with the success of our recent innovations. Encouragingly, we made additional progress expanding into Prestige cosmetics and have plenty of white space to build out both distribution and product portfolios for each of our brands.

We continued building out our skincare business in Q4, and remain well-positioned as we enter FY23. In the quarter, Lancaster was the #2 exclusive brand at Sephora China, and was #3 amongst niche skincare brands in key Hainan retailers. In June, we launched SKKN by Kim and have been pleased to see revenues coming in ahead of plan.

For our fourth strategic pillar, Digital, the momentum continued through the quarter with e-commerce sales increasing at a mid-teens pace, supported by our efforts across livestreaming and social commerce, TikTok activations, virtual try-on capabilities, and an expanded e-commerce presence.

Progress on our fifth strategic pillar, expanding our presence in China, was impacted by the resurgence of COVID and related restrictions during much of the quarter. However, I am pleased to say Coty's Prestige sell-out grew double digits in FY22, far ahead of the market which declined modestly.

Finally, we made strong strides in our sixth strategic pillar, sustainability, with multiple innovations, including clean formulations, more sustainable packaging, and animal friendly. We took upcycling to the next level through our partnership with LanzaTech by beginning to manufacture prestige fragrances utilizing carbon-capture based ethanol, which is the #1 ingredient in fragrances.

With continued momentum in the fragrance category, Europe and global travel retail, and a strong pipeline of innovation, we expect FY23 to be a year of continued expansion, in-line with our medium-term growth targets. At the same time, we remain vigilant in monitoring the ever-evolving macro backdrop, with resilience plans developed to support the business should conditions worsen.

In summary, our balanced portfolio, covering key categories, channels, price tiers, and geographies; our portfolio of iconic key brands which continue to solidify their positionings and gain share; and our substantial white space opportunities in skincare, China and Travel Retail, all reinforce Coty's attractive value proposition in the historically resilient beauty market. Our virtuous cycle will only further strengthen the Company, allowing for continued above-market sales growth and gross margin expansion, resulting in fuel for brand reinvestment, profit improvement, and further deleveraging. We remain committed to growing Coty's position as a true beauty powerhouse."

*Adjusted financial metrics used in this release are non-GAAP. See reconciliations of GAAP results to Adjusted results in the accompanying tables.

E-commerce revenues and penetration cover the vast majority of Coty’s markets and exclude certain markets like Travel Retail in EMEA and Americas. Additionally, the data includes estimated data for Brick and Click sales, which may be subject to change.

Highlights

• 4Q22 net revenues increased 10% as reported and 16% on a LFL basis, including over 150 bps of negative impact from its Russia business exit. Net revenue trends were driven by strong growth in both Prestige and Consumer Beauty. For FY22, net revenues increased 15% as reported and 16% LFL.
• Reported operating loss totaled $77.4 million in 4Q22, while the FY22 reported operating income was $240.9 million, up close to $290 million YoY.
• 4Q22 adjusted operating income increased to $65.1 million from $45.3 million in the prior year, while FY22 adjusted operating income expanded 41% YoY to $615.5 million as gross margin improved and depreciation declined.
• 4Q22 adjusted EBITDA was $132.4 million, up modestly YoY, while FY22 adjusted EBITDA was $905.3 million, ahead of guidance, and up 19% YoY, fueling a 60 bps increase in the adjusted EBITDA margin to 17.1%.
• 4Q22 reported EPS was $(0.34), while 4Q22 adjusted EPS of $(0.01), improved from $(0.08) last year.
• FY22 reported EPS was $0.07. FY22 Adjusted EPS came in at $0.28, above guidance of $0.23-0.27, and up from $0.05 last year.
• Consistent with previous outlook comments, net savings were relatively neutral in Q4, bringing the FY22 total to over $90 million.
• 4Q22 free cash outflows of $74.0 million were $76.1 million greater than last year driven by one-time phasing impacts.
• Financial Net Debt was $4,265.2 million, relatively consistent with Q3, with the financial leverage remaining at 4.7x and down 2 turns versus the prior year. Economic Net Debt totaled $3,435.2 million at quarter end.
• Reflecting Coty's significant progress in improving its financial and operational performance, all while strengthening its balance sheet, the Company gained recognition from both equity investors and debt rating agencies. Coty achieved two ratings upgrades during FY22 from each of the leading rating agencies, with Coty now rated at B+ by S&P and B1 by Moody's. At the same time, according to the latest investor 13F filings, there has been a step-change in the quality of Coty's shareholder base, with long-only institutions now accounting for a significant majority of Coty's public ownership.

Outlook

Entering 1Q23, Coty continues to see prestige fragrance market momentum globally, coupled with strong demand growth particularly in Europe, global Travel Retail, Middle East & Africa, and Brazil. The combination of this market backdrop, and Coty's strong launch pipeline in both Prestige and Consumer Beauty, are fueling the Company's expectations for FY23 for the core business, adjusting for the impact of the Russia exit, to grow relatively in-line with its medium-term growth algorithm, including 6-8% LFL revenue growth. Based on current exchange rates, the Company anticipates FX headwinds on revenues in FY23 to be 4-5%.

Coty is targeting FY23 adjusted EBITDA of $955-965M based on current FX rates, relatively in-line with its medium term growth target of +9-11%, adjusting for the impact of the Russia exit.

Coty expects FY23 adjusted EPS growth in the mid-teens, which assumes no significant changes in the current tax regulations or any mark-to-market adjustments on the equity swap. The Company anticipates adjusted EPS growth acceleration in FY24 and beyond fueled by lower interest expenses as part of its deleveraging efforts, consistent with its medium-term targets.

1Q23 and 1H23 revenue and EBITDA growth trends are expected to be in-line with the annual growth targets. 1H23 sales results will include the impact from exiting the Russia business, estimated at 2-3% of revenues, as well as estimated FX headwind on sales of 4-6% at current rates.

In addition, the Company continues to target leverage towards 4x exiting CY22 based on CY22 adjusted EBITDA approaching $950M, and continues to expect leverage of approximately 2x exiting CY25.

Financial Results*

Refer to “Non-GAAP Financial Measures” for discussion of the non-GAAP financial measures used in this release; reconciliations from reported to adjusted results can be found at the end of this release.

Revenues: 

• 4Q22 reported net revenues of $1,168.3 million increased 10% year-over-year, including a negative foreign exchange (FX) impact of 6%. LFL revenue increased 16%, including over 150 bps of negative impact from its Russia business exit, driven by a 23% increase in Prestige and a 7% increase in Consumer Beauty.
• FY22 reported net revenues of $5,304.4 million increased 15% year-over-year, including a negative FX impact of 1%. LFL revenue increased 16%, driven by LFL increases in Prestige of 22%, and Consumer Beauty of 8%. 

Gross Margin:

• 4Q22 reported gross margin of 61.8% increased from 60.4% in the prior-year period, while adjusted gross margin of 62.1% increased from 60.9% last year. The 120 bps increase was driven by positive category mix-shift, price and mix management, and better absorption on improved volumes, even as the inflationary impact increased.
• FY22 reported gross margin of 63.5% increased from 59.8%, while adjusted gross margin of 63.7% increased significantly from 60.0% in the prior year period. The increase was due to positive price & mix, as well as volume growth.

Operating Income and EBITDA: 

• 4Q22 reported operating loss of $77.4 million worsened from a reported operating income of $1.8 million in the prior year due primarily to a $31.4 million of impairment charges and $45.9 million of costs related to the exit of Russia.
• 4Q22 adjusted operating income of $65.1 million rose from $45.3 million in the prior year, driven by a $14.9 million reduction in depreciation expense, with the adjusted EBITDA of $132.4 million, up 4% from the prior year as higher sales and gross profit was partially offset by higher A&CP. For 4Q22, the adjusted operating margin was 5.6%, while the adjusted EBITDA margin was 11.3%.
• FY22 reported operating income of $240.9 million increased from a reported operating loss of $48.6 million due to lower restructuring and other business realignment costs, reduced acquisition and divestiture-related expenses, increased sales, real estate gains, and a higher gross margin, partially offset by higher SG&A expenses as well as impairment charges and costs related to the exit of Russia. FY22 adjusted operating income increased 41% to $615.5 million, with a margin of 11.6% improving 220 bps YoY, while the adjusted EBITDA totaled $905.3 million, growing 19% YoY, with a margin of 17.1% or up 60 bps YoY.

Net Income from continuing operations attributable to common shareholders:

• 4Q22 reported net loss of $286.0 million declined from a net loss of $221.1 million in the prior year, primarily due to the aforementioned decrease in reported operating income.
• The 4Q22 adjusted net loss of $5.7 million increased from adjusted net loss of $61.2 million in the prior year period, primarily due higher adjusted operating income and lower interest expense.
• FY22 reported net income of $55.5 million compared to net loss of $166.3 million in the prior year. FY22 adjusted net income of $232.1 million increased from $36.6 million in the prior year, driven by higher adjusted operating income and lower interest expense.

Earnings Per Share (EPS) - diluted:

• 4Q22 reported earnings per share of $(0.34) was roughly flat from a reported earnings per share of $(0.29) in the prior year.
• 4Q22 adjusted EPS of $(0.01) improved from $(0.08) in the prior year.
• FY22 reported earnings per share of $0.07 rose from $(0.22) in the prior year.
• Year-to-date adjusted EPS of $0.28 increased from $0.05 in the prior year.

Operating Cash Flow:

• 4Q22 cash used in operations totaling $(32.9) million declined from a cash flow of $32.3 million in the prior-year period. FY22 operating cash flow totaled $726.6 million, an increase of $407.9 million from the prior year.
• 4Q22 free cash outflow of $74.0 million declined from a free cash inflow of $2.1 million in the prior year driven by the $65.2 reduction in operating cash flow, partially offset by a $10.9 million increase in capex. FY22 free cash flow of $552.5 million increased by $407.7 million from the prior year.

Financial Net Debt:

• Financial Net Debt of $4,265.2 million on June 30, 2022, increased by $27.5 million from the March 31, 2022 period, driven by the impact of fourth quarter cash used for operating activities.

Fourth Quarter Business Review by Segment*

Prestige

In 4Q22, Prestige net revenues of $662.8 million or 57% of Coty sales, increased by 16% versus the prior year. On a LFL basis, Prestige net revenues delivered robust growth of 23%, driven by growth across all regions, with particular strength across all EMEA markets, Travel Retail, and the U.S. For FY22, Prestige net revenues of $3,267.9 million rose 20% from the prior year and increased 22% LFL.

During Q4, the Prestige fragrance category continued to see robust growth across North America and Europe, increasing approximately 20% versus last year, with all major markets generating double-digit growth. Encouragingly, Coty's fragrance sales outperformed the market during the quarter. Coty's robust fragrance performance was broad-based across its key fragrance brands with particular strength from Hugo Boss, Burberry, Chloe, Calvin Klein, and Gucci. Importantly, many of Coty's recent key fragrance innovations continued to generate very strong sell-out results and remain top innovations in many key markets.

Coty continued to make progress further expanding into Prestige cosmetics and skincare during the quarter. Prestige cosmetics sales rose strong double-digits during the quarter, and were up over 70% during FY22. In skincare, Lancaster delivered double digit growth in Q4 and FY22.

The Prestige segment generated a reported operating income of $9.7 million in 4Q22, compared to a loss of $17.6 million in the prior year. The 4Q22 adjusted operating income was $47.9 million, up from an adjusted operating income of $32.3 million in the prior year, driven by strong gross margin improvement, partially offset by higher A&CP expenses. Adjusted EBITDA for the Prestige segment rose to $78.9 million from $67.4 million in the prior year, with a margin of 11.9%. FY22 reported operating income of $367.2 million compared to $158.1 million in the prior year, while the adjusted operating income increased to $530.1 million from $359.3 million. The FY22 adjusted EBITDA rose 33% to $668.8 million with a margin of 20.5%.

Consumer Beauty

In 4Q22, Consumer Beauty net revenues of $505.5 million, or 43% of Coty sales, increased by 3.0% versus the prior year. On a LFL basis, Consumer Beauty net revenues rose 7% with growth across color cosmetics, mass fragrances, body care, and skincare. Importantly, all regions generated LFL growth in the quarter. For FY22, Consumer Beauty sales of $2,036.5 million increased 7% and rose 8% LFL.

The total Coty Consumer Beauty business continued to gain market share globally during Q4, driven by the strong performance of color cosmetics, which has increased share globally for 8 consecutive months. In the U.S., CoverGirl trends improved through the quarter as the temporary supply constraints subsided, and the brand saw particular strength with its recently launched Exhibitionist Stretch & Strengthen mascara. In Europe, Coty gained market share for the eighth consecutive month in June, supported by the re-positionings of Rimmel and Max Factor. While Sally Hansen gained market share in U.S. Nail Color and expanded internationally, sales were impacted by the year-over-year declines in the broader nail category due to the difficult comparisons in the previous year.

The Consumer Beauty business reported operating loss was $24.8 million in 4Q22, down from reported operating income of $1.1 million in the prior year. The 4Q22 adjusted operating income of $17.2 million increased from $13.0 million in the prior year, driven by lower depreciation. During the quarter, adjusted EBITDA declined slightly to $53.5 million from $60.1 million in the prior year, with a margin of 10.6%. FY22 reported operating income of $9.5 million compared to $26.9 million in the prior year, while adjusted operating income increased to $85.4 million from $76.9 million. FY22 adjusted EBITDA decreased 8% to $236.5 million, with a margin of 11.6%.

Fourth Quarter Fiscal 2022 Business Review by Region*

Americas

• In 4Q22, Americas net revenues of $509.5 million, or 44% of Coty sales, increased 14% as reported and 13% LFL. This was fueled by strong growth in both Prestige and Consumer Beauty. The Prestige beauty growth continued to be support from very robust fragrance category trends in the U.S. and Canada, supplemented by the strong performance of Coty's recent fragrance innovations. Consumer Beauty was driven by solid growth at CoverGirl as well as very robust trends in Brazil and Latin America. In FY22, Americas net revenue of $2,158.0 million, rose 16% as reported and 15% LFL.

EMEA

• In 4Q22, EMEA net revenues of $517.7 million, or 44% of Coty sales, increased 10% as reported and 22% LFL. The performance was driven by solid growth in both Prestige and Consumer Beauty. Similar to the Americas, Prestige beauty growth was supported by strong fragrance category trends across key markets in Europe, and further supported by Coty's successful fragrance innovations. The Consumer Beauty performance was driven by Rimmel and Max Factor. For FY22, EMEA net revenue of $2,488.1 million, increased 14% as reported and 18% LFL.

Asia Pacific

• In 4Q22, Asia Pacific net revenues of $141.1 million, or 12% of Coty sales, decreased 2% as reported and increased 2% LFL. During the quarter, sales were pressured due to the resurgence of COVID in China and related lockdown measures through most of the quarter, particularly in April and May. Outside of China, nearly every market delivered strong double-digit growth, led by the continued recovery of travel retail. For FY22, Asia Pacific net revenue of $658.3 million, increased 14% as reported and 14% LFL.

*As previously disclosed, we have realigned our reportable segments to a principally product category-based structure, comprised of a Prestige business segment and a Consumer Beauty business segment. In addition, we have amended the definition of stock compensation expense for use in certain Non-GAAP Financial Measures. In order to reflect these changes, the Company has recast reported net revenue by segment, reported operating income (loss) by segment, adjusted operating income (loss) by segment and total, adjusted EBITDA by segment, and total adjusted income (loss) before income taxes and total adjusted net income (loss) from continuing operations for all comparative periods shown.

Noteworthy Company Developments

Other noteworthy company developments include:

• On June 10, Coty announced its intention to gradually return its Equity distributions as deleveraging continues, while also entering into agreements with several banks to start hedging a potential $200 million share buyback program in calendar 2024.
• On June 21, Kim Kardashian, together with Coty, launched SKKN BY KIM, an efficacious nine-product skincare collection sitting at the intersection of elevated simplicity and innovative science. The products are available through a U.S. direct-to-consumer website.

Conference Call

Coty Inc. will issue pre-recorded remarks at approximately 7:20 AM (ET) today, August 25, 2022 and will hold a live question and answer session beginning at 8:15 AM (ET). The pre-recorded remarks and live question and answer session will be available at http://investors.coty.com. The dial-in number for the live question and answer session is (800) 579-2543 in the U.S. or (785) 424-1789 internationally (conference passcode number: COTY4Q22).

COTY INC. SUPPLEMENTAL SCHEDULES INCLUDING NON-GAAP FINANCIAL MEASURES(a)

RESULTS AT A GLANCE

* These measures, as well as “free cash flow,” “adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA),” "immediate liquidity," “financial net debt,” and "economic net debt" are Non-GAAP Financial Measures. Refer to “Non-GAAP Financial Measures” for discussion of these measures. Reconciliations from reported to adjusted results can be found at the end of this release.

** Net income for Continuing Operations and Coty Inc. are net of the Convertible Series B Preferred Stock dividends.

FOURTH QUARTER BY SEGMENT (CONTINUING OPERATIONS)

(a) As previously disclosed, we have realigned our reportable segments to a principally product category-based structure, comprised of a Prestige business segment and a Consumer Beauty business segment. In addition, we have amended the definition of stock compensation expense for use in certain Non-GAAP Financial Measures. In order to reflect these changes, the Company has recast reported net revenue by segment, reported operating income (loss) by segment, adjusted operating income (loss) by segment and total, adjusted EBITDA by segment, and total adjusted income (loss) before income taxes and total adjusted net income (loss) from continuing operations for all comparative periods shown.

FOURTH QUARTER FISCAL 2022 BY REGION

Continuing Operations

COTY INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(a) Diluted EPS is adjusted by the effect of dilutive securities, including awards under the Company's equity compensation plans and the convertible Series B Preferred Stock. When calculating any potential dilutive effect of stock options, Series A Preferred Stock, restricted stock and RSUs, the Company uses the treasury method and the if-converted method for the Convertible Series B Preferred Stock. The treasury method typically does not adjust the net income attributable to Coty Inc., while the if-converted method requires an adjustment to reverse the impact of the preferred stock dividends, if dilutive, on net income applicable to common stockholders during the period.

(b) For the three months ended June 30, 2022 and 2021, and the twelve months ended June 30, 2021, stock options and Series A/A-1 Preferred Stock with purchase or conversion rights to purchase shares of Common Stock, RSUs and Convertible Series B Preferred Stock were excluded from the computation of diluted EPS due to the net loss incurred during the period. For the twelve months ended June 30, 2022, there were $75.3 million shares of outstanding stock options and Series A/A-1 Preferred Stock with purchase or conversion rights to purchase shares of Common Stock, RSUs and Convertible Series B Preferred Stock were excluded in the computation of adjusted weighted-average diluted shares because their effect would be anti-dilutive.

RECONCILIATION OF REPORTED TO ADJUSTED RESULTS FOR THE CONSOLIDATED STATEMENTS OF OPERATIONS

These supplemental schedules provide adjusted Non-GAAP financial information and a quantitative reconciliation of the difference between the Non-GAAP financial measure and the financial measure calculated and reported in accordance with GAAP.

(a) See “Reconciliation of Reported Operating Income (Loss) to Adjusted Operated Income” and “Reconciliation of Reported Net (Loss) Income to Adjusted Net Income” for a detailed description of adjusted items.

RECONCILIATION OF REPORTED TO ADJUSTED RESULTS FOR THE CONSOLIDATED STATEMENTS OF OPERATIONS

These supplemental schedules provide adjusted Non-GAAP financial information and a quantitative reconciliation of the difference between the Non-GAAP financial measure and the financial measure calculated and reported in accordance with GAAP.

(a) See “Reconciliation of Reported Operating Income (Loss) to Adjusted Operated Income” and “Reconciliation of Reported Net (Loss) Income to Adjusted Net Income” for a detailed description of adjusted items.

RECONCILIATION OF REPORTED TO ADJUSTED RESULTS FOR THE CONSOLIDATED STATEMENTS OF OPERATIONS

These supplemental schedules provide adjusted Non-GAAP financial information and a quantitative reconciliation of the difference between the Non-GAAP financial measure and the financial measure calculated and reported in accordance with GAAP.

(a) See “Reconciliation of Reported Operating Income (Loss) to Adjusted Operated Income” and “Reconciliation of Reported Net (Loss) Income to Adjusted Net Income” for a detailed description of adjusted items.

(b) Discontinued operations for the fiscal year 2021 includes activity only through November 30, 2020, the date of the sale of the Wella Company.

RECONCILIATION OF REPORTED OPERATING INCOME (LOSS) TO ADJUSTED OPERATING INCOME AND ADJUSTED EBITDA

(a) In the three months ended June 30, 2022, amortization expense of $38.2 and $10.6 was reported in the Prestige and Consumer Beauty segments, respectively. In the three months ended June 30, 2021, amortization expense of $49.9 and $11.9 was reported in the Prestige and Consumer Beauty segments, respectively.
In fiscal 2022, amortization expense of $162.9 and $44.5 was reported in the Prestige and Consumer Beauty segments, respectively. In fiscal 2021, amortization expense of $201.2 and $50.0 was reported in the Prestige and Consumer Beauty segments, respectively.

(b) In the three months ended June 30, 2022, we incurred a credit in restructuring and other business structure realignment costs of $(4.9). We incurred a credit in restructuring costs of $(8.0) included in the Condensed Consolidated Statements of Operations, related to the Transformation Plan due to a change in estimate and $6.3 related to employee severances in connection with our exit of Russia and business structure realignment costs of $3.1 primarily related to the Transformation Plan and certain other programs. This amount includes $(0.1) reported in Selling, general and administrative expenses, and $3.2 reported in Cost of sales in the Condensed Consolidated Statement of Operations. In the three months ended June 30, 2021, we incurred a credit in restructuring and other business structure realignment costs of $(30.4). We incurred a credit in restructuring costs of $(26.1) primarily related to the Transformation Plan, included in the Condensed Consolidated Statements of Operations; and credit in business structure realignment costs of $(4.3) primarily related to the Transformation Plan and certain other programs. This amount includes $(9.5) reported in Selling, general and administrative expenses, and $5.2 reported in Cost of sales in the Condensed Consolidated Statement of Operations.
In fiscal 2022, we incurred restructuring and other business structure realignment costs of $4.7. We incurred a credit in restructuring costs of $(6.5) included in the Condensed Consolidated Statements of Operations, related to the Transformation Plan due to a change in estimate and $6.3 related to employee severances in connection with our exit of Russia and business structure realignment costs of $11.2 primarily related to the Transformation Plan and certain other programs. This amount includes $(0.4) reported in Selling, general and administrative expenses, and $11.6 reported in Cost of sales in the Condensed Consolidated Statement of Operations. In fiscal 2021, we incurred restructuring and other business structure realignment costs of $67.0. We incurred restructuring costs of $63.6 primarily related to the Transformation Plan, included in the Condensed Consolidated Statements of Operations; and business structure realignment costs of $3.4 primarily related to the Transformation Plan and certain other programs. This amount includes $(4.9) reported in Selling, general and administrative expenses, and $8.3 reported in Cost of sales in the Condensed Consolidated Statement of Operations.

(c) In the three months ended June 30, 2022 and June 30, 2021, we incurred acquisition- and divestiture-related costs of $0.5 and $11.1, respectively. These costs were primarily associated with the Wella Company Transaction.
In fiscal 2022 and 2021, we incurred acquisition- and divestiture-related costs of $14.7 and $138.8, respectively. These costs were primarily associated with the Wella Company Transaction.

(d) In the three months ended June 30, 2022, we recognized a gain of $0.9 related to sale of real estate. In the three months ended June 30, 2021, we did not recognize any gain related to sale of real estate.
In fiscal 2022, we recognized a gain of $115.5 related to sale of real estate. In fiscal 2021, we did not recognize any gain related to sale of real estate.

(e) In fiscal 2022, we incurred $45.9 of costs related to our decision to wind down our business operations in Russia which are included in Selling, general and administrative expenses and Cost of sales in the Consolidated Statements of Operations. These charges consisted of $45.5 in Selling, general and administrative expenses, primarily related to the write-down of working capital, long-term assets, as well as contract termination charges, contingent liabilities and legal costs and $0.4 in Cost of sales related to inventory write-downs.
In fiscal 2021 and 2020, we did not recognize costs related to a market exit.

(f) In the three months ended June 30, 2022, adjusted depreciation expense of $31.0 and $36.3 was reported in the Prestige and Consumer Beauty segments, respectively. In the three months ended June 30, 2021, adjusted depreciation expense of $35.1 and $47.1 was reported in the Prestige and Consumer Beauty segments, respectively.
In fiscal 2022, adjusted depreciation expense of $138.7 and $151.1 was reported in the Prestige and Consumer Beauty segments, respectively. In fiscal 2021, adjusted depreciation expense of $144.4 and $181.4 was reported in the Prestige and Consumer Beauty segments, respectively.

RECONCILIATION OF REPORTED INCOME (LOSS) BEFORE INCOME TAXES AND EFFECTIVE TAX RATES TO ADJUSTED INCOME BEFORE INCOME TAXES AND ADJUSTED EFFECTIVE TAX RATES FOR CONTINUING OPERATIONS

The adjusted effective tax rate was 97.6% for the three months ended June 30, 2022 compared to (11.9%) for the three months ended June 30, 2021. The differences were primarily due to a valuation allowance recorded in the current period.

(a) See a description of adjustments under “Adjusted Operating Income (Loss) for Continuing Operations.”

(b) The tax effects of each of the items included in adjusted income are calculated in a manner that results in a corresponding income tax expense/provision for adjusted income. In preparing the calculation, each adjustment to reported income is first analyzed to determine if the adjustment has an income tax consequence. The provision for taxes is then calculated based on the jurisdiction in which the adjusted items are incurred, multiplied by the respective statutory rates and offset by the increase or reversal of any valuation allowances commensurate with the non-GAAP measure of profitability. In connection with our decision to wind down our operations in Russia, we recognized tax charges related to certain direct incremental impacts of our decision, which are reflected in this amount, in fiscal 2022.

(c) The amount represents the realized and unrealized loss (gain) recognized for the change in the fair value of the investment in Wella Company.

(d) For the three months ended June 30, 2022, this primarily represents a net gain on the exchange of Series B Preferred Stock closed on October 20, 2021. For the three months ended June 30, 2021, this primarily represents the write-off of deferred financing fees related to the Wella Company sale.
For the year ended June 30, 2022, this primarily represents a net gain on the exchange of Series B Preferred Stock closed on October 20, 2021. For the year ended June 30, 2021, this primarily represents the write-off of deferred financing fees related to the Wella Company sale and adjustments for pension curtailment gains.

(e) The total tax impact on adjustments in the prior period includes a $234.4 benefit recorded as the result of the tax rate differential on the deferred taxes recognized on the transfer of assets and liabilities, following the relocation of our main principal location from Geneva to Amsterdam on July 1, 2020. It also includes a $130.0 tax expense recorded as the result of an internal restructuring following the Wella Company divestiture, primarily intended to create a more efficient structure to hold its remaining equity investment in Wella Company.

(f) The total tax impact on adjustments in the current period includes a tax expense of $24.1 recorded as the result of the Company's exit from Russia.

RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME FOR CONTINUING OPERATIONS

(a) See a description of adjustments under “Adjusted Operating Income (Loss) for Continuing Operations.”

(b) The amounts represent the after-tax impact of the non-GAAP adjustments included in Net income attributable to noncontrolling interest based on the relevant noncontrolling interest percentage in the Condensed Consolidated Statements of Operations.

(c) Adjusted Diluted EPS is adjusted by the effect of dilutive securities, including awards under the Company's equity compensation plans and the convertible Series B Preferred Stock. When calculating any potential dilutive effect of stock options, Series A Preferred Stock, restricted stock and RSUs, the Company uses the treasury method and the if-converted method for the Convertible Series B Preferred Stock. The treasury method typically does not adjust the net income attributable to Coty Inc., while the if-converted method requires an adjustment to reverse the impact of the preferred stock dividends, if dilutive,, on net income applicable to common stockholders during the period.

(d) The amount represents the realized and unrealized gain recognized for the change in the fair value of the investment in Wella Company.

(e) For the three months ended June 30, 2021, this primarily represents the write-off of deferred financing fees related to the Wella Company sale.
For the twelve months ended June 30, 2022, this primarily represents a net gain on the exchange of Series B Preferred Stock closed on October 20, 2021. For the fiscal year ended June 30, 2022, this primarily represents the write-off of deferred financing fees related to the Wella Company sale and adjustments for pension curtailment gains.

(f) For the twelve months ended June 30, 2022, this adjustment represents the deemed dividend from the Second Exchange that closed on November 30, 2021 and the deemed dividend from the First Exchange that closed on October 20, 2021.

RECONCILIATION OF REPORTED NET INCOME (LOSS) TO ADJUSTED NET INCOME FOR COTY INC.

(a) See a description of adjustments under “Adjusted Operating Income (loss) for Coty Inc.”

(b) The amounts represent the after-tax impact of the non-GAAP adjustments included in Net income attributable to noncontrolling interest based on the relevant noncontrolling interest percentage in the Condensed Consolidated Statements of Operations.

(c) Adjusted Diluted EPS is adjusted by the effect of dilutive securities, including awards under the Company's equity compensation plans and the convertible Series B Preferred Stock. When calculating any potential dilutive effect of stock options, Series A Preferred Stock, restricted stock and RSUs, the Company uses the treasury method and the if-converted method for the Convertible Series B Preferred Stock. The treasury method typically does not adjust the net income attributable to Coty Inc., while the if-converted method requires an adjustment to reverse the impact of the preferred stock dividends, if dilutive,, on net income applicable to common stockholders during the period.

(d) The amount represents the realized and unrealized gain recognized for the change in the fair value of the investment in Wella Company.

(e) For the three months ended June 30, 2021, this primarily represents the write-off of deferred financing fees related to the Wella Company sale.
For the twelve months ended June 30, 2022, this primarily represents a net gain on the exchange of Series B Preferred Stock closed on October 20, 2021. For the fiscal year ended June 30, 2022, this primarily represents the write-off of deferred financing fees related to the Wella Company sale and adjustments for pension curtailment gains.

(f) For the twelve months ended June 30, 2022, this adjustment represents the deemed dividend from the Second Exchange that closed on November 30, 2021 and the deemed dividend from the First Exchange that closed on October 20, 2021.

(g) This amount reflects certain working capital adjustments related to the sale of the Wella Company.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW

RECONCILIATION OF TOTAL DEBT TO ECONOMIC NET DEBT

IMMEDIATE LIQUIDITY

RECONCILIATION OF ADJUSTED OPERATING INCOME TO ADJUSTED EBITDA

(a) For a reconciliation of adjusted operating income (loss) to operating income (loss) for continuing operations for the period, see the table entitled “Reconciliation of Reported Operating Income (loss) to Adjusted Operating Income for Continuing Operations” for the period.

(b) Adjusted depreciation for the twelve months ended June 30, 2022 represents depreciation expense for continuing operations for the period, excluding accelerated depreciation.

FINANCIAL NET DEBT/ADJUSTED EBITDA

RECONCILIATION OF REPORTED NET REVENUES TO LIKE-FOR-LIKE NET REVENUES

COTY INC. & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

COTY INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS