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Our common stock is listed on the New York Stock Exchange under the symbol “COTY.” It is also listed on the Euronext
Paris Professional Segment.
Stockholders of Record
As of June 30, 2024 there were 588 stockholders of record of our Class A Common Stock. The actual number of
stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose
shares are held in street name by brokers and other nominees. This number of holders of record also does not include
stockholders whose shares may be held in trust by other entities.
Dividend Policy
On April 29, 2020, our Board of Directors suspended the payment of dividends on our common stock, in accordance with
our 2018 Coty Credit Agreement, as amended. As we focus on preserving cash, we have continued to suspend the payment of
Common Stock dividends. Any determination to pay dividends on our common stock in the future will be at the discretion of
our Board of Directors and is subject to the restrictions under the terms of the Convertible Series B Preferred Stock described
below.
Dividends on the Convertible Series B Preferred Stock are payable in cash, or by increasing the amount of accrued
dividends on Convertible Series B Preferred Stock, or any combination thereof, at the sole discretion of the Company. After the
expiration of applicable restrictions under the 2018 Coty Credit Agreement, as amended, we began to pay dividends on the
Convertible Series B Preferred Stock in cash for the period ended June 30, 2021, and we expect to continue to pay such
dividends in cash on a quarterly basis, subject to the declaration thereof by our Board of Directors. The terms of the Convertible
Series B Preferred Stock restrict our ability to declare cash dividends on our common stock until all accrued dividends on the
Convertible Series B Preferred Stock have been declared and paid in cash.
Furthermore, we are required to comply with certain covenants contained within the agreements that govern our
indebtedness, including our credit agreements and the indentures relating to our senior secured notes and our senior unsecured
notes. These agreements contain customary representations and warranties as well as customary affirmative and negative
covenants, including but not limited to, restrictions on incurrence of additional debt, liens, dividends and other restricted
payments, asset sales, investments, mergers, acquisitions and affiliate transactions. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Financial Condition—Liquidity and Capital Resources—Debt”
and Note 14—Debt in the notes to our Consolidated Financial Statements.
30
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of Coty Inc. and its consolidated
subsidiaries, should be read in conjunction with the information contained in the Consolidated Financial Statements and related
notes included elsewhere in this document. When used in this discussion, the terms “Coty,” the “Company,” “we,” “our,” or
“us” mean, unless the context otherwise indicates, Coty Inc. and its majority and wholly-owned subsidiaries. The following
discussion contains forward-looking statements. See “Forward-Looking Statements” and “Risk Factors” for a discussion on the
uncertainties, risks and assumptions associated with these statements as well as any updates to such discussion as may be
included in subsequent reports we file with the SEC. Actual results may differ materially and adversely from those contained in
any forward-looking statements. The following discussion includes certain non-GAAP financial measures. See “Overview—
Non-GAAP Financial Measures” for a discussion of non-GAAP financial measures and how they are calculated.
All dollar amounts in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.
OVERVIEW
We are one of the world’s largest beauty companies, with an iconic portfolio of brands across fragrance, color cosmetics,
and skin and body care. Our brands empower people to express themselves freely, creating their own visions of beauty; and we
are committed to making a positive impact on the planet. Our strategic priorities include stabilizing and growing our Consumer
Beauty brands through leading innovation and improved execution, accelerating our Prestige fragrance business and ongoing
expansion into Prestige cosmetics, building a comprehensive skincare portfolio over the mid-to-long term leveraging existing
brands, enhancing our organizational growth capabilities including digital and research and development, expanding our
presence in growth channels such as the Travel Retail channel, in China and other growth engine markets (Latin America,
including Brazil, the Middle East, North and South East Asia, Africa and India), and establishing Coty as an industry leader in
sustainability.
We have been making progress on our strategic priorities. In Consumer Beauty, we have implemented the relaunch of our
top brands and returned to stable growth and steady margin improvement. Consumer Beauty net revenue grew 6% in fiscal
2024, with growth across mass fragrances, mass color cosmetics, skincare and body care led by Brazil. We are now focusing on
accelerating our digital advocacy strategy to amplify our brand and product innovations, leverage consumer analytics and
insights, and improve the return on investment of our marketing activities. Our e-commerce channel net revenues grew by over
approximately 20% in fiscal 2024, with double-digit percentage growth in Prestige and Consumer Beauty. In Prestige, we
continue to accelerate the fragrance business with exceptional new launches and expansion in premium and ultra-premium
categories, while steadily expanding the distribution, productivity and assortment of our Prestige cosmetics. Our prestige
cosmetics net revenues grew by a double-digit percentage in fiscal year 2024, led by Kylie Cosmetics and Burberry. We are
continuing to thoughtfully expand our skincare portfolio (which contributed a mid-single digit percentage of our fiscal 2024 net
revenue) with our focus on winning over the most discerning skin care consumers in our areas of excellence – UV protection,
photoaging prevention and repair, biotech-enhanced longevity science, and micro-dose formulations. Our skincare business,
which contributed a mid-single-digit percentage of sales, generated strong sales growth in fiscal year 2024. We have
successfully expanded our e-commerce capabilities, through best-in-class online launches, our digital advocacy strategy and
active participation in key online shopping events, and increasing digital media competitiveness. Revenues from our global
Travel channel grew in all three regions – Americas, EMEA and Asia Pacific – contributing approximately 20% to the net
revenue growth in fiscal year 2024. Our growth engine markets net revenues grew in fiscal 2024, led by Brazil, the rest of
LATAM, Southeast Asia, including India, and Africa.
Our products are marketed, sold and distributed in approximately 121 countries and territories. As a geographically diverse
company we are susceptible to global economic trends, geopolitical conflicts, domestic and foreign governmental policies, and
changes in foreign exchange rates. In particular, economic conditions in China have had, and are expected to continue to have,
an impact on our strategic initiatives, including our growth agenda in the region for Prestige products and our skincare growth
priorities. Within the China market we continue to monitor and take actions to address the impact to our Consumer Beauty
brands which have experienced sales declines as retailers and distributors continue to deplete their existing inventory. We
remain attentive to economic and geopolitical conditions that may materially impact our business. We continue to explore and
implement risk mitigation strategies in the face of these unfolding conditions and remain agile in adapting to changing
circumstances. Such conditions have or may have global implications which may impact the future performance of our business
in unpredictable ways.
Changing market trends may impact sales of our products across and within product categories and regions. Within our
Consumer Beauty segment, positive market trends within the skin and body care and mass color cosmetics categories in Brazil
positively impacted the segment's sales volume during fiscal year 2024. Excluding the contribution from the Brazilian brands,
the Consumer Beauty segment experienced a decline in sales volume primarily in the skin and body care category, as a result of
a decline in sales from China, and in the color cosmetic category primarily due to negative market trends in the U.S. in mass
color cosmetics market.
33
We expect that our net revenue for fiscal year 2025 will grow in the mid-single digit percent to high-single digit percent
versus the prior year, excluding the impact of foreign exchange and the early termination of the Lacoste fragrance license. We
anticipate that our annual gross margin will remain in the mid-sixties, providing us with opportunities to fund new product
initiatives and support our brands through advertising and consumer promotional investments. We continue to target advertising
and consumer promotional spending in the high-twenties percentage of net revenues. However, our level of advertising and
consumer promotional spending will depend on various factors, including seasonality, the timing of product launches, and
budgetary considerations.
Global Supply Chain Challenges
Our ability to fulfill demand for our products is critical to our success. Through steps taken to improve order fill rates and
mitigate the impact of supply chain constraints, we have seen improvements in our order fill rates on a company-wide basis. As
a result, in fiscal year 2024 we achieved close to pre-COVID-19 service levels across our divisions.
Inflation
The impact of inflation on material, logistical and other costs subsided during fiscal year 2024. Inflation may continue to
impact certain costs, such as labor. However, we currently anticipate the overall impact of inflation to remain muted.
34
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Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures for
continuing operations and Coty Inc. including Adjusted operating income (loss), Adjusted EBITDA, Adjusted net income
(loss), and Adjusted net income (loss) attributable to Coty Inc. to common stockholders (collectively, the “Adjusted
Performance Measures”). The reconciliations of these non-GAAP financial measures to the most directly comparable financial
measures calculated and presented in accordance with GAAP are shown in tables below. These non-GAAP financial measures
should not be considered in isolation from, or as a substitute for or superior to, financial measures reported in accordance with
GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with
the operations of the business as determined in accordance with GAAP. Other companies, including companies in the beauty
industry, may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those
measures for comparative purposes.
Despite the limitations of these non-GAAP financial measures, our management uses the Adjusted Performance Measures
as key metrics in the evaluation of our performance and annual budgets and to benchmark performance of our business against
our competitors. The following are examples of how these Adjusted Performance Measures are utilized by our management:
•
strategic plans and annual budgets are prepared using the Adjusted Performance Measures;
•
senior management receives a monthly analysis comparing budget to actual operating results that is prepared using the
Adjusted Performance Measures; and
•
senior management’s annual compensation is calculated, in part, by using some of the Adjusted Performance
Measures.
In addition, our financial covenant compliance calculations under our debt agreements are substantially derived from these
Adjusted Performance Measures.
Our management believes that Adjusted Performance Measures are useful to investors in their assessment of our operating
performance and the valuation of the Company. In addition, these non-GAAP financial measures address questions we
routinely receive from analysts and investors and, in order to ensure that all investors have access to the same data, our
management has determined that it is appropriate to make this data available to all investors. The Adjusted Performance
Measures exclude the impact of certain items (as further described below) and provide supplemental information regarding our
operating performance. By disclosing these non-GAAP financial measures, our management intends to provide investors with a
supplemental comparison of our operating results and trends for the periods presented. Our management believes these
measures are also useful to investors as such measures allow investors to evaluate our performance using the same metrics that
our management uses to evaluate past performance and prospects for future performance. We provide disclosure of the effects
of these non-GAAP financial measures by presenting the corresponding measure prepared in conformity with GAAP in our
financial statements, and by providing a reconciliation to the corresponding GAAP measure so that investors may understand
the adjustments made in arriving at the non-GAAP financial measures and use the information to perform their own analyses.
Adjusted operating income/Adjusted EBITDA from continuing operations excludes restructuring costs and business
structure realignment programs, amortization, acquisition- and divestiture-related costs and acquisition accounting impacts,
stock-based compensation, and asset impairment charges and other adjustments as described below. For adjusted EBITDA, in
addition to the preceding, we exclude adjusted depreciation as defined below. We do not consider these items to be reflective of
our core operating performance due to the variability of such items from period-to-period in terms of size, nature and
significance. They are primarily incurred to realign our operating structure and integrate new acquisitions, and implement
divestitures of components of our business, and fluctuate based on specific facts and circumstances. Additionally, Adjusted net
income attributable to Coty Inc. and Adjusted net income attributable to Coty Inc. per common share are adjusted for certain
interest and other (income) expense items and preferred stock deemed dividends, as described below, and the related tax effects
of each of the items used to derive Adjusted net income as such charges are not used by our management in assessing our
operating performance period-to-period.
Adjusted Performance Measures reflect adjustments based on the following items:
•
Costs related to acquisition and divestiture activities: We have excluded acquisition- and divestiture-related costs and
the accounting impacts such as those related to transaction costs and costs associated with the revaluation of acquired
inventory in connection with business combinations because these costs are unique to each transaction. Additionally,
for divestitures, we exclude write-offs of assets that are no longer recoverable and contract related costs due to the
divestiture. The nature and amount of such costs vary significantly based on the size and timing of the acquisitions and
divestitures, and the maturities of the businesses being acquired or divested. Also, the size, complexity and/or volume
of past transactions, which often drives the magnitude of such expenses, may not be indicative of the size, complexity
and/or volume of any future acquisitions or divestitures.
36
•
Restructuring and other business realignment costs: We have excluded costs associated with restructuring and business
structure realignment programs to allow for comparable financial results to historical operations and forward-looking
guidance. In addition, the nature and amount of such charges vary significantly based on the size and timing of the
programs. By excluding the referenced expenses from our non-GAAP financial measures, our management is able to
further evaluate our ability to utilize existing assets and estimate their long-term value. Furthermore, our management
believes that the adjustment of these items supplements the GAAP information with a measure that can be used to
assess the sustainability of our operating performance.
•
Asset impairment charges: We have excluded the impact of asset impairments as such non-cash amounts are
inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Our
management believes that the adjustment of these items supplements the GAAP information with a measure that can
be used to assess the sustainability of our operating performance.
•
Amortization expense: We have excluded the impact of amortization of finite-lived intangible assets, as such non-cash
amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of
acquisitions. Our management believes that the adjustment of these items supplements the GAAP information with a
measure that can be used to assess the sustainability of our operating performance. Although we exclude amortization
of intangible assets from our non-GAAP expenses, our management believes that it is important for investors to
understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to
past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future
acquisitions may result in the amortization of additional intangible assets.
•
Gain on sale and termination of brand assets and early license termination: We have excluded the impact of gain on
sale and termination of brand assets and early license termination as such amounts are inconsistent in amount and
frequency and are significantly impacted by the size of the sale of brand assets and early license termination.
•
Costs related to market exit: We have excluded the impact of direct incremental costs related to our decision to wind
down our business operations in Russia. We believe that these direct and incremental costs are inconsistent and
infrequent in nature. Consequently, our management believes that the adjustment of these items supplements the
GAAP information with a measure that can be used to assess the sustainability of our operating performance.
•
Gains on sale of real estate: We have excluded the impact of gains on sale of real estate as such amounts are
inconsistent in amount and frequency and are significantly impacted by the size of the sale. Our management believes
that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the
sustainability of our operating performance.
•
Stock-based compensation: Although stock-based compensation is a key incentive offered to our employees, we have
excluded the effect of these expenses from the calculation of adjusted operating income and adjusted EBITDA. This is
due to their primarily non-cash nature; in addition, the amount and timing of these expenses may be highly variable
and unpredictable, which may negatively affect comparability between periods.
•
Depreciation and Adjusted depreciation: Our adjusted operating income excludes the impact of accelerated
depreciation for certain restructuring projects that affect the expected useful lives of Property, Plant and Equipment, as
such charges vary significantly based on the size and timing of the programs. Further, we have excluded adjusted
depreciation, which represents depreciation expense net of accelerated depreciation charges, from our adjusted
EBITDA. Our management believes that the adjustment of these items supplements the GAAP information with a
measure that can be used to assess the sustainability of our operating performance.
•
Other (income) expense: We have excluded the impact of pension curtailment (gains) and losses and pension
settlements as such events are triggered by our restructuring and other business realignment activities and the amount
of such charges vary significantly based on the size and timing of the programs. Further, we have excluded the change
in fair value of the investment in Wella, as well as expenses related to potential or actual sales transactions reducing
equity investments, as our management believes these unrealized (gains) and losses do not reflect our underlying
ongoing business, and the adjustment of such impact helps investors and others compare and analyze performance
from period to period. We have excluded the gain on the exchange of Series B Preferred Stock. Such transactions do
not reflect our operating results and we have excluded the impact as our management believes that the adjustment of
these items supplements the GAAP information with a measure that can be used to assess the sustainability of our
operating performance.
•
Noncontrolling interest: This adjustment represents the after-tax impact of the non-GAAP adjustments included in Net
income attributable to noncontrolling interests based on the relevant noncontrolling interest percentage.
•
Tax: This adjustment represents the impact of the tax effect of the pretax items excluded from Adjusted net income.
The tax impact of the non-GAAP adjustments is based on the tax rates related to the jurisdiction in which the adjusted
37
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sales through the end of the second quarter; and no net revenues for the Bottega Veneta brand in the current period
due to the ending of our licensing arrangement where sales of the brand ended in fiscal 2023; and
•
Prestige cosmetic sales growth of $24.5, primarily due to brand innovation from Kylie Cosmetics.
In fiscal 2023, net revenues in the Prestige segment increased 5%, or $152.6, to $3,420.5 from $3,267.9 in fiscal 2022.
Excluding net revenue from the second half of the prior period from Russia, net revenues increased 6% or $169.0 to $3,420.5
from $3,251.5, reflecting a positive price and mix impact of 11% (primarily due to the positive pricing impact as a result of
global price increases and in line with overall premiumization strategy) partially offset by a negative foreign currency exchange
translation impact of 5%. The increase in net revenues primarily reflects:
•
Prestige fragrance sales growth of $197.9, due to the continued success of Burberry Hero, Burberry Her, Calvin
Klein, Hugo Boss Boss Bottled, Gucci Flora, and Marc Jacobs Daisy, particularly in the U.S. due to positive market
trends and innovation, and in the travel retail channel sales across all major regions impacted by increased leisure
travel compared to the prior year.
These increases were partially offset by:
•
Prestige makeup sales decline of $18.1, primarily due to Gucci makeup travel retail channel sales in the Asia Pacific
region as a result of slow recovery from the lockdowns in China; and
•
Prestige skincare sales decline of $10.8, primarily due to lower net revenues for philosophy due to less innovation
and repositioning of the brand.
Consumer Beauty
In fiscal 2024, net revenues in the Consumer Beauty segment increased 6%, or $127.1, to $2,260.7 from $2,133.6 in fiscal
2023. Excluding net revenue from the second half of the prior period from Russia, net revenues increased 7% or $145.8 to
$2,260.7 from $2,114.9, reflecting a positive price and mix impact of 5% (primarily due to positive pricing impact as a result of
price increases), an increase in unit volume of 1% (primarily due to increases from Brazilian brands offsetting decreases in
volumes in most other markets), and a positive foreign currency exchange translation impact of 1%. The increase in net
revenues primarily reflects:
•
Color cosmetics sales growth of $51.4, primarily due to the continued success of Rimmel Manhattan which saw
continued brand innovation, such as Lasting Finish foundation and Thrill Seeker mascara, and Risque due to strong
category momentum in Brazil and positive pricing impact, despite a category slowdown in the US;
•
Mass fragrance sales growth of $46.3, due to the continued success from the re-launch of David Beckham Instinct in
the current period and success of Bruno Banani; and
•
Skin and body care sales growth of $44.6, due to the continued success of Brazilian brands Monange, Bozzano, and
Paixao benefiting from strong category momentum and positive pricing impact. This growth was partially offset by
lower sales volume for adidas primarily as a result of category slowdown in China which resulted in higher trade
inventory levels.
In fiscal 2023, net revenues in the Consumer Beauty segment increased 5%, or $97.1, to $2,133.6 from $2,036.5 in fiscal
2022. Excluding net revenue from the second half of the prior period from Russia, net revenues increased 6% or $107.8 to
$2,133.6 from $2,025.8, reflecting a positive price and mix impact of 10% (primarily due to the positive pricing impact as a
result of global price increases) partially offset by a negative foreign currency exchange translation impact of 4%. The increase
in net revenues primarily reflects:
•
Color cosmetics sales growth of $59.1, resulting from Covergirl due to positive pricing impact and higher sell-out
resulting in lower returns and markdowns in the U.S., and Rimmel Manhattan due to brand innovation and positive
price and mix impact in major European markets, such as Germany, Austria, Switzerland, as well as Australia.
•
Skin and body care sales growth of $53.3, resulting from growth of brands in Brazil due to strong category
momentum and positive product mix impact within our Brazilian brands’ portfolio, as well as due to innovation in
brands such as Monange and market share gains for Paixao.
40
COST OF SALES
In fiscal 2024, cost of sales increased 9%, or $172.0, to $2,178.8 from $2,006.8 in fiscal 2023. Cost of sales as a percentage
of net revenues decreased to 35.6% in fiscal 2024 from 36.1% in fiscal 2023 resulting in a gross margin percentage increase of
approximately 50 basis points, primarily reflecting:
(i)
approximately 80 basis points related to a decrease in manufacturing and material costs as a percentage of net
revenues, driven by increased manufacturing efficiencies, improvements in productivity, as well as procurement and
material cost optimization; and
(ii) approximately 50 basis points related to decreased freight costs.
These increases were partially offset by:
(i)
approximately 50 basis points related to an increase in excess and obsolescence costs across various subcategories
within the Prestige and Consumer Beauty product portfolios; and
(ii) approximately 30 basis points related to an increase in designer license fees due to licensed Prestige brands
comprising a larger portion of overall net revenues in the current period as well as favorable royalty activity in the
prior period, which did not reoccur in the current period.
The above reflects a positive impact from pricing net of inflation of approximately 160 basis points.
In fiscal 2023, cost of sales increased 4%, or $71.6, to $2,006.8 from $1,935.2 in fiscal 2022. Cost of sales as a percentage
of net revenues decreased to 36.1% in fiscal 2023 from 36.5% in fiscal 2022 resulting in a gross margin percentage increase of
approximately 40 basis points primarily reflecting:
(i)
approximately 30 basis points primarily related to manufacturing and material costs due to productivity
improvements;
(ii) approximately 20 basis points related to designer license fees due to favorable royalty related activity; and
(iii) approximately 10 basis points related to excess and obsolescence costs.
These increases were partially offset by approximately 20 basis points in increased freight costs.
The above includes the negative impact of inflation (principally for material costs) and the positive impact from pricing,
estimated at approximately 200 basis points each.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In fiscal 2024, selling, general and administrative expenses increased 12%, or $344.1, to $3,162.4 from $2,818.3 in fiscal
2023. Selling, general and administrative expenses as a percentage of net revenues increased to 51.7% in fiscal 2024 from
50.7% in fiscal 2023, or approximately 100 basis points. This increase was primarily due to:
(i)
220 basis points due to a decrease in net gains in the current period compared to the prior year related to the early
termination of the Lacoste license;
(ii) 40 basis points due to an increase in bad debt expense as a percentage of net revenues.
These increases were partially offset by the following decreases:
(i)
100 basis points due to a decrease in stock-based compensation cost primarily related to a reduction in expense
recognized in connection with awards granted to the CEO;
(ii) 30 basis points due to a decrease in logistics costs as a percentage of net revenues; and
(iii) 30 basis points due to favorable transactional impact from our exposure to foreign currency as a percentage of net
revenues.
In fiscal 2023, selling, general and administrative expenses decreased 2%, or $63.0, to $2,818.3 from $2,881.3 in fiscal
2022. Selling, general and administrative expenses as a percentage of net revenues decreased to 50.7% in fiscal 2023 from
54.3% in fiscal 2022, or approximately 360 basis points. This decrease was primarily due to:
(i)
130 basis points in stock-based compensation cost primarily related to a reduction in expense recognized in
connection with a prior year's grant made to the CEO;
(ii) 100 basis points due to a decrease in advertising and consumer promotional costs as a percentage of net revenues
primarily related to a reduction of working media in the fiscal period;
41
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improved to 14.1% of net revenues in fiscal 2023 as compared to 11.2% in fiscal 2022, driven primarily by lower fixed costs as
a percentage of net revenues (approximately 110 basis points) primarily due to lower depreciation expense related to fully
depreciated technology equipment, lower cost of goods sold as a percentage of net revenues (approximately 60 basis points)
and lower amortization expense as a percentage of net revenues (approximately 60 basis points) mainly due to the certain
definite-lived intangible assets reaching the end of their useful lives.
Consumer Beauty
In fiscal 2024, operating income for Consumer Beauty was $89.3 compared to income of $63.3 in fiscal 2023. Operating
margin improved to 4.0% of net revenues in fiscal 2024 as compared to 3.0% in fiscal 2023, primarily driven by lower
advertising and consumer promotion expense as a percentage of net revenues (approximately 30 basis points) primarily due to
lower spend in offline consumer engagement and lower transactional foreign exchange losses as a percentage of net revenues
(approximately 30 basis points).
In fiscal 2023, operating income for Consumer Beauty was $63.3 compared to income of $9.5 in fiscal 2022. Operating
margin improved to 3.0% of net revenues in fiscal 2023 as compared to 0.5% in fiscal 2022, driven by lower advertising and
consumer promotional costs as a percentage of net revenues (approximately 90 basis points) primarily due to lower depreciation
expense on promotional fixtures as a result of fewer fixtures being installed during the COVID-19 pandemic, a decrease in
impairment charges as a percentage of net revenues (approximately 150 basis points) related to the impairment of indefinite-
lived intangibles recorded in the prior period, and lower fixed costs as a percentage of net revenues (approximately 130 basis
points) primarily due to lower depreciation expense as a percentage of net revenues.
Corporate
Corporate primarily includes expenses not directly relating to our operating activities. These items are included in
Corporate since we consider them to be corporate responsibilities, and these items are not used by our management to measure
the underlying performance of the segments.
Operating loss for Corporate was $123.3, $3.3 and $135.8 in fiscal 2024, 2023 and 2022, respectively, as described under
“Adjusted Operating Income” below. The operating loss of $123.3 in fiscal 2024 declined in comparison to the prior year
primarily due to the gain recognized due to the early termination of the Lacoste fragrance license in the prior period ($104.4)
lower stock based compensation ($47.1 reduction in expense) primarily related to a reduction in expense recognized in
connection with grants made to the CEO, partially offset by an increase in restructuring and business realignment costs ($42.9
increase in expense).
The operating loss of $3.3 in fiscal 2023 includes stock-based compensation ($135.9), partially offset by gains related to
the early termination of the Lacoste fragrance license ($104.4), gains related to the market exit in Russia (approximately $17.0),
and gains on sale of real estate ($4.9)
The operating loss of $135.8 in fiscal 2022 includes stock-based compensation ($195.5), costs related to the Russia market
exit ($45.9), restructuring and other business realignment costs ($4.7), acquisition and divestiture related costs ($14.7), partially
offset by a gains on the sale of real estate ($115.5) and gains from sale of brand assets ($9.5).
43
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•
We incurred business structure realignment costs of $11.2 primarily related to our Transformation Plan and certain
other programs. This amount includes $11.6 reported in cost of sales due to an increase in accelerated depreciation as
part of Transformation Plan, and a credit of $(0.4) reported included in selling, general and administrative expenses in
the Consolidated Statement of Operations.
In all reported periods, all restructuring and other business realignment costs were reported in Corporate.
Stock-based compensation
In fiscal 2024, stock-based compensation was $88.8 as compared with $135.9 in fiscal 2023. The decrease in stock-based
compensation is primarily related to a reduction in expense recognized in connection with awards granted to the CEO.
In fiscal 2023, stock-based compensation was $135.9 as compared with $195.5 in fiscal 2022. The decrease in stock-based
compensation is primarily related to a reduction in expense recognized in connection with a prior year's grant made to the CEO.
In all reported periods, all costs related to stock-based compensation were reported in Corporate.
Acquisition- and divestiture-related costs
In fiscal 2024 and 2023, we incurred no costs related to acquisition- and divestiture-activities.
In fiscal 2022, we incurred $14.7 of acquisition- and divestiture-related costs which were associated with the Wella
Transaction.
In all reported periods, all acquisition- and divestiture-related costs were reported in Corporate, except where otherwise
noted.
Asset Impairment Charges
In fiscal 2024 and 2023, we did not incur any asset impairment charges.
In fiscal 2022, we incurred $31.4 of asset impairment charges related to the impairment of indefinite-lived intangibles in
connection with our decision to exit Russia, all of which was reported in Consumer Beauty.
For further detail as to the factors resulting in the asset impairment charges, see Note 11 —Goodwill and Other Intangible
Assets, net to the Consolidated Financial Statements.
Early License Termination/Brand Asset Sale and Market Exit Costs
In fiscal 2024, we recognized a gain of $(0.5) related to the early termination of a license and our decision to wind down
our business in Russia.
In fiscal 2023, we recognized gains of $(121.4) related to the early termination of a license and our decision to wind down
our business in Russia.
In fiscal 2022, we incurred costs of $36.4 related to our decision to wind down our business operations in Russia and the
sale of brand assets.
Gains on Sale of Real Estate
In fiscal 2024, we recognized gains of $1.6 related to sale of real estate, which was reported in Corporate.
In fiscal 2023, we recognized gains of $4.9 related to sale of real estate, which was reported in Corporate.
In fiscal 2022, we recognized gains of $115.5 related to the sale of real estate, which was reported in Corporate.
INTEREST EXPENSE, NET
Net interest expense was $252.0, $257.9, and $224.0 in fiscal 2024, fiscal 2023 and fiscal 2022, respectively. In fiscal year
2024, the decrease in interest expense is primarily due to lower debt balances in the current period despite higher interest rates.
In fiscal year 2023, the increase in interest expense is primarily due to the impact of a higher average interest rate despite lower
debt balances compared to the previous year.
OTHER EXPENSE (INCOME), NET
In fiscal 2024, net other expense was $90.2, was principally comprised of net losses on forward repurchase contracts of
$124.2, partially offset by a favorable adjustment for the unrealized gain in the Wella investment of $25.0.
In fiscal 2023, net other income was $419.0, primarily related to a favorable adjustment for the unrealized gain in the Wella
investment of $230.0 and unrealized gain on forward repurchase contracts of $196.9 partially offset by associated fees of $28.2.
48
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