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.