fragrances The new corporate identity of French Fragrances, Inc.

With a portfolio of over 230 fragrance brands and proven retail marketing and merchandising programs, FFI Fragrances has emerged as one of the leading fragrance companies in the world.

Annual Report 2000 fragrances

To our shareholders JCPenney Vendor of the Year cosmetics French Fragrances, Inc. has updated its corporate and fragrance Nominee. FFI won identity to FFI Fragrances to better reflect the this award last year. significant transformation of its business since its inception in 1992, and to modernize its image.

With a portfolio of over 230 brands, and sales topping Fiscal Year 2000 $360 million for fiscal year 2000, FFI Fragrances Accomplishments has become one of the leading fragrance companies ■ in the world. Record levels of sales, EBITDA and net income (see chart on facing page). We are pleased to be able to share with you some Wal-Mart Vendor ■ Awarded Vendor of the Year for the cosmetics of the Year of the success FFI achieved in fiscal year 2000. We for cosmetics and fragrance category by Wal-Mart, the world’s and fragrance believe that these accomplishments, along with other initiatives for fiscal 2001, will provide the foundation largest retailer. for continued success and a corresponding increase ■ Nominated as Vendor of the Year for the cosmetics in shareholder value in fiscal 2001 and beyond. and fragrance category by JCPenney. FFI won this award last year.

■ Increased FFI’s role as a prestige fragrance category manager for additional major retailers. FFI now acts as category manager for Target, Rite Aid, American Stores, Albertson’s and Duane Reade.

■ Sales to FFI’s Top 20 retailers grew 20% from last year, which is on top of 139% growth from fiscal year 1998 to 1999.

■ Successfully launched FFI’s department store business with the Paul Sebastian brands, attaining brand rankings in the Top 15 with many major department store chains.

■ Achieved 129% growth in sales of owned and licensed brands.

Successfully ■ Generated cash flow from operations of approxi- launched FFI’s department mately $32.0 million during fiscal 2000 and store business with the ended the fiscal year with $22.1 million in cash Paul Sebastian brands and no short-term debt. FINANCIAL HIGHLIGHTS in thousands, except per share data

Fiscal Years Ended January 31, 1996 1997 1998 1999 2000 Net Sales $ 87,979 $ 140,482 $ 215,487 $ 309,615 $ 361,243 Gross Profit $ 21,639 $ 46,078 $ 68,978 $ 88,493 $ 125,114 Operating Income $ 8,419 $ 18,222 $ 31,457 $ 38,684 $ 44,947 EBITDA (a) $ 9,738 $ 21,885 $ 36,195 $ 46,179 $ 56,113 Net Income $ 3,007 $ 8,248 $ 12,341 $ 12,006 $ 15,329 Earnings per Common Share Basic $ 0.40 $ 0.71 $ 0.92 $ 0.87 $ 1.11 Diluted $ 0.35 $ 0.60 $ 0.76 $ 0.73 $ 0.99 Weighted Average Number of Common Shares Outstanding Basic 7,548 11,647 13,394 13,775 13,801 Diluted 8,518 13,831 16,492 16,729 15,577

Working Capital $ 8,022 $ 17,734 $ 122,177 $ 157,457 $ 173,005 Total Long-Term Debt, Net $ 17,285 $ 37,215 $ 133,785 $ 176,159 $ 175,030 Shareholders’ Equity $ 17,539 $ 44,680 $ 58,626 $ 71,480 $ 82,287

(a) EBITDA is defined as earnings before interest, depreciation and amortization.

$ 56,113

$ 46,179 $ 361,243

$ 309,615 $ 36,195

$ 21,885 $ 215,487

$ 9,738 $ 140,482 $ 0.99 $ 87,979

$ 0.76 $ 0.73 $ 0.60 1996 1997 1998 1999 2000 $ 0.35 [Fiscal Year] 1996 1997 1998 1999 2000 [Fiscal Year] EBITDA (a) [Thousands]

Five-Year Compounded Annual Growth Rate 57.4% Net Sales [Thousands]

Five-Year Compounded Annual Growth Rate 40.0% 1996 1997 1998 1999 2000 [Fiscal Year]

Earnings per Common Share Diluted

Five-Year Compounded Annual Growth Rate 23.5% The successful addition and integration of the Paul Fiscal Year 2001 Sebastian brands and the department store sales Initiatives organization during fiscal year 2000, combined Business Structure with FFI’s success in the mass retail market, have To better serve FFI’s retailers and to gain operational well positioned the Company to acquire additional efficiencies, FFI is aligning its organizational structure fragrance and related cosmetic brands during fiscal with its trade channels—namely, prestige department year 2001. This new business infrastructure, along stores, mid-tier department stores and mass retailers. with the tremendous growth of FFI’s owned and As part of this transformation, certain areas of licensed brand portfolio, has enabled the Company to functional expertise will be transferred to each of make further investments in e-commerce business-to- the three business units, including sales, marketing, business initiatives, retail Internet site management, customer service and financial expertise. We believe vendor managed inventory, category management, that this transformation will allow FFI to operate facility expansion and a number of creative more efficiently and provide each business unit with marketing programs, including an “open sell” more autonomy and corresponding accountability. merchandising program. We are able to make this transition because of the great steps FFI has taken over the last few years to strengthen all levels of management. FFI’s management team is comprised of many seasoned professionals with significant cosmetic and fragrance industry experience.

Fulfillment Strengths and Revenue Growth

[Millions]

Inbound EDI [Electronic Data Interchange]

Retail Link Inbound EDI

Customer ASN [Advance Ship Notice] Retail Link Inbound EDI

Category Management $ 361 Customer ASN Retail Link $ 310 Inbound EDI Web Enabled ERP [Enterprise Resource Planning] $ 215 - Vendors - Customers - Employees $ 140 Web Order Processing Web EDI KPI Reporting $ 88 [Key Performance Indicators] EFT [Electronic Fund Transfer] Vendor Managed Inventory Category Management Customer ASN Retail Link Inbound EDI 1996 1997 1998 1999 2000 In addition, we have adopted certain key performance Retailer Internet Site Management indicators (KPIs) for each member of management FFI is currently working with certain major retail that tie their compensation to the achievement of partners to design and manage the fragrance pages those KPIs. We developed the KPIs in a manner of their web sites, as well as fulfill all fragrance that reflects the operational goals of FFI and ties orders placed by consumers on those web sites. them to the members of management most directly The flexibility and efficiency of FFI’s fulfillment responsible for the achievement of those goals. Most operation positions it well to satisfy the requirements of the key KPIs focus on such important Company of its “brick to clicks” retail accounts, including to goals as net sales, gross margin, net income, inventory accept and ship orders direct to consumers for its turns, accounts receivable aging, forecasting accuracy, retail accounts. To this end, FFI has already begun order cycle time and orders shipped complete. The a limited assortment offering with JCPenney for KPIs measure the performance of customer and Mother’s Day and will roll out a larger scale offering brand profitability, just-in-time order fulfillment to for Christmas 2000. JCPenney.com is one of the customers, working capital improvement and order most successful consumer web sites. processing efficiency. Vendor Managed Inventory (VMI) E-Commerce, B2B Expansion Vendor managed inventory allows FFI full visibility In March 2000, the Company engaged IBM Global of store-level demand and history to accurately Services, American Software, Inc. and Logility, Inc. project future requirements and recommend product to assist in the expansion of its existing e-commerce assortment, inventory levels and merchandising to business-to-business (b2b) capabilities to better serve maximize turns, return on investment and gross its retailers and suppliers and to gain operational margin. In a highly seasonal business such as prestige efficiencies. Through this e-business project, the fragrances, managing inventory to optimum levels to Company expects to complete an upgrade of its prevent out-of-stocks is a difficult task using systems existing enterprise resource planning system to a that are typically developed for general merchandise. fully integrated, web-enabled forecasting, purchasing, For this reason, retailers are considering turning over materials management, financial reporting and order their inventory planning and category management to processing system by the third quarter of fiscal 2001. FFI so it can use its sophisticated demand planning The Company also expects to launch an upgraded web and broad-based market intelligence to improve their site this summer, which will have Internet, Intranet category performances. FFI will launch its VMI Dillard’s is a trademark of Dillard’s, Inc. and Extranet capabilities. FFI currently uses its program this summer. Eckerd is a trademark of Eckerd Corporation JCPenney is a trademark of JCPenney Company, Inc. e-commerce b2b platform to (1) process over 90% Kohl’s is a trademark of Kohl’s Corporation of its orders through electronic data interchange Macy’s is a trademark of Federated Department Stores, Inc. transmissions, (2) analyze point-of-sale data from May Company is a trademark of retailers, which is the backbone of FFI’s category The May Department Stores Company Rite Aid is a trademark of Rite Aid Corporation management services, (3) process orders through a Sears is a trademark of Sears, Roebuck & Co. web-enabled application and (4) conduct electronic Target is a trademark of Dayton-Hudson Corporation funds transfers. Walgreens is a trademark of Walgreen Co.

Wal-Mart is a trademark of Wal-Mart Stores, Inc. Promising Outlook

prestige fragrances have traditionally Over the past five years, FFI’s net sales have grown been placed in glass cases under more then five-fold to in excess of $360 million lock and key... last fiscal year and it has achieved a compounded annual growth rate of 40% in net sales and 50% in net income. Additionally, FFI’s shareholder equity increased 15% over last fiscal year. FFI also generated strong cash flow from operations of approximately $32.0 million during fiscal 2000. We expect continued improvement in working capital during fiscal 2001, resulting in additional cash flow generation. This anticipated additional cash flow, Open Sell Merchandising coupled with FFI’s unused credit facility, further Within the mass market, prestige fragrances have strengthens FFI’s ability to acquire additional traditionally been placed in glass cases under lock and fragrance and related cosmetic brands in the future. key with minimal service support to facilitate sales from this type of merchandising. Because prestige We want to thank you, our shareholders, for your fragrances are typically impulse purchases, it is continued support and our employees for their estimated that “open sell” or “self service” can dedication and diligence and for making our generate a 40% to 60% increase in sales. FFI business goals a reality. began a campaign promoting this initiative within the mass retail market three years ago, and will begin rolling out programs with major retailers this spring. Cordially, Facility Expansion In February 2000, the Company leased a 295,000 square foot facility in Edison, New Jersey, which serves as a promotional set fulfillment center and will E. Scott Beattie provide additional capacity for growth. The strategic Chairman, President and location of this facility, near most of FFI’s suppliers, Chief Executive Officer along with the additional operating space, will help reduce current product distribution cost and provide greater operating efficiency. The facility will also become headquarters for FFI’s prestige department store group. The Company is consolidating its operations to the Edison facility and FFI’s 230,000 square foot facility in Miami Lakes, Florida, which will continue to serve as the Company’s headquarters and a basic inventory fulfillment center. ... “open sell” can generate a 40% to 60% increase in sales. fragrances

Corporate and investor information

DIRECTORS

E. Scott Beattie Chairman, President and Chief Executive Officer French Fragrances, Inc. Corporate Headquarters Miami, Florida French Fragrances, Inc. J.W. Nevil Thomas 14100 N.W. 60th Avenue Vice Chairman of the Board Miami Lakes, Florida 33014 French Fragrances, Inc. Telephone No. (305) 818-8000 Chairman, Bedford Capital Corporation Shareholder Relations Toronto, Canada Shareholders, analysts, investors and others seeking Fred Berens Company information, including reports filed with Senior Vice President – Investments the Securities and Exchange Commission, should Prudential Securities, Inc. contact the Chief Financial Officer at Telephone No. Miami, Florida (305) 818-8102 or 1-800-227-2445.

George Dooley Transfer Agent and Registrar President and Chief Executive Officer ChaseMellon Shareholder Services Community Television Foundation Overpeck Centre of South Florida, Inc. (WPBT-TV) 85 Challenger Road Miami, Florida Ridgefield Park, New Jersey 07660 Telephone No. 1-800-756-3353 Rafael Kravec Miami, Florida Independent Auditors Richard C.W. Mauran Deloitte & Touche LLP Director, Bedford Capital Corporation 200 South Biscayne Boulevard, Suite 400 London, England Miami, Florida 33131 Telephone No. (305) 358-4141

Annual Meeting The Annual Meeting of Shareholders of French Fragrances, Inc. will be held at the Company’s executive offices, 14100 N.W. 60th Avenue, Miami Lakes, Florida 33014, on June 16, 2000 at 10:30 a.m., Eastern Standard Time.

Stock Meeting The Company’s Common Stock is traded on The Nasdaq Market under the symbol “FRAG”. fragrances

Eau de Grey Flannel Company Milestones Sheer Halston a list of Company milestones relating to brand acquisitions, fragrance launches and public financings

March 1995 Acquisition of Geoffrey Beene fragrances from Sanofi Beaute (Grey Flannel and Bowling Green brands)

October 1995 Exclusive distribution agreement with Pierre Fabre for Galenic Elancyl skin care line

December 1995 Exclusive distribution agreement with Benetton for Colors of Benetton and Tribu brands

March 1996 Acquisition of Halston fragrance line from Halston Borghese (Halston, Catalyst, Z-14 and 1-12 brands)

May 1996 Acquisition of exclusive license agreements for Ombre Rose, Lapidus, Faconnable, Bogart, Balenciaga, Chevignon and several other brands

July 1996 Public offering of $30 million of Common Stock at $6.00 per share

January 1997 Launch of Eau de Grey Flannel by Geoffrey Beene (FiFi Award nominee)

HALSTON April 1997 Acquisition of new exclusive license agreements for Salvador Dali, Laguna, halston Z-14 Dalissime, Salvador, Dalimix, Cafe, Taxi, Watt and several other fragrance brands Grey Flannel May 1997 Offering of $115 million principal amount of 10 3/8% Senior Notes due 2007

August 1997 Launch of Benetton Hot and Cold fragrances (FiFi Award winner)

March 1998 Acquisition of Assets of J.P.Fragrances, which includes distribution rights for a portfolio of prestige fragrance brands

April 1998 Offering of $40 million principal amount of 10 3/8% Senior Notes due 2007

August 1998 Launch of Sheer Halston and Halston Z (FiFi Award nominees)

November 1998 Exclusive license agreement with an affiliate of The Proctor & Gamble Company for the Wings by Giorgio Beverly Hills fragrance brand

January 1999 Acquisition of Paul Sebastian fragrance lines from Paul Sebastian (PS Fine Cologne for Men, Design for Women, Design for Men, Casual for Women, Casual for Men and Cigar Aficionado) and of distribution rights for Nautica for Men, Nautica for Women and Nautica Competition

Wings May 1999 Launch of Geoffrey Beene Ladies Halston Z Nautica