Eau de Toilette
Lotion Aprés Rasage
Body Lotion FRENCH FRAGRANCES, INC. Vaporisateur
After Shave Lotion 1999 ANNUAL REPORT
Eau de Cologne
Bath and Shower Gel
Perfume
Natural Spray
Eau de Toilette
Lotion Aprés Rasage
Body Lotion
Vaporisateur
After Shave Lotion Eau de Cologne November 1998 Bath and Shower Gel Exclusive license Perfume agreement for Wings by Giorgio Natural Spray Beverly Hills
Eau de Toilette
Lotion Aprés Rasage Body Lotion January 1999 Vaporisateur
After Shave Lotion
Eau de Cologne May Bath1999 and Shower Gel Acquisition of Acquisition of Perfume distribution rights Paul Sebastian Launch of for Nautica for Men, fragrance lines: Geoffrey Beene Natural Spray Nautica for Women PS Fine Cologne for Men, Ladies and Nautica Competition Design for Women, Design for Men, Casual for Women, FRENCH FRAGRANCES, INC. Casual for Men 14100 NW 60TH AVENUE, MIAMI LAKES, FLORIDA 33014 and Cigar Aficionado. 800.227.2445 305.818.8000 FAX: 305.818.8010 Eau de Toilette The Company Lotion Aprés Rasage Financial Highlights F rench Fragrances, Inc. began operations in 1992 focusing on the distribution of prestige Body Lotion (In thousands, except per share data) fragrances into the United States retail market. Through acquisitions of fragrance brands and FiscalY ears Ended distribution relationships and internally-generated growth, the Company has emerged as a Vaporisateur J anuary 31, 1996 J anuary 31, 1997 J anuary 31, 1998 J anuary 31, 1999 leading manufacturer, distributor and marketer of prestige fragrances and related products in the United States. The Company has established itself as a distribution source for more than After Shave Lotion Net Sales $ 87,979 $ 140,482 $ 215,487 $ 309,615 230 prestige brands, including approximately 65 for which it has exclusive marketing and Eau de Cologne Gross Profit $ 21,639 $ 46,078 $ 68,978 $ 88,493 distribution rights and over 165 other prestige fragrance brands that are distributed by the Operating Income $ 8,419 $ 18,222 $ 31,457 $ 38,684 Company on a non-exclusive basis. The Company distributes its products to more than 35,000 Bath and Shower Gel separate retail locations, including department stores, mass merchants, drug stores and EBITDA(a) $ 9,738 $ 21,885 $ 36,195 $ 46,179 independent fragrance, cosmetic and other stores. Perfume Net Income $ 3,007 $ 8,248 $ 12,341 $ 12,006 T he following is a list of Company milestones relating to brand acquisitions, fragrance launches and public financings: Natural Spray Earnings per Common Share March 1995 A cquisition of Geoffrey Beene fragrance line from Sanofi Beaute (Grey B asic $ 0.40 $ 0.71 $ 0.92 $ 0.87 Flanne l and Bowling Green brands) Eau de Toilette D iluted $ 0.35 $ 0.60 $ 0.76 $ 0.73 October 1995 E xclusive distribution agreement with Pierre Fabre for Galenic Elancyl Lotion Aprés Rasage Weighted Average Number of skin car e line Common Shares Outstanding 1995 December 1995 E xclusive distribution agreement with Benetton for Colors of Benetton and Body Lotion Tribü brands B asic 7,548 11,647 13,394 13,775 March 1996 A cquisition of Halston fragrance line from Halston Borghese (Halston, Vaporisateur D iluted 8,518 13,831 16,492 16,729 Catalyst, Z-14 and 1-12 brands) May 1996 A cquisition of exclusive license agreements for Ombre Rose, Lapidus, After Shave Lotion Working Capital $ 8,022 $ 17,734 $ 122,177 $ 157,826 Façonnable, Bogart, Balenciaga, Chevignon and several other brands July 1996 P ublic offering of $30 million of Common Stock at $6.00 per share FRAEaGu de Cologne Total Long Term Debt $ 17,285 $ 37,215 $ 133,785 $ 176,159 January 1997 Launc h of Eau de Grey Flannel by Geoffrey Beene (FiFi Award nominee) Bath and Shower Gel Shareholders' Equity $ 17,539 $ 44,680 $ 58,626 $ 71,480 April 1997 A cquisition of new exclusive license agreements for Salvador Dali, Laguna, Dalissime, Salvador, Dalimix, Café, Taxi, Watt and several other brands Perfume (a) EBITDA is defined as earnings before interest, depreciation and amortization. May 1997 Off ering of $115 million principal amount of 10 3/8% Senior Notes due 2007 $46,179 1996 August 1997 Launc h with Benetton of Hot and Cold (FiFi Award winner) Natural Spray March 1998 A cquisition of assets of J.P. Fragrances, including arrangements for dist ribution of a portfolio of brands Eau de Toilette April 1998 Off ering of $40 million principal amount of 10 3/8% Senior Notes due 2007 Lotion Aprés Rasage $36,195 August 1998 Launc h of Sheer Halston and Halston Z (FiFi Award nominees) November 1998 E xclusive license agreement for Wings by Giorgio Beverly Hills $309,615 Body Lotion January 1999 A cquisition of Paul Sebastian fragrance lines from Paul Sebastian (PS Fine Net Sales EBITDA(a) Earnings per C ologne for Men, Design for Women, Design for Men, Casual for Women, Vaporisateur Common Share Casual for Men and Cigar Aficionado) and of distribution rights for Nautica Diluted $215,487 $0.76 $0.73 f or Men, Nautica for Women and Nautica Competition After Shave Lotion $21,885 May 1999 Launc h of Geoffrey Beene Ladies Eau de Cologne $0.60 $140,482 Bath and Shower Gel 1997 FiFi Award Nominee 1997 FiFi Award Winner $9,738 Perfume $87,979 $0.35
Natural Spray
FY 1999 FY 1999 FY 1999 1997 Eau de Toilette FY 1998 FY 1998 FY 1998 FY 1997 FY 1997 FY 1997 FY 1996 FY 1996 FY 1996 Lotion Aprés Rasage Compound Growth Rate 45.8% Compound Growth Rate 66.4% Compound Growth Rate 20.4% Body Lotion
Vaporisateur
After Shave Lotion Eau de Toilette To Our Shareholders Lotion Aprés Rasage Fiscal 1999 was a y ear of growth for French Fragrances. We achieved record sales, Body Lotion T o that end, in January 1999, the Company acquired the manufacturing, marketing or especially among our top retailers, and completed two acquisitions, expanding our product distribution rights to the prestige fragrance brands of Paul Sebastian, including PS Fine Cologne selection and retail customer base. In addition, we upgraded our distribution capabilities and Vaporisateur for Men, Design for Women, Design for Men, Casual for Women, Casual for Men, Nautica for Men, refined our sales, marketing, accounts receivable and purchasing infrastructure. The decisions Nautica for Women, Competition and Cigar Aficionado. In addition to increasing the number of and investments we made in fiscal 1999 have positioned the Company for continued strong After Shave Lotion prestige brands the Company now controls, this acquisition provided the Company with an sales growth, improved profitability and a corresponding increase in shareholder value for fiscal experienced sales force and infrastructure to sell both its existing brands, as well as acquired Eau de Cologne 2000 and beyond. brands, to the department store channel of distribution in the United States. Although we do Fiscal 1999 - A Year of Growth and Challenge Bath and Shower Gel not expect to derive any sales or gross margin benefit from this acquisition until the second quarter of fiscal 2000, we believe that this acquisition will significantly enhance the mix of our I n fiscal 1999, the Company continued to enjoy strong sales growth. Net sales rose 44% to Perfume business and should strengthen the Company's ability to acquire additional brands. 1999 $309.6 million, from $215.5 million in fiscal 1998. Gross profit increased 28% to $88.5 million, Nominations T he Paul Sebastian acquisition followed the November 1998 acquisition of a license to PS Fine Cologne from $69.0 million, while EBITDA (earnings before interest, depreciation and amortization) For Men Natural Spray manufacture the Wings by Giorgio Beverly Hills Mens and Ladies prestige fragrance brands in the advanced 28% to $46.2 million, compared with $36.2 million in fiscal 1998. Net income FiFi United States. As a result of our acquisition activity, the number of prestige brands we control declined slightly to $12.0 million, or $.87 per share ($.73 per share diluted), compared with Eau de Toilette increased from 40 to 65 during fiscal 1999. $12.3 million, or $.92 per share ($.76 per share diluted), in fiscal 1998. I n March 1998, the Company acquired the principal assets of J.P. Fragrances, a fragrance A lthough the sales and EBITDA growth was significant, the Company did not achieve all of Lotion Aprés Rasage distributor which sold primarily to mass-market retailers. As a result of that acquisition, the its financial targets for the year. An unexpected softening in U.S. and international customer Company increased the number of manufacturers for which it serves as a direct distributor and demand in the late summer and early fall that affected most retailers and suppliers in the Body Lotion also the proportion of our sales resulting from distributed brands. Through the J.P. Fragrances consumer products industry, along with management's strategic decision not to ship orders to Vaporisateur acquisition and other initiatives during fiscal 1999, the number of distributed brands we offer accounts which were overdue in payment in an effort to improve accounts receivable, resulted in increased to over 165 from 120 during the prior year. lower than expected profitability and higher than expected inventory levels during the third Sheer Halston After Shave Lotion D uring fiscal 1999, we also successfully introduced two new fragrance line extensions - quarter, which is our most significant fiscal period. The steps we implemented during the third Sheer Halston for women and Halston Z for men - both of which were nominated for the quarter, however, yielded immediate benefits during a very strong fourth quarter, especially with Eau de Cologne prestigious "FiFi Award" presented by The Fragrance Foundation. These new fragrances are respect to working capital utilization. The Company generated approximately $55 million of Sheer Halston more contemporary versions of the Halston classics, Halston Ladies and Z-14, respectively. The cash from operations (before acquisitions of brands) during the fourth quarter and as a result 1999 Holiday Blockbuster Shower Gel Company is in the process of launching an exclusive women's fragrance by Geoffrey Beene and reduced its $50 million bank operating line to a negligible balance. The Company continues to the Andy Warhol men's and women's fragrance line. focus on improving its working capital turnover as a means of improving profitability. Perfume I n addition to our expansion in retail doors and our selection of prestige fragrance brands, D espite the challenges faced in the third quarter, the Company made tremendous advances Natural Spray during fiscal 1999, French Fragrances made great strides in improving the retail sell through of in fiscal 1999 in several key areas. Sales to our top 20 retailer accounts rose by an average of its products. The Company continued to emphasize retailer specific merchandising programs, Nautica Competition 139% and holiday season promotional items sold through at record levels. This sales growth Halston Z Eau de Toilette including distribution channel distinctive promotional gift sets, the use of demonstrator and resulted from several factors, including the addition of new direct purchase relationships and market specialists and the implementation of newly-designed merchandising displays that licenses with manufacturers, increased emphasis on market specialists and retailer-specific Lotion Aprés Rasage capitalize on the impulse of consumers while decreasing pilferage. As a value added service for a marketing initiatives, the development of sales analysis capabilities which we offer to our number of key customers, the Company also provides comprehensive sales analysis and customers, internal growth of many of our major retailers and the addition of new customers. Body Lotion inventory management services. We are very excited that these efforts are being increasingly In fact, the number of retail doors that we serviced in fiscal 1999 increased to over 35,000 Vaporisateur recognized, with several of our top retailers entrusting to the Company the management of their from approximately 31,000 a year ago. This growth has been accomplished while lowering entire prestige fragrance category. Our commitment to constantly improve customer service and selling, general and administrative percentages as a percentage of net sales to 9.8% from 11.9%. After Shave Lotion attend to the needs of our retailers is our primary objective, and we are highly encouraged by the Investments in the Future feedback we receive from our key customers. In fact, JCPenney, one of our major retailers, Our b usiness strategy during fiscal 1999 was to focus on our core business, with a Eau de Cologne recently awarded the Company its prestigious Chairman's Supplier of the Year Award, and particular emphasis on the acquisition of prestige fragrance brands and distribution Wal-Mart nominated the Company as vendor of the year for the fragrance category. Bath and Shower Gel relationships, improvement of customer's retail sell through programs, and the leveraging of our operating structure. We believe we made great progress in all of those areas. Perfume JCPenney Chairman’s Supplier of the Year Natural Spray
Eau de Toilette
Lotion Aprés Rasage
Kmart is a trademark of Kmart Corporation; JCPenney is a trademark of JCPenney Company, Inc.; Body Lotion Sears is a trademark of Sears, Roebuck & Co.; Walgreens is a trademark of Walgreen Co.; Target is a trademark of Dayton-Hudson Corporation; Eckerd is a trademark of Eckerd Corporation; Rite Aid is a trademark of Rite Merger Company; and Wal-Mart is a trademark of Wal-Mart Stores, Inc. Vaporisateur
After Shave Lotion Eau de Toilette
Lotion Aprés Rasage Directors During fiscal 1999, French Fragrances continued to invest heavily in our operational and management Rafael Kravec infrastructure to improve efficiencies. We have made significant investments in management information D uring fiscal 1999, French Fragrances continued to invest heavily in our operational and Body Lotion Shareholder Relations systems to fully integrate the Company's accounting, forecasting, purchasing and order-processing functions, management infrastructure to improve efficiencies. We have made significant investments in Chairman of the Board Shareholders, analysts, investors and others seeking as well as to assure Year 2000 compliance. We are also in the process of implementing the final segment management information systems to fully integrate the Company's accounting, forecasting, Vaporisateur French Fragrances, Inc. Company information, including reports filed with the of our distribution management system, which is designed to improve the management and flow of inventory. purchasing and order-processing functions, as well as to assure Year 2000 compliance. We are Securities and Exchange Commission, should contact Our Miami Lakes corporate offices and warehouse facility has been expanded and certain operational also in the process of implementing the final segment of our distribution management system, After Shave Lotion E. Scott Beattie the Chief Financial Officer at the Company's offices. departments have been revamped to increase coordination between product purchasing and order shipping. which is designed to improve the management and flow of inventory. Our Miami Lakes President and Chief Executive Officer Eau de Cologne We continue to evaluate alternatives to improve operational efficiencies and reduce warehouse and shipping corporate offices and warehouse facility has been expanded and certain operational departments Telephone Number 305.818.8102 or 800.227.2445 French Fragrances, Inc. costs, including the possible outsourcing of our gift set shipping and return processing operations to an have been revamped to increase coordination between product purchasing and order shipping. Bath and Shower Gel Transfer Agent and Registrar alternate location nearer to our set packaging vendors in the Northeast. We continue to evaluate alternatives to improve operational efficiencies and reduce warehouse J.W. Nevil Thomas and shipping costs, including the possible outsourcing of our gift set shipping and return ChaseMellon Shareholder Services Perfume President, Nevcorp, Inc. Promising Outlook processing operations to an alternate location nearer to our set packaging vendors in the Four Station Square Chairman, Bedford Capital Corporation Northeast. Natural Spray Third Floor The Company's business strategy for fiscal 2000 and beyond is to continue to focus on its core Promising Outlook Fred Berens Pittsburgh, Pennsylvania 15219 business strategy of selling fragrances and related products to all channels of distribution in the U.S. We Eau de Toilette T he Company's business strategy for fiscal 2000 and beyond is to continue to focus on its Senior Vice President - Investments believe our extensive selection of products, marketing and merchandising sell through programs and category Telephone Number 412.236.8179 core business strategy of selling fragrances and related products to all channels of distribution Lotion Aprés Rasage management capabilities provide us a competitive advantage unparalleled in the prestige fragrance market Prudential Securities, Inc. in the U.S. We believe our extensive selection of products, marketing and merchandising Independent Auditors place. sell-through programs and category management capabilities provide us a competitive Body Lotion George Dooley Deloitte & Touche LLP advantage unparalleled in the prestige fragrance marketplace. President and Chief Executive Officer 200 South Biscayne Boulevard W e would like to thank our employees for their dedication and diligence and for making Vaporisateur We would like to thank our employees for their dedication and diligence and for making possible the Community Television Foundation of possible the success and growth of the Company. On a personal note, I especially would like to Suite 400 success and growth of the Company. On a personal note, I especially would like to thank our Chairman of After Shave Lotion thank our Chairman of the Board, Rafael Kravec, who has been instrumental in building the South Florida, Inc. Miami, Florida 33131 the Board, Rafael Kravec, who has been instrumental in building the business since the Company's inception business since the Company's inception and is stepping back from the active management of the Telephone Number 305.358.4141 and is stepping back from the active management of the Company. Over the past year, Rafael was asked Eau de Cologne Richard C.W. Mauran Company. Over the past year, Rafael was asked to become a member of Shimon Peres' Peace to become a member of Shimon Peres' Peace Research Institute, and he has been dedicating considerable Private Investor Research Institute, and he has been dedicating considerable attention to this important project Bath and Shower Gel attention to this important project and other charitable causes. Rafael will continue to serve as non-executive and other charitable causes. Rafael will continue to serve as non-executive Chairman of the Annual Meeting Chairman of the Board and as an invaluable advisor and supporter of the business and its management. Board and as an invaluable advisor and supporter of the business and its management. Perfume The Annual Meeting of Shareholders of French W e also want to thank you, our shareholders, for your continued confidence and support. Fragrances, Inc. will be held at the Company's We also want to thank you, our shareholders, for your continued confidence and support. Natural Spray executive offices, 14100 NW 60th Avenue, Miami C ordially, Cordially, Eau de Toilette Lakes, Florida 33014, on June 23, 1999 at 10:00 AM, Corporate Headquarters Eastern Standard Time. Lotion Aprés Rasage French Fragrances, Inc. Stock Listing E. Scott Beattie Body Lotion E. Scott Beattie 14100 NW 60th Avenue The Company's Common Stock is traded on The P resident and Chief Executive Officer President and Chief Executive Officer Vaporisateur Miami Lakes, Florida 33014 Nasdaq Market under the symbol "FRAG." Telephone Number 305.818.8000 CORPORATE AND INVESTOR INFORMATION After Shave Lotion Eau de Cologne
1999 Holiday Season Bath and Shower Gel
Perfume
Natural Spray
Eau de Toilette
Lotion Aprés Rasage
Body Lotion
Vaporisateur
After Shave Lotion