Eau de Cologne Bath and Shower Gel Wings by Giorgio Eau de ...

Eau deToilette

Lotion Aprés Rasage

Body Lotion F R E N C H F R A G R A N C E S , I N C.
Vaporisateur 1999 ANNUAL REPORT
After Shave Lotion

Eau de Cologne

Bath and Shower Gel

Perfume

Natural Spray

Eau deToilette

Lotion Aprés Rasage

Body Lotion

Vaporisateur

After Shave Lotion November 1998
Eau de Cologne Exclusive license
Bath and Shower Gel agreement for
Perfume Wings by Giorgio
Natural Spray Beverly Hills

Eau deToilette

Lotion Aprés Rasage January 1999
Body Lotion
Vaporisateur

After Shave Lotion

Eau de Cologne

May 1999BathandShowerGel Acquisition of Acquisition of
Perfume distribution rights Paul Sebastian
for Nautica for Men, fragrance lines:
Launch of Nautica for Women PS Fine Cologne for Men,
and Nautica Competition Design for Women,
Geoffrey Beene Natural Spray Design for Men,
Casual for Women,
Ladies Casual for Men
and Cigar Aficionado.
FRENCH FRAGRANCES, INC.

1 4 1 0 0 N W 6 0 T H AV E N U E , M I A M I L A K E S , F LO R I DA 3 3 0 1 4

800. 227. 2445 305. 818. 8000 FAX: 305. 818. 8010

The Company Eau deToilette Financial Highlights
Lotion Aprés Rasage (In thousands, except per share data)

F rench Fragrances, Inc. began operations in 1992 focusing on the distribution of prestige Body Lotion
fragrances into the United States retail market. Through acquisitions of fragrance brands and
FiscalYears 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
Net Sales $ 87,979
leading manufacturer, distributor and marketer of prestige fragrances and related products in Gross Profit $ 21,639
Operating Income $ 8,419
the United States. The Company has established itself as a distribution source for more than After Shave Lotion EBITDA(a) $ 9,738 $ 140,482 $ 215,487 $ 309,615
Net Income $ 3,007
230 prestige brands, including approximately 65 for which it has exclusive marketing and Eau de Cologne Earnings per Common Share $ 46,078 $ 68,978 $ 88,493
distribution rights and over 165 other prestige fragrance brands that are distributed by the B asic $ 0.40
D iluted $ 0.35 $ 18,222 $ 31,457 $ 38,684
Company on a non-exclusive basis. The Company distributes its products to more than 35,000 Weighted Average Number of
separate retail locations, including department stores, mass merchants, drug stores and Bath and Shower Gel Common Shares Outstanding $ 21,885 $ 36,195 $ 46,179
B asic 7,548
independent fragrance, cosmetic and other stores. Perfume D iluted 8,518 $ 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

March 1995 A cquisition of Geoffrey Beene fragrance line from Sanofi Beaute (Grey $ 0.71 $ 0.92 $ 0.87
$ 0.60 $ 0.76 $ 0.73
Flanne l and Bowling Green brands) Eau deToilette

October 1995 E xclusive distribution agreement with Pierre Fabre for Galenic Elancyl Lotion Aprés Rasage
Body Lotion
1995 skincar e line

December 1995 E xclusive distribution agreement with Benetton for Colors of Benetton and

Tribü brands 11,647 13,394 13,775
13,831 16,492 16,729
March 1996 A cquisition of Halston fragrance line from Halston Borghese (Halston, Vaporisateur

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
Total Long Term Debt $ 17,285 $ 37,215 $ 133,785 $ 176,159
July 1996 P FRAGFaçonnable, Bogart, Balenciaga, Chevignon and several other brands Eau de Cologne Shareholders' Equity $ 17,539 $ 44,680 $ 58,626 $ 71,480
ublic offering of $30 million of Common Stock at $6.00 per share Bath and Shower Gel

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

April 1997 A cquisition of new exclusive license agreements for Salvador Dali, Laguna,

1996 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 Natural Spray $46,179
August 1997 Launc h with Benetton of Hot and Cold (FiFi Award winner)
March 1998 A cquisition of assets of J.P. Fragrances, including arrangements for

dist ribution of a portfolio of brands Eau deToilette

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) EBITDA(a)

November 1998 E xclusive license agreement for Wings by Giorgio Beverly Hills Body Lotion $309,615 $21,885
January 1999 A cquisition of Paul Sebastian fragrance lines from Paul Sebastian (PS Fine
Net Sales $9,738 Earnings per
C ologne for Men, Design for Women, Design for Men, Casual for Women, Common Share
Casual for Men and Cigar Aficionado) and of distribution rights for Nautica Vaporisateur Diluted

f or Men, Nautica for Women and Nautica Competition After Shave Lotion $215,487 $0.76 $0.73

May 1999 Launc h of Geoffrey Beene Ladies

Eau de Cologne $0.60

1997 FiFi Award Nominee Bath and Shower Gel $140,482
1997 FiFi Award Winner $87,979
$0.35
Perfume

1997 Natural Spray FY 1999 FY 1999 FY 1999
Eau deToilette FY 1998 FY 1998 FY 1998
FY 1997 FY 1997 FY 1997
Lotion Aprés Rasage FY 1996 FY 1996 FY 1996
Compound Growth Rate 45.8% Compound Growth Rate 66.4% Compound Growth Rate 20.4%
Body Lotion

Vaporisateur

After Shave Lotion

To Our Shareholders Eau deToilette

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
distribution rights to the prestige fragrance brands of Paul Sebastian, including PS Fine Cologne
especially among our top retailers, and completed two acquisitions, expanding our product

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
2000 and beyond. Eau de Cologne experienced sales force and infrastructure to sell both its existing brands, as well as acquired
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
1999
Nominations
PS Fine Cologne $309.6 million, from $215.5 million in fiscal 1998. Gross profit increased 28% to $88.5 million, Perfume FiFibusiness and should strengthen the Company's ability to acquire additional brands.
For Men from $69.0 million, while EBITDA (earnings before interest, depreciation and amortization) Natural Spray
advanced 28% to $46.2 million, compared with $36.2 million in fiscal 1998. Net income Eau deToilette T he Paul Sebastian acquisition followed the November 1998 acquisition of a license to
declined slightly to $12.0 million, or $.87 per share ($.73 per share diluted), compared with manufacture the Wings by Giorgio Beverly Hills Mens and Ladies prestige fragrance brands in the
United States. As a result of our acquisition activity, the number of prestige brands we control

$12.3 million, or $.92 per share ($.76 per share diluted), in fiscal 1998. increased from 40 to 65 during fiscal 1999.

A lthough the sales and EBITDA growth was significant, the Company did not achieve all of Lotion Aprés Rasage I n March 1998, the Company acquired the principal assets of J.P. Fragrances, a fragrance
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. Sheer Halston
lower than expected profitability and higher than expected inventory levels during the third 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
quarter, however, yielded immediate benefits during a very strong fourth quarter, especially with Eau de Cologne Sheer Halston for women and Halston Z for men - both of which were nominated for the
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
1999 Holiday Blockbuster 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 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 Perfume the Andy Warhol men's and women's fragrance line.
I n addition to our expansion in retail doors and our selection of prestige fragrance brands,
focus on improving its working capital turnover as a means of improving profitability.

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

Nautica Competition in fiscal 1999 in several key areas. Sales to our top 20 retailer accounts rose by an average of Eau deToilette its products. The Company continued to emphasize retailer specific merchandising programs, Halston Z
139% and holiday season promotional items sold through at record levels. This sales growth 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
licenses with manufacturers, increased emphasis on market specialists and retailer-specific Lotion Aprés Rasage market specialists and the implementation of newly-designed merchandising displays that
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 Eau de Cologne feedback we receive from our key customers. In fact, JCPenney, one of our major retailers,
recently awarded the Company its prestigious Chairman's Supplier of the Year Award, and
Our b usiness strategy during fiscal 1999 was to focus on our core business, with a

particular emphasis on the acquisition of prestige fragrance brands and distribution Bath and Shower Gel Wal-Mart nominated the Company as vendor of the year for the fragrance category.

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 deToilette

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; Vaporisateur
Rite Aid is a trademark of Rite Merger Company; and Wal-Mart is a trademark of Wal-Mart Stores, Inc.

After Shave Lotion

Eau deToilette Directors
Rafael Kravec
D uring fiscal 1999, French Fragrances continued to invest heavily in our operational and Lotion Aprés Rasage Chairman of the Board Shareholder Relations
management infrastructure to improve efficiencies. We have made significant investments in Body Lotion French Fragrances, Inc. Shareholders, analysts, investors and others seeking
management information systems to fully integrate the Company's accounting, forecasting, Vaporisateur E. Scott Beattie Company information, including reports filed with the
purchasing and order-processing functions, as well as to assure Year 2000 compliance. We are After Shave Lotion President and Chief Executive Officer Securities and Exchange Commission, should contact
also in the process of implementing the final segment of our distribution management system, Eau de Cologne French Fragrances, Inc. the Chief Financial Officer at the Company's offices.
which is designed to improve the management and flow of inventory. Our Miami Lakes Bath and Shower Gel J.W. Nevil Thomas Telephone Number 305.818.8102 or 800.227.2445
corporate offices and warehouse facility has been expanded and certain operational departments Perfume President, Nevcorp, Inc.
have been revamped to increase coordination between product purchasing and order shipping. Natural Spray Chairman, Bedford Capital Corporation Transfer Agent and Registrar
We continue to evaluate alternatives to improve operational efficiencies and reduce warehouse Eau deToilette Fred Berens ChaseMellon Shareholder Services
and shipping costs, including the possible outsourcing of our gift set shipping and return Lotion Aprés Rasage Senior Vice President - Investments Four Station Square
processing operations to an alternate location nearer to our set packaging vendors in the Body Lotion Prudential Securities, Inc. Third Floor
Northeast. Vaporisateur George Dooley Pittsburgh, Pennsylvania 15219
After Shave Lotion President and Chief Executive Officer Telephone Number 412.236.8179
Promising Outlook Eau de Cologne Community Television Foundation of
Bath and Shower Gel South Florida, Inc. Independent Auditors
T he Company's business strategy for fiscal 2000 and beyond is to continue to focus on its Perfume Richard C.W. Mauran Deloitte & Touche LLP
core business strategy of selling fragrances and related products to all channels of distribution Natural Spray Private Investor 200 South Biscayne Boulevard
in the U.S. We believe our extensive selection of products, marketing and merchandising Eau deToilette Suite 400
sell-through programs and category management capabilities provide us a competitive Corporate Headquarters Miami, Florida 33131
advantage unparalleled in the prestige fragrance marketplace. Telephone Number 305.358.4141
W e would like to thank our employees for their dedication and diligence and for making French Fragrances, Inc.
possible the success and growth of the Company. On a personal note, I especially would like to 14100 NW 60th Avenue Annual Meeting
thank our Chairman of the Board, Rafael Kravec, who has been instrumental in building the Miami Lakes, Florida 33014
business since the Company's inception and is stepping back from the active management of the Telephone Number 305.818.8000 The Annual Meeting of Shareholders of French
Company. Over the past year, Rafael was asked to become a member of Shimon Peres' Peace Fragrances, Inc. will be held at the Company's
Research Institute, and he has been dedicating considerable attention to this important project executive offices, 14100 NW 60th Avenue, Miami
and other charitable causes. Rafael will continue to serve as non-executive Chairman of the Lakes, Florida 33014, on June 23, 1999 at 10:00 AM,
Board and as an invaluable advisor and supporter of the business and its management. Eastern Standard Time.
W e also want to thank you, our shareholders, for your continued confidence and support.
Stock Listing
C ordially, The Company's Common Stock is traded on The
Nasdaq Market under the symbol "FRAG."
Lotion Aprés Rasage

E. Scott Beattie Body Lotion
P resident and Chief Executive Officer Vaporisateur

After Shave Lotion

1999 Holiday Season Eau de Cologne
Bath and Shower Gel

Perfume

Natural Spray

Eau deToilette

Lotion Aprés Rasage

Body Lotion

Vaporisateur

After Shave Lotion