Coty Warns of Possible Israel Boycott Violations

Coty Inc. (COTY) said it may face penalties that result in a material loss after its United Arab Emirates unit possibly violated U.S. laws that prohibit participating in a boycott of Israeli products.

The subsidiary may have certified on some invoices that its shipments didn’t contain any materials of Israeli origin, the New York-based cosmetics company said today in a filing with the U.S. Securities and Exchange Commission. Such certifications are part of the Arab League’s boycott of Israel and may violate U.S. laws against participating in unsanctioned boycotts, Coty said.

“A penalty or penalties that would result in a material loss are reasonably possible” because of the potential infractions, Coty said in the filing, adding that no reserve to cover those charges has been created. The company said it will incur costs to improve its compliance procedures as well.

The maker of Chloe and Marc Jacobs perfume also said its UAE unit reshipped some products to Syria and Iran, possibly violating U.S. export laws. Coty said it doesn’t believe those incidents violated trade sanctions and that it voluntarily reported them to U.S. government authorities. The company also provided the government with the results of an internal investigation into goods sold in a more than four-year period through March 2012. It disclosed the probes in earlier filings.

Company Cooperating

“These investigations relate to a very small portion of our sales, Catherine Walsh, a Coty spokeswoman, said today in an e-mail. ‘‘The investigations are in an early phase and we are cooperating with the authorities in the ordinary course. As noted in our filings, we cannot predict when the investigations will conclude, whether fines will be assessed or the order of magnitude if assessed.’’

Coty, which also reported fourth-quarter results today, fell 3.8 percent to $15.64 at the close in New York. The shares have slid 11 percent since opening at $17.50 on June 13, their first day of trading. The Standard & Poor’s 500 Index has gained 5.7 percent since its opening that day.

Fourth-quarter profit excluding some items was 3 cents a share, the company said. Analysts projected 1 cent, the average of nine estimates compiled by Bloomberg.

Chief Executive Officer Michele Scannavini said today on a conference call that growth in Coty’s global markets is slowing down and some retailers are postponing shipments for the holiday season to see how sales fared during the back-to-school shopping period.

Coty also declared a dividend of 20 cents a share, payable Oct. 31 to holders of record as of Oct. 11.

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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