Coty Q4 2026 Earnings Call Transcript

Coty (NYSE: COTY ) released fourth-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Coty Inc's fourth quarter results exceeded expectations, with strong cash discipline leading to higher free cash flow despite profitability challenges. Fiscal year 2027 is anticipated to be a transition year focusing on strengthening core franchises, simplifying the portfolio, and achieving consistent growth. S. and a milder impact from the Middle East conflict.

The company reported a 5% decline in like-for-like sales for fiscal year 2026, impacted by market exits and product launches. The prestige division saw sequential improvement with a modest sales decline, boosted by strong growth in prestige cosmetics and successful new product launches. S. for brands like Sally Hansen and CoverGirl.

9%, down 140 basis points year-over-year, driven by lower volumes and elevated costs. The company's All In To Win savings program exceeded targets, achieving over $250 million in savings, contributing to a leaner cost base. Adjusted EBITDA and EPS met the high end of guidance, but profitability remains below desired levels. Free cash flow for fiscal year 2026 was strong at $348 million, reflecting disciplined working capital management and reduced capex.

Net debt decreased by nearly $840 million year-over-year, with ongoing focus on deleveraging and balance sheet strength. Coty's future outlook includes a projected low to mid-single-digit decline in Q1 fiscal 2027 revenue, with strategic focus on core brands and simplifying the organization. Plans to mitigate the impact of the Gucci license exit by fiscal 2028 include cost savings and new product launches. Full Transcript Olga Levinson, Senior Vice President, Investor Relations Hello everyone.

This is Olga Levinson, Coty's senior vice president of Investor Relations. Thank you for joining us today for the prepared remarks portion of Coty's fourth quarter fiscal 2026 earnings. m. m.

Central European Time, we will hold a separate live Q&A session on our results, which you can access via our Investor Relations website. Joining me for our presentation are Marcus Strobel, Coty's Executive Chairman of the Board and Interim Chief Executive Officer, and Laurent Mercier, Coty's Chief Financial Officer. Before I hand the call over to Marcus, I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty's earnings release and the reports filed with the SEC where the company lists factors that could cause actual results to differ materially from these forward-looking statements.

In addition, except where noted, the discussion of Coty's financial results and Coty's expectations reflect certain adjustments as specified in the non-GAAP Financial Measures section of the company's release. With that, I will turn it over to our Chief Executive Officer, Marcus. Marcus Strobel, Executive Chairman and Interim CEO Thank you, Olga. Hello everyone.

Thank you for joining us. Before I begin, I first of all want to thank you, Laurent, for your leadership as CFO. On behalf of the Board and the entire company, I want to thank you for your many contributions to Coty over the last nine years. I would also like to congratulate Soraya on her appointment as Chief Financial Officer.

We are pleased to have her stepping into this role as part of an orderly transition as we continue executing our strategy. Our fourth quarter results were ahead of expectations, an encouraging step as we improve execution consistency. The strong cash discipline across the company also fueled higher free cash flow in fiscal 26 even in the face of profitability headwinds. At the same time, we are not where we want the business to be.

Fiscal 27 will be a transition year as we strengthen core franchises and simplify the portfolio and organization, positioning Coty for more consistent growth and sustainable value creation over time. With that, let me turn it over to Laurent. Laurent Mercier, Chief Financial Officer Thank you, Markus. Now let me begin by walking you through the sales and setup trends in the quarter.

While the macro environment remains volatile, our focus continues to be on the areas we can control: strengthening sellout, improving execution, and allocating resources behind the brands, markets, and initiatives with the greatest potential to create value. Starting with our Q4 performance, Coty delivered Q4 like for like sales down 1%, reflecting sequential trend improvement and coming in ahead of our guidance of a mid single digit like for like decline relative to our expectations. S. in both prestige fragrances and mass cosmetics, as well as a milder impact from the Middle East.

Specifically, the Middle East conflict impacted our Q4 total sales by a little over 1%, whereas we had anticipated a 2% to 3% impact for the quarter. We ended fiscal year 26 with a 5% like for like decline in sales, which included quarterly variability driven in part by prior year comparisons and the timing of commercial and portfolio actions like exiting underscale markets and launches. We remain focused on disciplined execution and improving sellout across the portfolio, though quarterly fluctuations may continue over the course of fiscal year 27 as we make necessary adjustments. Let me start with a broader market backdrop and sellout performance.

Despite continued macroeconomic and geopolitical uncertainty, consumer demand for beauty remains resilient. In prestige, the market grew approximately 6% in the second half of fiscal 26, while the mass beauty market grew approximately 5% over the same period. Against that backdrop, our sellout performance remained below the market in both divisions. In prestige, our sellout declined 1% in the second half and was slightly negative for the full fiscal year.

S. As a result, we believe the six months view provides a more representative comparison of both market growth and our sellout performance. However, our conclusions remain consistent. The prestige beauty market remains robust, though very competitive.

Our major prestige fragrance launches are performing well, but they have not yet generated the halo across the core portfolio that we are targeting, particularly in the second half, and at the same time our smaller flankers are not sufficiently differentiated. These two factors are resulting in the modest decline in our sellout. This is exactly what we intend to improve in fiscal year 27 as all of our brand plans are aimed at driving both incrementality of innovation and a halo for the portfolio.

In consumer beauty, our sellout declined 2% in the second half, which is an improvement relative to the 4% sellout decline for the full fiscal year while still clearly below the market growth levels. , where we are seeing some early green shoots for Sally Hansen and CoverGirl, as well as acceleration in our sellout growth in Brazil. In sum, our focus is improving sellout in both divisions and steadily closing the gap to the market. Let me now turn to our prestige division.

5% in the fourth quarter and exceeded our expectations. Within this divisional total, prestige fragrance like for like revenues declined 1% in Q4 and by approximately 4% in the second half, which is now almost aligned with our prestige fragrance sellout trends in the second half. In parallel, we saw strong momentum in prestige cosmetics, which delivered double-digit sales and sellout growth supported by Kylie, Burberry, and the early contribution from the Marc Jacobs makeup launch. 5% in the quarter, lower than we had initially anticipated.

We saw encouraging momentum from innovations across the portfolio including Boss Bottled Beyond Cosmic, Kylie Generitants, and Calvin Klein Euphoria Edexia. Let me now turn to consumer beauty sales trends. While results remain below where we want them to be, we saw an improvement in trends in the fourth quarter with like for like sales declining 3%. Color cosmetics remained pressured, though trends improved sequentially as we continue to implement the actions associated with our turnaround plan.

Encouragingly, Sally Hansen returned to sales growth supported by continued positive sellout momentum over the past six months. We are also seeing improving sellout trends in CoverGirl and a narrowing gap versus the broader category, and in the UK, Rimmel gained volume market share in the last three months and is narrowing the gap to the broader category. Lifestyle fragrances remained challenged, though sales trends improved compared to prior quarters. While we still have considerable work ahead, these results provide early evidence that the actions we are taking are beginning to gain traction.

Our focus remains on strengthening sellout, improving execution, and positioning consumer beauty for more sustainable growth over time. While our financial performance remains impacted by the challenges we have discussed throughout the year, we are making progress against our strategic priorities. I will now walk you through our financial results for the fourth quarter and full fiscal year. 9%, down 140 basis points year over year and in line with our expectations.

For the full fiscal year, adjusted gross margin was 63%, down 190 basis points. The primary drivers of the year-over-year decline were cost absorption impact from lower volumes, elevated excess and obsolescence in both divisions, and the impact from tariff. We remain focused on simplification, operational discipline, and productivity actions as we aim to stabilize gross margins over the course of fiscal year 27. Turning now to our savings program, our All In To Win program continued to deliver strong results in fiscal year 26 with total productivity and fixed cost savings of more than 250 million, ahead of our target.

These savings were generated across procurement, supply chain, overheads, and organizational efficiencies, reflecting continued focus on productivity and disciplined cost management. Importantly, these actions are contributing to a structurally leaner cost base. Our underlying fixed cost structure declined 4% year over year in fiscal year 26 despite the inflationary backdrop, partially offset by a headwind from the partial restoration of variable compensation. We expect to accelerate our savings initiatives in fiscal year 27 and beyond as we right size our cost structure across the P&L.

Turning to EBITDA and EPS, in the fourth quarter our adjusted EBITDA and adjusted EPS excluding the equity swap came in at the high end of our guidance range and ahead of expectations. That said, performance remains below where we want to be in absolute terms, and we are not satisfied with the current level of profitability. We continue to invest behind our core brands and franchises, with A&CP remaining in the high 20s as a percentage of sales. Adjusted EBITDA declined 26% year on year in Q4 and 22% in fiscal year 26, primarily reflecting top line pressure, lower gross margins, and the year-over-year impact from variable compensation.

34 for the full fiscal year. As we move forward, we remain focused on improving execution, strengthening operational discipline, and building more consistent profitability over time. Let me now walk you through our adjusted EBITDA delivery by division, starting with prestige. Adjusted EBITDA declined 17% in Q4 and 12% in fiscal year 26.

The fiscal year 26 EBITDA decline was driven by cost of goods sold absorption, headwinds from lower shipments volumes, higher trade spending, and higher tariff cost. In Q4, the EBITDA decline primarily reflected a step up in A&CP behind prestige makeup initiatives, as well as some COGS absorption headwinds. 5% in fiscal year 26, highlighting the resilience of our scaled global beauty platform. In consumer beauty, adjusted EBITDA continued to be under pressure in Q4, declining 67% year over year.

As we discussed previously, consumer beauty profitability was heavily pressured by supply chain cost under-absorption due to lower sales, higher excess and obsolescence, and higher tariff-related cost. Importantly, in Q4, consumer beauty adjusted EBITDA improved by 32 million sequentially from Q3 supported by tighter cost control and seasonally stronger sales. Turning now to free cash flow, despite over a 200 million decline in our fiscal year 26 EBITDA, we delivered very strong free cash flow of 348 million, an increase of approximately 70 million year over year and well ahead of our guidance.

This performance reflects disciplined working capital management across the organization, year-over-year reduction in cash bonuses, a 34 million reduction in cash paid for interest, and a 25 million lower capex. Importantly, this demonstrates strong cash conversion and disciplined balance sheet management in a difficult operating year. Strong cash generation remains a key priority as we continue to fund strategic investments, strengthen the balance sheet, and position the company for sustainable long-term value creation.

Turning now to our balance sheet and capital structure, debt paydown and deleveraging remains a top priority for Coty and an important element of our long-term value creation framework. 9 billion, and this balance does not incorporate the first tranche of proceeds we received in July from the Gucci transaction. Net debt declined by nearly 840 million year over year, reflecting progress against our debt reduction objectives through the Vela monetization and strong free cash flow generation. 4 times.

Even as we navigate evolution of our portfolio, we continue to target leverage of approximately two times over time. In parallel, we continue to evaluate our portfolio and assets to support a simplified Coty with a stronger balance sheet. Let me turn it back to Markus to discuss our outlook. Marcus Strobel, Executive Chairman and Interim CEO Thank you, Laurent.

Let me walk you through our outlook for the first quarter of fiscal 2027 as we continue to see, quarter after quarter, consumer demand for beauty remains resilient with solid demand growth in fragrances and cosmetics. At the same time, consumers are increasingly selective in their purchase decisions, which is manifesting in several ways — in some cases benefiting more premium brands and products, in other cases benefiting more accessible offerings.

We are continuing to implement our Coty Curated strategic framework, focusing on core brands and markets, reducing portfolio complexity, increasing agility by simplifying the organization, and identifying savings opportunities across the P&L to support increased investment in consumer engagement and protect profitability. We expect first quarter fiscal ’27 like-for-like revenue to decline by a low- to mid-single-digit percentage.

While we expect Q1 sellout trends for both divisions to be broadly consistent with trends in the second half of fiscal ’26, the timing of customer orders and prior-year comparables are contributing to fluctuations in our year-over-year sales trends. On a reported basis, we anticipate foreign exchange to have a neutral impact in the quarter. We see Q1 adjusted gross margins declining by approximately 50 to 100 basis points year over year, driven by cost of goods absorption headwinds from lower shipment volumes and elevated, though sequentially lower, excess and obsolescence, partially offset by productivity initiatives and procurement actions.

Altogether, we expect Q1 adjusted EBITDA to decline by a low-teens percentage, reflecting a sequential improvement from the more significant declines in the second half of fiscal ’26. 13 per share. Anchored in the seasonal strength of our business in the first half and continued disciplined CapEx and working capital management, we expect free cash flow in first half fiscal ’27 of over $300 million. Let me briefly share how we are approaching fiscal ’27.

As we have discussed, our objective is to restore growth while improving the quality of our business through greater focus, simplification, and operating discipline. Fiscal ’27 will be a transition year as we strengthen the core business and continue shaping a simpler, more focused Coty, factoring both the Gucci exit by fiscal ’28 and final portfolio decisions related to our strategic review by the end of calendar ’26. Given Coty Curated remains in the early stages of implementation with uneven quarterly performance trends, coupled with the ongoing strategic review, we will not be issuing full-year fiscal ’27 guidance at this stage.