Coty outlines return to growth in H2 2026 amid $130M cost savings and fragrance market focus

Earnings Call Insights: Coty Inc. (COTY) Q4 2025

MANAGEMENT VIEW

* CEO Sue Y. Nabi described fiscal 2025 as closing "the fifth year that Laurent and I have had the privilege of leading Coty," highlighting a company that is now "much stronger, more focused and more resilient" with "5 years of consistent performance." Nabi emphasized ambitions for "continued profitable growth and industry leadership in innovation, science and, of course, creativity."
* CFO Laurent Mercier reviewed a transformation at Coty, stating, "Prestige fragrances are now a $3.5 billion business for us, delivering a robust CAGR of plus 10% from fiscal '21 to fiscal '25." Mercier also pointed to a "plus 2% CAGR from fiscal '21 to fiscal '25" in Consumer Beauty and noted, "EBITDA grew at a CAGR of plus 9% from $760 million in fiscal '21 to $1.08 billion in fiscal year '25."
* Mercier acknowledged challenges in fiscal 2025, including "fueling multiple growth engines, maintaining high 20s percentage A&C investment and meeting EBITDA and deleveraging goals," with pressures expected to continue through the remainder of 2025. He stated, "We were delayed in intensifying weaknesses in our U.S. execution, retailer inventory buildup and headwinds from lapping fiscal year '24 innovation."
* Nabi announced a sharpened strategic focus: "We are refocusing on our core strength, the categories, brands and capabilities where we have a clear right to win and can deliver outsized returns." She emphasized fragrances, which now represent "over 60% of our revenues and even larger portion of profits."
* Nabi reported a new Chief Performance and Operational Excellence Officer role filled by internal promotion, with the aim of "driving efficiency, improving return on investment, embedding data-driven decision-making across the organization and delivering incremental innovation."

OUTLOOK

* Management expects sequential improvement in sales and profit trends for fiscal 2026. Mercier stated, "We anticipate net revenues to remain negative in the first half as strong contribution from innovation, new subcategories and support from distribution gains are offset by headwinds from a trade inventory reduction, more promotional environment and elevated year-over-year comparisons. Importantly, we anticipate net revenues will turn positive in the second half with further new launches and as year-over-year comparison ease."
* For the first half of fiscal 2026, Coty anticipates "a like-for-like decline of 6% to 8% in Q1 '26 and a like-for-like decline of 3% to 5% in Q2 '26." Adjusted EPS, excluding the equity swap, is expected to be "$0.33 to $0.36 in the first half, reflecting a high single-digit to mid-teens percentage decline."
* Estimated seasonally stronger free cash flow in H1 fiscal 2026 is "over $350 million."
* Tariff headwinds are expected, with a "gross tariff headwind of approximately $70 million in fiscal year '26" and mitigation efforts projected to offset $15 million to $20 million of the impact, primarily in the second half.
* Nabi highlighted, "We are building on our already strong foundations to return to multiyear growth, including: one, a return to blockbuster fragrance launches already underway in Q1; two, leveraging our unique position as the only global beauty player with a fragrance portfolio across the full price spectrum; three, a robust attack plan for the rapidly growing fragrance mist subcategory; four, a sharpened focus on step-changing profitability in our cosmetics business; and five, the continued execution of our All-in-to-Win transformation program to protect profit and investment behind our brands."

FINANCIAL RESULTS

* Fiscal 2025 net revenues declined 2% like-for-like and Q4 revenues declined 9%, both in line with previous guidance.
* Adjusted gross margin for fiscal 2025 was 64.9%. Q4 adjusted gross margin declined by 190 basis points.
* Adjusted EBITDA for fiscal 2025 was $1.08 billion, with a margin of 18.4%. Q4 adjusted EBITDA declined 23%.
* Q4 adjusted EPS, excluding the equity swap, was $0.02; fiscal 2025 adjusted EPS was $0.50.
* Fiscal 2025 free cash flow was $278 million. Q4 ended with leverage of 3.5x.
* The All-in to Win program has delivered $850 million in cumulative savings between fiscal 2021 and 2025, with another $370 million targeted for the next two years.

Q&A

* NOT_APPLICABLE: No live Q&A included in the current transcript; management referenced a separate session scheduled for August 21, 2025.

SENTIMENT ANALYSIS

* Analyst sentiment cannot be assessed due to the absence of Q&A in the transcript.
* Management tone in prepared remarks was forward-focused and candid about challenges, with confidence in strategic priorities. Mercier referenced "pressures to persist" and Nabi emphasized "urgency to return Coty to consistent and profitable growth."
* Compared to the previous quarter, management's tone remains pragmatic but with greater emphasis on organizational changes and focus on fragrance leadership.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language in Q4 2025 is more granular, specifying expected like-for-like declines for Q1 and Q2 fiscal 2026 and projecting a return to revenue growth in the second half, whereas Q3 guidance anticipated gradual improvement without specific quarterly targets.
* Strategic focus has shifted more explicitly to fragrances, with Nabi stating, "Our focus on scenting and fragrances across the full price spectrum from $5 to $500 and across our owned and licensed brands remains unwavering."
* Management highlighted new leadership and organizational changes in the U.S. beginning to take effect, a progression from plans announced in Q3.
* Cost savings targets were further clarified, with $80 million in fixed cost savings expected in fiscal 2026.
* Key metrics have softened: Q4 revenues declined 9% vs. a 3% decline in Q3, and Q4 adjusted EBITDA and EPS both declined sharply versus earlier quarters.
* Management's confidence in the All-in to Win program and growth from blockbuster launches is reiterated and expanded.

RISKS AND CONCERNS

* Management cited "the combination of fueling multiple growth engines, maintaining high 20s percentage A&C investment and meeting EBITDA and deleveraging goals" as pressures that "shaped the difficult fiscal year '25 backdrop."
* Headwinds include U.S. market underperformance, retailer inventory buildup, lapping of prior blockbuster innovation, and macroeconomic uncertainty.
* Tariff risk is highlighted, with a potential $70 million headwind in fiscal 2026, partly mitigated by price increases, supply diversification, and shifting fragrance production to the U.S.
* Management is actively adjusting investment allocation, stating, "we intend to allocate our investments where ROI and both short- and long-term opportunities are strongest, even if it means further weakness in the U.S. Nielsen data."

FINAL TAKEAWAY

Coty management signals a transition year with a clear pivot back to fragrance-led growth, deeper cost controls, and renewed focus on profitability. The company expects sequential improvement in both sales and profit trends during fiscal 2026, with a targeted return to revenue growth in the second half. Strategic investments in blockbuster fragrance launches, mass scenting, and operational efficiency are intended to position Coty for long-term value creation, while near-term headwinds and U.S. market challenges remain closely monitored amid ongoing transformation efforts.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/coty/earnings/transcripts]

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