Coty slides after surprise FQ4 loss, issuing a cautious outlook on retailer reordering

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Coty (NYSE:COTY [https://seekingalpha.com/symbol/COTY]) slumped in postmarket action on Wednesday after reporting a surprise net income loss for FQ4 and setting cautious guidance.

Revenue fell 8% in FQ4 compared to a year ago and included a 1% benefit from FX. On a like-for-like basis, revenue declined 9%.

Prestige segment revenue was down 5% to $760.6 million, representing 61% of the company's total sales, even as Coty's Prestige sell-out grew by a low single digit percentage in Q4. Consumer Beauty segment sales fell off 12% to $491.8 million to represent 39% of the company's total sales.

Adjusted gross margin slid 190 basis points from a year ago to 62.3% of sales. Adjusted EPS of -$0.05 missed the consensus estimate of $0.02 and was worse than last year's mark of -$0.03.

The company highlighted that despite headwinds from U.S. softness, retailer destocking, fragrance phasing off a strong FY24, and pressure in mass cosmetics, it returned to a path of consistent and profitable growth during the fiscal year.

On the balance, total debt was $4.01 billion at the end of the quarter, while financial net debt was $3.75 billion. That resulted in a total debt to net loss ratio of 11.4X and a financial leverage ratio (net debt to adjusted EBITDA) of 3.5X. The company’s 25.8% retained stake in Wella, valued at $1.0 billion, supported economic net debt of $2.75 billion.

"While Q4 was broadly in line with expectations as we set the baseline for a strong launch calendar in FY26, and we expect our organizational changes will start yielding results in the coming year, there is more to do," highlighted CEO Sue Nabi.

"First, we will leverage and prioritize our leadership position and best-in-class capabilities in global fragrances to fuel strong expansion – with fragrances already more than 60% of revenues and an even bigger portion of our profits. Second, we will continue to grow Coty’s footprint and diversification in a limited number of structurally profitable and growing beauty categories and geographic markets at scale."

In terms of guidance, Coty (NYSE:COTY [https://seekingalpha.com/symbol/COTY]) said broader macroeconomic and tariff uncertainty is fueling cautious retailer ordering and a more promotionally competitive environment. On the reported revenue side, Coty (NYSE:COTY [https://seekingalpha.com/symbol/COTY]) expects a low single-digit percentage FX benefit in the first half. Q1 like-for-like sales are seen falling 6% to 8%.

Shares of Coty (COTY [https://seekingalpha.com/symbol/COTY]) were down 11.8% in the late trading session.

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