COTY INC 2026 Q4 Earnings Call

Hello, everyone. This is Olga Levinzon, 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. On Thursday, August 20, 2026, at approximately 8:00 A.M. Eastern Time or 2:00 P.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 Markus 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 Markus, 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, Markus.

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 2026, even in the face of profitability headwinds. At the same time, we are not where we want the business to be.

Fiscal 2027 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.

Thank you, Markus. Now let me begin by walking you through the sales and sell-out trends in the quarter. While the macro environment remains volatile, our focus continues to be on the areas we can control, strengthening sell-out, 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 coming in, the better than expected like-for-like sales performance was supported by stronger than expected customer orders in the U.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%-3% impact for the quarter. We ended fiscal year 2026 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 under-scale markets and launches. We remain focused on disciplined execution and improving sell-out across the portfolio, though quarterly fluctuations may continue over the course of fiscal year 2027 as we make necessary adjustments. Let me start with a broader market backdrop and sell-out 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 2026, while the mass beauty market grew approximately 5% over the same period.

Against that backdrop, our sell-out performance remained below the market in both divisions. In prestige, our sell-out declined 1% in the second half and was slightly negative for the full fiscal year. The timing of several key consumer and retail events differed year-over-year, including Easter in Europe and Amazon Prime Day in the U.S. As a result, we believe the six months view provides a more representative comparison of both market growth and our sell-out 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. At the same time, our smaller flankers are not sufficiently differentiated.

These two factors are resulting in the modest decline in our sell-out. This is exactly what we intend to improve in fiscal year 2027, as all of our brand plans are aimed at driving both incrementality of innovation and a halo for the portfolio. In consumer beauty, our sell-out declined 2% in the second half, which is an improvement relative to the 4% sell-out decline for the full fiscal year. While still clearly below the market growth levels, this improvement in our consumer beauty sell-out is being driven by the U.S., where we are seeing some early green shoots for Sally Hansen and COVERGIRL, as well as acceleration in our sell-out growth in Brazil. In sum, our focus is improving sell-out in both divisions and steadily closing the gap to the market. Let me now turn to our prestige division.

Prestige like-for-like sales improved sequentially to down 0.5% 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. The estimated impact on prestige sales from the Middle East conflict was approximately 1.5% in the quarter, lower than we had initially anticipated. We saw encouraging momentum from innovations across the portfolio, including Boss Bottled Beyond, Cosmic Kylie Jenner Intense, and Calvin Klein Euphoria Elixir. 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. In the U.K., 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. Turning to gross margin. In the fourth quarter, our adjusted gross margin was 60.9%, 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. In the quarter, 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 2027. Turning now to our savings program. Our All-in to Win program continued to deliver strong results in fiscal year 2026, 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 2026, 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 2027 and beyond as we rightsize 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 ANCP remaining in the high 20s as a percentage of sales. Adjusted EBITDA declined 26% year-on-year in Q4 and 22% in fiscal year 2026, primarily reflecting top-line pressure, lower gross margins, and the year-over-year impact from variable compensation. Adjusted EPS, excluding the impact of the equity swap, was breakeven in the fourth quarter and $0.34 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 2026. The fiscal year 2026 EBITDA decline was driven by cost of goods sold absorption headwinds from lower shipments volumes, higher trade spendings, and higher tariff cost. In Q4, the EBITDA decline primarily reflected a step-up in ANCP behind Prestige Makeup initiatives, as well as some COGS absorption headwinds. Even amid these near-term pressures, Prestige delivered a strong adjusted EBITDA margin of 20.5% in fiscal year 2026, 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.