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COTY INC. (COTY) Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 was in line on revenue with slight FX tailwind; adjusted EPS missed consensus and margins compressed as sell-in lagged sell-out during retailer inventory rightsizing, but management guides Q2 sales to the favorable end of prior outlook and reiterates a return to growth in 2H FY26 .
  • Revenue was $1.577B (-6% YoY; -8% LFL); adjusted EPS $0.12 vs S&P Global consensus $0.15; adjusted EBITDA $296M (-18% YoY); gross margin 64.5% (-100bps) with ~40bps tariff headwind .
  • Prestige fragrance sell-out improved notably in the U.S.; BOSS Bottled Beyond is tracking as a top male launch in Europe/Australia; mists showed incremental, margin-accretive growth; China prestige sell-out +15% and outpacing market .
  • Guidance maintained/clarified: Q2 LFL sales to the favorable end of -3% to -5% prior range; Q2 adjusted EPS ex swap $0.18–$0.21; adjusted EBITDA targeted at ~$1B for FY26; 1H FCF >$350M; leverage to remain ~3.5x into CY25, with Wella monetization in focus .
  • Near-term catalysts: stronger U.S. execution, blockbuster launches (BOSS Beyond, another 2H flagship), multi-brand mist push, and clarity on Gucci license trajectory and Consumer Beauty strategic review; potential Wella stake monetization is a deleveraging catalyst .

What Went Well and What Went Wrong

What Went Well

  • U.S. Prestige fragrance sell-out grew mid-to-high single digits in Q1, closing the gap vs market from ~5 points in Q4 FY25 to in-line in Q1 FY26; management expects U.S. Prestige to return to sell-out and sales growth in Q2 .
  • BOSS Bottled Beyond is a top male launch (Europe #2; Germany #1 by volume; Australia #1 SKU) and gaining traction in the U.S.; ultra-premium collections +17% reported; mists under CK/Kylie/philosophy/adidas/Nautica are incremental and margin-positive .
  • China prestige sell-out +15%, more than double market growth, with strong outperformance across fragrances, makeup, skincare; e-commerce sell-out up 5–6% and penetration ~20% of sales .

Quotes:

  • “We expect Q2 sales to be at the more favorable end of our previous guidance, with a return to sales and profit growth in the second half of FY26.” — Sue Nabi (CEO) .
  • “BOSS Bottled Beyond… is unlocking a significant untapped opportunity for Hugo Boss in the U.S. market.” — Sue Nabi (CEO) .
  • “The mists… are fully additional… and a gross margin… in line with… prestige fragrances.” — Sue Nabi (CEO) .

What Went Wrong

  • Revenue declined 6% reported (-8% LFL) with Prestige -4% reported (-6% LFL) and Consumer Beauty -9% reported (-11% LFL) amid retailer inventory rightsizing and weakness in mass color cosmetics .
  • Margins compressed: gross margin -100bps to 64.5% (tariffs -40bps); adjusted operating margin -300bps to 15.2%; adjusted EBITDA margin -270bps to 18.8% .
  • Adjusted EPS $0.12 missed S&P Global consensus $0.15*; adjusted EBITDA contracted 18% YoY; Consumer Beauty swung to a reported operating loss (-$7.7M) and adj OI fell to $1.5M .

Analyst concerns:

  • Promotional intensity from peers and cautious retail ordering; management emphasizes disciplined revenue management, format innovation (pen sprays), and avoiding margin-dilutive promotion .
  • Licensing uncertainty around Gucci and profit impact at expiry; CEO highlights portfolio durability (no brand >~10% of sales) and focus on amplifying other licenses/ultra-premium .

Financial Results

MetricQ1 2025 (oldest)Q4 2025Q1 2026 (newest)Q1 2026 Consensus*
Revenue ($USD Billions)$1.672 $1.252 $1.577 $1.577*
Reported EPS (Diluted) ($)$0.09 $(0.08) $0.07 —
Adjusted EPS (Diluted) ($)$0.15 $(0.05) $0.12 $0.15*
Gross Margin (%)65.5% 62.3% 64.5% —
Reported Operating Margin (%)14.2% 1.2% 11.7% —
Adjusted Operating Margin (%)18.2% 5.4% 15.2% —
Adjusted EBITDA ($USD Millions)$360.1 $126.7 $296.1 $295.6*
Adjusted EBITDA Margin (%)21.5% 10.1% 18.8% —

Notes: *Values retrieved from S&P Global.

Segment Performance (Q1 FY26 vs Q1 FY25)

SegmentNet Revenues ($USD Millions) Q1 2025Net Revenues Q1 2026YoY Reported ChangeLFL ChangeReported OI Margin Q1 2026Adjusted OI Margin Q1 2026Adjusted EBITDA ($USD Millions) Q1 2025Adjusted EBITDA Q1 2026
Prestige$1,114.1 $1,069.5 (4%) (6%) 19.5% 22.3% $307.6 $267.6
Consumer Beauty$557.4 $507.7 (9%) (11%) (1.5%) 0.3% $52.5 $28.5
Total$1,671.5 $1,577.2 (6%) (8%) 11.7% 15.2% $360.1 $296.1

Regional Performance (Q1 FY26)

RegionNet Revenues ($USD Millions) Q1 2025Net Revenues Q1 2026Reported ChangeLFL Change
Americas$693.5 $649.6 (6%) (6%)
EMEA$787.8 $754.8 (4%) (9%)
Asia Pacific$190.2 $172.8 (9%) (9%)
Total$1,671.5 $1,577.2 (6%) (8%)

KPIs and Balance Sheet

KPIQ1 2025Q4 2025Q1 2026
Cash from Operations ($USD Millions)$67.4 $83.2 $65.2
Free Cash Flow ($USD Millions)$(7.9) $34.9 $11.2
Total Debt ($USD Millions)—$4,008.4 $4,069.3
Cash & Equivalents ($USD Millions)—$257.1 $264.6
Financial Net Debt ($USD Millions)—$3,751.3 $3,804.7
Leverage (Net Debt/Adj EBITDA, TTM)—3.5x 3.7x
Wella Stake Value ($USD Millions)—$1,002.0 $1,003.0
Gross Margin (%)65.5% 62.3% 64.5% (Tariffs ~40bps headwind)
E-commerce Penetration~20% of sales ~20% ~20%

Guidance Changes

MetricPeriodPrevious Guidance (from Q4 FY25)Current Guidance (Q1 FY26)Change
LFL Sales YoYQ2 FY26-3% to -5% Favorable end of -3% to -5% Clarified toward favorable end
Reported Revenue FX ImpactQ2 FY26Low single-digit % benefit Low-to-mid single-digit % FX benefit Raised (FX benefit)
Adjusted EBITDA YoYQ2 FY26Decline low-to-mid teens % Decline low-to-mid teens % Maintained
Adjusted EBITDAFY26~$1.0B target ~$1.0B target Maintained
Adjusted EPS (ex equity swap)Q2 FY26$0.18–$0.21 $0.18–$0.21 Maintained
Adjusted EPS (ex equity swap)1H FY26$0.33–$0.36 $0.33–$0.36 Maintained
Adjusted EBITDA YoY2H FY26Growth (vs decline 1H) Growth Maintained
Free Cash Flow1H FY26>$350M >$350M Maintained
LeverageEnd CY25~in line with ~3.5x ~3.5x, FX headwind acknowledged Maintained
StrategicFY26+Clean baseline; retailer inventory alignment Continued alignment; Wella monetization actively pursued Reinforced focus

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25 and Q4 FY25)Current Period (Q1 FY26)Trend
U.S. Prestige executionUnderperformance; new leadership; narrowing sell-out gap Sell-out mid-to-high single digits; gap closed; expecting sales and sell-out growth in Q2 Improving
Blockbuster pipelineBlockbuster in 1H & 2H FY26; BOSS Beyond launch BOSS Beyond tracking top male launch in EU/AU; gaining in U.S. Positive momentum
Fragrance mistsMulti-brand push; incremental, profitable Mists ~2% of Q1 fragrance revenue; margin in line with prestige; incremental Gen-Z format Scaling
Tariffs/macro & promotionsTariff headwinds; cautious retailers; disciplined promo stance Tariffs ~40bps GM hit; revenue management, formats (pen sprays) to avoid promo pressure Managed headwind
ChinaChallenging FY25 backdrop but resilience outside China Prestige sell-out +15%, outpacing market; strong Lancaster skincare; fragrances outperform Reaccelerating
Licensing/GucciPortfolio diversification; long license durations Gucci exit at expiry; optimizing remaining term; licensing model reinforced; litigation comment withheld Strategic clarity
Consumer Beauty reviewColor cosmetics weakness; plan to boost profitability New Consumer Beauty President; end-to-end mandate; strategic review; Brazil decision likely earlier Active restructuring
E-commerce/TikTok$1B FY25 e-com; integrate digital teams E-com sell-out +5–6%; TikTok Shop as “hype” and funnel to Amazon/retail Channel optimization

Management Commentary

  • “We will concentrate investment behind our portfolio brands with the greatest long-term potential… integrating Prestige Beauty and Mass Fragrances… implementing a performance improvement plan for our Consumer Beauty brands while pursuing our strategic review of Consumer Beauty Cosmetics and Brazil.” — Sue Nabi (CEO) .
  • “We expect Q2 sales to be at the more favorable end of our previous guidance, with a return to sales and profit growth in the second half of FY26.” — Sue Nabi (CEO) .
  • “Even without the Gucci license… we remain firmly in the top three for total global fragrances… We will optimize the brand… while focusing on accelerating the rest of our portfolio.” — Sue Nabi (CEO) .
  • “We are very choice-full… not to be aggressive on [promotions]… developing revenue management… different formats (pen sprays)… protecting profitability.” — Laurent Mercier (CFO) .

Q&A Highlights

  • Gucci license: CEO emphasized portfolio resilience, long-duration licenses, optimization of Gucci until expiry, and openness to proposals only if value-creating; declined specific litigation comment .
  • Q2 uplift drivers: Strong U.S. fragrance category, BOSS Beyond momentum, scaling mists; mists designed to be incremental with prestige-like margins .
  • Promotions and formats: Disciplined approach; use of pen sprays and mists to meet price expectations without diluting margins; scent stacking trend supports both entry formats and high-end elixirs .
  • Regional/color cosmetics: EMEA prestige sell-out positive; de-stocking at retailers (e.g., Douglas); mass cosmetics pressure continues; Consumer Beauty review and Brazil decision likely sooner .
  • Digital funnel: TikTok Shop for discovery/virality, Amazon for scaling, then broader retail; applied to Rimmel and CoverGirl .

Estimates Context

  • Revenue: Actual $1.5772B vs consensus $1.57698B* — in line/slight beat.
  • EPS (Primary/Adjusted): Actual $0.12 vs consensus $0.15* — miss; mgmt flagged $0.03 negative impact from equity swap mark-to-market .
  • EBITDA: Consensus $295.6M* vs SPGI “actual” $281.6M*; company-reported adjusted EBITDA was $296.1M (YoY -18%) .
    Note: *Values retrieved from S&P Global. Company-reported adjusted metrics include non-GAAP adjustments; see reconciliations in the 8‑K.

Key Takeaways for Investors

  • Near-term setup: Q2 sales tracking to favorable end of -3% to -5% LFL decline with stronger October sales, especially in Prestige; look for confirmation via holiday sell-through and reduced inventories .
  • Execution turn in U.S. Prestige is a key catalyst; BOSS Beyond and additional 2H launch should support H2 re-acceleration .
  • Mists are incremental, margin-consistent with prestige, and expand Gen‑Z entry funnel; watch for multi-brand rollout to lift both mists and base fragrance sales .
  • EPS miss vs consensus driven by margin compression and swap mark-to-market; mgmt maintains EPS/EBITDA targets for FY26, implying second-half operating leverage .
  • Consumer Beauty remains the swing factor; strategic review (including Brazil) could unlock value and improve consolidated margin/FCF profile .
  • Deleveraging path intact (1H FCF >$350M; leverage ~3.5x into CY25); Wella monetization is an overhang/optionality — any progress is a stock catalyst .
  • Tariff headwinds are non-trivial (~40bps GM in Q1); U.S. manufacturing shifts and revenue management should mitigate into 2H FY26 .

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