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COTY INC. (COTY) Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 revenue declined to $1.67B, down 3% reported and -1% LFL, while gross margin expanded to 66.7% and adjusted EBITDA rose 7% to $390.7M; adjusted EPS was $0.11, with reported EPS $0.02 impacted by a $0.11 equity swap mark-to-market headwind .
  • Prestige fragrances remained a bright spot with estimated high-single-digit sell-out growth, but sell-in lagged due to tight retailer inventory management; APAC (China and Travel Retail Asia) and U.S. mass color cosmetics were notable headwinds .
  • Guidance reset: FY25 adjusted EBITDA revised to $1,115–$1,125M (from $1,186–$1,208M) and adjusted EPS ex-equity swap to $0.50–$0.52 (from $0.54–$0.57); FY25 reported sales now expected to decline low-single digits on ~3% FX headwind; EBITDA margin expansion target strengthened to 70–90 bps for FY25 .
  • Balance sheet leverage improved to 2.9x net debt/TTM adjusted EBITDA, the first sub-3x level in 8+ years; management targets leverage below 2.5x exiting CY25, with goal closer to 2x, and FY25 FCF ≈$400M .

What Went Well and What Went Wrong

What Went Well

  • Strong margin execution: adjusted gross margin reached 66.8% (+170 bps YoY), supported by supply chain savings, pricing discipline, and reduced obsolescence; adjusted EBITDA margin expanded 220 bps to 23.4% in Q2 .
  • Fragrance momentum: “The sell-out of our Prestige fragrances grew by a high single digit percentage… fueled by momentum in Hugo Boss, Burberry, Chloe and Marc Jacobs” — CEO Sue Nabi .
  • Digital outperformance: e-commerce sell-out grew double digits in Q2 and 1H25 across Prestige and Consumer Beauty, gaining share in Burberry, Marc Jacobs, CoverGirl, Sally Hansen, Nautica; e-commerce now ~20% of sales .

What Went Wrong

  • APAC weakness: Asia Pacific net revenue fell 11% reported/LFL in Q2, driven by Chinese mainland and Asia Travel Retail; consumer beauty and prestige cosmetics pressured .
  • U.S. mass color cosmetics softness and channel shifts: Consumer Beauty sell-out below broader market due to heavier exposure to pressured color cosmetics; sell-in below sell-out amid tight retailer inventory and ongoing channel shifts (e.g., Amazon share gains) .
  • Sell-in vs sell-out gap and limited replenishment: Management does not expect replenishment to normalize in H2 FY25, pressuring near-term LFL sales (“We don't see this replenishment happening in H2”) .

Financial Results

Headline metrics versus prior quarters

MetricQ4 2024Q1 2025Q2 2025
Net revenues ($USD Millions)$1,363.4 $1,671.5 $1,669.9
Gross margin (%)64.2% 65.5% 66.7%
Operating income - reported ($MM)$34.7 $237.8 $268.2
Operating margin - reported (%)2.5% 14.2% 16.1%
Adjusted operating income ($MM)$108.0 $303.6 $333.7
Adjusted operating margin (%)7.9% 18.2% 20.0%
EPS (diluted) - reported ($)$(0.12) $0.09 $0.02
EPS (diluted) - adjusted ($)$(0.03) $0.15 $0.11
Adjusted EBITDA ($MM)$164.5 $360.1 $390.7
Adjusted EBITDA margin (%)12.1% 21.5% 23.4%

Segment breakdown (Q2 2025)

MetricPrestigeConsumer Beauty
Net Revenues ($MM)$1,116.1 $553.8
Reported Operating Income ($MM)$222.3 $64.1
Reported Operating Margin (%)19.9% 11.6%
Adjusted Operating Income ($MM)$260.0 $73.7
Adjusted Operating Margin (%)23.3% 13.3%
Adjusted EBITDA ($MM)$288.2 $102.5
Adjusted EBITDA Margin (%)25.8% 18.5%

KPIs (Q2 2025)

KPIAmericasEMEAAsia Pacific
Net Revenues ($MM)$638.6 $839.8 $191.5
YoY Reported (%)(7%) 2% (11%)
YoY LFL (%)(1%) 2% (11%)
Liquidity & Cash KPIs (Q2 2025)Value
Cash from operations ($MM)$464.5
Free cash flow ($MM)$419.0
Total debt ($MM)$3,459.0
Financial net debt ($MM)$3,209.4
Net debt/TTM Adjusted EBITDA (x)2.9x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
LFL Sales Trend2H FY25“Second half broadly consistent with first half” (H1 LFL +3–4%) -1% to -2% LFL Lowered
Reported SalesFY25Low-single-digit FX headwind; core LFL +6–8% Reported sales decline low-single digits on ~3% FX Lowered
Adjusted EBITDA margin expansionFY25+10–30 bps +70–90 bps (both 2H and FY25) Raised
Adjusted EBITDA ($MM)FY25$1,186–$1,208 $1,115–$1,125 Lowered
Adjusted EPS (ex equity swap)FY25$0.54–$0.57 $0.50–$0.52 Lowered
Free Cash Flow ($MM)FY25Low-to-mid $400M ≈$400M Lowered
Leverage targetCY25 exit~2x <2.5x; goal closer to 2x Maintained (timing clarified)
Cost savingsFY25>$120M >$120M; further in FY26+ Maintained
A&CP (% of sales)FY25High 20s High 20s Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Sell-in vs sell-out / inventoriesRetailers cautious, sell-in tracking below sell-out in mass; caution flagged by mgmt Replenishment not expected in H2; gap persists, especially in fragrances Worsening
APAC (China, TR Asia)Ongoing difficulty in Chinese mainland/TR Asia; partial offset in other APAC APAC net revenue -11% reported/LFL; significant retailer inventory reduction Worsening
U.S. mass color cosmeticsCategory decelerating; sell-in well below sell-out; drug channel pressure Structural challenge; closures in pharma/drug channel; category mix issues Worsening
Gross margin & savingsMid-60s achieved; further expansion planned; savings stepped up GM 66.7% (adj. 66.8%); FY25 margin expansion guided; $120M+ savings confirmed Improving
E-commerce & AmazonE-comm mid-single-digit growth; ~20% penetration Double-digit e-comm sell-out; strong Amazon and share gains (CoverGirl, Rimmel, Burberry) Improving
Pricing actionsTargeted price increases with premiumization Low single-digit price increases; manage elasticity; fragrance mix supports Stable
Innovation pipelineBlockbuster cadence (Burberry, Chloe, Gucci); agile innovation model Gucci Flora Orchid success; continued fragrance launches, distribution gains Stable/Strong

Management Commentary

  • “The sell-out of our Prestige fragrances grew by a high single digit percentage… fueled by momentum in Hugo Boss, Burberry, Chloe and Marc Jacobs… At the same time, sales for our mass fragrance brands grew by a low-double-digit percentage LFL in the first half” — CEO Sue Nabi .
  • “Our adjusted gross margin expanded by 170 basis points year on year… we maintained strong marketing support, EBITDA expanded by 7%, and our EPS excluding the equity swap impact grew by 16%… our leverage was below 3x” — CEO Sue Nabi .
  • “FY25 is shaping up to be a pivotal year… evaluate our operations to fuel Coty's long term success… confident in Coty’s ability to accelerate sales growth and outperform the beauty industry over the coming years, all while steadily expanding margins and cash flow, and significantly growing EPS” — CEO Sue Nabi .

Q&A Highlights

  • Inventory/replenishment: Management does not expect retailer replenishment to normalize in H2; ~20% of business (China, TR Asia, Australia, U.S. Consumer Beauty) faced worsening trends; fragrance sell-out mid/high-single digit, but sell-in below due to cautious inventories .
  • U.S. mass color cosmetics structure: Challenges tied to channel shifts and legacy vs indie brand mix; emphasis on “Prestige-like innovation at mass prices” and agile innovation cadence .
  • Margin outlook: Gross margin expansion near 200 bps in H1; FY25 EBITDA margin improvement 70–90 bps; $120M+ savings; maintain A&CP in high-20s .
  • Asia Travel Retail strategy: Reallocating resources to U.S./Europe; TR Asia weakness concentrated in prestige color cosmetics due to regulatory frictions; fragrances and skincare more resilient .
  • E-commerce/Amazon: Strong outperformance online across divisions; Amazon gaining share; CoverGirl growing faster than U.S. color e-comm, aiding omnichannel stability .
  • Pricing approach: Low single-digit price increases, manage elasticity; fragrance mix supports pricing/margin .

Estimates Context

  • S&P Global consensus estimates were unavailable at time of analysis due to a request limit, so formal beat/miss versus Wall Street consensus cannot be assessed. Nonetheless, the quarter showed margin outperformance (gross margin +160–170 bps YoY; adjusted EBITDA margin +220 bps YoY), but revenue declined -3% reported (-1% LFL) and adjusted EPS fell YoY to $0.11, reflecting equity swap headwinds and softer sell-in in APAC and U.S. mass color cosmetics .

Key Takeaways for Investors

  • Margin strength offsets top-line softness: Coty’s disciplined pricing, premiumization, and supply chain savings drove record gross margins and robust EBITDA growth despite APAC and mass color cosmetics pressures; focus on maintaining high-20s A&CP supports brand equity .
  • Guidance reset de-risks FY25: Lowered EBITDA/EPS and LFL trajectory reflect FX headwinds and retailer inventory caution; stronger EBITDA margin expansion target suggests continued mix/savings tailwinds and expense control .
  • Fragrance-led resilience persists: High-single-digit sell-out growth across Prestige franchises (Burberry, Boss, Marc Jacobs, Chloe); adidas Vibes driving mass fragrance gains; watch distribution expansions and planned blockbusters into FY26 .
  • Inventory normalization is the swing factor: Management does not expect replenishment in H2; improvement in retailer ordering could be a key catalyst for sales acceleration entering FY26 .
  • Balance sheet improving: Leverage at 2.9x and targeted sub-2.5x by CY25 exit improves flexibility for shareholder returns (buybacks/dividends) post deleveraging and potential Wella stake monetization .
  • Digital momentum: Double-digit e-comm sell-out and Amazon growth indicate brand strength online; supports share gains even as brick-and-mortar faces pressure .
  • Near-term trading: Narratives likely center on the guidance reset, FX headwinds, APAC/TR Asia weakness, and U.S. mass color cosmetics challenges vs. strength in fragrances and margin expansion. Upcoming launches/distribution gains and CAGNY update (Feb 19) may be catalysts .

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