Q2 2025 Earnings Summary
- Strong Financial Performance and Deleveraging: Coty has significantly improved its fundamentals over the last four years, achieving a record gross margin of close to 67% in Q2 , double-digit EPS growth, and reducing leverage to under 3x for the first time in eight years, demonstrating strong financial health and discipline. , ,
- Growth Opportunities with New Launches and Market Expansion: Coty plans to accelerate sales growth in fiscal '26 with two big blockbuster launches , expansion of distribution in underpenetrated markets like the U.S. for brands such as Chloe , and entering new categories like Prestige color cosmetics and skincare, positioning the company to outperform market growth. , , ,
- Strong Consumer Demand and Brand Performance: The company continues to see strong sell-out performance, particularly in Prestige Fragrances, with sell-out growth in the mid to high single digits, indicating robust consumer demand. , Successful product introductions like Gucci Flora Orchid, one of the biggest successes of Q1 and Q2 , and the BOSS brand becoming the #1 brand of the company with stellar growth, underscore Coty's ability to drive growth through innovation. ,
- Coty is experiencing ongoing challenges in key markets, including China, Travel Retail Asia, Australia, and the U.S. Consumer Beauty segment, which are impacting sales by approximately 3 percentage points each in their Prestige and Consumer Beauty businesses. These disruptions are expected to persist into fiscal 2026.
- Retailers are reducing their inventory levels and managing them cautiously, leading to lower replenishment orders and a gap between sell-in and sell-out. This cautious behavior may continue to suppress Coty's sales in the near term.
- The U.S. Color Cosmetics market is facing structural challenges, including store closures in the drugstore environment and a shift in consumer preference towards new indie brands, which are not offsetting the decline of heritage brands. This competitive landscape may hinder Coty's growth prospects in this important segment.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –3.3% (from $1,727.6M to $1,669.9M) | Decline driven by a significant drop in Consumer Beauty sales that more than offset the nearly flat performance in the Prestige segment; the previous quarter’s stronger total revenue was buoyed by solid Consumer Beauty growth, which reversed in Q2 2025. |
Prestige Revenue | –0.6% (essentially flat) | Stable performance in the high-margin Prestige segment maintained its revenue near prior levels, reflecting consistent demand for premium fragrances and related products, even as overall market conditions impacted other segments less favorably compared to Q2 2024. |
Consumer Beauty Revenue | –8.4% (from $605.0M to $553.8M) | A marked decline in Consumer Beauty revenue drove the overall revenue fall; Q2 2024 had stronger sales figures, but Q2 2025 saw weakness likely due to challenges in categories such as color cosmetics and potential pricing or promotional headwinds, which are critical given the segment’s sensitivity to consumer trends. |
Cost of Goods Sold (COGS) | –~8% | COGS improved significantly, falling from $603.5M to $555.7M, nearly an 8% reduction YoY. This drop suggests effective cost management and improved supply chain efficiencies—possibly through premiumization and pricing strategies—that helped absorb raw material and logistics costs better than in Q2 2024. |
Operating Income (EBIT) | +13.3% (from $236.7M to $268.2M) | Operating leverage and cost control contributed to a 13.3% increase in EBIT, despite lower top-line revenues. The improvements over Q2 2024 indicate that efficiency gains and margin expansion, particularly from controlling fixed costs and enhanced operational productivity, outweighed the revenue decline. |
Net Income | –83.6% (from $186M to $30.6M) | An 83.6% plunge in net income reflects significant non-operational headwinds that emerged in Q2 2025 compared to the strong net income of Q2 2024. Despite improvements in operating income, factors such as increased non-operating expenses, tax impacts, or other one-off charges drastically eroded bottom-line profitability. |
Basic EPS | –90% (from $0.20 to $0.02) | The dramatic fall in Basic EPS mirrors the net income decline, demonstrating that lower profitability and potentially higher fixed corporate charges or adjustments (like equity-related items) diluted earnings per share when compared to the previous period’s robust EPS. |
Net Change in Cash | –$204.7M shift (from +$165.8M to –$38.9M) | A sharp reversal in cash flow resulted in a negative net cash change, driven by much lower operating cash flow and higher investing outflows. While Q2 2024 benefitted from strong operational performance and controlled investing activity, Q2 2025 experienced significant working capital outflows and timing differences in capital expenditures that strained liquidity. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross Margin | FY 2025 | no prior guidance | Improve by approximately 100 basis points compared to fiscal 2023 | no prior guidance |
EBITDA Margin | FY 2025 | Improve by approximately 100 basis points in FY 2024, close to 19% | Expected to grow by 70 to 90 basis points in fiscal 2025, reaching close to 19% | lowered |
Savings Initiatives | FY 2025 | no prior guidance | $120 million in savings initiatives | no prior guidance |
Pricing | FY 2025 | no prior guidance | Pricing increases at a more moderate pace, expected in the low single digits for FY 2025 | no prior guidance |
Retailer Replenishment | FY 2025 | no prior guidance | Does not expect retailer replenishment to occur in H2 fiscal 2025 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue Growth YoY | Q2 2025 | 3% to 5% growth target | -3.3% (calculated from revenue decreasing from 1,727.6In Q2 2024 to 1,669.9In Q2 2025) | Missed |
Gross Margin | Q2 2025 | Above 65% | 66.7% (calculated as (1,669.9 - 555.7) / 1,669.9) | Beat |
EBITDA Margin (guidance ≈19% for FY 2024) | Q2 2025 | ~19% | ~22.4% (calculated as (268.2+ 105.6) / 1,669.9) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Financial Performance & Margin Expansion | Described consistently in Q1 2025, Q4 2024 and Q3 2024 with emphasis on gross margin improvements, EBITDA margin growth, cost savings initiatives and a healthy balance sheet | Q2 2025 highlighted a record gross margin near 67%, continued EBITDA margin guidance and additional cost-saving measures to support margin expansion | Improvement and sustained positive momentum in margins with enhanced operational discipline. |
Product Innovation & Accelerated Launches | Across Q1 2025, Q4 2024 and Q3 2024, innovation was a consistent focus with accelerated, agile product launches and reduced time-to-market for new launches | Q2 2025 emphasized blockbuster launches (e.g., Gucci Flora Orchid, Hugo Boss) and expanded into skincare with noteworthy growth for Lancaster | Continued aggressive innovation with the emergence of new product categories driving growth. |
E-commerce & Digital Transformation | Q1 2025, Q4 2024 and Q3 2024 detailed robust e-commerce growth, digital marketing strategies, omnichannel efforts and strategic partnerships (e.g., with Amazon) | Q2 2025 continued to stress strong e-commerce performance across brands, highlighting record online growth and long-standing Amazon partnerships | Sustained and enhanced digital transformation with a continued focus on omni-channel growth. |
Inventory Management & Retailer Behavior | Q1 2025 mentioned retailer inventory adjustments and phasing impacts; Q4 2024 noted cautious inventory management in key segments; Q3 2024 described an overall balanced sell-in/sell-out dynamic | Q2 2025 described continued cautious retailer behavior with a noted gap between sell‐in and sell‐out, particularly in Prestige Fragrances, reflecting low replenishment levels | Persistent caution from retailers, with challenges remaining in inventory replenishment dynamics. |
Geographic Market Challenges & Growth Opportunities | Q1 2025 and Q4 2024 discussed challenges in China, Travel Retail Asia and US segments, balanced by growth in emerging markets; Q3 2024 highlighted strong performance in Europe, Asia and Travel Retail | Q2 2025 emphasized ongoing challenges in Asia and Travel Retail along with structural issues in US Consumer Beauty, while also outlining growth opportunities in markets like South Africa, Saudi Arabia, Southeast Asia and Mexico | A mixed outlook where persistent regional challenges are counterbalanced by targeted geographic expansion. |
Consumer Demand & Brand Strength in Prestige Fragrances | Q1 2025, Q4 2024 and Q3 2024 consistently noted strong consumer demand, robust performance of brands like Burberry Goddess, Marc Jacobs and other blockbuster launches driving growth | In Q2 2025, strong sell‐out trends were noted with key brands such as Gucci Flora Orchid and Hugo Boss reaffirming resilient consumer demand despite retailer caution | Sustained robust consumer demand and strong brand performance reinforce the category’s strategic importance. |
Cash Flow & Working Capital Concerns | Q4 2024 provided detailed discussion on free cash flow generation, working capital optimization and receivables concerns; Q1 2025 mentioned tight inventory and deleveraging goals | Q2 2025 did not provide specific details, suggesting these concerns are less emphasized compared to earlier periods. | Decreased emphasis indicates potential improvement or lower priority on these issues. |
Revised Growth Targets & Market Uncertainty | Q1 2025 and Q4 2024 discussed adjusting growth targets (from higher rates to mid-single digits) amid market uncertainties including retailer inventory adjustments and regional pressures | Q2 2025 reaffirmed the shift to outperforming the market (targeting low to mid-single-digit growth) while citing macro volatility, cautious retailer behavior and structural challenges as key uncertainties | Increased focus on realistic targets amid elevated market uncertainty reflects a more cautious strategic outlook. |
U.S. Consumer Beauty & Color Cosmetics Structural Challenges | Q1 2025 reported stabilization and initiatives like Agile Beauty to counter challenges, while Q4 2024 and Q3 2024 highlighted issues in drugstore channels, shifting consumer behavior and inventory pressures | Q2 2025 emphasized structural challenges including closures in the pharma drugstore environment and the need for a balanced mix of heritage and indie brands in the U.S. Consumer Beauty segment | Structural challenges persist with continued pressures in color cosmetics, despite some progress in stabilization efforts. |
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Fiscal 2026 Growth Drivers
Q: What will drive sales growth improvement in fiscal 2026?
A: Sue Nabi explained that despite challenges in fiscal 2025, they expect sales growth to improve in fiscal 2026 due to several factors. They anticipate retailers will return to more normal inventory levels, and they plan two big blockbuster launches to drive sales. The company will also expand distribution of key Prestige brands, such as Chloe in the U.S., and capitalize on offers that drive the market. Additionally, they expect areas outside their control, like improvements in Travel Retail in Asia and China, to contribute to growth. -
Long-Term Growth Outlook
Q: What's your thought process on long-term growth targets?
A: Sue Nabi stated that while the beauty market is normalizing to steadier low to mid-single-digit growth, Coty's goal remains to outperform the market. However, due to various uncertainties, they no longer find it prudent to set specific sales growth targets. Instead, they focus on multiple growth drivers, including a robust fragrance category, expansion into mass fragrances, growth in underindexed categories like Prestige Color Cosmetics and skincare (noting Lancaster's nearly 200% growth in China), increased online penetration, and growth in emerging markets. They aim to grow sales above the market and continue expanding gross margins, which reached a record 68% this quarter, to drive EPS and free cash flow growth. -
Retailer Inventory Levels
Q: When will retailer inventory levels normalize?
A: Laurent Mercier acknowledged ongoing adjustments in retailer and wholesaler inventories due to past disruptions, including COVID-19 and supply chain crises. Retailers had previously built up inventories but are now reducing them. While it's difficult to predict timing, they expect that retailers will eventually return to healthier inventory levels, aligning sell-in more closely with sell-out as pockets of disruption stabilize. -
Margin Outlook
Q: Can you elaborate on your margin outlook and cost management?
A: Laurent Mercier highlighted that they achieved a gross margin expansion of nearly 200 basis points in H1, reaching a gross margin of almost 67% at the end of Q2. Looking ahead, H2 gross margin will be slightly lower due to a high base but will still be 100 basis points above fiscal 2023 gross margin, leading to a full-year gross margin improvement of about 100 basis points. This expansion is driven by productivity, pricing effects, and mix benefits. They plan to keep advertising and consumer promotion spending in the high 20s percentage of sales and have confirmed $120 million in savings this year through a combination of short-term and long-term actions to fuel future margin growth. -
Asia Travel Retail Challenges
Q: How are you addressing challenges in Asia Travel Retail?
A: Sue Nabi indicated that they have shifted significant resources from Asia, particularly China and Asian Travel Retail, to the U.S. and European markets. This reallocation contributed to sell-out growth of 50% to 60% in some weeks prior to the holiday season. They plan to continue this strategy, as Travel Retail in the Americas and Europe is performing very well. In Asia, Travel Retail is heavily impacted in categories like Prestige Color Cosmetics due to restrictions between Korea and China, affecting sales of brands like Gucci. However, other categories like fragrances and skincare are growing better in Asia. -
Strategic Portfolio Evaluation
Q: Are you considering changes to your business portfolio?
A: Sue Nabi mentioned that while their Consumer Beauty brands continue to outperform many legacy players, they are always evaluating their portfolio to assess long-term opportunities and return on investment for each category and brand. They see benefits in operating across multiple beauty categories, markets, and channels but remain open to making adjustments to fuel long-term success. -
Pricing Strategy Amid FX Impact
Q: How are you approaching pricing given FX impacts?
A: Laurent Mercier stated that, following mid-single-digit price increases last year due to high inflation, they will continue with more moderate, low single-digit price increases as inflation slows down. They believe they have pricing power due to innovation and are carefully managing pricing relative to elasticity to avoid negative impacts on volumes. In fragrances, they continue to work on pricing in both Prestige and mass segments, improving mix while maintaining volume growth. -
Shift to Online Channels
Q: How are you adapting to the shift toward online platforms like Amazon?
A: Sue Nabi explained that Coty has been partnering with Amazon for 6–7 years with brands like BOSS and Calvin Klein, creating a special relationship. Their e-commerce growth is strong in both divisions. For instance, CoverGirl is growing faster than the e-commerce market in U.S. Color Cosmetics, gaining market share. Prestige brands are also performing exceptionally well on Amazon. The online health of a brand is seen as a strong indicator of overall brand health. -
Wella Stake and Potential Monetization
Q: What's the status of your Wella stake and plans for potential sale?
A: Laurent Mercier noted that while the Wella business is performing well, the decline in its valuation is due to accounting methodology and interest rate considerations, not operational performance. With the end of the standstill period in November, Coty remains opportunistic and pragmatic regarding monetizing this valuable asset in their portfolio. -
Debt Management and Swaps Explanation
Q: Can you explain your debt management plans and the swaps mechanism?
A: Laurent Mercier stated that with their leverage ratio falling below 3x for the first time in eight years, they are considering resuming shareholder returns through share buybacks or dividends. The swaps are a mechanism to reserve shares for buybacks, involving about 48 million shares. Due to a pullback in their stock price, they need to make a true-up cash payment to the banks based on the current stock price. This is an anticipation of executing the share buyback in the future. -
Product Launches and Fragrance Outlook
Q: How are recent product launches performing, and what's your fragrance outlook?
A: Sue Nabi reported that the Gucci Flora Orchid launch was one of the biggest successes in Q1 and Q2, now rolled out globally and performing very well. They continue to innovate with brands like BOSS, which has become the company's number one brand. For the second half, they will continue with launches, including key initiatives from fiscal 2024 and new innovations for entry Prestige brands like David Beckham. They will universalize successful products like "Perfect" by Marc Jacobs. Fragrance remains a strong driver, and they expect continued growth in this category. -
Challenges in U.S. Color Cosmetics
Q: How are you addressing challenges in U.S. Color Cosmetics?
A: Sue Nabi acknowledged structural challenges in U.S. color cosmetics, including store closures in the drugstore environment. Unlike Prestige, where heritage and indie brands coexist to drive category health, the mass market favors only new brands, which cannot compensate for market declines. To combat this, Coty is focusing on agile innovation and high-entry-barrier products that offer uniqueness and value, aiming to revitalize the market by attracting consumers with meaningful innovation rather than competing solely on price. -
Bonds Maturing in 2026
Q: Do you plan to address bonds maturing in 2026 ahead of time?
A: Laurent Mercier confirmed that with their improved leverage and ongoing deleveraging efforts, they are strategically managing their debt maturities to maintain a healthy financial position. They are considering options regarding bonds maturing in 2026. -
Near-Term Trends and February Performance
Q: Have recent trends improved exiting the quarter and into February?
A: Laurent Mercier indicated that they continue to see adjustments in inventories at retailers and wholesalers and are facing additional tension due to competition between brick-and-mortar and e-commerce. However, in fragrances, the category is growing, and they are growing their sell-out. They are introducing new initiatives and expect improvement in fragrance sell-in.