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COTY INC. (COTY) Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 delivered mixed results: net revenues $1.30B (-6% reported, -3% LFL), adjusted EPS $0.01, and adjusted EBITDA margin up 130 bps to 15.7% despite a large impairment in Consumer Beauty .
  • Both revenue and EPS modestly missed consensus; S&P Global shows revenue $1.306B estimate vs $1.299B actual and EPS $0.053 estimate vs $0.01 actual (driven by equity swap MTM and the impairment)*.
  • FY25 guidance reset: Q4 LFL sales expected to decline high-single-digits; FY25 LFL -2% with reported sales down mid-single-digits (≈3% FX headwind), gross margin ≈65%, EBITDA margin expansion ≈70 bps (~18.5%), EPS $0.49–$0.50 (near low end), FCF ≈$300M .
  • Management emphasized FY26 re-acceleration via blockbuster launches, distribution expansion, pricing, and ~$370M fixed-cost and productivity savings over FY26–FY27 in the “All-in to Win” program .
  • Near-term stock narrative likely hinges on the guidance cut/FCF reset vs. credible FY26 pipeline and structural savings; retailer inventory normalization and mass color cosmetics pressure remain watch items .

What Went Well and What Went Wrong

What Went Well

  • Adjusted profitability resilience: adjusted operating income +3% YoY to $147.9M; adjusted EBITDA +2% YoY to $204.2M with margin up 130 bps, aided by short-term savings .
  • Prestige profitability: Q3 Prestige adjusted operating margin rose 210 bps to 19.1%; adjusted EBITDA margin up 250 bps to 22.4% despite sales moderation, showing brand pricing power and disciplined promotions .
  • Strategic clarity and pipeline: CEO flagged “multi-pronged attack-plan” and FY26 blockbusters in both halves, plus adjacencies (ultra-premium, body mists, pen sprays). “We have the levers to protect our profitability and cash flow in a variety of macroeconomic scenarios.” .

What Went Wrong

  • Top-line softness: Q3 net revenues fell 6% reported (-3% LFL); Prestige down 4% reported (-2.5% LFL) and Consumer Beauty down 9% reported (-5% LFL), with U.S. cosmetics weakness and retailer tight inventory .
  • Large non-GAAP adjustments: a $212.8M impairment in color cosmetics, $75.7M restructuring, and $71.1M loss on SKKN sale drove reported operating loss (-$280.4M) and reported EPS (-$0.47) .
  • Cash flow and leverage: Q3 operating cash outflow ($122.5M) and FCF outflow ($168.4M); financial net debt rose to $3.62B and leverage increased to 3.2x from 2.9x sequentially .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Net revenues ($USD Millions)$1,385.6 $1,671.5 $1,669.9 $1,299.1
Adjusted diluted EPS ($USD)$0.05 $0.15 $0.11 $0.01
Gross margin (%) reported64.8% 65.5% 66.7% 64.1%
Gross margin (%) adjusted64.8% 65.5% 66.8% 64.3%
Adjusted operating margin (%)10.4% 18.2% 20.0% 11.4%
Adjusted EBITDA margin (%)14.4% 21.5% 23.4% 15.7%
Revenue Consensus Mean ($USD Millions)*$1,370.9$1,674.2$1,719.3$1,306.4
Primary EPS Consensus Mean ($USD)*$0.060$0.185$0.211$0.053

Values with asterisks retrieved from S&P Global.

Segment performance (Q3 2025 vs Q3 2024):

SegmentQ3 2024Q3 2025
Prestige net revenues ($USD Millions)$867.2 $829.4
Prestige adjusted operating margin (%)17.0% 19.1%
Prestige adjusted EBITDA margin (%)19.9% 22.4%
Consumer Beauty net revenues ($USD Millions)$518.4 $469.7
Consumer Beauty adjusted operating margin (%)-0.7% -2.3%
Consumer Beauty adjusted EBITDA margin (%)5.2% 3.9%

KPIs:

KPIQ2 2025Q3 2025
Cash from operations ($USD Millions)$464.5 $(122.5)
Free cash flow ($USD Millions)$419.0 $(168.4)
Total debt ($USD Millions)$3,459.0 $3,858.8
Financial net debt ($USD Millions)$3,209.4 $3,615.3
Leverage (Net debt/Adj EBITDA, x)2.9x 3.2x
Wella stake value ($USD Millions)$1,053.0 $1,000.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
LFL sales (Q4)Q4 FY25n/aHigh single-digit decline Lowered baseline (cleanup)
LFL sales (FY25)FY252H LFL -1% to -2% trend indicated -2% for FY25 Lowered
Reported sales (FY25)FY25Low single-digit decline (FX headwind ~3%) Mid single-digit decline with ~3% FX headwind Lowered
Gross margin (FY25)FY25Continued expansion (no explicit level) ≈65% Level specified
EBITDA margin expansion (FY25)FY25+70–90 bps; adj EBITDA $1,115–$1,125M ≈+70 bps to ~18.5%; adj EBITDA roughly flattish including FX Lowered growth, margin at low end
EPS (FY25)FY25$0.50–$0.52 (excluding equity swap) $0.49–$0.50 (near low end) Lowered
Free cash flowFY25≈$400M ≈$300M Lowered
LeverageFY25 exitBelow ~2.5x CY25 target End-FY25 leverage roughly in line with Q3 (3.2x) Higher than prior target
Cost savingsFY26–FY27Ongoing productivity ~$120M annual Incremental fixed cost savings ~$130M plus ongoing ~$120M annually; ~$500M cumulative FY25–FY27 Raised savings program

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY25)Previous Mentions (Q2 FY25)Current Period (Q3 FY25)Trend
Retailer inventory managementQ1 noted U.S. mass retailers channel shifts; sell-in below sell-out Q2 noted tight replenishment across regions; sell-in below sell-out Retailers “moving from high inventory to very low inventory”; Amazon discipline; focus on reconciling sell-in/sell-out Tightening persists
Tariffs and pricingn/aBroader macro and FX headwinds mentioned Low €100M tariff impact expected; mid-single-digit price increases in Prestige; category inelasticity cited Prepared to offset via pricing/sourcing
Mass color cosmeticsQ1 U.S. category flattish, pressure on sell-in Q2 category negative; peers promotional; Coty protecting gross margin Continued mid-single-digit decline; reallocate resources to mass fragrance; SRM discipline Ongoing pressure
Prestige fragranceQ1 strong double-digit brand growth; market normalized to mid-high single digit Q2 sell-out high single-digit; sell-in lagged Sustaining mid-single-digit growth; U.S. & Europe strong; China/TR weak Resilient
Organizational changesCentralization since 2021 Transformation targeting efficiencies New “English-speaking” region; empower local decisions to regain U.S. momentum Decentralize for agility
FY26 pipelinen/aSwarovski license; initiatives flagged Blockbusters in H1 & H2 FY26; adjacencies (body mists/pen sprays) Building for re-acceleration
AI/technologyn/aDemand planning hub; AI-enabled planning Leveraging S/4HANA and AI for support functions Execution tools scaling

Management Commentary

  • Strategic positioning: “We are much more strongly positioned to navigate the current complex dynamics… These improved fundamentals coupled with our multi-pronged plan of attack… give us measured confidence that business trends should gradually improve over the course of FY26.”
  • Category view: “Fragrances… will continue to be the strongest among the three key categories of the beauty business,” with U.S. mid-single-digit growth and Europe driven by mix/pricing; China still pressured .
  • Cost and tariffs: “We are implementing mid-single-digit price increase on Prestige… this category is pretty inelastic versus price increase… we are pretty confident we can do this without impacting volumes.”
  • Organizational change: “This is the right moment to give the power to regions… to make decisions that are 100% driven by local constraints or opportunities versus just what used to come from central.”

Q&A Highlights

  • Q4 outlook: The high-single-digit LFL decline reflects deliberate baseline cleanup in Prestige and continued mass cosmetics pressure, not worsening consumer demand .
  • Tariff mitigation: Inventory build pre-tariffs, procurement re-sourcing, potential U.S. fragrance line routing, and pricing actions expected to offset the low €100M impact over FY26 .
  • Consumer Beauty pivot: Reallocating spend from color cosmetics (higher GM but lower ROI now) to fast-growing mass fragrances; SRM teams protecting margin against competitive promotions .
  • Retailer replenishment: Broad tightness in inventories across channels; sell-in will be managed to align with sell-out starting FY26 .
  • FY26 phasing: Expect declines in H1 FY26 but better than Q4 FY25; blockbuster in Q1 FY26 to aid early re-acceleration .

Estimates Context

  • Q3 FY25: Revenue $1,306.4M estimate vs $1,299.1M actual (miss); Primary EPS $0.053 estimate vs $0.01 actual (miss).* Adjusted EBITDA margin improvement YoY mitigated the EPS shortfall driven by equity swap MTM ($0.07 hurt) and impairment .
  • Q2 FY25: Revenue $1,719.3M estimate vs $1,669.9M actual (miss); EPS $0.211 estimate vs $0.11 actual (miss).*
  • Q1 FY25: Revenue $1,674.2M estimate vs $1,671.5M actual (slight miss); EPS $0.185 estimate vs $0.15 actual (miss).*

Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term caution: Guidance cut (Q4 LFL -HSD; FY25 LFL -2%) and FCF reset to ~$300M suggest continued headwinds from inventory normalization and mass cosmetics; expect muted H1 FY26 before pipeline-driven re-acceleration .
  • Margin durability: Despite top-line pressure, gross margin and EBITDA margin expansion continue (Q3 adj EBITDA margin +130 bps YoY), supported by pricing, SRM, supply chain savings, and disciplined promotions .
  • Strategic “All-in to Win”: ~$130M fixed cost savings plus ~$120M annual productivity savings (≈$500M FY25–FY27) should offset tariffs and fund brand investment, underpinning FY26+ EPS/margin trajectory .
  • Prestige leadership intact: Fragrance category remains structurally strong (U.S. mid-single-digit; Europe mix/pricing), and FY26 blockbusters across H1/H2 should catalyze growth .
  • Consumer Beauty pivot: Resources shifting toward mass fragrance where Coty has leadership and margins; watch execution in U.S. color cosmetics and efficacy of TikTok/e-comm playbooks .
  • Balance sheet watch: Leverage rose to 3.2x; management guides year-end leverage roughly in line with Q3; monitor cash generation and progress on Wella stake monetization optionality .
  • Trading lens: Short-term risk skew from guidance reset and inventory dynamics; medium-term upside tied to FY26 launches, pricing in Prestige, and structural savings. Track Q4 sell-in/sell-out alignment and tariff offsets .

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