COTY Q4 2025: Expects >$1B EBITDA despite tariff headwinds
- Robust Innovation Pipeline: The management highlighted a series of blockbuster product launches, notably the Hugo Boss Beyond bottle—described as the biggest launch in the company's history—and additional innovative fragrance mist initiatives, which are expected to drive consumer demand and boost sales.
- Sequential Growth in H2: The guidance provided indicates that after a challenging first half with retailer inventory destocking, H2 is expected to return to growth with improved sell-out performance and a rebalancing between sell-in and sell-out, positioning the company well for fiscal '26.
- Margin Improvement and Cost Control: Despite tariff headwinds in H1, management is taking strong productivity actions and leveraging savings from procurement and manufacturing to mitigate these impacts, supporting an EBITDA target above $1,000,000,000 for the year.
- Significant Tariff Headwinds: The company is facing major headwinds from tariffs that are already impacting gross margins and driving down EBITDA in the early part of the year, necessitating aggressive productivity actions to offset these costs.
- Dependence on a Risky H2 Turnaround: The outlook relies heavily on sequential improvements and a sharp reduction in inventory destocking—from as high as 11% down to near zero by Q3 fiscal 2026—which introduces uncertainty if macro conditions or execution falters.
- Macro Volatility and Intensifying Promotional Pressures: Increased promotional activities by competitors, coupled with retailers' inventory reduction and broader macro uncertainties, may exacerbate volatility in consumer demand and further pressure margins.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales | Q1 FY26 | no prior guidance | Sequential improvement expected | no prior guidance |
EPS | Q1 FY26 | no prior guidance | Specific EPS guidance was not detailed | no prior guidance |
Sales | Q2 FY26 | no prior guidance | Sequential improvement expected | no prior guidance |
EPS | Q2 FY26 | no prior guidance | Specific EPS guidance was not detailed | no prior guidance |
Full-year EBITDA | FY26 | no prior guidance | Projected to exceed $1,000,000,000; tariffs expected to create a $50,000,000–$55,000,000 net headwind | no prior guidance |
Free Cash Flow | FY26 | no prior guidance | Growth in free cash flow is anticipated | no prior guidance |
Inventory and Working Capital | FY26 | no prior guidance | Focus on reducing inventory levels and tightly managing working capital, with expectations to return to a normal cash cycle by calendar year 2026 | no prior guidance |
Innovation and Market Strategy | FY26 | no prior guidance | Growth supported by strong innovations, new product launches, and increased media support for brands | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Innovation and New Product Launches | Broad discussions in Q1–Q3 focused on blockbuster launches, agile beauty initiatives and establishing high entry barriers in fragrances and cosmetics. | In Q4 2025, the focus broadens to address innovation fatigue, especially in color cosmetics, while emphasizing simplified product routines, fragrance innovations (e.g., perfume mists) and blockbuster launches. | Recurring; enhanced focus on addressing innovation fatigue and simplifying the product portfolio. |
Margin Improvement and Cost Control | Consistently emphasized in Q1–Q3 with discussions on gross margin expansion, EBITDA margin growth and structural cost control measures including tech initiatives. | Q4 2025 continues the focus with added emphasis on strict cost discipline, profitability improvement in Consumer Beauty and detailed productivity actions to counter headwinds. | Recurring with consistent improvement strategies and tighter cost control. |
Retailer Inventory Management and Sell-in vs Sell-out Dynamics | Addressed in Q1–Q3 through mentions of cautious retailer behavior, disconnect (notably in the U.S.) and early signs of inventory normalization. | Q4 2025 underscores active retailer inventory reductions with expectations of sell-in aligning to sell-out by H2 fiscal 2026 amid strong consumer demand in key categories. | Recurring with evolving strategies toward inventory normalization and improved alignment. |
Tariff Headwinds and Supply Chain Challenges | Discussed in Q1–Q3 as potential tariff impacts and supply chain disruptions with initial mitigation strategies and a focus on dual sourcing and technology enhancements. | Q4 2025 emphasizes detailed mitigation measures – including productivity actions, new forecasting tools and pricing adjustments – with expectations that tariff headwinds and supply chain issues will decline by mid fiscal 2026. | Recurring with declining emphasis as mitigation measures and operational improvements take effect. |
E-commerce Growth and Digital Transformation | Q1–Q3 focused strongly on e-commerce performance (e.g., surpassing the $1B threshold), leveraging platforms like Amazon and TikTok and driving viral brand strategies. | In Q4 2025, the discussion is limited to highlighting strong China e-commerce performance for certain brands, with less overall emphasis on digital transformation. | Recurring but with reduced emphasis in Q4 compared to earlier quarters. |
Operational Restructuring and Decentralization | Q3 2025 featured discussions on organizational changes, with shifts toward decentralization and regional empowerment to drive agility. | There is no mention of operational restructuring or decentralization in Q4 2025 [N/A]. | No longer mentioned. |
Geographic Market Challenges and Competitive Pressures | Q1–Q3 dealt with challenges across regions (Asia, China, U.S. travel retail), highlighting competitive pressures from discounting and innovative rivals. | In Q4 2025, the discussion continues with a focus on challenges in Asia (e.g., changing reseller dynamics), U.S. destocking and ongoing competitive promotional pressures, along with strategic adjustments. | Recurring with persistent challenges and continued strategic adjustments to offset competitive pressures. |
Revised Growth Outlook and Market Volatility | Q1–Q3 discussed adjusted long-term growth targets, medium-term guidance for fiscal 2026 and strong acknowledgment of market volatility impacting forecasts. | Q4 2025 provides precise guidance for Q1–Q2 fiscal 2026, details the impact of retailer inventory headwinds and outlines a recovery in H2 fiscal 2026 despite ongoing volatility. | Recurring with cautious optimism and clearer segmentation of recovery phases. |
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Tariff Impact
Q: How do tariffs affect EBITDA?
A: Management explained that despite a rough $50 million tariff headwind, proactive productivity actions and procurement efficiencies are expected to alleviate the impact—leaving about a $20–25 million relief window that helps ensure EBITDA finishes above $1 billion for the year. -
Destocking Trends
Q: When will destocking normalize?
A: They expect the destocking gap to narrow—from 11% at the start to 5% in Q4 2025—and then gradually close to nil by Q3 fiscal 2026, aligning sell-in with sell-out especially in the U.S. market. -
Cash Flow & Financing
Q: What are cash flow priorities and refinancing plans?
A: The team is focused on cash deleveraging by tightening working capital and controlling inventory, with plans to refinance maturing debt in 2026 and potentially use swaps for a share buyback when conditions improve, supported by strong EBITDA trends and recent rating upgrades. -
H2 Initiatives
Q: What initiatives drive H2 improvement?
A: Management highlighted that once retailer inventory headwinds end, innovative launches—like the blockbuster Hugo Boss Beyond and a new body mist strategy—will boost sell-out performance and drive top-line growth in H2. -
Innovation Fatigue
Q: Is the market experiencing innovation fatigue?
A: They noted that after an intense period of frequent product launches, especially in color cosmetics, consumers have grown weary; meanwhile, fragrances continue as a simple and effective category, maintaining steady growth. -
Travel Retail
Q: How is Travel Retail evolving?
A: Management is repositioning Travel Retail as a discovery destination by offering exclusive launches—such as the initial debut of major products—resulting in solid growth in the Americas and EMEA, though Asian travel retail still faces challenges due to Chinese market pressures. -
Consumer Beauty
Q: How is investment shifting in mass beauty?
A: They are moderating spending in mass color to boost profitability while leveraging the bright performance of the mass fragrance segment, which contributes about 7% of net revenues, reflecting a more measured, ROI-driven strategy. -
Prestige Portfolio (Excluding Fragrance)
Q: How did prestige, excluding fragrance, perform?
A: Management reported that prestige portfolios apart from fragrances have shown resilient sell-in and sell-out trends, although results varied by region—with a notable impact from shifting reseller channels in Asia. -
Prestige Demographics
Q: Are key prestige demographics pulling back?
A: They observed that core segments including Gen Z, Hispanic, and male consumers continue to engage robustly—evidenced by increasing multiple fragrance ownership—indicating sustained demand across the board.
Research analysts covering COTY.