Coty's Q1 Earnings Miss Estimates, Revenues Decline 6% Y/Y

Coty Inc. (COTY) posted first-quarter fiscal 2026 results, wherein both top and bottom lines missed the Zacks Consensus Estimate. Both net sales and earnings also experienced year-over-year declines.

Coty highlighted continued progress on the strategy to position it primarily as a Prestige-focused beauty player centered on fragrances. The company plans to invest behind brands with the strongest long-term potential, expand further into ultra-premium fragrances and fragrance mists, and improve performance in the mass cosmetics portfolio while evaluating strategic options for Consumer Beauty and Brazil. Management noted that underlying business trends are beginning to improve, particularly in Prestige, and expects second-quarter sales to land toward the favorable end of prior guidance, with both sales and profit growth anticipated in the second half of fiscal 2026.

In the fiscal first quarter, Coty delivered adjusted earnings of 12 cents per share, which missed the Zacks Consensus Estimate of 15 cents. Also, the bottom line declined from 15 cents reported in the year-ago quarter. Results included a 3-cent negative impact from the equity swap mark-to-market.

Coty Price, Consensus and EPS Surprise

Coty price-consensus-eps-surprise-chart | Coty Quote

Coty’s net revenues were $1,577.2 million, down 6% year over year. The metric reflected a 2% benefit from foreign currency exchange. Quarterly net revenues missed the Zacks Consensus Estimate of $1,583 million.

On a like-for-like (“LFL”) basis, net revenues declined 8%, reflecting a decrease in Prestige and Consumer Beauty. We expected LFL revenues to decrease 7.2% year over year in the fiscal first quarter.

Taking a Closer Look at COTY’s Q1 Results

The adjusted and reported gross margin was 64.5%, down 100 basis points. This reflected lower sales and a 40-basis-point headwind from tariffs. We expected adjusted gross margin to decrease 180 basis points year over year to 63.7%.

Coty reported an adjusted operating income of $240.5 million, a 21% decline from the prior year’s level. The company's adjusted operating margin was 15.2%, reflecting a 300 basis-point decrease year over year. We anticipated the adjusted operating margin to decrease 350 basis points year over year to 14.7%.

Adjusted EBITDA of $296.1 million declined 18% year over year, reflecting reduced sales and gross profit, partially offset by fixed cost savings. The adjusted EBITDA margin was 18.8%, down 270 basis points year over year. We anticipated the adjusted EBITDA margin to decrease 310 basis points year over year to 18.4%.

Q1 Insights of COTY’s Segments

Prestige: Net revenues in the segment were $1,069.5 million, accounting for 68% of total company sales. This represented a 4% decline on a reported basis, including a 2% benefit from foreign exchange. On a LFL basis, revenues declined 6%. The decline reflects the company’s actions to adjust retailer inventory levels to better align with current demand trends in the prestige fragrance category. The Prestige segment also faced softer demand in prestige makeup and skincare during the quarter.

The segment’s reported operating income was $208.9 million compared with $241.5 million in the year-ago quarter. Adjusted operating income was $239 million, down from $279.7 million in the prior-year quarter. The adjusted operating margin was 22.3%, down 280 basis points year over year. Prestige’s adjusted EBITDA was $267.6 million compared with $307.6 million in the year-ago quarter.

Looking ahead, the Prestige segment is poised to benefit from a strong pipeline of blockbuster launches, including the global launch of BOSS Bottled Beyond, which is underway, alongside the relaunch and expanded U.S. distribution of the Hugo Boss fragrance portfolio. Coty is also expanding into the growing fragrance mist category, with recent launches under Calvin Klein, philosophy and Kylie Cosmetics, and additional introductions planned.

A major new flagship brand launch is expected in the second half of fiscal 2026. Etro ultra-premium fragrances are set to debut in the calendar year 2026, with Etro Nectar already being re-promoted. Marc Jacobs Beauty makeup is targeted for calendar year 2026, followed by a new Swarovski fragrance in calendar year 2027.

Consumer Beauty: Net revenues amounted to $507.7 million, accounting for 32% of total sales. This represented a 9% decline on a reported basis, including a 2% benefit from foreign exchange. The decrease was broad-based across the segment’s categories, with both reported and LFL sales impacted by softer demand in several European markets and some trade destocking in mass fragrances.

The segment reported a loss, with an operating loss of $7.7 million in contrast to an operating income of $14 million in the prior-year quarter. Adjusted operating income was $1.5 million compared with $23.9 million in the year-ago quarter. The adjusted operating margin was 0.3% compared with 4.3% in the prior year. Adjusted EBITDA declined to $28.5 million from $52.5 million, with margins contracting 380 basis points to 5.6%.

For fiscal 2026 and beyond, the Consumer Beauty segment is focused on reigniting growth through new innovations across mass fragrance brands such as adidas, Nautica, Vera Wang and bruno banani, alongside the rollout of the new Jawhara fragrance collection in Europe and on Amazon in the United States, with broader distribution to follow. Coty is also expanding into scent adjacencies with recent hair and body mist launches under adidas Vibes, Nautica and Jawhara.

At the same time, the company is focused on improving performance in the mass color cosmetics business while conducting a strategic review, including evaluating its Brazil business, and leveraging high-growth digital channels such as Amazon and TikTok Shop to fuel demand.

COTY’s Regional Revenue Results

Coty’s Americas segment reported net revenues of $649.6 million, accounting for 41.2% of total sales. This reflected a 6% decline on a reported basis and on an LFL basis. The decrease was primarily caused by lower Prestige revenues, reflecting retailer inventory rightsizing to better match current demand trends in the fragrance category. In addition, Consumer Beauty net revenue in U.S. cosmetics declined due to sell-out underperformance relative to the broader category.

Coty’s EMEA segment generated net revenues of $754.8 million, accounting for 47.9% of total sales. This marked a 4% decline on a reported basis, including a 5% favorable impact from foreign exchange. On a LFL basis, revenues declined 9% in the quarter. Both reported and LFL performance reflected lower net revenues in the Consumer Beauty color cosmetics business.

Coty’s Asia Pacific segment reported net revenues of $172.8 million, representing 11% of total sales. This reflected a 9% decline on a reported and LFL basis. The decline reflects broad softness across most markets. However, beauty market trends in China are showing gradual improvement, with the fragrance category continuing to outperform other beauty segments as consumer penetration increases.

COTY’s Financial Health Snapshot

The company ended the fiscal first quarter with cash and cash equivalents of $264.6 million, total debt of $4,069.3 million and financial net debt of $3,804.7 million, implying a leverage ratio of 3.7x. In the fiscal first quarter, cash provided by operating activities amounted to $65.2 million, while free cash flow was $11.2 million.

What to Expect From Coty in FY26

Consumer demand for beauty remains steady, with fragrances continuing to outperform. However, ongoing macro and tariff uncertainty has led retailers to order more cautiously, resulting in a more promotional environment. In response, Coty is advancing key launches, expanding its presence in higher-end and mist fragrance formats, broadening distribution and working with retailers to keep inventory levels better aligned with underlying demand.

Management expects sales trends to improve gradually through fiscal 2026 from the fiscal fourth quarter baseline reset. Strong October performance, particularly in Prestige, positions fiscal second-quarter LFL revenues toward the favorable end of its prior LFL outlook of a 3% to 5% decline, with sequential momentum anticipated in both Prestige and Consumer Beauty. Reported revenues in the quarter are also expected to benefit modestly from foreign exchange. Coty continues to anticipate a return to LFL revenue growth in the second half of the fiscal year, supported by improving sell-in and sell-out alignment and several significant Prestige launches.

Profitability is expected to follow a similar pattern, with adjusted EBITDA projected to decline by a low-to-mid-teens percentage in the fiscal second quarter before returning to growth in the back half of the year. The company continues to target approximately $1 billion in adjusted EBITDA for fiscal 2026.

Coty forecasts fiscal second-quarter adjusted EPS (excluding the equity swap) of 18 cents to 21 cents, bringing the first half of fiscal 2026 to 33 cents to 36 cents.

Shares of this Zacks Rank #3 (Hold) company have lost 22.9% in the past month against the industry’s 0.9% growth.

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