Coty Q2 Earnings Miss Estimates Amid Margin Pressure, Revenues Beat

Coty Inc. COTY delivered mixed results for the second quarter of fiscal 2026, as earnings fell short of expectations, while revenues topped estimates. The quarter reflected improving sales momentum compared to recent periods but continued margin pressure from a promotional environment, tariffs and volume softness, particularly in Consumer Beauty.

COTY’s Earnings & Revenue Snapshot

For the second quarter of fiscal 2026, Coty delivered adjusted earnings of 14 cents per share, which missed the Zacks Consensus Estimate of 18 cents. The bottom line improved from 11 cents in the year-ago quarter, including a 4-cent adverse impact from the equity swap mark-to-market.

Net revenues came in at $1,678.6 million, up 1% year over year on a reported basis and ahead of the Zacks Consensus Estimate of $1,665 million. Results included a 4% benefit from foreign exchange. On a like-for-like (LFL) basis, revenues declined 3%, showing a sequential improvement from an 8% LFL decline in the fiscal first quarter.

Coty’s Margins & Profitability

The adjusted gross margin declined 260 basis points year over year to 64.2%, pressured by elevated promotions in Prestige, lower volumes in Consumer Beauty, unfavorable mix and a larger tariff impact compared with the prior quarter. Management expects these pressures to persist in the second half of fiscal 2026. 

Adjusted operating income fell 18% to $274.3 million, with the adjusted operating margin contracting 370 basis points to 16.3%. Adjusted EBITDA declined 15% to $330.2 million, while the adjusted EBITDA margin slipped 370 basis points to 19.7%.

Coty’s Segment-Wise Performance

Prestige revenues totaled $1,133.6 million, accounting for 68% of total sales. Revenues increased 2% on a reported basis, supported by foreign exchange, but declined 2% LFL, reflecting slower category growth and heightened promotional activity despite a meaningful reduction in retailer destocking headwinds. Prestige makeup and skincare delivered growth, led by Burberry, Kylie Cosmetics, Lancaster and philosophy. The adjusted operating margin in the segment decreased 150 basis points to 21.8%. 

Consumer Beauty revenues were $545.0 million, representing 32% of company sales. Revenues declined 2% reported and 6% LFL due to continued softness in color cosmetics and lifestyle fragrances, partially offset by growth in mass skincare. The adjusted operating margin fell sharply to 5% from 13.3% a year ago, reflecting lower volumes, mix pressure, and higher advertising and promotion costs.

COTY’s Regional Highlights

Americas: Revenues declined 2% reported and 3% LFL, reflecting weaker Prestige fragrance trends and an ongoing sell-out gap in U.S. mass cosmetics.

EMEA: Revenues rose 3% reported, aided by foreign exchange, but fell 4% LFL due to pressure in Prestige fragrance and Consumer Beauty color cosmetics.

Asia Pacific: Revenues slipped 1% reported and 2% LFL, with strength in China and Japan partly offset by weakness in Southeast Asia.

COTY: Strategic & Financial Updates

During the quarter, Coty appointed Markus Strobel as Executive Chairman and Interim CEO, who introduced the “Coty. Curated.” strategic framework, emphasizing sharper priorities, focused investments and stronger execution behind core brands. The company also completed the sale of its remaining 25.8% stake in Wella, receiving $750 million in upfront proceeds, which materially strengthened the balance sheet. 

The Zacks Rank #3 (Hold) company ended the quarter with financial net debt of $2.6 billion and a leverage ratio of 2.7, the lowest level in more than nine years. Free cash flow was robust at $513.1 million for the quarter, driven by improved working-capital dynamics.

Guidance by Coty

Given the leadership transition, Coty withdrew full-year fiscal 2026 guidance and provided an outlook only for the third quarter of fiscal 2026. 

Coty expects third-quarter LFL revenues to decline at a mid-single-digit rate, driven mainly by ongoing softness in Consumer Beauty. In Prestige, the fragrance category is projected to grow at a low-to-mid-single-digit pace, broadly in line with recent trends. While retailer destocking pressures have largely eased, elevated promotional activity continues to weigh on sales and margins. The company is sharpening investment priorities and execution to support gradual market share gains in key developed markets, with momentum remaining healthier in Asia Pacific, the Middle East and Latin America.

In Consumer Beauty, management expects the mass segment to range from flat to an increase in the low single digits. Early actions under the color cosmetics turnaround plan are underway, though near-term results remain pressured by an ongoing sell-out gap and continued weakness in lifestyle fragrances.

For the third quarter, Coty anticipates gross margin to contract 200-300 basis points year over year. Combined with fixed-cost headwinds and sustained brand investment, adjusted EBITDA is projected at $100-$110 million, implying roughly breakeven adjusted EPS, excluding the equity swap.

Shares of COTY have tumbled 15.3% in the past three months against the industry’s 27.9% growth.

Stocks to Consider

The Estee Lauder Companies EL, a cosmetics giant, currently carries a Zacks Rank #2 (Buy). EL delivered a trailing four-quarter earnings surprise of 82.6%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for The Estee Lauder Companies’ current fiscal-year earnings suggests growth of 44.4% from the year-ago figure.

European Wax Center EWCZ, a personal care franchise brand, carries a Zacks Rank of 2. EWCZ delivered a trailing four-quarter earnings surprise of 170.2%, on average.

The consensus estimate for European Wax Center’s fiscal 2026 sales implies growth of 1.3%, while that for earnings suggests a 0.8% dip from the year-ago figures. 

Ulta Beauty ULTA, a leading beauty retailer, has a Zacks Rank #2 at present. ULTA delivered a trailing four-quarter earnings surprise of 15.7%, on average.

The Zacks Consensus Estimate for Ulta Beauty’s current fiscal-year sales and earnings indicates growth of 9.5% and 0.9%, respectively, from the year-ago figures. 

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This article originally published on Zacks Investment Research (zacks.com).

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