Coty (COTY) Q2 2025 Prepared Remarks earnings summary

Executive summary

• Delivered strong gross and operating margin expansion in 1H25 and Q2, with robust cash generation and lowest leverage in over 8 years, despite challenges in China, Travel Retail Asia, Australia, ANZ, and U.S. Consumer Beauty impacting Prestige and Consumer Beauty segments.

• Prestige fragrances outperformed, with high single-digit sell-out growth and successful launches like Gucci Flora Orchid and Boss The Scent, while mass color cosmetics and APAC region faced headwinds.

• Retailers remain cautious on inventory replenishment despite strong sell-out, especially in Prestige fragrances, leading to a gap between sell-in and sell-out.

• Structural and competitive challenges persist in U.S. color cosmetics, with closures in the pharma drugstore channel and a market favoring new indie brands over heritage brands.

• Continued investment in brands, sustainability, and new licenses, including a Swarovski fragrance license.

Financial highlights

• 1H25 reported net revenue: $3,341.4M (-1% YoY); Q2: $1,669.9M (-3% YoY); LFL net revenue grew 2% in 1H25, Q2 LFL revenue declined 1%.

• Gross margin expanded by nearly 400 basis points in H1, reaching close to 67% at the end of Q2; 1H25 reported gross margin: 66.1% (+180bps YoY); Q2: 66.7% (+160bps YoY).

• 1H25 adjusted EBITDA: $750.8M (+3% YoY); Q2: $390.7M (+7% YoY); EBITDA margin expected to grow by 70 to 90 basis points in fiscal 2025, approaching 19%.

• EPS achieved double-digit growth, and leverage ratio fell below three times, the lowest in eight years.

• Free cash flow in 1H25: $411.1M; Q2: $419.0M.

Outlook and guidance

• Prudent guidance for H2 due to ongoing retailer inventory caution; no expectation of replenishment in H2.

• FY25 LFL sales trends expected at -1% to -2% in 2H25, with reported sales to decline low single digits due to FX headwinds.

• FY25 adjusted EBITDA targeted at $1,115-1,125M, with margin expansion of 70-90bps; adjusted EPS (excl. equity swap) expected at $0.50-0.52.

• Fiscal 2026 sales growth expected to improve, driven by blockbuster launches, distribution expansion, and normalization of retailer inventories.

• Full-year gross margin projected to improve by about 100 basis points, with continued focus on productivity, pricing, and mix.