EPS of $0.02 decreased by 88.3% from previous year
Gross margin of 66.7%
Net income of 23.70M
"“we don't see this replenishment happening in H2. That's what explains our prudent guidance, and we hope that this will happen at the moment or another, especially given what Laurent just described, which are the very strong sell-out we saw during the holiday season, and we continue to see behind our Fragrances in both divisions.”" - Sue Nabi
Coty’s QQ2 2025 report presents a mixed near-term performance with a modest revenue decline and continued margin expansion, underpinned by a disciplined cost structure and cash flow generation. Revenue for the quarter totaled $1.6699 billion, down 3.34% year-over-year and essentially flat versus the prior quarter (-0.10% QoQ). The company delivered EBITDA of $218.9 million and an operating income of $268.2 million, marking EBITDA margin around 13.1% and operating margin near 16.1%. Net income was modest at $23.7 million, with diluted EPS of $0.0233–$0.0234, reflecting an unfavorable mix and higher non-operating costs that constrained profitability despite significant gross margin leverage. Gross margin stood at approximately 66.7%, a substantial improvement versus prior baselines, driven by productivity gains, pricing actions, and favorable mix, with the full-year gross margin targeting an incremental ~100 bps versus fiscal 2023. Management emphasizes resilience and a clear path to outperformance of the beauty market, anchored by five growth drivers (global fragrance expansion, expanding prestige/color skincare, online penetration, and growth in key markets) and a commitment to deleveraging below 3x, funded by ongoing cost savings of $120 million and disciplined capital allocation. The call highlighted near-term Asia/China Travel Retail softness, stronger sell-out in prestige and fragrance during holidays, and a cautious inventory stance by retailers that depresses sell-in relative to sell-out. Management guidance contemplates margin stability and growth re-acceleration in fiscal 2026, aided by two major launches in H1 2026 and distribution expansion across prestige brands, alongside a shift toward non-Asian regions to rebalance growth. Investors should weigh the near-term headwinds in Asia and U.S. consumer beauty against Coty’s strong cash flow, deleveraging trajectory, and the potential for a meaningful lift from upcoming fragrance and prestige launches. Key takeaway: Coty remains in a multi-year turnaround with margin expansion and earnings leverage while navigating a challenging macro backdrop and selective region/channel headwinds.
Net Income: $23.7 million; Net income margin: 1.42%; YoY change: -86.90%; QoQ change: -71.41%
Financial Highlights
- Revenue: $1.6699 billion; YoY change: -3.34%; QoQ change: -0.10%
- Gross Profit: $1.1142 billion; Gross margin: 66.72%; YoY change: -0.88%; QoQ change: +1.79%
- Operating Income: $268.2 million; Operating margin: 16.06%; YoY change: +13.31%; QoQ change: +12.78%
- EBITDA: $218.9 million; EBITDA margin: 13.11%
- Net Income: $23.7 million; Net income margin: 1.42%; YoY change: -86.90%; QoQ change: -71.41%
- EPS (GAAP): $0.0234; Diluted EPS: $0.0233; YoY EPS change: -88.30%; QoQEPS change: -74.48%
- Free Cash Flow (FCF): $419 million; Operating Cash Flow: $464.5 million
- Balance sheet: Total assets $11.724B; Total debt $3.661B; Net debt $3.411B; Cash & equivalents ~$0.25B; Net cash from operations funded capex and financing activity; Current ratio 0.71, Quick ratio 0.45
- Leverage: Net debt/EBITDA currently around roughly 3.0x; 3x target discussed as a threshold for capital allocation actions
- Returns: EBITDA margin expansion of ~70–90 bps expected for fiscal 2025; Full-year gross margin target ~100 bps above fiscal 2023; A&P spend in the high 20s as a percent of revenue; $120 million savings program
- Growth indicators: Online/e-commerce contribution remains robust; Prestige fragrance and certain brand franchises (Burberry, Kylie Cosmic, Marc Jacobs Daisy Wild, Hugo Boss) contribute to brand trajectory; Management aims to return to growth in fiscal 2026 driven by major launches and distribution gains.
- Guidance/Outlook: Expect H2 gross margin ~100 bps above fiscal 2023; two major launches in fiscal 2026; sustained online momentum; inventory normalization and improved replenishment in subsequent periods are anticipated but not guaranteed; deleveraging below 3x achieved; plan to resume shareholder returns via buybacks/dividends as leverage permits.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.67B
-3.34%
-0.10%
Gross Profit
1.11B
-0.88%
1.79%
Operating Income
268.20M
13.31%
12.78%
Net Income
23.70M
-86.90%
-71.41%
EPS
0.02
-88.30%
-74.48%
Key Financial Ratios
currentRatio
0.71
grossProfitMargin
66.7%
operatingProfitMargin
16.1%
netProfitMargin
1.42%
returnOnAssets
0.2%
returnOnEquity
0.63%
debtEquityRatio
0.97
operatingCashFlowPerShare
$0.53
freeCashFlowPerShare
$0.48
dividendPayoutRatio
14.3%
priceToBookRatio
1.6
priceEarningsRatio
63.98
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and growth framework: Management emphasized five growth drivers to outgrow the beauty market: expansion of Fragrance across Prestige and Mass, expansion into skincare, increased online penetration (now surpassing $1B in online sales), stronger growth in growth engine markets, and ongoing portfolio optimization. Quote: “the addition of this fifth growth driver is really what will allow us to grow our sales above the market” (Sue Nabi). Context: This frames Coty’s multi-brand, multi-channel approach and underscores confidence in fragrance leadership and new category initiatives.
- Near-term headwinds and inventory discipline: The team highlighted pockets of softness in China, Travel Retail Asia, Australia, and U.S. Consumer Beauty, contributing a roughly 3-point drag to Prestige and another 3-point drag to Consumer Beauty. They noted retailers are “very cautious on their inventory management,” leading to sell-in lagging sell-out. Quote: “we are seeing sell-in below due to this very cautious behavior by the retailers. But the sell-out is very healthy.” (Laurent Mercier). Context: This explains the prudent H2 guidance and the risk to near-term revenue trajectory.
- Replenishment and H2 outlook: Management stated they do not expect replenishment to materialize in H2, which underpins their cautious outlook for fiscal 2025 and supports the plan for a rebound in fiscal 2026. Quote: “we don't see this replenishment happening in H2. That's what explains our prudent guidance” (Sue Nabi). Context: Signals that the company anticipates a return to more normal inventory dynamics only in the longer term.
- Fragrance performance and product cadence: Management cited very strong sell-out in Fragrance during the holiday season, with ongoing momentum in Burberry, Kylie Cosmic, Marc Jacobs Daisy Wild, and Boss expansions. They plan additional innovations in H2 2025 and H1 2026, including Davidoff with Gen Z appeal. Quote: “the Gucci Flora Orchid is doing very, very well,” and “we will continue some of the key initiatives… and anniversary these initiatives.” Context: Demonstrates a blueprint for fragrance-driven growth and category-renewal.
- Margin discipline and capital allocation: The executives highlighted gross margin expansion (H1 ~200 bps), disciplined cost management, and a savings program ($120 million) to fund brand investments while expanding EBITDA margins toward ~19% for the year. Quote: “we have a very healthy P&L and a very healthy balance sheet... gross margin expansion… EBITDA margin growth of 70 to 90 basis points” (Laurent Mercier). Context: Emphasizes the financial discipline underpinning the turnaround and the ability to fund growth without compromising profitability.
“we don't see this replenishment happening in H2. That's what explains our prudent guidance, and we hope that this will happen at the moment or another, especially given what Laurent just described, which are the very strong sell-out we saw during the holiday season, and we continue to see behind our Fragrances in both divisions.”
— Sue Nabi
“the conjunction of big launches together with the distribution expansion of some of our key Prestige brands in the U.S., but also in other emerging markets, will help us to be back to growth in fiscal '26.”
— Sue Nabi
Forward Guidance
- Short-term: Maintain disciplined pricing with low-single-digit price increases (driven by brand innovations) to support margins while protecting volumes. Expect H2 gross margin to be about 100 bps higher than fiscal 2023, with full-year gross margin up ~100 bps year-over-year.
- Medium-term: Fiscal 2026 to feature two major blockbuster launches and expanded distribution for key Prestige brands in the U.S. and emerging markets to drive organic growth. The company anticipates an offer-driven market where promotions and launches lift demand; this includes Burberry, Kylie, Marc Jacobs, and Hugo Boss leads.
- Long-term: Coty’s five growth drivers (fragrance leadership, mass fragrance expansion, skincare/channel expansion, online growth beyond $1B, and growth engine markets expansion) are designed to compound earnings and cash flow while deleveraging remains a priority. Management reiterated the objective to resume shareholder returns once leverage approaches the ~3x threshold.
- Risks to watch: Asia travel retail normalization, U.S. Consumer Beauty volatility, FX headwinds, and retailer inventory volatility that could extend the timing of a full revenue rebound. Investors should monitor: (i) replenishment patterns in H2 2025 and early 2026, (ii) retail partner inventory normalization, (iii) progression of major fragrance launches and their contribution to sell-out versus sell-in, and (iv) the pace of deleveraging and free cash flow growth as a proxy for financial flexibility.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
COTY Focus
66.72%
16.10%
0.63%
63.98%
ELF
71.10%
9.27%
2.61%
80.75%
PG
52.40%
26.20%
9.05%
21.29%
CL
60.70%
22.90%
5.94%
26.78%
KVUE
58.90%
17.90%
0.57%
148.17%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Coty’s QQ2 2025 results reflect a mid-cycle normalization, with meaningful near-term headwinds in Asia Travel Retail and U.S. color cosmetics, yet a strong earnings framework underpinned by margin expansion, robust cash flow, and a clear strategic roadmap. The company is converting brand strength and an enhanced fragrance pipeline into margin resilience and free cash flow generation while planning two major fiscal 2026 launches and expanded prestige distribution to drive growth. The deleveraging trajectory below 3x and the prospect of shareholder returns add optionality for equity investors. Relative to peers in consumer staples and beauty, Coty’s business remains more margin-driven but with higher margin capex and growth risk tied to the success of new fragrance launches and the tempo of international distribution expansion. Investors should monitor: (1) the pace of replenishment normalization in H2 2025 and early 2026, (2) the trajectory of prestige fragrance listings and new launches (Kylie, Marc Jacobs, Davidoff), (3) progression of online channel growth and Amazon penetration, and (4) the ongoing deleveraging progress and any opportunistic share-repurchase activity. Overall, the stock could re-rate higher on evidence of sustained margin expansion and a faster-than-expected rebound in Asia and U.S. cosmetics, but remains sensitive to region-specific demand dynamics and retailer behavior in the near term.
Key Investment Factors
Growth Potential
Coty’s growth potential hinges on: (1) successful execution of two major launches in fiscal 2026 (e.g., Burberry, Kylie, Marc Jacobs, Davidoff lines) and accelerated distribution in Prestige, (2) continued expansion into Mass Fragrance and skincare, (3) leadership in online beauty (online sales already >$1B), and (4) growth engine markets (e.g., Southeast Asia, Middle East, Mexico) delivering mid- to high-single-digit growth in Prestige Fragrance and skincare.
Profitability Risk
Key risks include: (1) sustained weakness in Asia Travel Retail and China consumer demand, (2) U.S. Consumer Beauty headwinds and color cosmetics dynamics, (3) retailer inventory discipline delaying replenishment and revenue recovery, (4) FX volatility affecting cost of goods and pricing power, (5) execution risk around major launches and distribution gains, (6) potential regulatory/changing tariff environments that could impact cross-border sales.
Financial Position
Strong cash generation and a disciplined balance sheet underpin financial flexibility: net debt of approximately $3.41B on total debt of $3.66B with a cash balance of ~$0.25B, current ratio 0.71 and quick ratio 0.45. The company achieved deleveraging below 3x in 2024-25 and signals ongoing shareholder returns as leverage improves. Margins are expanding (gross margin ~66.7%; EBITDA margin ~13.1%; full-year EBITDA margin target ~19%), supported by $120 million in efficiency savings and continued high-use of A&P in the high 20s as a percent of revenue to sustain sell-out. The company remains cash-flow positive with free cash flow of ~$419 million in the quarter, facilitating debt reduction and potential buybacks.
SWOT Analysis
Strengths
Global fragrance leadership with prestige-to-mass fragrance footprint