EPS of $-0.12 decreased by 445.8% from previous year
Gross margin of 60.7%
Net income of -96.90M
"Beauty is at the sweet-spot of desire, well-being, self-confidence, affordability, ritual, indulgence, and many new things that we and our consumers will continue to invent." - Sue Nabi
Coty Inc (COTY) QQ4 2024 Results: Margin Expansion, Balanced Growth, and Strategic Path to Deleveraging
Executive Summary
Coty reported a mixed but strategically meaningful Q4 FY2024, underscoring continued top-line resilience amidst a challenging near-term macro backdrop and a disciplined margin expansion trajectory. Revenue for the quarter was $1.3634 billion, with a gross margin of 60.7% and an operating margin of 2.67%, culminating in a net loss of $96.9 million (EPS -0.12). For the full year, however, Coty showcased meaningful profitability progression, delivering a FY24 adjusted EBITDA of $1,091 million (+12% YoY) and adjusted EPS ex swap of $0.48 (+26% YoY), supported by a 64.4% FY24 adjusted gross margin—well ahead of early-2020s targets and in line with its mid-60s gross margin ambition a year ahead of schedule. Cash generation remained solid, with FY24 net cash provided by operating activities of $176.5 million and free cash flow of $116.7 million, while leverage declined to ~3.3x on net debt of $3.6 billion (excluding the Wella stake).
Looking into FY25, management outlined a growth algorithm centered on 6%-8% like-for-like revenue growth (with Prestige expected to outperform), 9%-11% adjusted EBITDA growth, and ~20% adjusted EPS growth ex equity swaps, implying a two-year CAGR of roughly 19%-22% when compared to FY24, after factoring out one-time discrete tax benefits. The company expects continued gross margin expansion in FY25, driven by product premiumization and ongoing cost productivity, albeit with FX headwinds and a 1% scope headwind in H1 from the Lacoste license divestiture. Management signaled a deliberate deleverage plan toward ~2x by exit calendar 2025 and a longer-term target of ~2x, aided by higher profitability, cash flow expansion, and strategic asset sales (including potential Wella-related flexibility).
Overall, Coty’s QQ4 2024 results reinforce its strategic progression: a leading fragrance platform, a diversified consumer beauty portfolio, and a growth playbook centered on advocacy marketing, agile innovation, and expansion in high-potential growth engines and travel retail. While the near-term profitability remained challenged by one-off items and a net loss in Q4, the margin trajectory and long-term guidance suggest a constructive investment thesis anchored in structural margin improvement, a reaccelerating innovation calendar, and a deleveraging path.
Revenue and profitability metrics (USD, quarterly)
- Revenue: 1,363,400,000; YoY +0.9%; QoQ -1.6%
- Gross Profit: 827,600,000; Gross Margin 60.70%; YoY -2.58%; QoQ -7.82%
- Operating Income: 36,400,000; Operating Margin 2.67%; YoY -71.78%; QoQ -53.21%
- Net Income: -96,900,000; Net Margin -7.11%; YoY -394.53%; QoQ -2,650.00%
- Earnings Per Share (EPS): -0.12; Diluted EPS: -0.12; YoY -445.82%; QoQ -2,890.70%
- EBITDA: 52,100,000; EBITDA Margin 3.82%
- Balance and cash flow: Net cash provided by operating activities 176,500,000; Free cash flow 116,700,000
- FY24 highlights: Adjusted gross margin 64.4%; Adjusted operating margin 14.1%; Adjusted EBITDA margin 17.8%; Adjusted EPS (ex swap) 0.48; Net debt ~3.6B; Leverage 3.3x; Cash 320.6M; 90% SAP S/4HANA consolidation completed; 2024 FCF impact from SAP transition ~/$30M buffer expected to reverse in 2025.
- 2025 guidance highlights: 6%-8% like-for-like revenue growth; adjusted EBITDA up 9%-11% to $1,186m-$1,208m; adjusted EPS ex swaps $0.54-$0.57; FY25 FCF low-to-mid $400m; leverage target ~2.5x by calendar year-end 2024 and ~2.0x by end calendar 2025.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.36B
0.87%
-1.60%
Gross Profit
827.60M
-2.58%
-7.82%
Operating Income
36.40M
-71.78%
-53.21%
Net Income
-96.90M
-394.53%
-2 650.00%
EPS
-0.12
-445.82%
-2 890.70%
Key Financial Ratios
currentRatio
0.76
grossProfitMargin
60.7%
operatingProfitMargin
2.67%
netProfitMargin
-7.11%
returnOnAssets
-0.8%
returnOnEquity
-2.53%
debtEquityRatio
1.11
operatingCashFlowPerShare
$0.2
freeCashFlowPerShare
$0.13
dividendPayoutRatio
-3.41%
priceToBookRatio
2.21
priceEarningsRatio
-21.85
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key insights from management discussions and quotes:
- Strategy and brand leadership: Sue Nabi emphasized Coty’s positioning as a beauty leader and trendsetter, focusing on investment in marketing (A&CP in the high 20s) to sustain brand value and long-term growth. Quote: “Beauty is at the sweet-spot of desire, well-being, self-confidence, affordability, ritual, indulgence, and many new things that we and our consumers will continue to invent.” (Speaker: Sue Nabi)
- Performance and growth algorithm: Laurent Mercier outlined the company’s FY24 performance and FY25 targets, including a 6%-8% like-for-like revenue growth and an 9%-11% adjusted EBITDA growth trajectory; he also highlighted stronger gross margins and debt reduction progress. Quote: “We are targeting 9% to 11% growth in our fiscal '25 adjusted EBITDA to $1,186 million to $1,208 million, ahead of consensus expectations.” (Speaker: Laurent Mercier)
- Innovation, launches, and consumer engagement: The transcript details Burberry Goddess as a landmark launch and ongoing momentum from Kylie Jenner’s Cosmic Kylie and Daisy Wild, with Adidas Vibes upcoming, illustrating Coty’s differentiated fragrance leadership and mass-market expansion. The call also highlighted the rapid scaling of e-commerce and the travel retail channel and a strategic agile innovation flywheel to accelerate go-to-market. Management cited: Burberry Goddess as “the biggest fragrance launch in Coty’s history” and notes on Daisy Wild and Kylie Jenner launches delivering top-line momentum.
- Balance sheet discipline and SAP transition: The executives discussed debt reduction, cash flow generation, and the successful SAP S/4HANA migration, including a ~90% single-instance deployment and a ~US$30M buffer inventory misalignment during the transition that management expects to reverse in FY25. They also signaled ongoing cost savings and a disciplined approach to deleveraging and buybacks pending Wella considerations.
Beauty is at the sweet-spot of desire, well-being, self-confidence, affordability, ritual, indulgence, and many new things that we and our consumers will continue to invent.
— Sue Nabi
We are targeting 9% to 11% growth in our fiscal '25 adjusted EBITDA to $1,186 million to $1,208 million, ahead of consensus expectations.
— Laurent Mercier
Forward Guidance
Outlook and risk assessment (as articulated by Coty management and implied by the model):
- Revenue and growth: FY25 like-for-like revenue growth targeted at 6%-8%, with Prestige expected to outperform. FX headwinds are anticipated to be low-single-digits, and Lacoste license divestiture contributes a ~1% scope headwind in H1.
- Margin and profitability: Expect continued gross margin expansion in FY25, aligned with Coty’s long-run margin expansion trajectory. Management reiterated a target EBITDA growth of 9%-11% and a corresponding EBITDA margin expansion of ~10-30 bps for FY25.
- Earnings and cash flow: FY25 adjusted EPS (ex equity swaps) targeted at $0.54-$0.57, implying roughly 15%-20% YoY growth and a multi-year CAGR of about 19%-22% when excluding 2024 discrete tax benefits. FY25 free cash flow expected in the low-to-mid $400 million range, supported by higher profit, lower cash taxes, and savings programs ($75 million targeted for FY25).
- Leverage and capital allocation: Coty aims to reduce leverage toward approximately 2x exiting calendar 2025, with deleveraging aided by strong cash flow and potential Wella-related flexibility for buybacks.
- Key factors investors should monitor: (1) execution of the FY25 innovation calendar (e.g., Burberry Goddess Intense, Gucci Flora Gorgeous Orchid, Adidas Vibes); (2) performance of growth engine markets (Brazil, LATAM, India, Africa, Saudi Arabia) and Travel Retail; (3) FX dynamics and Lacoste divestiture impact; (4) progress on the S/4HANA transition and its effect on working capital and inventory; (5) progress on cost savings and efficiency improvements that support margin expansion.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
COTY Focus
60.70%
2.67%
-2.53%
-21.85%
ELF
70.70%
5.30%
2.26%
183.24%
PG
49.60%
18.90%
6.24%
32.06%
CL
59.50%
23.00%
1.18%
22.85%
KVUE
56.50%
13.20%
3.03%
34.63%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Bottom-line thesis: Coty’s QQ4 2024 results illustrate a company transitioning from earnings volatility to a margin- and cash-flow-driven growth trajectory. The key drivers are a diversified, balanced portfolio, a leading fragrance platform, and a structured growth playbook (advocacy marketing, agile product development, and broader distribution). The FY25 guidance supports a constructive assessment: mid-single-digit like-for-like growth in mature markets with stronger performance in Prestige, 9%-11% EBITDA growth, and an EPS path up to $0.54-$0.57 ex swaps. The deleveraging trajectory toward 2x by 2025–2027, supported by FCF generation of roughly $400M, reduces financial risk and increases buyback flexibility over time. Near-term cash flow remains sensitive to Lacoste divestiture timing and FX, but the long-term growth framework—growth engine markets, Travel Retail expansion, and a robust innovation calendar—offers significant upside, particularly if Candled with further improvements in gross margins and ongoing cost savings.
Investment cues to monitor include execution of FY25 launches (Burberry Goddess Intense, Gucci Flora, Adidas Vibes), the progression of growth-engine markets, the evolution of e-commerce and Travel Retail share, and the extent to which the S/4HANA transition translates into improved working capital and cost efficiency. If Coty can sustain margin expansion while realizing the 6%-8% LFL growth and achieve the lower- to mid-$400M FCF target, the stock could re-rate on improved profitability and deleveraging, especially given its niche fragrance leadership and omni-channel distribution strengths.
Key Investment Factors
Growth Potential
Coty’s growth potential is anchored in a diversified, price-point balanced portfolio, a proven fragrance leadership platform, and a robust pipeline of high-impact launches (Burberry Goddess, Daisy Wild, Cosmic Kylie Jenner, Adidas Vibes) with significant upside in ultra-premium/niche fragrances and high-growth growth engine markets (Brazil, LATAM, India, China, Africa, Saudi Arabia) and Travel Retail. The company targets 6%-8% like-for-like revenue growth in FY25, with Prestige contributing outsized gains, and a multi-hundred-million-dollar opportunity in ultra-premium fragrances and mass fragrance expansion that could materially lift margins and cash flow as scale improves.
Profitability Risk
Key risks include FX headwinds and macro softness, the Lacoste license divestiture (a ~1% scope headwind in H1 FY25), elevated leverage and cyclicality in beauty demand, potential supply chain inflation pressures, intensity of competitive dynamics with L’Oréal/Estee Lauder/LVMH, and exposure to geopolitical and regulatory risk in growth engine markets and China. The large-scale SAP S/4HANA transition, while executed smoothly, introduced a near-term working capital and inventory buffer that management expects to unwind in FY25.
Financial Position
Solid asset base with total assets $12.0825B and equity of $3.827B. Net debt around $3.943B and leverage approximately 3.3x as of 6/30/2024, improving from FY23 levels. Cash balance of $320.6M provides liquidity headroom, though the business remains levered, underscoring the importance of continued deleveraging via operating cash flow and potential asset monetization (e.g., Wella). FY24 free cash flow of $116.7M and guidance for FY25 near $400M reflect a meaningful improvement in cash generation underpinned by gross margin expansion and operating leverage.
SWOT Analysis
Strengths
Fragrance leadership with blockbuster launches (Burberry Goddess) and strong development in mass and prestige brands.
Balanced and diversified portfolio spanning prestige, consumer beauty, mass fragrance, skincare, and travel retail.
Strong e-commerce growth (≈20% in FY24; 20% penetration) and rapid Travel Retail expansion (≈9% of sales; +20% like-for-like).
Agile growth playbook including advocacy marketing, influencer studios, and a fast-to-market innovation flywheel.
Margin expansion and profitability by division (Prestige 19% adjusted operating margin; Consumer Beauty 5.7%), with a clear path to further improvements.
Weaknesses
Q4 net loss ($96.9m) and negative net income margin in the quarter, reflecting ongoing near-term profitability challenges.
High leverage (~3.3x) and exposure to FX and macro volatility; sensitive to license divestitures (Lacoste headwind in H1 FY25).
Significant one-off items and transition costs associated with SAP S/4HANA (inventory buffer) that affected FY24 FCF.
Opportunities
Expansion of ultra-premium and niche fragrances (e.g., Infiniment Coty, Chloe Atelier des Fleurs) with substantial white-space in the niche segment.
Aggressive expansion in growth engine markets (Brazil, LATAM, India, Africa, Saudi Arabia) and Travel Retail, targeting double-digit revenue growth.
Accelerated prestige skincare growth (Lancaster, philosophy, Orveda) and mass fragrance momentum with Adidas Vibes.
Agile innovation model may double Consumer Beauty innovation contribution in the coming years.
Threats
FX volatility and macro headwinds; potential consumer budget tightening impacting discretionary beauty spend.
Competitive pressure from L’Oréal, Estée Lauder, Shiseido, and LVMH; risk with intensified online marketplaces and Amazon presence.
Lacoste license divestiture creating near-term headwinds; geopolitical and regulatory risk in growth markets; China market exposure remains a challenge.