Coty (NYSE:COTY) used its fiscal 2026 earnings discussion to outline a new leadership agenda centered on tighter focus, fewer priorities, and what management repeatedly described as stronger operational discipline, as the company works through uneven recent performance and a more promotional beauty environment.
Executive Chairman and Interim CEO Markus Strobel, who said he officially joined the company on January 1 and was on his “thirty-sixth day on the job,” told investors he has spent his first weeks conducting business reviews, visiting major markets including the U.S. and U.K., and assessing Coty’s technical centers and R&D capabilities. Strobel, a 33-year veteran of Procter & Gamble with experience across beauty categories and fine fragrances, said Coty has “outstanding assets” but has not been delivering at the level it should, pointing to disappointing results over the past 18 months and a stock price that has “been hovering around $3 for several months.”
“Coty Curated” strategy aims to reduce complexity
He argued that spreading resources across too many initiatives has diluted impact, leading to insufficient support for the biggest opportunities, excessive spending on creating new marketing assets rather than consumer engagement, and a lack of sustained “year two” support behind initiatives because budgets are continually redirected to new launches.
Brand and market examples: wins, but inconsistent outcomes
Strobel pointed to Hugo Boss as Coty’s largest brand and said it has grown more than 30% at constant currency since fiscal 2019. He highlighted BOSS Bottled Beyond, launched in the fall, as already ranking as the number two innovation in key markets and driving market share gains for the BOSS Bottled franchise in major countries including Germany, the U.K., Spain, France, Canada, and Mexico. In the U.S., he said the launch has captured 90 basis points of share.
However, Strobel said that without stronger operational discipline, the success of BOSS Bottled Beyond did not translate into broader Hugo Boss brand growth in the past two quarters, citing limited “halo” impact on other franchises such as BOSS The Scent. He said Coty plans a more holistic plan next year, including continued support and co-merchandising, a broader brand-level halo strategy, and sustained reinforcement of the core business.
In the U.S., management said underperformance in both divisions accounted for nearly all of Coty’s fiscal 2025 sales decline, despite actions in calendar 2025 such as a new leadership team, organizational changes, and increased marketing support. Strobel described areas of strength including scaled fragrance brands such as Burberry and Marc Jacobs, outperformance in prestige makeup led by Kylie Cosmetics momentum, and improved retail partnerships—particularly with Ulta. He also cited double-digit growth in prestige e-commerce in the first half and said Coty’s fragrance sales on Amazon grew more than 30%, supported by existing brands and the July launch of Marc Jacobs fragrance on the platform. Strobel also said Coty’s TikTok Shop efforts in the U.S. and U.K. are creating halo effects for brands across channels.
Still, he said results during the key fiscal Q2 holiday period fell short due to a slowing prestige fragrance market, aggressive holiday promotional activity that weighed on growth and profit contribution, and inconsistent performance versus the market. He attributed underperformance to familiar themes—too many projects, insufficient focus on core franchises, and an imbalance toward innovation over core support. In mass cosmetics, he said seasonal innovation bundle SKU counts had increased, resulting in less productive items displacing more productive products and higher costs from returns.
Other brand highlights included:
- Burberry: Strobel said the brand grew more than 140% from fiscal 2019 to fiscal 2025 and has built three core fragrance franchises (Her, Hero, Goddess), each of which grew mid-single-digit to double-digit like-for-like in Q2. He said Burberry’s global fragrance ranking improved from 30 in 2019 to 15 in 2025, and in female fragrances it moved into the top 10 from 27. Burberry makeup grew high single digits in Q2.
- Marc Jacobs: He cited momentum in franchises such as Perfect and said the Daisy Murakami limited-edition collection exceeded expectations and sold out quickly in the U.S., with a broader rollout planned. Strobel said the Amazon launch has been “highly incremental,” and Marc Jacobs’ U.S. total sell-out has grown double digits since the launch. He also said Coty plans to launch makeup under Marc Jacobs Beauty in mid-calendar 2026.
- Kylie Cosmetics: Strobel said Q2 like-for-like sales grew strongly, with fragrance sales more than doubling year-over-year led by Cosmic and an entry into fragrance mists. Makeup grew at a high single-digit rate, supported by lip products and the “viral” Skin Tint Blurring Elixir. He said total brand sell-out rose more than 20% in Q2 and the new Cosmic Kylie Jenner Intense iteration is starting “well ahead” of expectations. He added that Kylie Cosmetics ranked number two among all beauty brands in calendar 2025 in social media engagement, according to Traackr and Cosmetify.
In mass fragrance, Strobel said smaller lifestyle initiatives have diverted resources from core brands and that Coty will discontinue small fragrance initiatives and halt new projects that did not resonate with retailers and consumers. He said the company will focus on brands such as adidas, Bruno Banani, and Mexx, noting adidas fragrances grew at a double-digit pace in Q2 and the adidas Vibes platform is performing well in several regions, particularly Central and Eastern Europe and Southeast Asia, though results are not yet consistent globally.
Portfolio actions and AI initiatives
Strobel said Coty will continue its strategic review of consumer beauty and is implementing the “Color the Future” performance improvement plan under Gordon von Bretten to return consumer cosmetics to growth and profit expansion over the next one to two years. He also said lifestyle fragrances will remain under consumer beauty for continuity, the company will end its license with Orveda skincare, and it will review “tail” fragrance initiatives that are small and geographically dispersed.
On technology, Strobel said Coty’s AI work is accelerating, building on partnerships with Microsoft and ServiceNow and adding a strategic collaboration with OpenAI. He said Coty is using generative AI to create digital assets, reducing post-production asset costs for selected brands by 70% to 90% in early implementations, and is preparing for “machine buying” through Generative Engine Optimization to influence how brands are represented across AI engines. He emphasized internal training to embed AI into day-to-day work.
Q2 results: margin pressure, improved cash flow, and guidance withdrawal
CFO Laurent Mercier said the prestige beauty market grew about 5% in Q2, a sequential slowing from roughly 6% in Q1. Prestige fragrances slowed from 5% growth in Q1 to about 3% in Q2, with moderation in the U.S. and in parts of Europe such as Germany and the U.K. Against that backdrop, Coty’s total sell-out was “broadly flattish,” with weakness in the U.S., Germany, and the U.K. offset by strength in Asia Pacific, the Middle East, Latin America, and travel retail.
Mercier said Prestige net sales declined 2% like-for-like, with elevated promotionality pressuring “growth to net,” even as gross sales sell-in was broadly aligned with sell-out and inventory destocking headwinds “meaningfully reduced” in the quarter. Consumer beauty market growth was about 5% in Q2, but Coty continued to face a sizable sell-out gap versus the market.
Company-wide, Q2 like-for-like sales were down 3%, an improvement versus prior trends and at the better end of the company’s -3% to -5% guidance range. Prestige improved to down 2% like-for-like from down 6% in the prior quarter, aided by reduced destocking and double-digit growth in innovation versus last year, but offset by slower category growth and a more promotional holiday period. Mercier also said the company’s complexity and “too many launches” contributed to service issues in Prestige during Q2, and Coty is increasing inventory behind core SKUs to improve service.
Consumer Beauty like-for-like sales declined 6%, improving from an 11% decline in Q1. Mercier said the Color the Future plan includes reallocating spending toward consumer engagement behind core brands such as CoverGirl in the U.S. and Rimmel in the U.K., streamlining the fiscal 2027 innovation pipeline, increasing procurement savings, refining brand positioning across color cosmetics, and executing more locally relevant activations. He said early “green shoots” include improved sell-out trends for CoverGirl franchises Simply Ageless and Lash Blast, and improved Rimmel sell-out trends in recent months.
Adjusted gross margin was 64.2%, down 260 basis points year-over-year, which Mercier said was worse than anticipated due to intensified prestige promotionality, consumer beauty under-absorption and mix headwinds, and higher tariff impacts than in Q1 (though in line with expectations). He said these pressures are expected to persist in the second half of fiscal 2026. A&CP was about 27% of net revenues, flat year-over-year. Adjusted EBITDA was $330 million, down 15% year-over-year and at the lower end of guidance, including a “few million-dollar” CEO transition expense. Mercier said adjusted EPS excluding the equity swap was $0.33 for the first half and $0.18 in Q2.
Mercier also highlighted cost actions and cash flow. The company delivered over $10 million of fixed cost savings in Q2 and about $40 million in productivity savings, while still expecting roughly $200 million in cumulative savings for fiscal 2026. First-half free cash flow was $524 million, above guidance of more than $350 million, driven by receivables performance and working-capital timing that he said will reverse in Q3, as well as the absence of cash bonus payments tied to fiscal 2025 results.
Coty completed the divestiture of Wella, generating $750 million of upfront proceeds and the potential for additional proceeds from a further sale or IPO after KKR’s preferred return is met. Mercier said net debt ended the quarter at $2.6 billion, with leverage of 2.7 turns, the lowest levels in more than nine years, and reiterated a goal of moving leverage closer to two turns over time.
Given the CEO transition, Coty withdrew full fiscal 2026 guidance previously provided for EBITDA and free cash flow, saying it was premature to issue second-half guidance. However, management provided Q3 expectations, including a mid-single-digit like-for-like sales decline, gross margin down 200 to 300 basis points year-over-year, and EBITDA of $100 million to $110 million versus $204 million in the prior-year quarter. Mercier said the company expects to protect marketing investment behind key franchises, including continued support for BOSS Bottled Beyond and an upcoming female fragrance launch under Calvin Klein, as well as the planned Marc Jacobs Beauty makeup launch in mid-calendar 2026. He also said Coty expects roughly breakeven Q3 adjusted EPS (excluding the equity swap).
Strobel closed by saying Coty will aim to provide a more realistic view of what is and isn’t working, focus the business and optimize investments, keep “consumer demand” and sell-out/market share as the North Star, and continue reviewing the portfolio to unlock shareholder value. He said the company plans to share an initial, more detailed view of strategy, focus brands, focus markets, and the portfolio by the end of fiscal 2026.
About Coty (NYSE:COTY)
Coty Inc is a multinational beauty company specializing in the development, manufacturing and marketing of fragrances, color cosmetics and skin and body care products. Established in 1904 by François Coty in Paris, the company has grown through a blend of organic innovation and strategic acquisitions to become one of the leading players in the global beauty industry. Coty’s portfolio encompasses a broad range of consumer and luxury brands, reflecting its commitment to catering to diverse consumer preferences and market segments.
The company’s product offerings span three main divisions: Coty Luxury, Coty Consumer Beauty and Coty Professional Beauty.
