Coty's Q4 Loss Wider Than Expected, Prestige Segment Revenues Up 1%

Coty’s shares tumbled more than 5%, following the wider-than-expected loss per share. This Zacks Rank #3 (Hold) stock has dipped 1.6% year to date compared with the industry’s 2.2% drop.

COTY's Margins Face Cost Pressure

Reported and adjusted gross margin was 60.9%, down 140 basis points year over year. Lower cost absorption from soft volumes, elevated excess and obsolescence charges in both divisions, and tariffs weighed on profitability.

Adjusted operating income fell 42% year over year to $39.5 million, while adjusted operating margin contracted 230 basis points year over year to 3.1%. Adjusted EBITDA declined 26% to $93.6 million, with the margin shrinking 270 basis points to 7.4%.

Coty's Prestige Sales Edge Higher

Prestige revenues increased 1% on a reported basis to $771.8 million and represented 61% of total sales. Foreign exchange added 2%, while LFL revenues slipped 0.5%, consisting of an estimated 1.5% Middle East conflict headwind. Our model expects Prestige revenues of $731.2 million for the fiscal fourth quarter.

Higher Prestige cosmetics and fragrance sales were partly offset by lower skincare sales. Adjusted operating income decreased 19% year over year to $60.2 million. Reported operating performance faced pressure from lower fragrance shipments, tariff costs, weaker cost absorption and higher fixed costs.

COTY's Consumer Beauty Sales Improve

Consumer Beauty revenues advanced 1% year over year to $497.4 million and accounted for 39% of total sales. The segment benefited 4% from foreign exchange, but LFL revenues fell 3%, including an estimated 1% Middle East headwind. Our model expects Consumer Beauty revenues of $461.6 million.

Mass body and skincare sales increased, partly offset by lower mass color cosmetics sales. The adjusted operating loss widened to $20.7 million from a loss of $7 million, while adjusted EBITDA fell 67% to $7.8 million.

Coty's Regional Trends Stay Mixed

Americas revenues climbed 9% year over year to $554.7 million and increased 6% on an LFL basis. Growth was driven by the United States, Brazil and regional Travel Retail, partly offset by soft sales in Canada. Our model expects Americas revenues to drop 3% year over year to $495.9 million.

EMEA revenues dropped 8% year over year to $528.9 million and declined 10% on an LFL basis, reflecting weakness in the Middle East, Germany and Central and Eastern Europe. We anticipate EMEA revenues to drop 8.5% year over year to $525.4 million.

 Asia Pacific revenues rose 11% to $185.6 million and increased 7% on a LFL basis, supported by China, Southeast Asia, Australia and New Zealand, and the regional Travel Retail channel. We expect Asia Pacific revenues to increase 2.7% year over year to $171.5 million.

COTY's Cash Flow and Debt Position Strengthen

Cash flow from operating activities increased to $116 million from $83.2 million a year earlier. Free cash flow more than doubled to $72.6 million from $34.9 million.

For fiscal 2026, operating cash flow rose to $537.8 million from $492.6 million a year ago, and free cash flow increased to $348.2 million from $277.6 million. Total debt declined to $3.1 billion as of June 30, 2026, from $3.2 billion at March 31, 2026.

Financial net debt decreased to $2.91 billion from $2.96 billion over the same period, while the financial leverage ratio stood at 3.4 times.

Coty's Portfolio Moves Sharpen the Focus

Coty agreed with Kering on an early transition of the Gucci Beauty license. The company received $250 million at signing and is set to receive another $150 million no later than Sept. 30, 2027, with up to $30 million contingent on certain criteria.

The company will continue operating the Gucci Beauty brand through at least June 30, 2027. Its mitigation plans include accelerating core brands, maximizing newer portfolio additions and pursuing a significant fixed-cost reduction program. Coty continues to advance its Coty.Curated framework, focusing on sharper portfolio management and stronger execution to drive growth and enhance brand performance.

Coty is gaining momentum across Prestige and Consumer Beauty, driven by successful new launches, strong consumer response to Marc Jacobs Beauty and improving U.S. sell-out trends for CoverGirl and Sally Hansen.

COTY's Fiscal 2027 Outlook Points to Transition

For the first quarter of fiscal 2027, Coty expects LFL revenues to decrease by a low- to mid-single-digit percentage, with foreign exchange having a neutral reported-revenue impact. Adjusted gross margin is projected to fall 50-100 basis points year over year, while adjusted EBITDA is expected to decline by a low-teens percentage.

Management expects first-quarter adjusted earnings, excluding the equity swap, of 11-13 cents per share. First-half fiscal 2027 free cash flow is projected to exceed $300 million.

Fiscal 2027 is expected to mark a transition toward stronger execution, as Coty advances its strategic review and implements Coty.Curated, with first-quarter EBITDA trends showing sequential improvement from year-over-year trends in the second half of fiscal 2026.

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The Zacks Consensus Estimate for UTZ’s current financial-year sales indicates a jump of 3.7% from the year-ago number.

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