Core Insights - Coty's international operations are crucial for assessing its financial strength and growth potential, especially given its global presence [1][2] - The company's reliance on foreign markets presents both opportunities and challenges, impacting its revenue stability and growth trajectory [3][9] Revenue Performance - For the quarter ending December 2024, Coty's total revenue was $1.67 billion, a decline of 3.3% year over year [4] - EMEA region generated $839.8 million, accounting for 50.29% of total revenue, slightly below the expected $842.22 million [5] - Asia Pacific contributed $191.5 million, representing 11.47% of total revenue, also falling short of the consensus estimate of $202.55 million [6] Future Revenue Predictions - Analysts predict Coty's total revenue for the current fiscal quarter to be $1.32 billion, reflecting a 4.9% decline from the previous year [7] - For the entire year, total revenue is forecasted at $5.98 billion, a reduction of 2.2% from the previous year, with EMEA expected to contribute 48% and Asia Pacific 12.1% [8] Stock Market Performance - Coty's stock has declined by 21.9% over the past month, contrasting with a 4.7% increase in the S&P 500 [13] - Over the past three months, Coty's shares decreased by 23.8%, while the S&P 500 rose by 3.1% [13]

Core Insights - Coty Inc. reported weaker-than-expected earnings for its second quarter, with earnings of 11 cents per share, missing the analyst consensus estimate of 21 cents per share, and quarterly sales of $1.67 billion, below the expected $1.72 billion [1][2] Company Performance - CEO Sue Nabi indicated that FY25 is expected to be pivotal for Coty, noting that the global beauty market continues to grow, albeit at a moderated pace compared to previous years. Fragrances, which account for over 60% of Coty's revenues, are outperforming other beauty categories [2] - Following the earnings announcement, Coty's shares fell by 5.5%, trading at $5.79 [2] Analyst Reactions - Analysts adjusted their price targets for Coty after the earnings report, with Morgan Stanley lowering its target from $9 to $7, Canaccord Genuity from $10 to $8, Evercore ISI Group from $15 to $10, and Goldman Sachs from $9 to $8 [3][4]

Core Viewpoint - Stifel analyst Mark S. Astrachan reiterated a Hold rating on Coty Inc and lowered the price forecast from $8.50 to $8 due to disappointing second-quarter results and a lowered guidance for the fiscal year [1] Financial Performance - Coty's second-quarter FY25 results showed a 1% year-over-year decline in net revenue on a like-for-like (LFL) basis, with the Consumer Beauty segment experiencing a 4% LFL drop, while the Prestige segment grew by 1% LFL [1][2] - The adjusted EBITDA for the quarter reached $391 million, surpassing the consensus estimate of $386 million, marking a 7% year-over-year increase [2] - The adjusted gross margin stood at 66.8%, reflecting a 170 basis point increase from the previous year, driven by supply chain savings and pricing adjustments [3] Segment Analysis - The Consumer Beauty segment, representing around 33% of Coty's sales, faced challenges in mass cosmetics and body care, although mass fragrances saw growth [2] - The Prestige segment, accounting for roughly 67% of Coty's sales, was supported by growth in prestige fragrances, but this was partially offset by declines in prestige cosmetics [2] Guidance and Market Outlook - Coty lowered its F2025 guidance, projecting a 1% – 2% decline in organic sales for the second half of the fiscal year, compared to consensus growth expectations of around 3% – 4% [3] - The company attributed its outlook to foreign exchange impacts and slowing growth in several categories, particularly U.S. mass cosmetics [4] - The company noted that sell-out continued to outpace its sales, indicating that retailers are still working through inventory reductions, which may affect future performance [4] Analyst Expectations - Analysts expect a 5% reduction in consensus adjusted EBITDA estimates, with Coty's stock anticipated to drop less than the expected revisions due to already anticipated weakness in the beauty sector [5] - J.P. Morgan analyst Andrea Teixeira reiterated a Neutral rating, noting that Coty's second-quarter adjusted EPS of $0.22 matched forecasts and was slightly above Bloomberg's consensus estimate of $0.21 [6] - The company warned of a "broadly similar market environment" entering FY26, with key variances from projections including a higher gross margin and lower taxes, partially offset by disappointing sales results [7]

Core Insights - Coty Inc. reported weak second-quarter fiscal 2025 results, with both revenue and earnings declining year over year and missing consensus estimates [1][4][3] - Despite challenges in certain markets, consumer spending on beauty remains strong, particularly in fragrances, which is a key growth area for Coty [2][5] Financial Performance - Adjusted earnings were 11 cents per share, missing the Zacks Consensus Estimate of 22 cents, and down from 25 cents per share in the prior year [3] - Net revenues totaled $1,669.9 million, a 3% decline year over year, and missed the consensus estimate of $1,715 million [4] - Adjusted operating income increased to $333.7 million, an 8% rise from the previous year, with an adjusted operating margin of 20%, up 210 basis points [9] Segment Performance - Prestige segment revenues were $1,116.1 million, a 1% drop, impacted by foreign exchange and divestiture challenges, but adjusted operating income rose to $260 million [10][11] - Consumer Beauty segment revenues fell to $553.8 million, an 8% decline, with lower sales in color cosmetics and body care, though mass fragrance showed growth [15] - The global mass beauty market growth slowed to low-single-digit levels, with Coty's mass color cosmetics business underperforming [16] Regional Insights - Americas segment revenues were $638.6 million, a 7% decline, primarily due to sluggish color cosmetics sales [18] - EMEA segment revenues increased by 2% to $839.8 million, driven by growth in several European markets [19] - Asia Pacific segment revenues declined by 11% to $191.5 million, affected by market pressures in China and inventory reductions [20] Future Outlook - Management expects LFL sales trends for the second half of fiscal 2025 to remain consistent with the reported quarter, projecting a decline of 1% to 2% [24] - Coty anticipates adjusted EBITDA margin expansion of 70-90 basis points in the second half of fiscal 2025, with adjusted EBITDA expected to increase in the low single digits [27] - The company projects fiscal 2025 adjusted EPS growth of mid- to high single digits, despite a nearly 4% negative impact from prior year tax benefits [28]

Financial Data and Key Metrics Changes - The company reported a gross margin expansion of approximately 200 basis points, reaching close to 67% by the end of Q2 [36] - The EBITDA margin is expected to grow by 70 to 90 basis points in fiscal '25, targeting a close to 19% EBITDA margin by the end of the fiscal year [41][122] Business Line Data and Key Metrics Changes - The Prestige business was impacted by challenges in China, Travel Retail Asia, and Australia, contributing to a decline of roughly 3 points in sales [12][31] - The Consumer Beauty segment faced challenges in the U.S., also impacting sales by approximately 3 points [12] Market Data and Key Metrics Changes - The company noted that the Asian Travel Retail market is lagging behind other regions, with the Americas and Europe performing significantly better [61] - The Prestige Fragrance category continues to grow in the high single digits, while the Color Cosmetics category is facing more significant challenges [60][62] Company Strategy and Development Direction - The company aims to return to growth in fiscal '26 through major product launches and expanding distribution of key brands [30][31] - There is a focus on innovation in the Color Cosmetics category to create higher entry barriers and attract consumers back to the market [48][49] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about stabilization in retailer inventory levels, which have been affected by overreactions to past supply chain issues [26][27] - The company is committed to outperforming the beauty market despite current macroeconomic challenges and uncertainties [90][92] Other Important Information - The company is evaluating its portfolio for long-term opportunities and return on investment, particularly in the Consumer Beauty segment [111][112] - The gross margin reached a record level of 68% during the quarter, indicating strong financial health [122] Q&A Session Summary Question: Concerns about retailer replenishment and market conditions in China - Management acknowledged challenges in China and other regions, noting that these areas represent about 20% of the business and are impacting sales [11][12] Question: Structural and competitive challenges in U.S. color cosmetics - Management highlighted the need for a balance between heritage and new brands to revitalize the color cosmetics market [20][21] Question: Expectations for sales growth in fiscal '26 - Management anticipates improvement in sales growth driven by new product launches and stabilization in retailer inventory levels [26][30] Question: Margin outlook and cost structure - Management confirmed a healthy P&L with gross margin expansion and a focus on maintaining discipline in cost management [36][41] Question: Performance of Prestige Fragrances compared to other categories - Management noted that the uniqueness of Prestige Fragrances contributes to their resilience in the market [44][45] Question: Travel Retail performance outside Asia - Management confirmed a strategic shift of resources from Asia to the U.S. and European markets to capitalize on growth opportunities [60] Question: Pricing strategy in light of inflation - Management indicated that pricing increases will be more moderate moving forward, focusing on maintaining volume growth [74][75] Question: Inventory levels at wholesalers and retailers - Management acknowledged ongoing adjustments in inventory levels and the competitive landscape affecting sell-in and sell-out dynamics [81][82] Question: Long-term growth algorithm and business strategy - Management emphasized the importance of outperforming the market and highlighted several growth drivers, including expanding fragrance offerings and online sales [90][94]

Coty, Inc. (NYSE:COTY) Q2 2025 Results Conference Call February 11, 2025 7:30 AM ET Company Participants Olga Levinson - Senior Vice President of Investor Relations Sue Nabi - Chief Executive Officer Laurent Mercier - Chief Financial Officer Olga Levinson Hello, everyone. This is Olga Levinson, Coty's Senior Vice President of Investor Relations. Thank you for joining us today for the prepared remarks portion of Coty's Second Quarter Fiscal 2025 Earnings. On Tuesday, February 11, 2025, at approximately 8:00 ...

Core Insights - Coty reported revenue of $1.67 billion for the quarter ended December 2024, a decrease of 3.3% year-over-year, with EPS at $0.11 compared to $0.25 in the same quarter last year [1] - The revenue fell short of the Zacks Consensus Estimate of $1.72 billion by 2.65%, and the EPS was 50% lower than the consensus estimate of $0.22 [1] Financial Performance - Coty's shares returned +1.4% over the past month, while the Zacks S&P 500 composite increased by +2.1% [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3] Geographic Revenue Breakdown - Americas: Revenue of $638.60 million, down 7.2% year-over-year, below the average estimate of $684.46 million [4] - Asia Pacific: Revenue of $191.50 million, a decline of 10.5% year-over-year, compared to the average estimate of $202.55 million [4] - EMEA: Revenue of $839.80 million, slightly up by 1.7% year-over-year, close to the estimated $842.22 million [4] Segment Revenue Analysis - Prestige: Net revenues of $1.12 billion, down 0.6% year-over-year, slightly below the average estimate of $1.13 billion [4] - Consumer Beauty: Net revenues of $553.80 million, down 8.5% year-over-year, below the average estimate of $591.15 million [4] - Adjusted Operating Income (Loss) for Prestige was $260 million, exceeding the estimate of $246.65 million [4] - Adjusted Operating Income (Loss) for Consumer Beauty was $73.70 million, below the estimate of $77.42 million [4]

Core Insights - Coty reported quarterly earnings of $0.11 per share, missing the Zacks Consensus Estimate of $0.22 per share, and down from $0.25 per share a year ago, representing an earnings surprise of -50% [1] - The company posted revenues of $1.67 billion for the quarter ended December 2024, missing the Zacks Consensus Estimate by 2.65%, and down from $1.73 billion year-over-year [2] - Coty shares have underperformed the market, losing about 2.9% since the beginning of the year compared to the S&P 500's gain of 2.5% [3] Earnings Outlook - The current consensus EPS estimate for the coming quarter is $0.08 on revenues of $1.4 billion, and for the current fiscal year, it is $0.51 on revenues of $6.18 billion [7] - The estimate revisions trend for Coty is mixed, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Cosmetics industry, to which Coty belongs, is currently in the top 29% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - European Wax Center, Inc., another company in the same industry, is expected to report quarterly earnings of $0.05 per share, reflecting a year-over-year change of -50% [9]

Financial Performance - Coty Inc. reported financial results for the fiscal year ended June 30, 2024, with a focus on strategic transformation and revenue growth initiatives [172]. - Net revenues for the three months ended December 31, 2024, decreased by 3%, or $57.7 million, to $1,669.9 million from $1,727.6 million in the same period of 2023 [203]. - Prestige segment net revenues decreased by 1%, or $6.5 million, to $1,116.1 million, while Consumer Beauty segment net revenues decreased by 8%, or $51.2 million, to $553.8 million [206][208]. - The overall decrease in net revenues was attributed to a 3% decline in unit volume and a negative foreign currency exchange impact of 2%, partially offset by a positive price and mix impact of 2% [203]. - Net income for the three months ended December 31, 2024, was $30.6 million, a decrease of 84% compared to $186.0 million in the same period of 2023 [224]. - Net income attributable to Coty Inc. for the three months ended December 31, 2024, decreased by 87% to $23.7 million from $180.9 million in the same period of 2023 [242]. - Net revenues for the six months ended December 31, 2024, decreased by 1% to $3,341.4 million from $3,369.0 million in the same period of 2023 [244]. - The net income for the six months ended December 31, 2024, was $121.3 million, a decrease of 38% compared to $196.2 million in 2023 [262]. Revenue Growth and Market Trends - The company aims to stabilize consumer beauty brands through innovation and improve execution, targeting a significant expansion in prestige fragrance and cosmetics markets [175]. - The fragrance category experienced mid-single digit percentage net revenue growth in the first half of fiscal 2025, driven by high-single digit percentage growth in the overall fragrance market [189]. - Net revenues from Prestige fragrances increased by a mid-single digit percentage in the first half of fiscal 2025, reflecting a deceleration in growth compared to the prior year [189]. - Net revenues in the Asia Pacific region declined by high-single digit percentage in the first half of fiscal 2025, impacted by challenging economic conditions in China [189]. - The Americas region saw a mid-single digit percentage decline in net revenues during the first half of fiscal 2025, driven by softness in the color cosmetics market in the United States [189]. - The skincare portfolio contributed a low single digit percentage of the first half fiscal 2025 net revenue, with ongoing expansion efforts [187]. Cost Management and Efficiency - The company is implementing cost efficiency and restructuring initiatives to improve gross margin and reduce debt levels [175]. - The annual gross margin is anticipated to remain in the mid-sixties, allowing for funding of new product initiatives and advertising investments [190]. - The company is re-accelerating cost reduction efforts to deliver savings above approximately $120 million in anticipation of a more uncertain demand backdrop [190]. - Cost of sales decreased by 8%, or $47.8 million, to $555.7 million, resulting in a gross margin increase of approximately 160 basis points [211]. - Selling, general and administrative expenses decreased by 4%, or $36.1 million, to $797.3 million, with expenses as a percentage of net revenues decreasing to 47.7% [212]. Strategic Initiatives and Future Outlook - Coty plans to enhance its skincare portfolio and digital capabilities, with a particular emphasis on direct-to-consumer channels and growth in China [175]. - Future product launches and rebranding efforts are anticipated, particularly in skincare and prestige cosmetics, with associated costs and marketing strategies being closely monitored [176]. - Coty is facing challenges related to global supply chain disruptions and inflationary pressures, which may impact pricing strategies and consumer demand [176]. - The company is committed to sustainability initiatives and aims to establish itself as an industry leader in this area, addressing climate change concerns through innovative practices [176]. - Coty emphasizes the importance of adapting to changing consumer preferences and market trends to maintain competitive positioning in the beauty industry [175]. Capital Allocation and Financial Strategy - Coty is evaluating its capital allocation strategy, including potential changes to dividend policies and stock repurchase plans [176]. - The Board of Directors suspended the payment of dividends on Common Stock until a Net debt to Adjusted EBITDA target of 2x is approached [301]. - Dividends on Convertible Series B Preferred Stock are expected to be paid in cash on a quarterly basis, subject to Board declaration [302]. - The company is focused on deleveraging its balance sheet and improving the maturity mix of its debt through refinancing and repayment initiatives [289]. Tax and Interest Expenses - The effective income tax rate rose to 45.9% in Q4 2024 from 27.7% in Q4 2023, influenced by losses on forward repurchase contracts and fair value losses related to investments [234]. - Net interest expense decreased to $54.4 million in Q4 2024 from $60.1 million in Q4 2023, attributed to lower debt balances and interest rates [230]. - Net interest expense decreased to $116.2 million in the six months ended December 31, 2024, from $129.9 million in 2023 due to lower debt balances and interest rates [270]. Other Financial Metrics - Adjusted operating income for the total company was $333.7 million for the three months ended December 31, 2024, compared to $309.3 million in the same period of 2023 [222]. - Adjusted operating income increased by 8% to $333.7 million in Q4 2024 from $309.3 million in Q4 2023, with an adjusted operating margin of 20.0% [224]. - Adjusted EBITDA rose by 7% to $390.7 million in Q4 2024, compared to $366.4 million in Q4 2023, with an adjusted EBITDA margin of 23.4% [224]. - The adjusted EBITDA for the six months ended December 31, 2024, increased by 3% to $750.8 million from $726.7 million in 2023 [262].

Financial Performance - In 1H25, Coty's reported net revenue decreased by 1% year-over-year, impacted by a 2% negative effect from foreign exchange (FX) and a 1% headwind from the divestiture of the Lacoste license[2]. - The reported operating income for 1H25 was $506.0 million, reflecting a 17% increase year-over-year, with an operating margin of 15.1%[8]. - Coty's reported net income for 1H25 was $100.0 million, down from $175.9 million in the prior year, resulting in a net income margin of 3.0%[9]. - Year-to-date net revenues decreased by 1% to $3,341.4 million, with a 6% decline in Consumer Beauty net revenue[35]. - Year-to-date reported operating income increased by 17% to $506.0 million, reflecting a 15.1% operating margin[35]. - Year-to-date adjusted EBITDA is projected to grow in the low single digits to $1,115-1,125 million, with a 70-90 basis points margin expansion target[28]. - FY25 adjusted EPS is expected to be between $0.50-0.52, indicating mid-to-high single digit percentage growth[29]. - Year-to-date reported EPS of $0.11 declined from $0.20 in the prior year, primarily due to a negative impact from the equity swap mark-to-market of $0.15[38]. - Year-to-date adjusted operating income of $637.3 million increased by 4% from $611.5 million in the prior year, with an adjusted operating margin of 19.1%, up 90 basis points year-over-year[38]. - Year-to-date adjusted EBITDA of $750.8 million increased 3% from $726.7 million in the prior year, with an adjusted EBITDA margin of 22.5%, up 90 basis points[38]. Revenue Trends - In Q2, Coty's reported net revenue declined by 3% on a reported basis, with a 2% headwind from FX, while LFL revenue decreased by 1%[2]. - The Americas region saw a reported net revenue decline of 7% in Q2, impacted by softness in the color cosmetics market and lower body care revenue in Brazil[5]. - Prestige net revenue of $2,230.2 million in 1H25 grew 2% on a reported basis, driven by Europe, the Middle East, and Latin America[40]. - Consumer Beauty net revenue of $1,111.2 million in 1H25 declined 6% on a reported basis, including a 4% negative impact from FX[42]. - EMEA net revenue of $1,627.6 million in 1H25 increased 4% on a reported basis, supported by broad-based mid-single-digit growth across most European markets[46]. Cost and Margin Analysis - Coty's gross margin expanded to 66.1% in 1H25, an increase of 180 basis points year-over-year, driven by supply chain savings and strong pricing discipline[7]. - Q2 adjusted gross margin expanded by 170 basis points year-on-year, reaching 66.8%[18]. - The company experienced a significant decrease in net income margin, dropping to 1.8% for the three months ended December 31, 2024, compared to 10.8% in the same period of the previous year[86]. - Gross profit margin improved to 66.7% for the three months ended December 31, 2024, compared to 65.1% in the prior year[75]. Cash Flow and Debt Management - Coty generated free cash flow of $419.0 million in Q2, with total debt at the end of the quarter amounting to $3,459.0 million[11]. - The company plans to purchase up to $300 million of its outstanding Senior Secured Notes to reduce total outstanding public debt as part of its deleveraging strategy[49]. - Total debt of $3,459.0 million on December 31, 2024, decreased from $4,002.2 million on September 30, 2024, resulting in a total debt to net income ratio of 100.3x[38]. - Free cash flow for the six months ended December 31, 2024, was $411.1 million, compared to $487.0 million in 2023, indicating a decrease of 16%[96]. - Cash and cash equivalents decreased to $249.6 million as of December 31, 2024, down from $300.8 million as of June 30, 2024[106]. Strategic Initiatives - Coty signed a new beauty license with Swarovski to develop and distribute fragrances, with the first offering expected to launch in 2026[14]. - The company is focused on implementing a multi-year strategic transformation agenda aimed at revenue growth, cost control, and gross margin improvement[52]. - The company anticipates ongoing expansion into prestige cosmetics and building a comprehensive skincare portfolio[52]. - The company aims to enhance its digital and direct-to-consumer capabilities, particularly in growth engine markets like China[52]. - The company is committed to sustainability initiatives and aims to establish itself as an industry leader in this area[52]. Market Challenges - The company is facing challenges related to global supply chain disruptions and inflationary pressures, impacting its operational performance[54]. - The company is evaluating the impact of geopolitical risks, including the war in Ukraine and conflicts in the Middle East, on its business operations[54]. - The company is experiencing increased competition and shifts in consumer preferences, necessitating agile responses to market trends[53]. Non-GAAP Measures and Financial Definitions - The Company presents adjusted operating income, adjusted EBITDA, and adjusted net income, which exclude restructuring costs, amortization, and acquisition-related expenses, providing a clearer view of core operating performance[62]. - Adjusted EBITDA margin for the Company is calculated by dividing adjusted EBITDA by net revenues, reflecting the operational efficiency[63]. - The Company defines free cash flow as net cash provided by operating activities less capital expenditures, highlighting cash available for strategic measures[67]. - Financial Net Debt is defined as total debt less cash and cash equivalents, while Economic Net Debt further excludes the value of the Wella Stake[67]. - The Company operates globally, with most net revenues generated outside the U.S., and presents results in constant currency to assess underlying business performance[67].