Coty(COTY) - 2025 Q2 - Quarterly Results

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].