Beauty products company Coty (NYSE:COTY) reported Q2 CY2025 results exceeding the market’s revenue expectations, but sales fell by 8.1% year on year to $1.25 billion. Its non-GAAP loss of $0.05 per share was significantly below analysts’ consensus estimates.
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Coty (COTY) Q2 CY2025 Highlights:
- Revenue: $1.25 billion vs analyst estimates of $1.21 billion (8.1% year-on-year decline, 3.9% beat)
- Adjusted EPS: -$0.05 vs analyst estimates of $0.02 (significant miss)
- Adjusted EBITDA: $126.7 million vs analyst estimates of $133.6 million (10.1% margin, 5.2% miss)
- Operating Margin: 1.2%, down from 2.5% in the same quarter last year
- Organic Revenue fell 9% year on year vs analyst estimates of 8.9% declines (14.4 basis point miss)
- Market Capitalization: $4.24 billion
StockStory’s Take
Coty’s second quarter was marked by a clear negative market reaction, as the company’s results beat analyst expectations for revenue but reported positive adjusted EPS, not a loss. Management attributed underperformance to weak U.S. execution, significant retailer inventory destocking, and a challenging comparison to last year’s blockbuster fragrance launches. CEO Sue Nabi acknowledged that focusing investments on less profitable U.S. mass beauty contributed to softer results, while CFO Laurent Mercier added that macroeconomic uncertainty and promotional intensity pressured both Prestige and Consumer Beauty divisions.
Looking forward, Coty’s guidance is influenced by several headwinds, including ongoing U.S. market challenges, increased tariffs, and continued trade inventory reductions in the first half of the year. Management believes operational changes and a renewed focus on blockbuster fragrance launches—like BOSS Bottled Beyond and expanded fragrance mist lines—will help drive a return to growth in the second half. Nabi emphasized, “Our strategic focus is leveraging Coty’s leadership in global fragrances and scenting to drive strong growth.”
Key Insights from Management’s Remarks
Management pointed to U.S. market weakness, inventory destocking, and a lack of major new product launches as principal reasons for the quarter’s underperformance, while highlighting progress in fragrances and cost savings initiatives.
- U.S. market underperformance: Coty lost share in both Prestige and mass segments in the U.S., with CEO Sue Nabi highlighting that the company’s largest market drove most of the quarter’s decline due to weaker execution and soft consumer demand.
- Retailer inventory destocking: Significant reductions in retailer inventory—particularly in the U.S.—had a material impact on reported sales, as Coty continued to actively deplete trade inventories to establish a healthier baseline for future growth.
- Product launch cadence: The lack of blockbuster product launches, compared to the prior year’s successes like Burberry Goddess, resulted in a difficult comparison and added volatility to sales. Management acknowledged that extensions rather than major new launches dominated this quarter’s innovation pipeline.
- Fragrance business resilience: Despite broader challenges, Coty’s Prestige and mass fragrance segments showed resilience, with Prestige fragrances growing 2% like-for-like and mass fragrances up 8%. Nabi cited the launch of Adidas Vibes and early momentum for BOSS Bottled Beyond as bright spots.
- Cost savings and operational changes: The company continued its All-in to Win cost savings program, generating productivity improvements and initiating further fixed cost reductions, including organizational restructuring and new leadership appointments in the U.S. to drive efficiency and accountability.
Drivers of Future Performance
Coty anticipates ongoing headwinds in the first half of the year from tariffs, U.S. market softness, and retailer destocking before a potential rebound in the second half, supported by new product innovation and cost-saving initiatives.
- Tariff and supply chain mitigation: Management expects $70 million in gross tariff headwinds, particularly from new U.S. tariffs on European-made fragrances and Chinese components. The company is shifting fragrance manufacturing to the U.S. and diversifying supply sources to offset some of these costs, but gross margins will remain pressured in the near term.
- Blockbuster launches and innovation: New product launches—including BOSS Bottled Beyond and Marc Jacobs makeup—are set to drive sales growth in the second half of the year. Management is prioritizing a return to high-profile innovations and expanding into fast-growing subcategories like fragrance mists to regain market momentum.
- Operational restructuring and focus: Coty is implementing a new regional structure, appointing new U.S. leadership, and rebalancing investments toward its most profitable categories, especially fragrances. The All-in to Win program is expected to deliver $200 million in fixed and productivity savings, supporting margin recovery and reinvestment in growth.
Catalysts in Upcoming Quarters
In upcoming quarters, the StockStory team will monitor (1) the pace and effectiveness of Coty’s new product launches—especially in fragrances and makeup, (2) the company’s ability to offset tariff-related margin headwinds through supply chain adjustments, and (3) signs that U.S. market share stabilization efforts are gaining traction. The return to a steady innovation pipeline and execution of cost-saving initiatives will be critical markers of progress.
Coty currently trades at $4.06, down from $4.83 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).
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