Coty Posts 8% Revenue Drop in Fiscal Q4

Coty reported Q4 FY2025 revenue of $1.25 billion, an 8% year-over-year decline, yet exceeding analyst forecasts, while adjusted EPS turned negative at $(0.05), missing estimates. The performance was significantly impacted by a 12% sales drop in the Consumer Beauty division and a Q3 impairment, alongside broader margin pressure and free cash flow decline, despite the Prestige segment remaining a core profit source. Management projects continued sales declines in early FY2026 but anticipates a return to like-for-like growth in the second half, driven by new prestige launches and digital initiatives, aiming for leverage below 3.5x by year-end.

Analysis

Coty's Q4 FY2025 results indicate a company in a deliberate but challenging transition, characterized by a revenue beat against a backdrop of significant operational headwinds. The reported revenue of $1,252.4 million, while down 8% year-over-year, surpassed analyst forecasts by 3.67%, reflecting a planned "baseline reset" to manage channel inventories. However, underlying profitability deteriorated sharply, with adjusted EPS turning negative at $(0.05), missing the $0.01 estimate and declining from the prior year's $(0.03). This was driven by severe weakness in the Consumer Beauty division, which saw a 12% sales drop and was impacted by a material Q3 trademark impairment. The Prestige segment, though down 5% in sales, remains the core profit generator. Financial metrics underscore the pressure: adjusted EBITDA fell 23%, adjusted gross margin contracted by 190 basis points, and Q4 free cash flow declined 70.1% year-over-year. Management's guidance is notably cautious, projecting continued like-for-like revenue declines in the first half of FY2026 before an anticipated return to growth in the second half, contingent on new prestige fragrance launches and digital initiatives.

Key Decisions for Investors

• Investors should view Coty as a 'second-half story', as management's guidance points to continued revenue and earnings pressure in H1 FY2026, making the performance of new prestige product launches later in the year a critical catalyst for a potential recovery.
• Exercise caution regarding the Consumer Beauty division, which remains the primary drag on performance; any position should be sized with consideration for the ongoing weakness and lack of near-term visibility in the mass cosmetics market.
• Closely monitor the company's ability to meet its financial targets, specifically the goal of reducing leverage to below 3.5x adjusted EBITDA by year-end and generating free cash flow over $350 million in H1 FY2026, as these are key indicators of management's execution during this turnaround phase.