Coty Withdraws Long-Term Outlook Amid Strategic Shift

The beauty conglomerate Coty is navigating a significant transition. Following the release of its second-quarter results, which fell short of profit expectations, the company has formally retracted its financial guidance for the 2026 fiscal year. This move coincides with the introduction of a new strategic plan designed to steer the business toward recovery.

Coty's recent quarterly figures revealed a mixed picture. Reported revenue reached $1,678.6 million, representing a 1% increase. However, on a like-for-like basis, which adjusts for foreign exchange and other one-off effects, sales actually declined by 3%. A key disappointment for the market was the adjusted earnings per share (EPS) of $0.14, missing analyst consensus estimates of $0.18.

In response, interim CEO Markus Strobel unveiled a new strategic framework dubbed "Coty. Curated." This initiative aims to sharpen the company's focus by concentrating investments on its core brands. A central tenet of the strategy is shifting priority from shipments to retailers toward actual sell-through to end consumers.

Diverging Segment Performance Highlights Market Challenges

The company's current trajectory is characterized by a growing performance gap between its two main divisions. The Prestige segment, which includes luxury fragrances, demonstrated relative resilience with a like-for-like sales decrease of just 2%. In stark contrast, the Consumer Beauty division, housing mass-market cosmetics, faced substantial headwinds. Revenue in this segment fell 6% on a comparable basis.

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Management attributed the pressure in the mass business to a challenging consumer environment and an intensely competitive promotional landscape, further exacerbated by tariff impacts. These factors collectively compressed the gross margin to 63.8%. Consequently, the adjusted operating income fell 18% year-over-year to $274.3 million.

Balance Sheet Strengthened by Asset Sale

Amid the operational challenges, Coty achieved a notable improvement in its financial position. The completion of the sale of its remaining stake in Wella to investment firm KKR generated $750 million in cash proceeds. This transaction allowed the company to reduce its net debt to $2.6 billion, marking its lowest level in nearly ten years. The leverage ratio now stands at 2.7x EBITDA.

Looking ahead, management has provided a cautious near-term view. For the third quarter of fiscal 2026, Coty anticipates a mid-single-digit percentage decline in like-for-like revenue. While the Prestige fragrance business is expected to remain resilient, potentially growing in the low to mid-single digits, continued softness in the mass market and broader economic volatility are clouding the immediate outlook. A new full-year forecast will be established following the ongoing leadership transition.