Coty Inc. 1Q27 Earnings Presentation - COTY INC

Financial Performance:

• Q1 fiscal 2027 net revenue was $1.56 billion, a 1.6% decline on a like-for-like basis, beating consensus guidance of a low-to-mid single-digit decline.
• Adjusted EBITDA stood at $274 million, down 7% year-over-year, also surpassing consensus estimates.
• Adjusted gross margin decreased 120 basis points to 63.3% due to higher freight costs (linked to Middle East conflict), elevated excess and obsolescence, and unfavorable product mix from Brazil.
• Adjusted EBITDA margin was 17.6%, down 120 basis points year-over-year.
• Adjusted EPS (excluding equity swap) was $0.15, flat year-over-year and ahead of the guided range of $0.11–$0.13.
• Free cash flow improved significantly to $85 million, a $73 million increase year-over-year, with cash conversion (FCF/Adjusted EBITDA) rising to 31% from 4%.
• Net debt decreased by approximately $300 million to $2.6 billion, resulting in a leverage ratio of roughly 3.1x.

Guidance and Future Outlook:

• Fiscal 2027 is defined as a "transition year" with non-linear recovery expectations.
• Q2 outlook predicts low single-digit like-for-like revenue decline, with foreign exchange expected to be a low single-digit headwind.
• Q2 Adjusted EBITDA guidance expects a high single-digit decline as the company prioritizes investment in high-return opportunities.
• Q2 Adjusted EPS (excluding swap) is guided to $0.16–$0.18.
• Full year free cash flow outlook for the first half remains above $300 million to support deleveraging.
• A longer-term financial framework and outlook are expected following the completion of a strategic review by the end of calendar 2026.
• Management anticipates continued like-for-like growth for the top six core prestige brands in Q2, though at a moderate pace compared to Q1.

Business Segments and Product Lines:

• Prestige Division: Revenue was $1.06 billion (-1% LFL); the top six core brands (e.g., Burberry, Hugo Boss, Marc Jacobs, Kylie, Calvin Klein, Chloé) grew 5% LFL, reversing a previous 6% decline, representing 73% of division sales.
• Consumer Beauty Division: Revenue was approximately $0.5 billion (-3% LFL); the top four core brands (CoverGirl, Sally Hansen, etc.) remained broadly in line with the division trend, representing 58% of sales.
• Key Brand Highlights:
  • Marc Jacobs: Secured a 40-year license extension; Beauty Makeup launched successfully across 600 Sephora stores; Fragrance sales grew double-digits.
  • Kylie Cosmetics: Delivered double-digit LFL sales growth driven by fragrance and makeup.
  • Burberry: Grew low single-digits LFL, supported by the "Goddess Amber Vanilla" launch and makeup performance.
  • CoverGirl & Sally Hansen: Showed narrowing gaps to category growth in the U.S., with Sally Hansen regaining the #1 U.S. mass nail market share (17.9%).
• Innovation strategy shifted to "fewer, bigger, more accretive" launches, with first-half fiscal 2027 prestige innovation tracking ahead of plan and up low single digits LFL.

Market and Competitive Landscape:

• The U.S. prestige beauty market grew 3% in Q1, with the core prestige fragrance category up 5%. Coty's prestige sellout declined 2%, though core brands outperformed the division.
• The U.S. mass beauty market grew 5%, while Coty's sellout declined 3%.
• Global market trends show resilience despite macroeconomic uncertainty; however, performance remains uneven across regions, with Asia-Pacific growth offsetting declines in the Americas and EMEA.
• Coty maintains a top-three global position in prestige and total fragrance (excluding Gucci) and mass color cosmetics.

Risks and Challenges:

• Persistent macroeconomic pressures and geopolitical instability, specifically the Middle East conflict, are causing elevated freight and material costs expected to continue through fiscal 2027.
• Excess and obsolescence costs remain a headwind due to elevated demand forecasts in the prior year.
• The Consumer Beauty division continues to face significant challenges with mixed brand performance and requires time to recover.
• Labor cost inflation is partially offsetting benefits from headcount reduction initiatives.
• The recovery trajectory is not guaranteed to be linear.

Management Commentary and Tone:

• Management expressed cautious optimism, acknowledging Q1 results were ahead of guidance but emphasizing that the business is not yet where it needs to be.
• New CFO Soraya Benchik emphasized a framework of "Quality Growth, Productivity-Funded Reinvestment, and Enhanced Cash Returns."
• Tone was disciplined and focused on execution, with a clear commitment to simplifying the cost base and directing investment strictly toward high-return core brands.
• Management reiterated that the strategic review must be completed by end-of-2026 to shape the future portfolio.

Analyst Questions and Answers:

• Note: While the transcript outlines the Q&A session logistics, specific Q&A content was not included in the provided text.

Other Key Points:

• Strategic Framework ("COTI Curated"): Focus on concentrating ANCP investment behind core brands (76% of Prestige ANCP and 71% of Consumer Beauty ANCP now directed to top brands) and shifting to "fewer, bigger" innovations to improve margin and reduce obsolescence.
• Digital Transformation: Launched a global partnership with Brandlight to enhance brand visibility in AI-driven search and large language models across six prestige brands.
• Brand Portfolio: Gucci is scheduled to exit the portfolio in the coming year, with contractual investment commitments remaining in place until transition.
• Operational Improvements: Non-people fixed costs reduced by 9% (consulting, depreciation, IT); working capital management improved, driving better payables and receivables performance.
• Leadership: Soraya Benchik, former CFO of BAT, highlighted her focus on accelerating execution and creating an organization with clear priorities and accountability.