COTY INC. 1Q27 Q&A EARNINGS CONFERENCE - COTY INC

Explicit Guidance:

• Q2 & Full Year 2027 Revenue/Earnings/Margins: No specific quantitative guidance provided for Q2 or Full Year 2027; management declined to provide full guidance until the strategic review and savings program are completed in early 2027.
• Q1 2027 Performance Reference: Top six core prestige brands grew 5% (LFL); Consumer business decline slowed to 3% (from 8% in H1 2026); Asia net sales up 8%; Americas growth noted; Europe facing softer market consumption.
• FY2027 Margins: Expects Middle East freight and material cost headwinds to persist for the remainder of FY2027, with a budgeted impact of $30–40 million (potentially higher if oil stays above $100/barrel).
• FY2028 Cash Flow: Gucci license exit deal protects fiscal 2028 cash flow.
• Restructuring/Savings: Plans to complete the savings and restructuring program to offset Gucci loss and communicate full guidance by January 2027.

Business-Segment Outlook:

• Prestige Brands (Top 6): Expects growth to continue in Q2 2027; Marc Jacobs Beauty pipeline excluded, core growth estimated at ~3% LFL; top six brands remain the focus of investment.
• Consumer Brands (CoverGirl): "Color the Future" program aiming for market share catch-up; net sales down only 2% in Q1 (vs. 8% in H1 2026); expects trajectory to continue improving via sharper innovation bundles and consistent media support.
• Skincare: Profitability has improved significantly; no intention to exit the category; portfolio remains balanced across prestige, consumer, and skincare to maintain strategic optionality.
• Innovation Pipeline:
  • Etro: Launch expected in Spring 2027 (super-premium segment).
  • Hugo Boss "Beyond for Her": US/UK launch scheduled for Spring 2027; fully incremental.
  • Burberry: "Prosim" collection launching in super-premium segment.
  • Strategy: Shift to "fewer, bigger launches" (4 major launches in Q1 tracked ahead of objectives) to reduce excess/obsolescent stock (E&O) and improve forecasting accuracy.
• Portfolio Curation: Strategic review to conclude by end of calendar 2026; no specific brand exits confirmed yet; focus on "Uber-Prestige" and "Super-Premium" segments (e.g., Atelier de Fleur of Chloé, Etro).

Market and Competitive Outlook:

• AI & Digital: Partnership with Brandlight to optimize for AI-driven search; strategy focuses on depth (top 6 brands, top 5 markets) rather than breadth to ensure algorithmic correctness.
• Influencer Marketing: Continued heavy investment in advocacy; Burberry influencer share of category up 50 bps, other brands up 100 bps.
• Retailer Collaboration: "Co-development" model with retailers (e.g., Sephora for Marc Jacobs) becoming the standard for future makeup launches to align with Gen Z.
• Holiday Season: Retailers initiating holiday activities earlier; company adapting to secure sales/shipment security earlier in the quarter.
• Licensing Strategy: Moving toward longer-term or "perpetual" licenses to de-risk investment; extending existing licenses with Burberry, Hugo Boss, etc., and seeking new long-duration partnerships.

Macro / Industry Outlook:

• Fragrance Category: Global fragrance growth at 5% in Q1; still a growing category with high competition.
• Oil/Commodities: Middle East freight and material costs driven by oil prices; impact sensitive to barrel price levels (> $100 increases impact).
• Geopolitical/Regional: Europe facing softer market growth in Germany and France; strong performance in Spain and Italy; Asia (China) performing well (+8%); US market is primary focus for growth.
• Cost Management: Prioritizing productivity and fixed cost levers to mitigate macro headwinds while preserving brand investment.

Strategic Initiatives:

• Strategic Review: Completion targeted for end of calendar 2026; will dictate future portfolio and guidance.
• Gucci Exit: Transition ongoing; finalized agreement includes $250 million upfront payment and $400 million total value (covering 1 year of lost profit/cash flow, inventory, and restructuring costs); timing of exit impact to be determined but financial protection secured for FY2028.
• Codi Curated Strategy: Focusing investment on "Top 6" prestige and "Top 4" consumer brands; shifting from scattered innovation to disciplined, high-impact launches.
• Hyrox Partnership: New partnership to boost advocacy and influencer standing in big events across multiple geographies.
• Tech/Process: Deployment of AI tools for forecasting and S&OP; aiming for 18–24 month cycle to improve inventory visibility and reduce E&O.

Risks and Headwinds to Outlook:

• Inventory & E&O: Excess and obsolescent stock remains a drag; improvement expected over time as innovation focus tightens, but cycle may take 18–24 months.
• Cost Headwinds: Middle East freight and material costs expected to persist through FY2027; oil price volatility could increase this impact beyond $30–40 million.
• Transition Volatility: FY2027 is a transition year; recovery is expected to be non-linear with moving parts during the strategic review.
• European Slowdown: Potential drag on results from softer consumption in key European markets (Germany, France).
• Execution Risk: Success depends on the ability to execute "fewer, bigger" launches and manage inventory reduction without disrupting sales.

Management Tone on the Future:

• Confidence Level: Cautiously optimistic; acknowledges the current year is a transition ("recovery will not be linear") but cites "encouraging early signs" and "green shoots."
• Commitment: Strong emphasis on completing the strategic review by end of 2026 and returning to full guidance in Jan 2027; prioritizing "quality growth" over short-term margin defense.
• Focus: Shift from breadth to depth; managing a "scattered" past approach to a "concentrated" future strategy.

Miscellaneous:

• Share Count/Dividends: No specific updates provided in this transcript.
• FX: Not explicitly quantified, though Middle East freight impacts noted.
• Debt: Commitment to reduce debt using cash generated from strong brand performance.