Coty Navigates a Challenging Quarter as Strategic Shift Begins Under New Leadership
Coty Inc (NYSE:COTY) reported financial results for its second quarter of fiscal year 2026 that presented a mixed picture, leading to a sharp decline in its share price. The beauty conglomerate met revenue expectations but fell short on profitability, all while initiating a major strategic overhaul under new leadership.
Quarterly Results Versus Expectations
The company’s performance for the quarter ended December 31, 2025, was broadly in line with its own expectations but revealed underlying pressures, particularly on margins.
- Revenue: Reported net revenue of $1.68 billion essentially matched analyst estimates, showing a 1% increase on a reported basis. However, on a like-for-like (LFL) basis, which excludes foreign exchange impacts, revenue declined by 3%.
- Earnings Per Share: The non-GAAP adjusted EPS of $0.14 missed the consensus analyst estimate of $0.187. This represents a significant earnings miss of approximately 25%.
- Segment Performance: The weakness was not uniform across the business. The Prestige segment, which accounts for 68% of sales, saw a 2% LFL decline. The Consumer Beauty segment faced greater challenges, with a 6% LFL decline.
Market Reaction and Strategic Context
The market’s negative reaction, with shares falling sharply in after-hours trading, can be attributed to several factors beyond the earnings miss. The company withdrew its full-year fiscal 2026 guidance for EBITDA and free cash flow, citing a "complex beauty market backdrop" and its ongoing leadership transition. This move creates significant uncertainty for investors regarding the remainder of the fiscal year.
Furthermore, the outlook for the current third quarter is notably weak. Coty anticipates:
- A mid-single-digit percentage decline in LFL revenue.
- A significant drop in adjusted EBITDA to a range of $100-$110 million.
- Gross margin pressure of 200 to 300 basis points.
This guidance stands in stark contrast to analyst expectations for the next quarter, which had projected revenue of approximately $1.36 billion and continued profitability.
Leadership and Strategic Pivot
The earnings report served as the debut for new Executive Chairman and Interim CEO Markus Strobel, who joined Coty from Procter & Gamble at the start of the calendar year. Strobel was candid in his assessment, acknowledging that while Coty possesses "outstanding assets and capabilities," its financial performance over the past 18 months has been "disappointing."
In response, he announced the launch of the "Coty. Curated." strategic framework. This plan aims to sharpen priorities, focus investments, improve execution, and increase support behind core businesses. A key element is a continued portfolio review, which recently resulted in the divestiture of Coty's remaining stake in Wella, a transaction that brought in $750 million in cash used to pay down debt.
Financial Health and Debt Reduction
Amid the operational challenges, the quarter did deliver a clear positive: a strengthened balance sheet.
- Financial net debt was reduced to $2.60 billion, down from $3.21 billion at the end of the prior quarter.
- The leverage ratio (net debt to adjusted EBITDA) improved to 2.7x, its lowest level in nearly a decade, aided by the Wella sale proceeds and strong quarterly free cash flow of $513 million.
Conclusion
Coty’s second-quarter results highlight a company at a crossroads. While it successfully fortified its balance sheet, operational performance is under strain from a promotional market environment and weakness in its mass-market Consumer Beauty division. The appointment of Markus Strobel and the introduction of a new strategic framework signal a recognition that change is necessary. However, the withdrawal of annual guidance and a sobering near-term outlook have introduced fresh uncertainty, overshadowing the debt reduction progress and leading to a punitive market reaction. Investors will now watch closely for early signs that the "Coty. Curated." strategy can reignite consistent, profitable growth.
For a detailed look at Coty’s historical earnings and future analyst estimates, you can review the data here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
