COTY Q3 2026 Earnings Call Summary

1. Key Financial Results and Metrics

Revenue Performance: Coty reported mixed results with sellout growth in Prestige but a trailing sell-in, primarily due to external factors like geopolitical issues in the Middle East and a highly promotional environment.
Margins: The company highlighted that oil price increases are impacting margins, with a $1 increase in oil costing approximately $2 million in profits. The gross margin was affected by elevated returns and obsolescence.
EBITDA: There is an expectation of continued EBITDA declines in the near term, but the company aims to improve this metric in fiscal year 2027.

2. Strategic Updates and Business Highlights

Coty.Curated Framework: The company is focusing on a sellout-oriented culture, moving away from a sell-in focus. This includes sharper bundles and a more disciplined approach to inventory management.
Brand Performance: CoverGirl and Sally Hansen are showing positive growth in the U.S., with a strategy shift to appeal to Gen X consumers. The company is also exiting smaller markets and brands that do not provide adequate ROI, such as Orveda.
Innovation Focus: Coty is prioritizing impactful innovations and reducing the number of new product launches to avoid crowding out productive SKUs.

3. Forward Guidance and Outlook

Q4 Expectations: The company anticipates a 2-3 point headwind from the Middle East and expects to see improvements in sellout as the new strategies take effect.
Fiscal Year 2027: Management is optimistic about improving EBITDA trends, driven by a focus on sellout and better inventory management. However, they acknowledge ongoing challenges from inflation and the promotional environment.

4. Bad News, Challenges, or Points of Concern

Geopolitical Risks: The Middle East remains a significant headwind, particularly affecting travel retail channels.
Promotional Environment: Elevated promotional levels are impacting pricing and profitability, with concerns about sustaining brand equity in a competitive landscape.
Inventory Management: The company is still dealing with the consequences of past overstocking and returns, which are affecting gross margins.

5. Notable Q&A Insights

Sell-in vs. Sellout: Management emphasized the importance of aligning sell-in with sellout, with a cultural shift towards prioritizing sellout metrics.
Market Dynamics: There is a recognition of the competitive landscape, with a focus on maintaining brand integrity despite promotional pressures.
Brand Rationalization: The exit from Orveda and smaller markets is part of a broader strategy to focus on core brands that can drive growth and profitability.
Tariffs: Coty incurred approximately $30 million in tariffs over the past year and is exploring potential refunds as the situation evolves.

Overall, while Coty is facing several challenges, particularly from geopolitical factors and a competitive promotional environment, the company is implementing strategic changes aimed at improving profitability and market share in the long term.

COTY — Coty Inc.