Coty Inc.
11/05/2025 | Press release | Distributed by Public on 11/05/2025 15:38
Quarterly Report for Quarter Ending SEPTEMBER 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of Coty Inc. and its consolidated subsidiaries, should be read in conjunction with the information contained in the Condensed Consolidated Financial Statements and related notes included elsewhere in this document, and in our other public filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 ("Fiscal 2025 Form 10-K"). When used in this discussion, the terms "Coty," the "Company," "we," "our," or "us" mean, unless the context otherwise indicates, Coty Inc. and its majority and wholly-owned subsidiaries. Also, when used in this Quarterly Report on Form 10-Q, the term "includes" and "including" means, unless the context otherwise indicates, including without limitation. The following report includes certain non-GAAP financial measures. See "Overview-Non-GAAP Financial Measures" for a discussion of non-GAAP financial measures and how they are calculated.
All dollar amounts in the following discussion are in millions of United States ("U.S.") dollars, unless otherwise indicated.
More information about potential risks and uncertainties that could affect our business and financial results is included under the heading "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q and other periodic reports we have filed and may file with the SEC from time to time.
Forward-looking Statements
Certain statements in this Form 10-Q are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, strategic planning, targets and outlook for future reporting periods (including the extent and timing of revenue, expense and profit trends and changes in operating cash flows and cash flows from operating activities and investing activities), the Company's future operations and strategy (including the expected implementation and related impact of its strategic priorities), ongoing and future cost efficiency, optimization and restructuring initiatives and programs, expectations of the impact of inflationary pressures and the timing, magnitude and impact of pricing actions to offset inflationary costs, strategic transactions (including their expected timing and impact), the strategic review of the Company's consumer beauty business, including its mass color cosmetics business and associated brands and the Company's distinct Brazil business comprised of local Brazilian brands, and any transactions related thereto, use of proceeds from any transaction and the timing and outcome of the strategic review, expectations and/or plans with respect to joint ventures (including Wella and the timing and size of any related divestiture, distribution or return of capital), the Company's capital allocation strategy and payment of dividends (including suspension of dividend payments and the duration thereof and any plans to resume cash dividends on common stock or to continue to pay dividends in cash on preferred stock) and expectations for stock repurchases, investments, plans and expectations with respect to licenses and/or portfolio changes, product launches, relaunches or rebranding (including the expected timing or impact thereof), plans for growth in certain categories, markets, channels and other white spaces, synergies, savings, performance, cost, timing and integration of acquisitions, future cash flows, liquidity and borrowing capacity (including any refinancing or deleveraging activities), timing and size of cash outflows and debt deleveraging, the timing and magnitude of any "true-up" payments in connection with our forward repurchase contracts and plans for settlement of such contracts, the timing and extent of any future impairments, and synergies, savings, impact, cost, timing and implementation of the Company's ongoing strategic transformation agenda (including operational and organizational structure changes, operational execution and simplification initiatives, fixed cost reductions (including our recent fixed cost reduction plan), continued process improvements and supply chain changes), the impact, cost, timing and implementation of e-commerce and digital initiatives, the expected impact, cost, timing and implementation of sustainability initiatives (including progress, plans, goals and our ability to achieve sustainability targets), the expected impact of geopolitical risks including the ongoing war in Ukraine and/or the armed conflict in the Middle East on our business operations, sales outlook and strategy, expectations regarding the impact of tariffs (including magnitude, scope and timing) and plans to manage such impact, expectations regarding economic recovery in Asia, consumer purchasing trends and the related impact on our plans for growth in China, the expected impact of global supply chain challenges and/or inflationary pressures (including as a result of the war in Ukraine and/or armed conflict in the Middle East, or due to a change in tariffs or trade policy impacting raw materials) and expectations regarding future service levels and inventory levels, and the priorities of senior management. These forward-looking statements are generally identified by words or phrases, such as "anticipate", "are going to", "estimate", "plan", "project", "expect", "believe", "intend", "foresee", "forecast", "will", "may", "should", "outlook", "continue", "temporary", "target", "aim", "potential", "goal" and similar words or phrases. These statements are based on certain assumptions and estimates that we consider reasonable, but are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual events or results (including our financial condition, results of operations, cash flows and prospects) to differ materially from such statements, including risks and uncertainties relating to:
•our ability to successfully implement our strategic priorities (including leveraging our leadership position and capabilities in global fragrances to fuel strong expansion and continue to grow our footprint and diversification in a
limited number of structurally profitable and growing beauty categories and geographic markets at scale), achieve the benefits contemplated by our strategic initiatives (including revenue growth, cost control, gross margin growth and debt deleveraging), and compete effectively in the beauty industry,in each case within the expected time frame or at all;
•our ability to anticipate, gauge and respond to market trends and consumer preferences, which may change rapidly, and the market acceptance of new products, including new products in our skincare and prestige cosmetics portfolios, any relaunched or rebranded products and the anticipated costs and discounting associated with such relaunches and rebrands, and consumer receptiveness to our current and future marketing philosophy and consumer engagement activities (including digital marketing and media), and our ability to effectively manage our production and inventory levels in response to demand;
•use of estimates and assumptions in preparing our financial statements, including with regard to revenue recognition, income taxes (including the expected timing and amount of the release of any tax valuation allowance), the assessment of goodwill, other intangible and long-lived assets for impairments, the market value of inventory, and the fair value of the equity investment;
•the impact of any future impairments;
•managerial, transformational, operational, regulatory, legal and financial risks, including diversion of management attention to and management of cash flows, expenses and costs associated with our transformation agenda, our global business strategies, the management of ourstrategic partnerships, the strategic review of our consumer beauty business, and future strategic initiatives, and, in particular, our ability to manage and execute many initiatives simultaneously including any resulting complexity, employee attrition or diversion of resources;
•the timing, costs and impacts of divestitures and the amount and use of proceeds from any such transactions;
•future divestitures and the impact thereof on, and future acquisitions, new licenses and joint ventures and the integration thereof with, our business, operations, systems, financial data and culture and the ability to realize synergies, manage supply chain challenges and other business disruptions, reduce costs (including through our cash efficiency initiatives), avoid liabilities and realize potential efficiencies and benefits (including through our restructuring initiatives) at the levels and at the costs and within the time frames contemplated or at all;
•increased competition, consolidation among retailers, shifts in consumers' preferred distribution and marketing channels (including to digital and prestige channels), distribution and shelf-space resets or reductions, compression of go-to-market cycles, changes in product and marketing requirements by retailers, reductions in retailer inventory levels and order lead-times or changes in purchasing patterns, impact from public health events on retail revenues, and other changes in the retail, e-commerce and wholesale environment in which we do business and sell our products and our ability to respond to such changes(including our ability to expand our digital, direct-to-consumer and e-commerce capabilities within contemplated timeframes or at all);
•our and our joint ventures', business partners' and licensors' abilities to obtain, maintain and protect the intellectual property used in our and their respective businesses, protect our and their respective reputations (including those of our and their executives or influencers) and public goodwill, and defend claims by third parties for infringement of intellectual property rights;
•any change to our capital allocation and/or cash management priorities, including any change in our dividend policy and any change in our stock repurchase plans;
•any unanticipated problems, liabilities or integration or other challenges associated with a past or future acquired business, joint ventures or strategic partnerships, which could result in increased risk or new, unanticipated or unknown liabilities, including with respect to environmental, competition and other regulatory, compliance or legal matters, and specifically in connection with our strategic partnerships, risks related to the entry into a new distribution channel, the potential for channel conflict, risks of retaining customers and key employees, difficulties of integration (or the risks associated with limiting integration) and management of the partnerships, our relationships with our strategic partners, our ability to protect trademarks and brand names, litigation, investigations by governmental authorities, and changes in law, regulations and policies that affect the business or products of our strategic partnerships, including the risk that direct selling laws and regulations may be modified, interpreted or enforced in a manner that results in a negative impact to the business model, revenue, sales force or business of any of our strategic partnerships;
•our international operations and joint ventures, including enforceability and effectiveness of our joint venture agreements and reputational, compliance, regulatory, economic and foreign political risks, including difficulties and costs associated with maintaining compliance with a broad variety of complex local and international regulations;
•our dependence on certain licenses (especially in the fragrance category) and our ability to renew expiring licenses on favorable terms or at all;
•our dependence on entities performing outsourced functions, including outsourcing of distribution functions, and third-party manufacturers, logistics and supply chain suppliers, and other suppliers, including third-party software providers, web-hosting and e-commerce providers;
•administrative, product development and other difficulties in meeting the expected timing of market expansions, product launches, re-launches and marketing efforts, including in connection with new products in our skincare and prestige cosmetics portfolios;
•changes in the demand for our products due to declining or depressed global or regional economic conditions, and declines in consumer confidence or spending, whether related to the economy (such as austerity measures, tax increases, high fuel costs, or higher unemployment), wars and other hostilities and armed conflicts, natural or other disasters, weather, pandemics, security concerns, terrorist attacks or other factors;
•global political and/or economic uncertainties, disruptions or major regulatory or policy changes, and/or the enforcement thereof that affect our business, financial performance, operations or products, including the impact of the war in Ukraine and any escalation or expansion thereof, armed conflict in the Middle East, the current administration in the U.S. and related changes to regulatory and trade policies, changes in the U.S. tax code and/or tax regulations in other jurisdictions where we operate (including recent and pending implementation of the global minimum corporate tax (part of the "Pillar Two Model Rules") that may impact our tax liability in the European Union ("EU")), and recent changes and future changes in tariffs, retaliatory or trade protection measures, trade policies and other international trade regulations in the U.S., the EU, and Asia and in other regions where we operate (and our ability to manage the impact of such changes), potential regulatory limits on payment terms in the EU,future changes in sanctions regulations, recent and future changes in regulations impacting the beauty industry, including regulatory measures addressing products, formulations, raw materials and packaging, and recent and future regulatory measures restricting or otherwise impacting the use of web sites, mobile applications or social media platforms that we use in connection with our digital marketing and e-commerce activities;
•currency exchange rate volatility and currency devaluation and/or inflation;
•our ability to implement and maintain pricing actions to effectively mitigate increased costs and inflationary pressures, and the reaction of customers or consumers to such pricing actions;
•the number, type, outcomes (by judgment, order or settlement) and costs of current or future legal, compliance, tax, regulatory or administrative proceedings, investigations and/or litigation, including product liability cases (including asbestos and talc-related litigation for which indemnities and/or insurance may not be available), distributor or licensor litigation, and compliance, litigation or investigations relating to our joint ventures or strategic partnerships;
•our ability to manage seasonal factors and other variability and to anticipate future business trends and needs;
•disruptions in the availability and distribution of raw materials and components needed to manufacture our products, and our ability to effectively manage our production and inventory levels in response to supply challenges;
•disruptions in operations, sales and in other areas, including due to disruptions in our supply chain, restructurings and other business alignment activities, manufacturing or information technology systems, labor disputes, extreme weather and natural disasters, impact from public health events, the outbreak of war or hostilities (including the war in Ukraine and armed conflict in the Middle East and any escalation or expansion thereof), the impact of global supply chain challenges or other disruptions in the international flow of goods (including disruptions arising from future tariff scenarios), and the impact of such disruptions on our ability to generate profits, stabilize or grow revenues or cash flows, comply with our contractual obligations and accurately forecast demand and supply needs and/or future results;
•our ability to adapt our business to address climate change concerns, including through the implementation of new or unproven technologies or processes, and to respond to increasing governmental and regulatory measures relating to environmental, social and governance matters, including expanding mandatory and voluntary reporting, diligence and disclosure, as well as new taxes (including on energy and plastic), new diligence requirements and the impact of such measures or processes on our costs, business operations and strategy;
•restrictions imposed on us through our license agreements, credit facilities and senior unsecured bonds or other material contracts, our ability to generate cash flow to repay, refinance or recapitalize debt and otherwise comply with our debt instruments, and changes in the manner in which we finance our debt and future capital needs;
•increasing dependency on information technology, including as a result of remote working practices, and our ability or the ability of any of the third-party service providers we use to support our business, to protect against service interruptions, data corruption, cyber-based attacks or network security breaches, including ransomware attacks, costs and timing of implementation and effectiveness of any upgrades or other changes to information technology systems, and the cost of compliance or our failure to comply with any privacy or data security laws (including the European Union General Data Protection Regulation (the "GDPR"), the California Consumer Privacy Act and similar state laws, the Brazil General Data Protection Law, and the China Data Security Law and Personal Information Protection Law) or to protect against theft of customer, employee and corporate sensitive information;
•our ability to attract and retain key personnel and the impact of senior management transitions;
•the distribution and sale by third parties of counterfeit and/or gray market versions of our products;
•the impact of our ongoing strategic transformation agenda and continued process improvements on our relationships with key customers and suppliers and certain material contracts;
•our relationship with JAB Beauty B.V.,as our majority stockholder, and its affiliates, and any related conflicts of interest or litigation;
•our relationship with KKR, whose affiliate KKR Bidco, is an investor in Rainbow JVCO LTD and subsidiaries (together, "Wella" or the "Wella Company") following the sale of a majority stake in our Professional and Retail Hair business, including the Wella, Clairol, OPI and ghd brands (together, the "Wella Business"), and any related conflicts of interest or litigation;
•future sales of a significant number of shares by our majority stockholder or the perception that such sales could occur; and
•other factors described elsewhere in this document and in documents that we file with the SEC from time to time.
More information about potential risks and uncertainties that could affect our business and financial results is included under the heading "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q and other periodic reports we have filed and may file with the SEC from time to time.
All forward-looking statements made in this document are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by applicable law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such, and should only be viewed as historical data.
Industry, Ranking and Market Data
Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning our industry and the markets in which we operate, including our general expectations about our industry, market position, market opportunity and market sizes, is based on data from various sources including internal data and estimates as well as third-party sources widely available to the public, such as independent industry publications, government publications, reports by market research firms or other published independent sources and on our assumptions based on that data and other similar sources. We did not fund and are not otherwise affiliated with the third-party sources that we cite. Industry publications and other published sources generally state that the information contained therein has been obtained from third-party sources believed to be reliable. Internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and management's understanding of industry conditions, and such information has not been verified by any independent sources. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we generally believe the market, industry and other information included in this Quarterly Report on Form 10-Q to be the most recently available and to be reliable, such information is inherently imprecise and we have not independently verified any third-party information or verified that more recent information is not available.
Our fiscal year ends on June 30. Unless otherwise noted, any reference to a year preceded by the word "fiscal" refers to the fiscal year ended June 30 of that year. For example, references to "fiscal 2026" refer to the fiscal year ending June 30, 2026. Any reference to a year not preceded by "fiscal" refers to a calendar year.
OVERVIEW
We are one of the world's largest beauty companies, with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care. Our brands empower people to express themselves freely, creating their own visions of beauty; and we are committed to protecting the planet. We have sharpened our priorities to capitalize on structural tailwinds in the fragrance market. We are leveraging our leadership in fragrance innovation, licensing, and manufacturing to expand across price points, from mass to ultra-premium and across scenting formats.
Strategic Review and Planned Actions
During the first quarter of fiscal 2026, we announced our plan to more closely integrate mass fragrances within our Prestige business by refocusing on Coty's heritage and core strengths, to drive sustainable profitable growth and accelerate value creation. We have launched a comprehensive strategic review of our Consumer Beauty business which will focus specifically on its mass color cosmetics business and its distinct Brazil business. The review will assess a full range of alternatives including partnerships, divestitures, spin-offs and other potential strategic actions, with the objective of maximizing long-term value and strengthening the balance sheet.
We will continue to implement our plans to unlock material opportunities in ultra-premium fragrances, mists and broader scenting.
During fiscal 2025, we formulated a plan to strengthen our operating model and simplify our fixed cost structure (the "Fixed Cost Reduction Plan"). Cash costs associated with the program include restructuring and business structure realignment costs and are expected to be approximately $80.0, roughly evenly split between fiscal 2026 and fiscal 2027.
Global Economic Landscape and Business Impact
Our products are sold in approximately 123 countries and territories. As a geographically diverse company we are susceptible to global economic trends, geopolitical conflicts, domestic and foreign governmental policies, and changes in foreign exchange rates. We remain attentive to economic and geopolitical conditions that may materially impact our business.
Recent changes in U.S. and international trade policies-particularly tariff increases-and the ongoing uncertainty surrounding such policies may present challenges to our business operations and financial condition. These challenges may include supply chain disruptions and commodity price volatility, resulting in increases in our cost of goods sold. Under the current tariff framework, the biggest areas of potential challenges for us are prestige fragrances shipped to the U.S. from our Barcelona plant, and the sourcing of various components and marketing materials from China. In response, we have evaluated more diversified sourcing strategies, strategic pricing adjustments and cost-reduction initiatives to help offset these pressures and protect our profitability. We are optimizing our supply chain to enhance resilience and agility in response to changing tariff environments. We have successfully transitioned mass fragrance production-including key brands such as Adidas, Origen, and Nautica-as well as fragrance mists to our U.S. manufacturing site. Additional transfers of entry-level prestige fragrance products are planned for early in the third quarter of fiscal 2026, further optimizing U.S. capacity.
In the short term, we are accelerating dual sourcing for all entry-level prestige products by leveraging regional input materials, and future launches will be developed with dual production capabilities. We expect that any increases in our cost of goods sold will be balanced with minimal price adjustments to ensure competitiveness. On a longer-term basis, we are evaluating expanded regionalization strategies, including potential additional U.S. investments. We will also continue to collaborate with external partners to strengthen our domestic manufacturing capabilities, supporting our goal of a robust, U.S.-based supply chain.
We currently estimate that our operating results will be impacted by approximately $35.0 in costs related to tariff increases, after mitigating actions, through the first quarter of fiscal 2027. Of this amount, approximately $30.0 is expected to be reflected in our fiscal 2026 operating results, with the remaining amount of approximately $5.0 expected to be reflected in the first quarter of fiscal 2027. In the first three months of fiscal 2026, approximately $5.0 of net tariff costs are reflected in our operating results. Despite our efforts, reductions in consumer confidence and discretionary spending could impact demand for our products and negatively affect our sales. We are closely monitoring developments, evaluating potential impacts, and proactively taking steps to mitigate adverse effects on our business.
Market Trends and Sales Performance
Changing market trends continue to impact sales of our products across and within product categories and geographic regions.
•Fragrances: We believe fragrances will remain a structurally advantageous category, supported by beauty category-leading brand loyalty, strong consumer demand, increasing usage, broader price points and formats, and expanding
global penetration. In the first three months of fiscal 2026, our fragrance category experienced mid-single digit percentage net revenue decline compared to the previous fiscal year, driven by negative performance from our brands despite growth in the overall fragrance market. With a slate of new launches scheduled for fiscal 2026 and beyond, we believe that our prestige fragrances are strategically positioned to achieve sustained growth and strong momentum across key markets. Within our Consumer Beauty segment, we are planning exciting new fragrance launches, expanding our mass fragrance presence into value segments. By innovating with leading brands and leveraging high-performing digital channels, we believe we are well positioned to build awareness and fuel demand.
•Color Cosmetics: Our net revenues from mass color cosmetics declined by mid-single digits percentage during the same period due to a weakening in market demand for our products, particularly in European markets. Our net revenues from prestige color cosmetics declined by a high-single digits percentage, impacted by negative performance of our brands in the lip subcategory.
•Skin and Body Care: Our skincare portfolio contributed a mid-single digit percentage of our first three months fiscal 2026 net revenue. Competitive pricing actions in Brazil negatively impacted demand for certain of our deodorant brands leading to a low-double digit percentage decline in our body care net revenues during first three months fiscal 2026, despite positive trends in the overall mass body care market. The Consumer Beauty gross margin has benefited from a lower proportion of sales from lower priced Brazilian brands as a result of negative market trends in Brazil impacting volumes in the overall Consumer Beauty business.
•Geographic Regions: Net revenue in the Americas declined by a mid-single digit percentage during first three months fiscal 2026, driven by negative market trends in Brazil and the phasing and trade investment behind new Prestige fragrance launches. Net revenue from EMEA decreased by a mid-single digit percentage due to negative market trends across most European markets. Net revenue in the Asia Pacific region declined by a high-single digit percentage, impacted by a decline in value distribution sales.
While we are starting to see gradual improvements in some trends, we expect that some of the market trends may continue in fiscal 2026.
Financial Outlook
We expect that our reported net revenue for the second quarter of fiscal 2026 will be roughly flat versus the prior year, which includes an estimated low to mid-single digit percentage benefit from foreign exchange. We anticipate that our second quarter fiscal 2026 gross margin will be pressured as a result of lower sales as well as the net impact from tariffs, with some easing in the second half of fiscal 2026 as a result of mitigation efforts. We are re-accelerating our cost reduction efforts to deliver savings of approximately $80.0 in fiscal 2026. We expect that our reported net revenue for the second half of fiscal 2026 will return to growth versus the prior year, supported by major launches across both our Prestige and Consumer Beauty segments and more favorable comparisons.
Non-GAAP Financial Measures
To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures for Coty Inc. including Adjusted operating income (loss), Adjusted EBITDA, Adjusted net income (loss), and Adjusted net income (loss) attributable to Coty Inc. to common stockholders (collectively, the "Adjusted Performance Measures"). The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in tables below. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies, including companies in the beauty industry, may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
Despite the limitations of these non-GAAP financial measures, our management uses the Adjusted Performance Measures as key metrics in the evaluation of our performance and annual budgets and to benchmark performance of our business against our competitors. The following are examples of how these Adjusted Performance Measures are utilized by our management:
•strategic plans and annual budgets are prepared using the Adjusted Performance Measures;
•senior management receives a monthly analysis comparing budget to actual operating results that is prepared using the Adjusted Performance Measures; and
•senior management's annual compensation is calculated, in part, by using some of the Adjusted Performance Measures.
In addition, our financial covenant compliance calculations under our debt agreements are substantially derived from these Adjusted Performance Measures.
Our management believes that Adjusted Performance Measures are useful to investors in their assessment of our operating performance and the valuation of the Company. In addition, these non-GAAP financial measures address questions we routinely receive from analysts and investors and, in order to ensure that all investors have access to the same data, our management has determined that it is appropriate to make this data available to all investors. The Adjusted Performance Measures exclude the impact of certain items (as further described below) and provide supplemental information regarding our operating performance. By disclosing these non-GAAP financial measures, our management intends to provide investors with a supplemental comparison of our operating results and trends for the periods presented. Our management believes these measures are also useful to investors as such measures allow investors to evaluate our performance using the same metrics that our management uses to evaluate past performance and prospects for future performance. We provide disclosure of the effects of these non-GAAP financial measures by presenting the corresponding measure prepared in conformity with GAAP in our financial statements, and by providing a reconciliation to the corresponding GAAP measure so that investors may understand the adjustments made in arriving at the non-GAAP financial measures and use the information to perform their own analyses.
Adjusted operating income/Adjusted EBITDA excludes restructuring costs and business structure realignment programs, amortization, acquisition- and divestiture-related costs and acquisition accounting impacts, stock-based compensation, and asset impairment charges and other adjustments as described below. For adjusted EBITDA, in addition to the preceding, we exclude adjusted depreciation as defined below. We do not consider these items to be reflective of our core operating performance due to the variability of such items from period-to-period in terms of size, nature and significance. They are primarily incurred to realign our operating structure and integrate new acquisitions, and implement divestitures of components of our business, and fluctuate based on specific facts and circumstances. Additionally, Adjusted net income attributable to Coty Inc. and Adjusted net income attributable to Coty Inc. per common share are adjusted for certain interest and other (income) expense items, as described below, and the related tax effects of each of the items used to derive Adjusted net income as such charges are not used by our management in assessing our operating performance period-to-period.
Adjusted Performance Measures reflect adjustments based on the following items:
•Costs related to acquisition and divestiture activities: We have excluded acquisition- and divestiture-related costs and the accounting impacts such as those related to transaction costs and costs associated with the revaluation of acquired inventory in connection with business combinations because these costs are unique to each transaction. Additionally, for divestitures, we exclude write-offs of assets that are no longer recoverable and contract related costs due to the divestiture. The nature and amount of such costs vary significantly based on the size and timing of the acquisitions and divestitures, and the maturities of the businesses being acquired or divested. Also, the size, complexity and/or volume of past transactions, which often drives the magnitude of such expenses, may not be indicative of the size, complexity and/or volume of any future acquisitions or divestitures.
•Restructuring and other business realignment costs: We have excluded costs associated with restructuring and business structure realignment programs to allow for comparable financial results to historical operations and forward-looking guidance. In addition, the nature and amount of such charges vary significantly based on the size and timing of the programs. By excluding the referenced expenses from our non-GAAP financial measures, our management is able to further evaluate our ability to utilize existing assets and estimate their long-term value. Furthermore, our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.
•Asset impairment charges: We have excluded the impact of asset impairments as such non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.
•Amortization expense: We have excluded the impact of amortization of finite-lived intangible assets, as such non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance. Although we exclude amortization of intangible assets from our non-GAAP expenses, our management believes that it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets.
•Gain or loss on sale and early license termination: We have excluded the impact of gain or loss on sale and early license termination as such amounts are inconsistent in amount and frequency and are significantly impacted by the size of the sale and early license termination.
•Costs related to market exit: We have excluded the impact of direct incremental costs related to our decision to wind down our business operations in Russia. We believe that these direct and incremental costs are inconsistent and infrequent in nature. Consequently, our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.
•Gains on sale of real estate: We have excluded the impact of gains on sale of real estate as such amounts are inconsistent in amount and frequency and are significantly impacted by the size of the sale. Our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.
•Stock-based compensation: Although stock-based compensation is a key incentive offered to our employees, we have excluded the effect of these expenses from the calculation of adjusted operating income and adjusted EBITDA. This is due to their primarily non-cash nature; in addition, the amount and timing of these expenses may be highly variable and unpredictable, which may negatively affect comparability between periods.
•Depreciation and Adjusted depreciation: Our adjusted operating income excludes the impact of accelerated depreciation for certain restructuring projects that affect the expected useful lives of Property, Plant and Equipment, as such charges vary significantly based on the size and timing of the programs. Further, we have excluded adjusted depreciation, which represents depreciation expense net of accelerated depreciation charges, from our adjusted EBITDA. Our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.
•Other (income) expense: We have excluded the impact of pension curtailment (gains) and losses and pension settlements as such events are triggered by our restructuring and other business realignment activities and the amount of such charges vary significantly based on the size and timing of the programs. Further, we have excluded the change in fair value of the investment in Wella, as well as expenses related to potential or actual sales transactions reducing equity investments, as our management believes these unrealized (gains) and losses do not reflect our underlying ongoing business, and the adjustment of such impact helps investors and others compare and analyze performance from period to period. Such transactions do not reflect our operating results and we have excluded the impact as our management believes that the adjustment of these items supplements the GAAP information with a measure that can be used to assess the sustainability of our operating performance.
•Noncontrolling interest: This adjustment represents the after-tax impact of the non-GAAP adjustments included in Net income attributable to noncontrolling interests based on the relevant noncontrolling interest percentage.
•Tax: This adjustment represents the impact of the tax effect of the pretax items excluded from Adjusted net income. The tax impact of the non-GAAP adjustments is based on the tax rates related to the jurisdiction in which the adjusted items are received or incurred. Additionally, adjustments are made for the tax impact of any intra-entity transfer of assets and liabilities. Also, in connection with our market exit in Russia, we have adjusted for the release of tax charges previously taken related to certain direct incremental impacts of the decision.
Constant Currency
We operate on a global basis, with the majority of our net revenues generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. Therefore, to supplement financial results presented in accordance with GAAP, certain financial information is presented in "constant currency", excluding the impact of foreign currency exchange translations to provide a framework for assessing how our underlying businesses performed excluding the impact of foreign currency exchange translations. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We calculate constant currency information by translating current and prior-period results for entities reporting in currencies other than U.S. dollars into U.S. dollars using prior year foreign currency exchange rates. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different to the functional currency of that entity when exchange rates fluctuate. The constant currency information we present may not be comparable to similarly titled measures reported by other companies.
Basis of Presentation of Acquisitions, Divestitures, Terminations or Market Exit
During the period when we complete an acquisition, divestiture, early license termination, or market exit, the financial results of the current year period are not comparable to the financial results presented in the prior year period. When explaining such changes from period to period and to maintain a consistent basis between periods, we exclude the financial contribution of: (i) the acquired brands or businesses in the current year period until we have twelve months of comparable financial results, and (ii) the divested brands or businesses or early terminated brands or markets exited in the prior year period, to maintain comparable financial results with the current fiscal year period. There are no acquisitions, divestitures, early license terminations, and market exits that would impact the comparability of financial results between periods presented in the Management's Discussion and Analysis of Financial Condition and Results of Operations.
THREE MONTHS ENDED SEPTEMBER 30, 2025 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2024
NET REVENUES
In the three months ended September 30, 2025, net revenues decreased 6%, or $94.3, to $1,577.2 from $1,671.5 in the three months ended September 30, 2024, reflecting a decrease in unit volume of 10% (primarily driven by declines from the Consumer Beauty color cosmetics and body care brands), partially offset by positive foreign currency exchange translation impact of 2% (primarily driven by the weakening of the U.S. dollar versus the Euro year over year) and positive price and mix impact of 2% (primarily due to a higher proportion of total sales coming from higher priced Prestige brands). The overall decrease in net revenues reflects declines within fragrances across both our Prestige and Consumer Beauty segments. Within Prestige, fragrance sales declines are primarily due to customers working down high trade inventory levels along with decelerating market trends in most major markets. Within Consumer Beauty, fragrance declines are primarily due to negative performance of our brands and less innovation despite positive market trends across mass price points. The decline can also be attributed to color cosmetics- primarily due to the negative performance of our brands in most European markets and negative market trends in most major markets. Net revenues declined across all regions. Digital and e-commerce channel sales declines also contributed to the decrease in net revenues.
Net Revenues by Segment
|
Three Months Ended September 30, |
|||||||||||||||||
| (in millions) | 2025 | 2024 | Change % | ||||||||||||||
| NET REVENUES | |||||||||||||||||
| Prestige | $ | 1,069.5 | $ | 1,114.1 | (4) | % | |||||||||||
| Consumer Beauty | 507.7 | 557.4 | (9) | % | |||||||||||||
| Total | $ | 1,577.2 | $ | 1,671.5 | (6) | % | |||||||||||
Prestige
In the three months ended September 30, 2025, net revenues from the Prestige segment decreased 4%, or $44.6 to $1,069.5 compared to $1,114.1 in the three months ended September 30, 2024, reflecting a decrease in unit volume of 7% (primarily driven by declines from several prestige fragrance brands), partially offset by positive foreign currency exchange translation impact of 2% (primarily driven by the weakening of the U.S. dollar versus the Euro year over year) and positive price and mix impact of 1%. The decrease in net revenues primarily reflects:
•Prestige fragrance sales declines of $38.7, primarily due to customers working down high trade inventory levels resulting in negative performance of our brands in most European markets along with decelerating market trends across most major markets leading to declines in sales from Calvin Klein, Chloe, and several other brands. Category net sales declines were also impacted by increased trade investments to support certain launches. The category sales decline was partially offset by strong performance from Guccias a result of successful innovations including Gucci Flora Gorgeous Gardenia Intense. The category sales was also helped from other innovations includingBoss Bottled BeyondandBurberry Goddess Parfum;
•Prestige cosmetic sales declines of $3.8; and
•Prestige skincare sales declines of $2.1.
Consumer Beauty
In the three months ended September 30, 2025, net revenues from the Consumer Beauty segment decreased 9%, or $49.7, to $507.7 from $557.4 in the three months ended September 30, 2024, reflecting a decrease in unit volume of 10% (primarily driven by negative performance of our brands and decelerating market trends in Brazil), negative price and mix impact of 1%, partially offset by a positive foreign currency exchange translation impact of 2% (primarily driven by the weakening of the U.S. dollar versus the Euro year over year). The decrease in net revenues primarily reflects:
•Color cosmetics sales declines of $18.8, primarily due to poor performance across most European markets and negative market trends in Brazil;
•Mass fragrance sales declines of $18.3, primarily due to negative performance of our brands in Europe and less innovation in the current period;
•Mass bodycare sales declines of $9.3, primarily due to sales volumes declines from Monangeand adidas in Brazil due to competitive pricing action in the deodorant market; and
•Mass skincare sales declines of $3.3.
COST OF SALES
In the three months ended September 30, 2025, cost of sales decreased 3%, or $16.5, to $560.4 from $576.9 in the three months ended September 30, 2024. Cost of sales as a percentage of net revenues increased to 35.5% in the three months ended September 30, 2025 from 34.5% in the three months ended September 30, 2024, resulting in a gross margin decrease of approximately 100 basis points, primarily reflecting:
(i)approximately 60 basis points, primarily due to an increase in manufacturing and material costs as a percentage of net revenues; and
(ii)approximately 40 basis points related to an increased freight costs primarily as a result of additional customs duties for finished goods shipped to the United States.
This decrease in gross margin was driven by lower net revenues in the current period-reflecting higher discounts and promotions. Although we achieved improvements in manufacturing efficiency, productivity, and procurement cost optimization, these benefits are offset by the impact of the reduced net revenue base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the three months ended September 30, 2025, selling, general and administrative expenses decreased 2%, or $14.5, to $793.5 from $808.0 in the three months ended September 30, 2024. Selling, general and administrative expenses as a percentage of net revenues increased to 50.3% in the three months ended September 30, 2025 from 48.3% in the three months ended September 30, 2024, or approximately 200 basis points. This increase primarily reflects:
(i)110 basis points due to a increase in administrative costs as a percentage of net revenues;
(ii)110 basis points due to an increase in advertising and consumer promotional costs as a percentage of net revenues; and
(iii)30 basis points due to an increase in other general expenses as a percentage of net revenues.
These increases were partially offset by the following decreases:
(i)30 basis points due to favorable transactional impact from our exposure to foreign currency as a percentage of net revenues.
OPERATING INCOME/(LOSS)
In the three months ended September 30, 2025, operating income was $185.0 compared to income of $237.8 in the three months ended September 30, 2024. Operating income margin, decreased to 11.7% in the three months ended September 30, 2025 as compared to operating income margin of 14.2% in the three months ended September 30, 2024. The decrease in operating margin is primarily driven by an increase in advertising and consumer promotional costs as a percentage of net revenues (approximately 110 basis points), an increase in cost of goods sold as a percentage of net revenues (approximately 100 basis points), an increase in fixed costs as a percentage of net revenues (approximately 100 basis points), partially offset by a decrease in amortization expense as a percentage of net revenues (approximately 40 basis points). In addition, a greater proportion of total sales came from higher margin Prestige brands in the current period which positively benefited our operating margin.
Operating Income (Loss) by Segment
|
Three Months Ended September 30, |
|||||||||||||||||
| (in millions) | 2025 | 2024 | Change % | ||||||||||||||
| Operating income (loss) | |||||||||||||||||
| Prestige | $ | 208.9 | $ | 241.5 | (13) | % | |||||||||||
| Consumer Beauty | (7.7) | 14.0 | <(100%) | ||||||||||||||
| Corporate | (16.2) | (17.7) | 8 | % | |||||||||||||
| Total | $ | 185.0 | $ | 237.8 | (22) | % | |||||||||||
Prestige
In the three months ended September 30, 2025, operating income for Prestige was $208.9 compared to income of $241.5 in the three months ended September 30, 2024. Operating margin decreased to 19.5% of net revenues in the three months ended September 30, 2025 as compared to 21.7% in the three months ended September 30, 2024, driven by an increase in advertising and consumer promotional costs (approximately 170 basis points), an increase in cost of goods sold as a percentage of net revenues (approximately 60 basis points), an increase in fixed costs as a percentage of net revenues (approximately 50 basis points), partially offset by a decrease in amortization expense as a percentage of net revenues (approximately 60 basis points).
Consumer Beauty
In the three months ended September 30, 2025, operating loss for Consumer Beauty was $7.7 compared to income of $14.0 in the three months ended September 30, 2024. Operating loss margin decreased to 1.5% of net revenues in the three months ended September 30, 2025 as compared to operating income margin of 2.5% in the three months ended September 30, 2024, driven by an increase in cost of goods sold as a percentage of net revenues (approximately 240 basis points), an increase in fixed costs as a percentage of net revenues (approximately 150 basis points), an increase in other general expenses (approximately 40 basis points), partially offset by a decrease in advertising and consumer promotional costs (approximately 30 basis points).
Corporate
Corporate primarily includes income and expenses not directly relating to our operating activities. These items are included in Corporate since we consider them to be Corporate responsibilities, and these items are not used by our management to measure the underlying performance of the segments.
In the three months ended September 30, 2025, the operating loss for Corporate was $16.2 compared to a loss of $17.7 in the three months ended September 30, 2024, as described under "Adjusted Operating Income for Coty Inc." below. The decrease in the operating loss for Corporate was primarily driven by a $2.5 decrease in stock-based compensation expense, partially offset by a $1.0 increase in restructuring and other business realignment costs.
Adjusted Operating Income (Loss) by Segment
We believe that adjusted operating income by segment further enhances an investor's understanding of our performance. See "Overview-Non-GAAP Financial Measures." A reconciliation of reported operating income to adjusted operating income is presented below, by segment:
| Three Months Ended September 30, 2025 | |||||||||||||||||
| (in millions) |
Reported (GAAP) |
Adjustments (a)
|
Adjusted (Non-GAAP) |
||||||||||||||
| Operating income | |||||||||||||||||
| Prestige | $ | 208.9 | $ | 30.1 | $ | 239.0 | |||||||||||
| Consumer Beauty | (7.7) | 9.2 | 1.5 | ||||||||||||||
| Corporate | (16.2) | 16.2 | - | ||||||||||||||
| Total | $ | 185.0 | $ | 55.5 | $ | 240.5 | |||||||||||
| Three Months Ended September 30, 2024 | |||||||||||||||||
| (in millions) |
Reported (GAAP) |
Adjustments (a)
|
Adjusted (Non-GAAP) |
||||||||||||||
| Operating income | |||||||||||||||||
| Prestige | $ | 241.5 | $ | 38.2 | $ | 279.7 | |||||||||||
| Consumer Beauty | 14.0 | 9.9 | 23.9 | ||||||||||||||
| Corporate | (17.7) | 17.7 | - | ||||||||||||||
| Total | $ | 237.8 | $ | 65.8 | $ | 303.6 | |||||||||||
(a)See a reconciliation of reported net income to operating income (loss) to adjusted operating income (loss) and adjusted EBITDA for Coty Inc. and reconciliations of segment operating income (loss) to segment adjusted operating income (loss) and segment adjusted EBITDA for the Prestige, Consumer Beauty and Corporate segments with a description of the adjustments under "Net Income, Adjusted Operating Income and Adjusted EBITDA for Coty Inc." and "Segment Operating Income (Loss), Segment Adjusted Operating Income (Loss) and Segment Adjusted EBITDA", below. All adjustments are reflected in Corporate, except for amortization and asset impairment charges on goodwill, indefinite-lived intangible assets, and finite-lived intangible assets, which are reflected in the Prestige and Consumer Beauty segments.
Net Income, Adjusted Operating Income and Adjusted EBITDA for Coty Inc.
We believe that adjusted operating income further enhances an investor's understanding of our performance. See "Overview-Non-GAAP Financial Measures." Reconciliation of reported net income to adjusted operating income and adjusted EBITDA is presented below:
|
Three Months Ended September 30, |
|||||||||||||||||
| (in millions) | 2025 | 2024 | Change % | ||||||||||||||
| Net income | $ | 74.0 | $ | 90.7 | (18) | % | |||||||||||
| Net income margin | 4.7 | % | 5.4 | % | |||||||||||||
| Provision for income taxes | 33.1 | 42.0 | (21) | % | |||||||||||||
| Income before income taxes | $ | 107.1 | $ | 132.7 | (19) | % | |||||||||||
| Interest expense, net | 46.6 | 61.8 | (25) | % | |||||||||||||
| Other expense, net | 31.3 | 43.3 | (28) | % | |||||||||||||
| Reported operating income | $ | 185.0 | $ | 237.8 | (22) | % | |||||||||||
| Reported operating income margin | 11.7 | % | 14.2 | % | |||||||||||||
| Amortization expense | 39.3 | 48.1 | (18) | % | |||||||||||||
| Restructuring and other business realignment costs | 1.7 | 0.7 | >100% | ||||||||||||||
| Stock-based compensation | 14.5 | 17.0 | (15) | % | |||||||||||||
| Total adjustments to reported operating income | $ | 55.5 | $ | 65.8 | (16) | % | |||||||||||
| Adjusted operating income | $ | 240.5 | $ | 303.6 | (21) | % | |||||||||||
| Adjusted operating income margin | 15.2 | % | 18.2 | % | |||||||||||||
| Adjusted depreciation | 55.6 | 56.5 | (2) | % | |||||||||||||
| Adjusted EBITDA | $ | 296.1 | $ | 360.1 | (18) | % | |||||||||||
| Adjusted EBITDA margin | 18.8 | % | 21.5 | % | |||||||||||||
In the three months ended September 30, 2025, adjusted operating income decreased $63.1 to $240.5 from $303.6 in the three months ended September 30, 2024. Adjusted operating margin decreased to 15.2% of net revenues in the three months ended September 30, 2025 from 18.2% in the three months ended September 30, 2024. In the three months ended September 30, 2025, adjusted EBITDA decreased $64.0 to $296.1 from $360.1 in the three months ended September 30, 2024. Adjusted EBITDA margin decreased to 18.8% of net revenues in the three months ended September 30, 2025 from 21.5% in the three months ended September 30, 2024.
Segment Operating Income (Loss), Segment Adjusted Operating Income (Loss) and Segment Adjusted EBITDA
Operating Income, Adjusted Operating Income and Adjusted EBITDA - Prestige Segment
|
Three Months Ended September 30, |
|||||||||||||||||
| (in millions) | 2025 | 2024 | Change % | ||||||||||||||
| Reported operating income | $ | 208.9 | $ | 241.5 | (13) | % | |||||||||||
| Reported operating income margin | 19.5 | % | 21.7 | % | |||||||||||||
| Amortization expense | 30.1 | 38.2 | (21) | % | |||||||||||||
| Total adjustments to reported operating income | $ | 30.1 | $ | 38.2 | (21) | % | |||||||||||
| Adjusted operating income | $ | 239.0 | $ | 279.7 | (15) | % | |||||||||||
| Adjusted operating income margin | 22.3 | % | 25.1 | % | |||||||||||||
| Adjusted depreciation | 28.6 | 27.9 | 3 | % | |||||||||||||
| Adjusted EBITDA | $ | 267.6 | $ | 307.6 | (13) | % | |||||||||||
| Adjusted EBITDA margin | 25.0 | % | 27.6 | % | |||||||||||||
Operating (Loss) Income, Adjusted Operating Income and Adjusted EBITDA - Consumer Beauty Segment
|
Three Months Ended September 30, |
|||||||||||||||||
| (in millions) | 2025 | 2024 | Change % | ||||||||||||||
| Reported operating (loss) income | $ | (7.7) | $ | 14.0 | <(100%) | ||||||||||||
| Reported operating (loss) income margin | (1.5) | % | 2.5 | % | |||||||||||||
| Amortization expense | 9.2 | 9.9 | (7) | % | |||||||||||||
| Total adjustments to reported operating (loss) income | $ | 9.2 | $ | 9.9 | (7) | % | |||||||||||
| Adjusted operating income | $ | 1.5 | $ | 23.9 | (94) | % | |||||||||||
| Adjusted operating income margin | 0.3 | % | 4.3 | % | |||||||||||||
| Adjusted depreciation | 27.0 | 28.6 | (6) | % | |||||||||||||
| Adjusted EBITDA | $ | 28.5 | $ | 52.5 | (46) | % | |||||||||||
| Adjusted EBITDA margin | 5.6 | % | 9.4 | % | |||||||||||||
Operating Loss, Adjusted Operating Loss and Adjusted EBITDA - Corporate Segment
|
Three Months Ended September 30, |
|||||||||||||||||
| (in millions) | 2025 | 2024 | Change % | ||||||||||||||
| Reported operating loss | $ | (16.2) | $ | (17.7) | 8 | % | |||||||||||
| Reported operating loss margin | N/A | N/A | |||||||||||||||
| Restructuring and other business realignment costs | 1.7 | 0.7 | >100% | ||||||||||||||
| Stock-based compensation | 14.5 | 17.0 | (15) | % | |||||||||||||
| Total adjustments to reported operating income | $ | 16.2 | $ | 17.7 | (8) | % | |||||||||||
| Adjusted operating loss | $ | - | $ | - | N/A | ||||||||||||
| Adjusted operating income margin | N/A | N/A | |||||||||||||||
| Adjusted depreciation | - | - | N/A | ||||||||||||||
| Adjusted EBITDA | $ | - | $ | - | N/A | ||||||||||||
| Adjusted EBITDA margin | N/A | N/A | |||||||||||||||
Amortization Expense
In the three months ended September 30, 2025, amortization expense decreased to $39.3 from $48.1 in the three months ended September 30, 2024. The decrease in amortization expense is primarily related to completed amortization term for certain license agreements and the termination of the KKW Collaboration Agreement in the previous fiscal year. In the three months ended September 30, 2025, amortization expense of $30.1 and $9.2 was reported in the Prestige and Consumer Beauty segments, respectively. In the three months ended September 30, 2024, amortization expense of $38.2 and $9.9 was reported in the Prestige and Consumer Beauty segments, respectively.
Restructuring and Other Business Realignment Costs
We incurred approximately $10.0 of cash costs life-to-date related to our previously announced Fixed Cost Reduction Plan as of September 30, 2025, which have been recorded in Corporate.
In the three months ended September 30, 2025, we incurred restructuring and other business structure realignment costs of $1.7 as follows:
•We incurred a credit in restructuring costs of $1.0, which is included in the Condensed Consolidated Statements of Operations; and
•We incurred business structure realignment costs of $2.7, which is reported in Selling, general and administrative expenses.
In the three months ended September 30, 2024, we incurred restructuring and other business structure realignment costs of $0.7, primarily related to the Current Restructuring Actions, included in the Condensed Consolidated Statements of Operations.
Stock-Based Compensation
In the three months ended September 30, 2025, stock-based compensation was $14.5 as compared with $17.0 in the three months ended September 30, 2024.
Adjusted Depreciation Expense
In the three months ended September 30, 2025, adjusted depreciation expense of $28.6 and $27.0 was reported in the Prestige and Consumer Beauty segments, respectively. In the three months ended September 30, 2024, adjusted depreciation expense of $27.9 and $28.6 was reported in the Prestige and Consumer Beauty segments, respectively.
INTEREST EXPENSE, NET
In the three months ended September 30, 2025, net interest expense was $46.6 as compared with $61.8 in the three months ended September 30, 2024. The decrease in interest expense is primarily due to lower average interest rates primarily reflecting positive impact from cross-currency swaps in reducing interest expense, as well as due to gains on foreign exchange forward contracts on the Euro as compared to losses in the prior year.
OTHER EXPENSE
In the three months ended September 30, 2025, other expense was $31.3 as compared with other expense of $43.3 in the three months ended September 30, 2024. The decrease in Other expense of $12.0 is primarily due to lower net losses on forward repurchase contracts of $7.5 compared to the prior year period.
INCOME TAXES
The effective income tax rate for the three months ended September 30, 2025 and 2024 was 30.9% and 31.7%, respectively. The decrease in the effective tax rate was primarily attributable to lower limitations on the deductibility of executive stock compensation and interest expense in the current period.
The effective tax rate of 30.9% for the three months ended September 30, 2025 was higher than the Federal statutory rate of 21% primarily due to the limitation on the deductibility of interest expense.
The effective tax rate of 31.7% in the three months ended September 30, 2024 was higher than the statutory tax rate of 21% primarily due to the limitation on the deductibility of executive stock compensation and the limitation on the deductibility of interest expense.
The effective income tax rates vary from the U.S. federal statutory rate of 21% due to the effect of (i) jurisdictions with different statutory rates, including impacts of rate changes, (ii) adjustments to the Company's unrealized tax benefits ("UTBs") and accrued interest, (iii) non-deductible expenses, (iv) audit settlements and (v) valuation allowance changes. Our effective tax rate could fluctuate significantly and could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates.
Reconciliation of Reported Income Before Income Taxes to Adjusted Income Before Income Taxes and Effective Tax Rates:
|
Three Months Ended September 30, 2025 |
Three Months Ended September 30, 2024 |
||||||||||||||||||||||||||||||||||
| (in millions) | Income Before Income Taxes | Provision for Income Taxes | Effective Tax Rate | Income Before Income Taxes | Provision for Income Taxes | Effective Tax Rate | |||||||||||||||||||||||||||||
| Reported income before income taxes | $ | 107.1 | $ | 33.1 | 30.9 | % | $ | 132.7 | $ | 42.0 | 31.7 | % | |||||||||||||||||||||||
|
Adjustments to reported operating income (a)
|
55.5 | 65.8 | |||||||||||||||||||||||||||||||||
|
Change in fair value of investment in Wella Company (c)
|
(1.0) | - | |||||||||||||||||||||||||||||||||
|
Other adjustments(d)
|
- | (0.3) | |||||||||||||||||||||||||||||||||
|
Total Adjustments(b)
|
54.5 | 11.4 | 65.5 | 15.3 | |||||||||||||||||||||||||||||||
| Adjusted income before income taxes | $ | 161.6 | $ | 44.5 | 27.5 | % | $ | 198.2 | $ | 57.3 | 28.9 | % | |||||||||||||||||||||||
(a)See a description of adjustments under "Net Income, Adjusted Operating Income and Adjusted EBITDA for Coty Inc."
(b)The tax effects of each of the items included in adjusted income are calculated in a manner that results in a corresponding income tax expense/provision for adjusted income. In preparing the calculation, each adjustment to reported income is first analyzed to determine if the adjustment has an income tax consequence. The provision for taxes is then calculated based on the jurisdiction in which the adjusted items are incurred, multiplied by the respective statutory rates and offset by the increase or reversal of any valuation allowances commensurate with the non-GAAP measure of profitability.
(c)The amount represents the unrealized (gain) loss recognized for the change in fair value of the investment in the Wella Company.
(d)For the three months ended September 30, 2024, this primarily represents recovery of previously written-off non-income tax credits and the amortization of basis differences in certain equity method investments.
The adjusted effective tax rate was 27.5% for the three months ended September 30, 2025 compared to 28.9% for the three months ended September 30, 2024. The difference is primarily due to the loss on forward repurchase contracts having a higher proportional impact in the prior period.
NET INCOME ATTRIBUTABLE TO COTY INC.
Net income attributable to Coty Inc. was $67.9 in the three months ended September 30, 2025 as compared to net income of $82.9 in the three months ended September 30, 2024. The decrease in income was primarily driven by lower gross profit of $77.8, partially offset by lower interest expense of $15.2 in the current period, lower selling, general and administrative expenses of $14.5, lower provision for income taxes of $8.9, lower amortization expense of 8.8, and lower net losses on forward repurchase contracts of $7.5.
We believe that adjusted net income attributable to Coty Inc. provides an enhanced understanding of our performance. See "Overview-Non-GAAP Financial Measures."
|
Three Months Ended September 30, |
|||||||||||||||||
| (in millions) | 2025 | 2024 | Change % | ||||||||||||||
| Net income attributable to Coty Inc. | $ | 67.9 | $ | 82.9 | (18) | % | |||||||||||
|
Convertible Series B Preferred Stock dividends (a)
|
(3.3) | (3.3) | - | % | |||||||||||||
| Reported net income attributable to common stockholders | $ | 64.6 | $ | 79.6 | (19) | % | |||||||||||
| % of net revenues | 4.1 | % | 4.8 | % | |||||||||||||
|
Adjustments to reported operating income (b)
|
55.5 | 65.8 | (16) | % | |||||||||||||
|
Change in fair value of investment in Wella Company(c)
|
(1.0) | - | N/A | ||||||||||||||
|
Adjustment to other expense (d)
|
- | (0.3) | 100 | % | |||||||||||||
|
Adjustments to noncontrolling interests(e)
|
(1.7) | (1.7) | - | % | |||||||||||||
| Change in tax provision due to adjustments to reported net income attributable to Coty Inc. | (11.4) | (15.3) | 25 | % | |||||||||||||
| Adjusted net income attributable to Coty Inc. | $ | 106.0 | $ | 128.1 | (17) | % | |||||||||||
| % of net revenues | 6.7 | % | 7.7 | % | |||||||||||||
| Per Share Data | |||||||||||||||||
| Adjusted weighted-average common shares | |||||||||||||||||
| Basic | 872.8 | 867.9 | |||||||||||||||
|
Diluted (a)
|
876.3 | 899.0 | |||||||||||||||
| Adjusted net income attributable to Coty Inc. per common share | |||||||||||||||||
| Basic | $ | 0.12 | $ | 0.15 | |||||||||||||
|
Diluted (a)
|
$ | 0.12 | $ | 0.15 | |||||||||||||
(a)Adjusted Diluted EPS is adjusted by the effect of dilutive securities. For the three months ended September 30, 2025 and 2024, no dilutive shares of the Forward Repurchase Contracts were included in the computation of adjusted diluted EPS as their inclusion would be anti-dilutive. Accordingly, we did not reverse the impact of the fair market value losses for contracts with the option to settle in shares or cash of $26.5 and $24.6, respectively. For the three months ended September 30, 2025, Convertible Series B Preferred Stock (23.7 million weighted average dilutive shares) was anti-dilutive. Accordingly, we excluded these shares from the diluted shares and did not adjust the earnings for the related dividend of $3.3. For the three months ended September 30, 2024, as the Convertible Series B Preferred Stock was dilutive, an adjustment to reverse the impact of the preferred stock dividends of $3.3 was required.
(b)See a description of adjustments under "Net Income, Adjusted Operating Income and Adjusted EBITDA for Coty Inc."
(c)The amount represents the unrealized (gain) loss recognized for the change in fair value of the investment in the Wella Company.
(d)For the three months ended September 30, 2024, this primarily represents recovery of previously written-off non-income tax credits and the amortization of basis differences in certain equity method investments.
(e)The amounts represent the after-tax impact of the non-GAAP adjustments included in net income attributable to noncontrolling interests based on the relevant noncontrolling interest percentage in the Condensed Consolidated Statements of Operations.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our primary sources of funds include cash expected to be generated from operations, borrowings from issuance of debt and lines of credit provided by banks and lenders in the U.S. and abroad.
Our cash flows are subject to seasonal variation throughout the year, including demands on cash made during our first fiscal quarter in anticipation of higher global sales during the second fiscal quarter and strong cash generation in the second fiscal quarter as a result of increased demand by retailers associated with the holiday season.
Our principal uses of cash are to fund planned operating expenditures, capital expenditures, interest payments, dividends, share repurchases, any principal payments on debt, and from time to time, acquisitions, and business structure realignment expenditures. Working capital movements are influenced by the sourcing of materials related to the manufacturing of products.
Cash and working capital management initiatives, including the phasing of vendor and tax payments and factoring of trade receivables from time-to-time, may also impact the timing and amount of our operating cash flows.
We remain focused on deleveraging our balance sheet using cash flows generated from our operations. We continue to take steps to permanently reduce our debt, in order to reduce interest costs and improve our long term profitability and cash flows. Our 25.84% investment in Wella continues to give us the opportunity for further permanent debt reductions when our equity position is divested.
We have substantially completed the exit of our commercial activities in Russia. However, we anticipate that the process related to the liquidation of the Russian legal entity will take an extended period of time. We anticipate that we will incur an immaterial amount of additional costs through the completion of the wind down, and future net cash costs of $1.0 to $1.5, which will be funded by our Russian subsidiary. The amount of future costs, including cash costs, will be subject to various factors, such as additional government regulation and the resolution of legal contingencies.
Recent changes in U.S. and international trade policies-particularly tariff increases-and the ongoing uncertainty surrounding such policies may present challenges to our business operations and financial condition. These challenges may include supply chain disruptions and commodity price volatility, resulting in increases in our cost of goods sold. Under the current tariff framework, the biggest areas of potential challenges for us are prestige fragrances shipped to the U.S. from our Barcelona plant, and the sourcing of various components and marketing materials from China. We currently estimate that our operating results will be impacted by approximately $35.0 in costs related to tariff increases, after mitigating actions, through the first quarter of fiscal 2027. Of this amount, approximately $30.0 is expected to be reflected in our fiscal 2026 operating results, with the remaining amount of approximately $5.0 expected to be reflected in the first quarter of fiscal 2027. In the first three months of fiscal 2026, approximately $5.0 of net tariff costs are reflected in our operating results. Despite our efforts, reductions in consumer confidence and discretionary spending could impact demand for our products and negatively affect our sales. We are closely monitoring developments, evaluating potential impacts, and proactively taking steps to mitigate adverse effects on our business.
In fiscal 2025, we announced a plan to strengthen our operating model and simplify our fixed cost structure (the "Fixed Cost Reduction Plan"). Cash costs associated with the program include restructuring and business structure realignment costs and are expected to be approximately $80.0, roughly evenly split between fiscal 2026 and fiscal 2027. We incurred approximately $10.0 of cash costs life-to-date as of September 30, 2025, which have been recorded in Corporate.
Debt Financing
We have been actively taking steps to reduce our leverage and optimize the maturity profile of our debt. As part of these ongoing efforts, we plan to continue pursuing opportunities, which may include refinancing existing debt, issuing new notes, and redeeming or repurchasing outstanding debt with near-term maturities, from time to time as market conditions permit.
On October 15, 2025, we issued an aggregate principal of $900.0 of 5.600% senior notes due 2031 (the "2031 Senior Notes") in a private offering. We received net proceeds of $888.0 in connection with the offering of the 2031 Senior Notes. On October 17, 2025, we used proceeds from the offering to redeem the remaining $350.0 outstanding under the 2026 Dollar Senior Secured Notes and €450.0 million (approximately $520.0) of the 2026 Euro Senior Secured Notes. Refer to Note 9 - Debt.
We have taken action to reduce variability in our interest payments including paying down variable interest rate debt and issuing fixed rate bonds. While our revolving credit facility, which we draw on from time to time, is subject to variable interest rates, all of our non-revolving credit facility long-term debt outstanding as of September 30, 2025 is fixed rate debt.
Share Repurchases
In connection with our Share Repurchase Program, we entered into forward repurchase contracts in June 2022, December 2022, and November 2023 with three large financial institutions to hedge for $200.0, and a potential $196.0 and $294.0 of share repurchases in 2024, 2025 and 2026, respectively. We physically settled the June 2022 forward repurchase contracts by delivering approximately $200.0 cash in exchange for 27.0 million shares of our Class A Common Stock during fiscal 2024.
Our remaining forward repurchase contracts permit a net cash settlement alternative in addition to the physical settlement. We may elect net cash settlement of all, or some of the remaining forward repurchase contracts based on factors such as timing, the market value of the underlying shares at the settlement date and other internal cash management considerations. We will continue to incur costs associated with the remaining forward repurchase contracts before settlement. Cash costs incurred in the current fiscal year to date for all forward repurchase contracts amounted to $58.1.
A reduction in the price of Coty's Class A Common Stock in August 2025 triggered additional payments under our remaining forward repurchase contracts. We paid $53.9 to the counterparties in August 2025. Future reductions in the price of Coty's Class A Common Stock may trigger additional payments under our remaining forward repurchase contracts. See Footnote 13-Equity for additional information on the Company's forward repurchase contracts.
Factoring of Receivables
From time to time, we supplement the timing of our cash flows through the factoring of trade receivables. In this regard, we have entered into factoring arrangements with financial institutions.
The net amount factored under the factoring facilities was $223.8 and $211.8 as of September 30, 2025 and June 30, 2025, respectively. The aggregate amount of trade receivable invoices factored on a worldwide basis amounted to $366.5 and $393.9 during the three months ended September 30, 2025 and 2024, respectively.
Cash Flows
|
Three Months Ended September 30, |
|||||||||||
| 2025 | 2024 | ||||||||||
|
Condensed Consolidated Statements of Cash Flows Data: (in millions) |
|||||||||||
| Net cash provided by operating activities | $ | 65.2 | $ | 67.4 | |||||||
| Net cash used in investing activities | (53.8) | (77.3) | |||||||||
| Net cash used in financing activities | (7.6) | (10.4) | |||||||||
Net cash provided by operating activities
Net cash provided by operating activities was $65.2 and $67.4 for the three months ended September 30, 2025 and 2024, respectively. The decrease in cash provided by operating activities of $2.2 was primarily driven by lower cash-related net income year-over-year, partially offset by a net inflow from changes in working capital accounts. The net inflow from changes in working capital was mainly due to phasing of payments in Accounts payable and accrued expenses and lower outflows from Trade receivables in the current period.
Net cash used in investing activities
Net cash used in investing activities was $53.8 and $77.3 for the three months ended September 30, 2025 and 2024, respectively. The decrease in cash used in investing activities of $23.5 was primarily driven by lower capital expenditures for computer software-related assets and marketing furniture.
Net cash used in financing activities
Net cash used in financing activities during the three months ended September 30, 2025 and 2024 was $7.6 and $10.4, respectively. The decrease in cash used in financing activities of $2.8 was primarily due to increased net borrowings on the Company's revolving credit facility. However, this was largely offset by cash payments in the first quarter of fiscal 2026 for the Hedge Valuation Adjustments on the Company's forward repurchase contracts, which did not occur in the first quarter of the prior year.
Dividends
On April 29, 2020, the Board of Directors suspended the payment of dividends on Common Stock. As previously disclosed, we expect to suspend the payment of dividends until we approach a Net debt to Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") target of 2x. We expect to consider any future resumption of dividends in line with that target while continuing to pursue our deleveraging agenda and implementing our strategic initiatives. Any determination to pay dividends in the future will be at the discretion of our Board of Directors.
Dividends on the Convertible Series B Preferred Stock are payable in cash, or by increasing the amount of accrued dividends on Convertible Series B Preferred Stock, or any combination thereof, at the sole discretion of the Company. We expect to pay such dividends in cash on a quarterly basis, subject to the declaration thereof by our Board of Directors. The terms of the Convertible Series B Preferred Stock restrict our ability to declare cash dividends on our common stock until all accrued dividends on the Convertible Series B Preferred Stock have been declared and paid in cash.
For additional information on our dividends, see Note 13-Equity and Convertible Preferred Stock in the notes to our Condensed Consolidated Financial Statements.
Treasury Stock - Share Repurchase Program
For information on our Share Repurchase Program, see Note 13-Equity and Convertible Preferred Stock in the notes to our Condensed Consolidated Financial Statements.
Commitments and Contingencies
See Note 16-Redeemable Noncontrolling Interests in the notes to our Condensed Consolidated Financial Statements for information on our subsidiary in the Middle East.
Legal Contingencies
For information on our litigation matters and Brazilian tax assessments, see Note 17-Commitments and Contingencies in the notes to our Condensed Consolidated Financial Statements. In relation to the appeal of our Brazilian tax assessments, we have entered into surety bonds of R$990.2 million (approximately $186.0) as of September 30, 2025.
Off-Balance Sheet Arrangements
We had undrawn letters of credit of $3.1 and $3.1 and bank guarantees of $16.4 and $16.0 as of September 30, 2025 and June 30, 2025, respectively.
Contractual Obligations
Our principal contractual obligations and commitments as of June 30, 2025 are summarized in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Contractual Obligations and Commitments," of our Fiscal 2025 Form 10-K. Refer to Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Share Repurchases" above for discussion of the obligations related to our announced share repurchase during fiscal 2024. For the three months ended September 30, 2025, there have been no other material changes in our contractual obligations outside the ordinary course of business.
Critical Accounting Policies
We believe that the critical accounting policies listed below involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our Condensed Consolidated Financial Statements:
•Revenue Recognition;
•Equity Investments;
•Goodwill, Other Intangible Assets and Long-Lived Assets;
•Inventory; and
•Income Taxes.
As of September 30, 2025, there have been no material changes to the items disclosed as critical accounting policies and estimates in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II-Item 7 of our Fiscal 2025 Form 10-K.
Coty Inc. published this content on November 05, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 05, 2025 at 21:39 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]