Coty(COTY) - 2025 Q4 - Annual Report

Part I Business Coty Inc. is a global beauty company focused on fragrances, expanding e-commerce, and sustainability, operating in Prestige and Consumer Beauty segments with seasonal sales - Coty's strategy focuses on leveraging fragrance leadership, expanding into profitable categories and e-commerce, and enhancing sustainability[23] Brand Portfolio Overview | Consumer Beauty | Prestige | | --- | --- | | Adidas | Burberry | | David Beckham | Calvin Klein | | CoverGirl* | Chloe | | Max Factor* | Gucci | | Rimmel* | Hugo Boss | | Sally Hansen* | Kylie Cosmetics by Kylie Jenner | | Bourjois* | Lancaster* | | Monange* | Marc Jacobs | | Risque* | Tiffany & Co. | *Indicates an owned beauty brand - The company distributes across 123 countries; Walmart and A.S. Watson each contributed approximately 4% of total net revenues in fiscal 2025[34] - In fiscal 2025, 48% of net revenues were from owned/perpetually licensed brands, and 37% from exclusive licenses with an average duration of 24 years[48][50] - As of June 30, 2025, the company employed approximately 11,636 full-time employees across 36+ countries[51] - Sales typically increase in the second fiscal quarter due to the winter holiday season[72] Risk Factors The company faces diverse risks across business, strategy, operations, macroeconomic conditions, indebtedness, legal issues, and stock ownership Risks related to our Business and Industry - The beauty industry is highly competitive, facing pressure from large multinationals, private labels, and agile 'disruptor' brands leveraging digital platforms[78][79] - Retail consolidation and the shift to e-commerce increase dependence on key retailers and necessitate successful expansion of digital channels[80][82][83] - Success relies on brand licenses, which impose obligations like royalty payments and minimum sales, with risks of termination or non-renewal[95][96] Risks Related to our Business Strategy and Organization - Implementing global strategies involves significant operational and organizational changes, potentially leading to short-term costs, customer loss, and supply chain disruptions[104][105] - Significant costs have been incurred from past acquisitions and are expected for ongoing and future restructuring initiatives[106][107] - Goodwill and other assets face impairment risk; $212.8 million in trademark impairment charges were recorded in Q3 fiscal 2025 across both segments[119] Risks related to our Business Operations - Global operations face disruptions from supply chain issues, industrial accidents, and geopolitical events such as the war in Ukraine[120][121] - Increased IT dependency exposes the company to service interruptions, data corruption, and growing cyber-attack risks, including ransomware[125][126] - AI use introduces risks such as inaccuracies, biases, increased cybersecurity vulnerabilities, and challenges with evolving regulations[137] Risks related to Macroeconomic Conditions and Market Risks - The business is vulnerable to global economic downturns, inflation, rising interest rates, and geopolitical conflicts, which can reduce discretionary consumer spending[159][161] - Inflation in labor, materials, and services, potentially worsened by geopolitical events, could negatively impact profit margins if costs cannot be passed to consumers[162] - Global operations expose financial results to currency exchange rate fluctuations, especially for EUR, GBP, CNY, and BRL against USD[164] Risks related to our Indebtedness - Substantial indebtedness and restrictive covenants limit operational and financial flexibility, including incurring debt, making acquisitions, and paying dividends[151][152][153] - Debt service and repayment depend on subsidiary cash flow, influenced by economic conditions and business performance beyond company control[156] - Variable interest rates on the 2018 Coty Credit Agreement expose the company to interest rate risk, increasing debt service and decreasing net income and cash flows with rate hikes[157] Legal and Regulatory Risks - The company faces numerous lawsuits, including product liability claims for asbestos in talc-based cosmetics, potentially incurring significant costs and reputational damage[166] - Changes in IP, marketing, product content, environmental, and tax laws could negatively impact financial results and increase compliance costs[169] Risks Related to Ownership of Our Common Stock - JAB Beauty B.V. and affiliates own approximately 54% of Class A Common Stock, granting significant influence over corporate decisions that may not align with other stockholders' interests[182] - As a "controlled company" due to JAB's majority ownership, Coty is exempt from certain NYSE corporate governance requirements, including a majority of independent directors[184] - Forward repurchase contracts expose the company to stock price risks, with $191.1 million in cash "true-up" payments made in fiscal 2025 due to stock price declines[181] Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - None Cybersecurity Coty's cybersecurity program, overseen by the Global Information Security Team and Board committees, includes incident response and training, with no material threats identified to date - Cybersecurity governance involves a Global Information Security Team, overseen by the Board's Audit and Finance Committee and a dedicated Cybersecurity Special Committee[190][194][195] - Risk management includes regular incident simulations, tabletop exercises, and mandatory employee training to enhance preparedness[191][192] - No cybersecurity threats have been identified that materially affected or are reasonably likely to materially affect operations or financial condition as of the report date[193] Properties The company operates global owned and leased facilities for corporate, manufacturing, distribution, and R&D, with key locations in the U.S., Europe, and Brazil Principal Facilities | Location/Facility | Use | Segment | | --- | --- | --- | | New York, New York, U.S. (leased) | Corporate/Commercial | Corporate / Consumer Beauty | | Paris, France (2 locations) (leased) | Corporate/Commercial | Corporate / Prestige | | Barcelona, Spain (leased) | Corporate/Supply Chain | Corporate | | Chartres, France (owned) | Manufacturing | Prestige | | Granollers, Spain (owned) | Manufacturing | Prestige | | Hunt Valley, U.S. (owned) | Manufacturing | Consumer Beauty | | Sanford, North Carolina, U.S. (owned) | Manufacturing | Prestige | | Senador Canedo, Brazil (owned) | Manufacturing | Consumer Beauty | Legal Proceedings Legal matters are detailed in Note 22 to the Consolidated Financial Statements - Legal matters are detailed in Note 22—Legal and Other Contingencies of the Consolidated Financial Statements[200] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Coty's Class A Common Stock is dual-listed on NYSE and Euronext Paris, with dividends suspended since April 2020, and a recent $200.0 million share repurchase - The company's common stock is dual-listed on the NYSE and Euronext Paris[202] - Dividends on common stock were suspended on April 29, 2020, and remain suspended[204] - In February 2024, a forward repurchase contract was settled for $200.0 million, acquiring 27.0 million shares of Class A Common Stock[212] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2025 saw a 4% revenue decline to $5.9 billion, a 56% drop in operating income to $241.1 million, and a net loss of $367.9 million, driven by impairments and a KKW agreement loss, while focusing on fragrance, cost reduction, and deleveraging amid market challenges Overview - The company's strategy leverages its fragrance market leadership, which accounted for over 65% of fiscal 2025 net revenues, to drive expansion[216] - A new "Fixed Cost Reduction Plan" announced in April 2025 anticipates approximately $80.0 million in cash costs, mainly in fiscal 2026 and 2027[217] - Estimated additional costs from tariff increases are approximately $70.0 million before mitigation, with most impact expected in fiscal 2026[222] - Management forecasts a low-single-digit decline in reported net revenue for H1 fiscal 2026, with growth resuming in H2 driven by major product launches[227] Results of Operations Fiscal 2025 vs. 2024 Performance Summary | Metric | Fiscal 2025 (Millions USD) | Fiscal 2024 (Millions USD) | Change (Millions USD) | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $5,892.9 | $6,118.0 | ($225.1) | (4%) | | Gross Profit | $3,820.9 | $3,939.2 | ($118.3) | (3%) | | Operating Income | $241.1 | $546.7 | ($305.6) | (56%) | | Net (Loss) Income Attributable to Coty Inc. | ($367.9) | $89.4 | ($457.3) | <(100%) | | Diluted EPS | ($0.44) | $0.09 | ($0.53) | <(100%) | - Fiscal 2025 saw $212.8 million in asset impairment charges, mainly for Max Factor, CoverGirl, Bourjois, and Philosophy trademarks[277] - Net other expense totaled $371.7 million in fiscal 2025, primarily from $291.7 million in net losses on forward repurchase contracts and an $83.0 million unfavorable Wella investment fair value adjustment[283] Financial Condition, Liquidity and Capital Resources - Primary cash uses include operations, capital expenditures, interest, and debt reduction, with a focus on deleveraging the balance sheet using operating cash flow[298][299] Cash Flow Summary | Cash Flow Activity | FY 2025 (Millions USD) | FY 2024 (Millions USD) | FY 2023 (Millions USD) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $492.6 | $614.6 | $625.7 | | Net cash used in investing activities | ($128.4) | ($226.2) | ($118.2) | | Net cash used in financing activities | ($426.8) | ($336.7) | ($469.3) | - Operating cash flow decreased in fiscal 2025 due to higher cash outflows from working capital, specifically changes in accounts payable and inventories[317] - As of June 30, 2025, total debt was $4.01 billion, with plans to refinance 2026 notes including $350.0 million and €700.0 million of Senior Secured Notes[228][306] Critical Accounting Policies - Key subjective estimates encompass revenue recognition, Wella equity investment fair value, goodwill and intangibles impairment, inventory valuation, and income taxes[349] - Fiscal 2025 saw $212.8 million in trademark impairments; CoverGirl and Sally Hansen trademarks' fair values barely exceeded carrying values by 0.2% and 2.5% respectively as of May 1, 2025, indicating high future impairment risk[367][368] - The Wella Company investment uses the fair value option, with changes recorded in earnings, relying on significant unobservable Level 3 inputs like discount rates and growth projections[353] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency, interest rate, and inflation fluctuations, with details referenced from Item 7's "Liquidity and Capital Resources" section - The company is exposed to market risks including foreign currency fluctuations, interest rate changes, and inflation, detailed in Item 7 under specific risk management sections[381] Financial Statements and Supplementary Data This section incorporates the company's audited consolidated financial statements and supplementary data, starting on page F-1 - Required financial statements and supplementary data begin on page F-1 of the Annual Report[382] Controls and Procedures As of June 30, 2025, the CEO and CFO concluded disclosure controls were effective, with no material changes to internal control over financial reporting in Q4 - As of June 30, 2025, management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level[384] - No material changes to internal control over financial reporting were identified during the fourth fiscal quarter[386] Other Information No directors or Section 16 officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q4 fiscal 2025 - No directors or Section 16 reporting officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[388] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections The company reported no issues under this item - None Part III This section incorporates information on directors, executive officers, corporate governance, compensation, security ownership, and related transactions by reference from the 2025 Proxy Statement Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information on directors, executive officers, Section 16(a) compliance, and the code of ethics is incorporated by reference from the 2025 Proxy Statement[392][393][394][395] Executive Compensation Executive and director compensation information is incorporated by reference from the 2025 Proxy Statement - Executive and director compensation information is incorporated by reference from the 2025 Proxy Statement[396] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership of beneficial owners and management is incorporated by reference from the 2025 Proxy Statement, with equity compensation plans referenced from Part II, Item 5 - Security ownership information for certain beneficial owners and management is incorporated by reference from the 2025 Proxy Statement[397] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2025 Proxy Statement - Information on certain relationships, related party transactions, and corporate governance is incorporated by reference from the 2025 Proxy Statement[398] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2025 Proxy Statement - Principal accounting fees and services information is incorporated by reference from the "Audit Fees and Other Fees" section of the 2025 Proxy Statement[399] Part IV This section lists exhibits and financial statement schedules, noting no Form 10-K summary is provided Exhibits, Financial Statement Schedules This section lists all Form 10-K documents, including consolidated financial statements, schedules, and various exhibits - This item lists the consolidated financial statements, schedules, and all exhibits filed as part of the annual report[401][402] Form 10-K Summary The company did not provide a Form 10-K summary - None