Coty(COTY) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1, total net revenues declined 8% like-for-like, in line with expectations and guidance [4] - Adjusted EBITDA declined 18% in Q1, primarily due to lower sales and gross margin, partially offset by lower fixed costs [14] - Q1 adjusted gross margin was 64.5%, a decline of 100 basis points compared to the prior year [14] - Free cash flow in Q1 was $11 million, an improvement of $19 million versus last year [15] Business Line Data and Key Metrics Changes - In the prestige division, sales declined by 6% like-for-like in Q1, improving from a 7% decline in Q4 [5] - Consumer beauty saw like-for-like sales decline of 11% in Q1, with expectations for further improvement in Q2 [6] - The fragrance portfolio continues to be a key driver, with fragrance volumes up low single digits in Q1 [6] Market Data and Key Metrics Changes - The prestige beauty market grew 6% in Q1, while Coty's prestige sell-out grew 1% [7] - The mass beauty market grew 2% in Q1, but Coty's sell-out declined 6% [8] - In China, Coty's Q1 sell-out grew 15%, significantly outpacing the market [42] Company Strategy and Development Direction - The company aims to solidify its position as a global prestige beauty company with a focus on fragrance and scenting [4] - A strategic review is underway to transform the consumer beauty business while improving profitability and balance sheet [3] - The company is targeting significant fixed cost savings across the organization, with a goal of approximately $200 million in fiscal 2026 [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in building momentum through fiscal year 2026, despite ongoing challenges [5] - The company anticipates a return to profitable sales growth in the second half of fiscal 2026, supported by new launches and alignment between sell-in and sell-out [18] - Management noted that the broader beauty market is moderating, but fragrances continue to outperform [6] Other Important Information - The company generated over $40 million in productivity savings in Q1 [11] - Recent tariff updates are expected to have a gross impact of under $50 million for the year, which is $20 million lower than previous assumptions [12] - The company is actively pursuing the monetization of VEGA to support deleveraging efforts [16] Q&A Session Summary Question: What are the expectations for sales trends in Q2? - The company expects Q2 like-for-like sales to land at the more favorable end of the prior guidance of -3% to -5% [18] Question: How is the company addressing challenges in the U.S. market? - Management highlighted new leadership and structural changes aimed at closing the gap between sell-out and sell-in in the U.S. market [9] Question: What is the outlook for EBITDA in the second half? - Positive EBITDA is expected in the second half, supported by a return to sales growth and fixed cost savings initiatives [20]