Coty(COTY) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a decline in adjusted EBITDA of 15% year-over-year, totaling $330 million, which was at the lower end of the guidance range [39] - Adjusted gross margin was 64.2%, reflecting a 260 basis point decline from the prior year, primarily due to an intensified promotional environment during the holiday period [37] - Free cash flow in the first half was $524 million, exceeding guidance and last year's performance, driven by better receivables performance [40] Business Line Data and Key Metrics Changes - In the Prestige segment, like-for-like sales declined by 2%, an improvement from a 6% decline in the previous quarter, with innovation contributing positively [31][32] - Consumer beauty saw like-for-like sales decline of 6%, improving from an 11% decline in Q1, indicating some recovery efforts are taking effect [33] - The company plans to streamline its innovation pipeline to focus on core brands, which is expected to improve productivity and drive margin accretion [34] Market Data and Key Metrics Changes - The prestige beauty market grew approximately 5% in Q2, showing a slowdown from 6% growth in Q1, particularly in the U.S. and certain European markets [29] - The U.S. market experienced significant pressure, with the prestige fragrance market growth slowing from 7% to 3% [16] - Emerging regions like Asia Pacific and Latin America showed strong sell-out performance, balancing weaker results in key markets [30] Company Strategy and Development Direction - The company is implementing a new strategic framework called "Coty Curated," focusing on making big brands bigger and stopping initiatives that dilute resources [8][9] - A performance improvement plan named "Color the Future" is being activated to return the consumer cosmetics business to growth and profit expansion [26] - The company is committed to operational discipline and prioritizing investments in core brands to drive sustainable growth [51] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that financial results over the past 18 months have been disappointing, indicating a need for improved operational performance [8] - The leadership transition is seen as an opportunity to provide a balanced view of the business and set realistic financial targets [50] - The company expects mid-single-digit declines in like-for-like revenue trends for Q3, driven primarily by consumer beauty [42] Other Important Information - The company ended its license with the Orveda skincare brand to focus on scale and profitability [27] - A strategic collaboration with OpenAI is being pursued to enhance AI capabilities within the organization [24] - The divestiture of Wella generated $750 million in upfront proceeds, aligning with the company's commitment to divest financial stakes [41] Q&A Session Summary Question: What are the expectations for the upcoming quarters? - The company expects like-for-like sales to decline mid-single digits in Q3, primarily due to consumer beauty challenges [42] - Management is focused on improving market share and operational discipline to drive future growth [51]