What Coty (COTY) Said on Its Q1 Earnings Call

Key Points

• Coty’s six core Prestige brands grew 5% on a like-for-like basis in Q1 fiscal 2027, and the company expects them to grow again in Q2. Executives cautioned that fiscal 2027 will be a transition year with an uneven recovery.
• Coty is preparing for the Gucci license transition, which Strobel said affects a sizable part of the brand’s contribution. The agreement is valued at $400 million, including $250 million received upfront, and Coty plans to finalize savings and restructuring measures by the end of 2026.
• Gross margin fell 120 basis points amid higher Middle East costs, unfavorable product mix and excess inventory. Coty is working to improve forecasting and inventory management, while larger launches and a slower pace of product introductions are intended to help.

Coty NYSE: COTY said its six core Prestige brands grew 5% on a like-for-like basis in the first quarter of fiscal 2027, while executives outlined plans to address margin pressure, reduce excess inventory and prepare for the loss of the Gucci license.

Executive Chairman and Interim Chief Executive Officer Markus Strobel said first-quarter results came in ahead of the company’s expectations, but characterized fiscal 2027 as a transition year with an uneven recovery. He said Coty expects its six core Prestige brands to grow again in the second quarter.

“We want to be better,” Strobel said on the Nov. 5 earnings call. “The recovery will not be linear.”

Gucci Exit and Strategic Review

Coty is transitioning the Gucci business, although Chief Financial Officer Soraya Benchikh said the exact timing remains to be determined. She said the agreement compensates Coty for one less year of profit and cash flow and for inventory, while also funding related restructuring costs. Coty has received $250 million upfront, and the agreement has a total value of $400 million, she said.

Strobel described Gucci as a double-digit portion of Coty’s portfolio, with a gross margin of about 70% and profitability in line with the Prestige portfolio. He estimated the contribution affected by the exit at about 40% of Gucci net sales, calling it a sizable impact that Coty will need to manage.

The company is finalizing savings and restructuring plans to address the lost contribution. Strobel said Coty would complete the work by the end of calendar 2026 and provide details no later than January.

Coty also remains on track to complete its broader strategic review by year-end. Asked whether the company’s focus on core brands signaled a possible exit from skincare, Strobel cautioned against drawing conclusions before the review is complete. He said skincare profitability had improved and that stronger performance across business units would give Coty more strategic options.

Gross Margin and Inventory Pressures

First-quarter gross margin declined 120 basis points. Benchikh attributed approximately 50 basis points of the decline to Middle East freight and material costs, with the remainder largely due to unfavorable product mix and excess and obsolete stock.

Benchikh said Coty is improving its sales and operations planning, demand forecasting and inventory management. She said a past proliferation of smaller, less successful innovations contributed to excess stock, and that a shift toward fewer, larger launches should help reduce the problem over time.

The company has also deployed artificial intelligence tools to support forecasting, though Benchikh said working through existing inventory will take time.

Coty expects Middle East cost headwinds to persist for the rest of the year. Benchikh said its forecast includes a $30 million to $40 million impact, particularly from oil-related input costs, and that the impact would likely be at the upper end of the range if oil remains above $100 a barrel.

If macroeconomic pressures persist or intensify, Coty plans to use productivity and fixed-cost measures first to preserve investment in its brands, she said.

Brand Launches and Consumer Business

Strobel said four larger first-quarter launches—BOSS Bottled Beyond for Her, Kylie Mood Stones, Marc Jacobs Beauty and Burberry Goddess Amber Vanilla—were tracking ahead of their objectives.

Without the initial inventory placed on shelves for Marc Jacobs Beauty, Coty’s total Prestige business would still have grown, and its top six Prestige brands would have been up approximately 3% rather than 5%, he said.

Strobel attributed the initial success of Marc Jacobs Beauty in part to developing the offering with retailer Sephora, keeping a relatively tight product assortment and relying on influencers and creators rather than broad-based mass marketing. He said Coty intends to apply those lessons to other makeup brands.

In the consumer business, Strobel said the rate of decline improved to 3% from 8% in the comparable period of fiscal 2026. CoverGirl net sales fell 2% in the quarter, compared with a decline of nearly 8% in the first half of fiscal 2026, he said. He pointed to more focused innovation, lower returns on spring launches and consistent advertising behind the Simply Ageless and Lash Blast lines.

Regional Performance and Longer Licenses

Asia net sales rose 8% in the quarter, supported by a particularly strong performance in China, Strobel said. Europe remains an area requiring improvement, with healthy market growth in Spain and Italy but softer Prestige growth in Germany and France, he said.

Strobel also said Coty wants longer fragrance license agreements to support investment. Asked whether that could involve seeking longer partnerships with Burberry and BOSS, he agreed with an analyst’s characterization that Coty would seek greater duration to reduce investment risk.

Alongside investment in its existing brands, Coty plans to launch Etro in the super-premium segment in spring 2027, Strobel said.

About Coty (NYSE:COTY)

Coty Inc is a global beauty company that develops, manufactures and markets fragrances, cosmetics, skin care and body-care products. Its portfolio includes luxury, prestige and mass-market brands, with products sold through department stores, specialty retailers, e-commerce platforms and other distribution channels.

The company's brands have included CoverGirl, Rimmel London, Max Factor, Bourjois, Gucci Beauty, Calvin Klein, Marc Jacobs, Burberry, Hugo Boss and Chloé, among others. Coty also participates in professional beauty through hair-care and salon brands, including the Wella portfolio.

Founded in Paris in 1904 by François Coty, the company built its early reputation in fragrance before expanding into broader beauty categories and international markets.

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