Coty Q4 sales decline marked another challenging chapter in the beauty giant’s turnaround story. Despite the weaker results, the company believes brighter days are ahead and expects a rebound in the second half of fiscal 2026.
Coty Reports Lower Sales in the Fourth Quarter
For the fourth quarter ending June 2025, Coty reported a decline in net revenues of about 8 percent, with sales falling to around $1.25 billion. On a like-for-like basis, sales were down by nearly 9 percent. The company’s consumer beauty segment fell the most, recording a double-digit decline, while the prestige category also slipped but at a smaller rate.
Despite these figures, Coty pointed out that demand for its products in the prestige category, including fragrances, remained relatively resilient, showing modest growth in sell-out performance.
Margins and Profits Under Pressure
The company’s margins were squeezed during the quarter. Reported and adjusted gross margins dropped by nearly two percentage points to just over 62 percent. Adjusted EBITDA, a key measure of profitability, fell by more than 20 percent compared to last year, coming in at about $127 million with a margin of just above 10 percent.
Coty also reported a net loss of more than $70 million, which was slightly better than the loss reported during the same period last year. While this shows some improvement, the overall profitability picture remains under pressure as costs continue to weigh heavily on results.
Strategic Changes to Drive Recovery
In response to the weak sales and profit performance, Coty has taken several strategic steps. The company generated savings of about $140 million in fiscal 2025 through cost-cutting and productivity measures. Leadership changes have also been introduced, including a refreshed management structure in the United States, with the goal of closing performance gaps and boosting competitiveness.
Digital and e-commerce operations remain a major focus. Coty surpassed $1 billion in e-commerce revenues and is leaning more on artificial intelligence to enhance marketing, forecasting, and supply chain management. The company is also investing in strengthening its U.S. manufacturing base, bringing production of some fragrance categories to domestic facilities. This move is intended to reduce the impact of tariffs on European imports and create greater stability in the supply chain.
External Challenges and Consumer Behavior
External factors continue to weigh on Coty’s performance. Tariffs are expected to add nearly $70 million in additional costs, particularly impacting imports from Europe. Retailers in the United States are also cutting back on inventory as consumer spending remains cautious.
To protect brand value, Coty has resisted the temptation to engage in heavy discounting. Instead, the company has introduced smaller product sizes in some categories, allowing consumers to purchase prestige fragrances at more accessible price points without devaluing the overall brand.
Outlook for Fiscal 2026
While the first half of fiscal 2026 is expected to remain weak, Coty is projecting a turnaround in the second half. Management anticipates a mid-single-digit sales decline in the first quarter of the fiscal year, with a similar trend in the second quarter. However, by the second half, the company expects to return to growth, supported by several high-profile fragrance launches and expansions in makeup and fragrance mists.
Adjusted earnings per share are likely to fall in the first half before improving later in the year. Coty also expects free cash flow to exceed $350 million during the first half, with debt leverage stabilizing below 3.5 times adjusted EBITDA. This financial discipline, combined with cost savings and operational improvements, is expected to strengthen the balance sheet and provide a platform for sustainable growth.
Signs of Strength in Prestige Fragrances
There are already some positive indicators in the prestige category. In July, U.S. prestige fragrance sales rose by double digits, outpacing the industry average. Coty’s recent launch of Boss Bottled Beyond has performed exceptionally well, exceeding the benchmarks set by earlier successes such as Burberry Goddess.
This strong performance highlights the enduring demand for prestige fragrances and suggests that Coty’s innovation strategy in this category is beginning to gain traction. If upcoming product launches can deliver similar results, the company could see a faster recovery than currently anticipated.
Key Priorities for the Coming Year
Coty has laid out several priorities to restore momentum in the business. These include:
- Delivering blockbuster new product launches in prestige fragrances
- Expanding its presence in mass beauty with a focus on U.S. recovery
- Leveraging digital platforms, including TikTok Shop and Amazon Premium, to reach younger consumers
- Continuing to optimize the supply chain and reduce exposure to tariffs
- Maintaining cost discipline while investing in innovation and marketing
These priorities reflect Coty’s dual focus on short-term stabilization and long-term growth. By balancing cost controls with strategic investments, the company hopes to regain its competitive edge in both consumer and prestige beauty segments.
Market Sentiment and Investor Watch Points
Investors will be closely watching Coty’s ability to stabilize U.S. mass-market sales and improve margins through tariff mitigation. The early performance of new fragrance launches will also be a critical indicator of future growth potential.
Digital initiatives are another key watch point. With social commerce platforms like TikTok becoming increasingly influential in beauty, Coty’s ability to engage new audiences through these channels could play a decisive role in shaping its recovery.
Final Thoughts
Coty Q4 sales decline highlights the challenges facing the beauty industry amid economic uncertainty, cautious consumer behavior, and tariff headwinds. Yet the company’s strategic adjustments, from cost savings to supply chain realignment and digital expansion, suggest that the groundwork for recovery is being laid.
If Coty can deliver on its innovation pipeline and sustain consumer demand in prestige categories, the second half of fiscal 2026 could indeed mark a turning point. While the road ahead may remain uneven, Coty’s focus on efficiency, innovation, and digital transformation offers a path toward renewed growth and stronger profitability.
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