Coty Faces Challenges As Category Weakness Lies Ahead, Say Analysts

Stifel analyst Mark S. Astrachan reiterated a Hold rating on the shares of Coty Inc COTY and lowered the price forecast from $8.50 to $8.

Coty’s second-quarter FY25 results showed a 1% year-over-year decline in net revenue on a like-for-like (LFL) basis, with the Consumer Beauty segment experiencing a 4% LFL drop, while Prestige grew by 1% LFL, noted the analyst.

The decline in Consumer Beauty, which represents around 33% of Coty’s sales, was driven by ongoing challenges in mass cosmetics and body care, though mass fragrances saw growth.

The Prestige segment, accounting for roughly 67% of Coty’s sales, was bolstered by growth in prestige fragrances, but was partially offset by declines in prestige cosmetics.

Coty’s adjusted EBITDA for the quarter reached $391 million, surpassing the consensus estimate of $386 million, marking a 7% year-over-year increase.

The adjusted gross margin stood at 66.8%, reflecting a 170 basis point increase from the previous year, driven by supply chain savings, pricing adjustments, and a reduction in excess and obsolescence charges.

The company lowered its F2025 guidance, projecting a 1% – 2% decline in organic sales for the second half of the fiscal year (compared to consensus growth of around 3% – 4%) and adjusted EBITDA between $1.115 billion and $1.125 billion (consensus of $1.177 billion).

Also Read: Coca-Cola Pops In Q4—Revenue Soars 6%, CEO Hails ‘All-Weather Strategy’

Coty attributed this outlook to foreign exchange impacts and slowing growth in several categories, especially U.S. mass cosmetics, while prestige fragrances showed more modest deceleration.

The company noted that sell-out continued to outpace its sales, suggesting retailers are still working through inventory reductions, a trend likely to affect future performance, the analyst noted.

Given the ongoing weakness across the beauty sector and global markets, the analyst expected these results and the guidance cut.

The analyst sees a 5% reduction in consensus adjusted EBITDA estimates, with Coty’s stock expected to drop less than the anticipated revisions due to the already anticipated weakness.

J.P.Morgan analyst Andrea Teixeira reiterated a Neutral rating on the shares. Coty’s second-quarter adjusted EPS of $0.22, excluding a -$0.11 loss from the mark-to-market of equity swap changes during the quarter, matched the analyst’s forecast and was a penny above Bloomberg’s consensus estimate of $0.21.

More notably, the company reduced its guidance once again, projecting weak second-quarter trends to continue into the second half of the year, and warned of a “broadly similar market environment” entering FY26, per the analyst.

Key variances from the analyst’s projections included a higher gross margin (+103 basis points) and lower taxes (-88 basis points below expectations), which were partially offset by disappointing sales results.

The company’s LFL sales performance also fell short of the expected 1% – 2% growth for the second-quarter, noted the analyst.

Price Action: COTY shares are trading lower by 7.90% at $6.235 at the last check Tuesday.

Read Next:

• McDonald’s Q4 Earnings: Stagnant Revenue Growth, US Comp Sales Decline And More

Photo by Ground Picture on Shutterstock.