Coty (NYSE:COTY) executives used the company’s fiscal second quarter 2026 Q&A call to outline what interim CEO Markus Strobel described as a “fresh chapter” focused on realism, discipline, and improved execution, while acknowledging recent performance “has not met expectations.” Strobel and CFO Laurent Mercier repeatedly returned to two themes: restoring sell-out momentum and tightening operational discipline, particularly in the Consumer Beauty business.
Consumer Beauty reset centers on focus, innovation discipline, and working media
Pressed by analysts on the company’s “performance improvement plan” for Consumer Beauty, Strobel laid out what he called three to four principles aimed at getting back to sell-out growth and market share gains. He said the company’s “ambition” is to “win in the market” after underperforming for the past 18 months.
- Focus on “iconic assets” within key brands. Strobel pointed to COVERGIRL (including Lash Blast and Simply Ageless) and Rimmel. He said early results have been encouraging, with declines moderating from “high single digits” to “low single digits” or “mid-single digits.”
- Streamline innovation bundles. Strobel said past spring innovation launches were too large, with too many SKUs that did not work and crowded out productive items, leading to trade returns. Coty plans a “sharper, streamlined” innovation bundle in fiscal 2026 with better SKUs and faster rotation, while protecting fast-rotating core items.
- Rebalance spending toward “working” A&CP. He said Coty historically spent heavily on asset creation but not enough on consumer-facing working media such as digital and influencer activity. With smaller bundles, he expects to free up funds from asset creation and reinvest them into working media.
On near-term sales impact, Strobel said smaller bundles mean less initial pipeline fill and that investors will “see this in Q3,” calling the quarter a “hump.” However, he argued improved shelf velocity should support better sell-out over time.
Management sees Consumer margin improvement beginning in fiscal 2027
Mercier declined to provide a specific operating margin target for Consumer Beauty but said leadership believes it has a “clear diagnosis” of the gaps and action plans for each. He said some initiatives—particularly innovation planning—are expected to pay off in fiscal 2027 rather than immediately.
Mercier also tied margin pressure to volumes, noting fixed-cost under-absorption when volumes decline, and said a sell-out recovery would help reverse that gross margin trend. He added that work is underway on platforming across brands, A&CP optimization, and SG&A optimization, with improvement expected to begin in fiscal 2027 as part of the company’s broader profit recovery.
Channel shifts: investing in e-commerce while maintaining legacy footprints
In response to questions about major route-to-market changes—weakness in drugstores and department stores and the rise of Amazon—Strobel said SKU focus and channel strategy are not contradictory. He said Coty is investing in new channels “where the Consumer goes,” including online, e-commerce, and TikTok Shop, while also protecting existing channels where its current consumer base continues to shop.
Strobel highlighted growth in Amazon within Prestige, saying the company’s sales there have grown by “over 30%” in the last six months. He also cited the July launch of Marc Jacobs on Amazon, which he said is delivering double-digit growth, and argued that Amazon activity can have a “halo effect” on brick-and-mortar sales. In the U.K., he said Rimmel activity on TikTok Shop remains small in volume but is generating marketing effects and supporting other channels.
Strobel also pointed to demographic balance, saying retailers have asked who will speak to Gen X while many brands chase Gen Z. He said brands like COVERGIRL and Sally Hansen have a significant Gen X consumer base, and he suggested joint business planning with drugstores could support both consumer groups.
Gucci license exit: pipeline, new licenses, and cost structure under review
Asked about managing the business after the Gucci license ends, Strobel said the company is focused on growing large existing franchises—citing brands such as Hugo Boss, Burberry, Marc Jacobs, and Chloé—and preparing innovation pipelines for 2027 through 2029 to coincide with the Gucci exit in June 2028.
He also said Coty is building newer licenses and cited Swarovski, Armani, and Etro, adding that Coty has “big plans” for Swarovski and hopes to launch a “real blockbuster” in 2027. As the license end approaches, he said the company will likely need to adjust its cost structure to protect profitability.
On the question of a potential early termination arrangement with Kering, Strobel said Coty is “always open for deals that create value” for shareholders.
Q3 outlook drivers and gross margin pressures: promotions, tariffs, forex, and mix
Mercier said Coty’s expectation for a mid-single-digit sales decline in fiscal Q3 is primarily driven by Consumer Beauty headwinds, including the after-effects of prior innovation complexity and returns, as well as deliberate “deprioritizing” of some activity to focus on “big bets.” He said there are early “green shoots” in certain COVERGIRL franchises but emphasized that changes take time.
In Prestige, Mercier said prior retailer inventory headwinds are fading and that sell-in and sell-out are becoming more synchronized. However, he noted that U.S. Prestige sell-out in Q2 ended below expectations after an encouraging start, attributing pressure to insufficient focus on the core even when innovation performs well. He said these dynamics will weigh on Q3 results, though management views the changes as adjustments that should lead to sequential recovery over time.
On gross margin, Mercier said Q2 came in below Coty’s initial expectations. He cited several drivers:
- Promotional pressure in Prestige, particularly late in Q2, with higher promotionality leading to pressure on trade terms and markdowns; he said Coty assumes this environment continues in Q3.
- Tariffs, estimated at about $8 million in Q2 and expected to be below $40 million for the full year.
- Foreign exchange, as Coty continues to have significant production in Europe, making the euro/dollar exchange rate a headwind.
- Consumer Beauty under-absorption and mix, as lower volumes in color cosmetics hurt fixed-cost absorption and strong performance in Brazil alongside pressure in higher-profit U.S. brands creates a mix impact.
Mercier said Coty expects a similar gross margin pattern in Q3, followed by recovery in Q4, with continued improvement into fiscal 2027. He also noted that despite current headwinds, Prestige gross margin remains higher than two years ago.
In closing comments, Strobel said the company will be “transparent about what works and what does not,” set balanced near- and long-term targets, concentrate resources, and continuously review the portfolio to unlock value. “Consumer demand is our North Star,” he said, adding that improvement will take time but that “progress is already underway.”
About Coty (NYSE:COTY)
Coty Inc is a multinational beauty company specializing in the development, manufacturing and marketing of fragrances, color cosmetics and skin and body care products. Established in 1904 by François Coty in Paris, the company has grown through a blend of organic innovation and strategic acquisitions to become one of the leading players in the global beauty industry. Coty’s portfolio encompasses a broad range of consumer and luxury brands, reflecting its commitment to catering to diverse consumer preferences and market segments.
The company’s product offerings span three main divisions: Coty Luxury, Coty Consumer Beauty and Coty Professional Beauty.
