Coty (COTY) Q4 2026 earnings review
Sales Stabilize, but Profitability Plummets as Gucci Exit Looms
Coty showed early signs of stabilization on the top line, with Q4 reported revenue growing 1% and Like-for-Like (LFL) sales improving sequentially to a 1% decline. However, the cost of this revenue stabilization was steep. Gross margin compressed 140 basis points, dragging Adjusted EBITDA down 26% YoY. The most consequential development was the strategic decision to exit the Gucci Beauty license early (June 2027) for $400M from Kering, creating a massive revenue and profit hole for FY28 that management must now urgently backfill through severe fixed-cost cuts and new brand launches.
🐂 Bull Case
The gap between sell-in and sell-out is finally narrowing. LFL revenue recovered from a 7% decline in Q3 to just a 1% decline in Q4, signaling that retailer inventory levels have normalized.
The $750M Wella monetization in Q2, combined with the upcoming $400M Kering cash injection for the Gucci exit, provides essential liquidity to reduce debt (now at 3.4x leverage) and fund core brand investments.
🐻 Bear Case
Adjusted Operating Income fell 42% in Q4. Volume under-absorption, tariffs, and aggressive inventory write-downs are crushing margins, with Q1 FY27 guided to fall further.
Giving up the Gucci license early removes one of Coty's most profitable engines. Replacing this revenue relies heavily on unproven new licenses (Swarovski, Etro) and untested fixed-cost reduction plans.
⚖️ Verdict: 🔴
Bearish. While management touts the convergence of sell-in and sell-out, earnings quality is deteriorating rapidly. The collapse in Consumer Beauty margins and the impending loss of the Gucci license present structural challenges that overshadow minor sequential top-line improvements.
Key Themes
Early Exit from Gucci Beauty License
Coty announced an agreement to sell the Gucci Beauty license back to Kering for $400M (plus inventory proceeds), terminating the contract in June 2027—a year ahead of schedule. While the upfront cash aids deleveraging, it strips Coty of a critical Prestige growth driver. Management acknowledges this will cause a 'step-down in sales and profit in FY28' and aims to launch a 'significant fixed cost reduction program' to compensate. This introduces immense execution risk over the next 24 months.
Consumer Beauty Margin Collapse
Consumer Beauty remains the ultimate laggard segment. Despite reported sales rising 1%, adjusted operating margin for the segment fell deeply negative to -4.2%, and reported operating loss nearly doubled YoY to $29.9M. This was driven by severe supply chain cost under-absorption and elevated excess and obsolescence charges. The ongoing strategic review of this division has yet to yield bottom-line improvements.
Gross Margin Contraction
Reported gross margin dropped 140 basis points to 60.9% in Q4 (and 190 bps for the full year). While management celebrates stabilizing top-line sales, the margin data contradicts this positive narrative: the stabilization was achieved at the expense of profitability, weighed down by higher tariff costs, lower production volumes, and significant write-downs of obsolete inventory.
The 'Coty.Curated' Turnaround Framework
Management has transitioned from planning to execution with its new Coty.Curated strategy. The framework aims to rightsize the commercial and R&D organizations to lower the cost base. On the product side, Coty is deliberately simplifying its innovation calendar and cutting the SKU tail to focus resources on 'fewer, higher-impact launches' and established hero products.
New Prestige Adjacencies and Tech Integration
To offset future Gucci losses, Coty is accelerating its pipeline. The online launch of Marc Jacobs Beauty makeup is reportedly tracking ahead of targets at Sephora, and retail expansion is planned for September. Additionally, the company is explicitly optimizing its brand visibility and recommendations across emerging AI platforms, modernizing its digital consumer engagement approach.
Middle East Conflict Suppressing Regional Growth
Macroeconomic and geopolitical headwinds remain a tangible drag. The ongoing conflict in the Middle East accounted for an estimated 1% headwind to total company Q4 LFL sales (and a 1.5% headwind specifically in the Prestige division). This Reversing trend in the EMEA region (-10% LFL in Q4) complicates the global recovery.
Other KPIs
Adjusted operating income for Prestige plummeted 19% YoY. Operating margin compressed from 9.8% to 7.8%. The segment experienced top-line pressure from lower fragrance shipments and absorbed severe gross margin hits from higher tariff costs and fixed cost under-absorption. This marks a Decelerating trend for Coty's most critical profit engine.
A rare bright spot. FCF grew from $277.6M in FY25 to $348.2M in FY26, despite net income falling sharply. This divergence indicates disciplined working capital management, particularly around payables, and controlled capital expenditures ($189.6M).
Financial net debt decreased from $3.75B at the end of FY25 to $2.91B by the end of FY26, yielding a leverage ratio of 3.4x. This was primarily enabled by the $750M cash injection from the Wella divestiture in December 2025, providing a vital cushion before the FY27 Gucci transition.
Guidance
Decelerating. After narrowing the LFL decline to just -1% in Q4, management expects sales growth to slip backward. They attribute this to fluctuations in year-over-year timing of customer orders, though sell-out trends are expected to remain consistent with H2 FY26.
Stable/Decelerating. While a low-teens decline is an improvement over the brutal -26% print in Q4, it confirms that profitability will remain negative YoY as the company absorbs lower shipments and fixed cost deleverage. Adjusted EPS is guided to $0.11 - $0.13.
Decelerating. Gross margin compression is expected to continue into FY27 due to cost absorption headwinds from lower shipment volumes, though productivity initiatives and procurement actions are intended to partially offset the pain.
Stable. The company expects strong seasonal business dynamics and disciplined working capital management to generate robust cash flow in the first half, keeping liquidity secure during the strategic transition phase.
Key Questions
Bridging the Gucci Gap
With the Gucci license exiting in June 2027, what is the exact magnitude of the 'significant fixed cost reduction program' required to protect FY28 margins? Are the targeted savings coming from R&D, corporate headcount, or marketing?
Consumer Beauty Viability
Consumer Beauty adjusted operating margins fell to -4.2% in Q4. At what point does the ongoing 'strategic review' pivot from attempting a turnaround to executing an outright sale or divestiture of this structurally impaired segment?
Excess & Obsolescence Stabilization
Elevated E&O charges decimated gross margins this quarter. Are these charges a one-time clean-up associated with shifting to 'slimmer bundles' and exiting smaller markets, or a structural issue that will persist through FY27?