Coty Inc. Navigates Challenges with Strong Prestige Beauty Momentum in Q3 2025

Coty Inc. (COTY) delivered a mixed but strategically revealing performance in its Q3 2025 earnings call, balancing near-term headwinds in its Consumer Beauty division against a resilient Prestige segment. While top-line growth slowed, the company’s focus on margin expansion, cost discipline, and a revitalized innovation pipeline suggests a path to recovery in fiscal 2026.

Financial Performance Under Pressure

Coty reported net revenues of $4.64 billion for the first nine months of fiscal 2025, down 2% YoY in reported terms and 2% in local currency (LFL) due to foreign exchange pressures. The third quarter itself saw a sharper decline, with revenues falling 6% YoY (3% LFL), driven largely by a 3% drop in the critical U.S. market.

The Prestige division, which accounts for 66% of total sales, showed resilience despite a challenging quarter. For the nine-month period, Prestige grew 2% LFL, though Q3 saw a 2.5% LFL decline. Management attributed this to a “triple negative effect”: a slowing prestige fragrance market, fewer blockbuster launches compared to last year, and efforts to reduce inflated retailer inventories.

In contrast, the Consumer Beauty division struggled, declining 7% reported (-3% LFL) year-to-date, with a 9% drop in Q3. Mass color cosmetics, particularly in the U.S., faced stiff competition from indie brands and “dupe” products, forcing Coty to reallocate resources toward higher-margin mass fragrances, which grew mid-single digits.

Profitability and Cost Discipline Shine Through

While top-line growth faltered, Coty’s bottom line demonstrated strength. Adjusted EBITDA rose 2% YoY to $204.2 million in Q3, with a 15.7% margin—up 130 basis points. For the nine months, EBITDA margins expanded to 20.6%, a 110-basis-point improvement. Gross margins also held steady at 65.5% (reported), though Q3 saw a slight dip to 64.3% due to inflation.

Cost savings programs played a pivotal role. Coty achieved €40 million in productivity gains in Q3, progressing toward its €120 million annual target. A new “All-in-to-Win” initiative aims to deliver an additional €370 million in fixed cost and productivity savings by fiscal 2027, further bolstering agility.

Prestige Beauty: Headwinds and Opportunities

Despite the Q3 slump, the prestige segment retains long-term promise. The global prestige fragrance market grew at a mid-single-digit rate in Q3, driven by Gen Z adoption and male consumers in the U.S. and Europe. E-commerce sales, now 20% of prestige revenue, outperformed the market.

Asia and Travel Retail, however, remain challenging. China’s low fragrance penetration (vs. Western markets) suggests untapped potential, but inventory corrections and weaker travel demand weighed on results. Management emphasized plans to relaunch key brands in the U.S., expand into new markets, and introduce ultra-premium fragrances, body mists, and pen sprays in fiscal 2026.

Strategic Shifts and Risks Ahead

• Innovation Pipeline: FY26 will feature two blockbuster fragrance launches, a new Amazon-focused brand, and extensions of existing brands into mass markets.
• Tariff Mitigation: Coty expects tariff costs of up to €100 million but plans to offset these via inventory builds, sourcing shifts, and mid-single-digit price hikes in the U.S.
• Operational Reorganization: A leadership shakeup in the U.S. aims to address execution gaps in Coty’s largest market.

Risks persist, however. The Consumer Beauty division’s mid-single-digit global decline in color cosmetics reflects broader industry struggles against indie brands and e-commerce disruptors like TikTok Shop. Meanwhile, mass beauty category sales turned negative in Q3 as retailers reduced inventories.

Conclusion: Positioning for a Healthier FY26

Coty’s Q3 results underscore a transitional phase, with FY25 serving as a base for stronger growth in FY26. The company’s 20.6% adjusted EBITDA margin and €370 million cost-savings target provide a solid financial foundation, while its prestige innovation pipeline and e-commerce focus align with secular trends in luxury goods.

While near-term headwinds—including inventory corrections and tariff pressures—could suppress H1 FY26 sales, management’s confidence in a “healthier baseline” for FY26 is grounded in data:
- Margin Expansion: 110 basis points of EBITDA margin growth in nine months, despite inflation.
- Cost Control: €40 million in savings achieved in Q3, with a clear path to €370 million by FY27.
- Market Momentum: Prestige fragrances’ mid-single-digit growth in key regions, paired with untapped opportunities in China and e-commerce.

Investors should monitor Coty’s execution in the U.S. market, the success of FY26’s blockbuster launches, and progress on tariff mitigation. With a reduced leverage ratio (3.2x vs. 3.4x a year earlier) and $242.7 million in nine-month free cash flow, Coty appears positioned to navigate challenges while capitalizing on its core strengths. For long-term investors, the current slowdown may present an entry point into a brand-led beauty giant with structural growth drivers intact.