Coty (COTY) Q1 2025 (Q&A) earnings summary

Executive summary

• Q1 FY25 net revenues grew 2% reported and 4.5% LFL, driven by strong prestige fragrance growth, gross margin expansion, and pricing actions, despite FX and divestiture headwinds and Consumer Beauty softness.

• Operating income rose 20% to $237.8 million, with margin improvement to 14.2%, and net income surged to $82.9 million from $1.6 million, aided by higher operating income and reduced losses on forward repurchase contracts.

• The company continues to outperform peers, with robust performance in both Consumer Beauty and Prestige divisions, and maintains confidence in its medium-term growth outlook.

• Growth engine markets delivered +15% LFL in 1Q25, now representing ~21% of total sales, with significant contributions from LATAM, Asia, and the Middle East.

• Fiscal 2024/2025 is considered a transition year due to channel shifts and evolving consumer behaviors, but profit and free cash flow delivery for fiscal 2025 is expected to be robust.

Financial highlights

• Q1 net revenues: $1,671.5M (+2% reported, +4.5% LFL); Prestige: $1,114.1M (+5% reported, +7% LFL); Consumer Beauty: $557.4M (-3% reported, flat LFL).

• Gross margin expanded by 200 basis points to 65.5%, driven by manufacturing efficiencies and lower obsolescence costs.

• Adjusted EBITDA was $360.1M (margin 21.5%), flat YoY; adjusted EPS (excluding swap) up 20% YoY to $0.18 in 1Q25.

• Free cash outflow: $7.9M, down from $124.0M inflow YoY, due to order phasing and higher receivables.

• No dividends on common stock; $3.3 million paid on Convertible Series B Preferred Stock.

Outlook and guidance

• FY25 adjusted EBITDA expected to grow near the lower end of +9-11% YoY guidance, with margin expansion close to 100 bps.

• FY25 adjusted EPS expected at the low end of $0.54–0.57, reflecting mid-teens percentage growth.

• FY25 free cash flow projected to grow double digits YoY to low-to-mid $400M range; leverage targeted below 3x by year-end and ~2x by end of CY25.

• LFL sales growth for H1 and H2 expected at 3–4%, with sequential acceleration in profit growth in 2H25.

• Over $120M in FY25 cost savings anticipated, up $45M from initial target.