Good morning and good afternoon, everyone. My name is Tasha, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's first quarter fiscal 2027 question and answer conference call. As a reminder, this conference call is being recorded today, November 5, 2026, at 9:30 A.M. Eastern Time or 3:30 P.M. Central European Time. Please note that on November 4, at approximately 4:30 P.M. Eastern Time or 10:30 P.M. Central European Time, Coty issued a press release and prepared remarks webcast, which can be found on its investor relations website. On today's call are Markus Strobel, Executive Chairman of the Board and Interim Chief Executive Officer, and Soraya Benchikh, Chief Financial Officer. I would like to remind you that many of the comments today may contain forward-looking statements.
Please refer to Coty's earnings release and the reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except where noted, the discussion of Coty's financial results and Coty's expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. With that, we will now open the line for questions. If you would like to ask a question, you may press star one on your telephone keypad. To leave the queue at any time, please press star two. Once again, that is star one to ask a question, and we will pause just a moment to allow everyone a chance to join the queue. We will take our first question from Charles Scotti with Kepler. Please go ahead.
Yes. Hello. Good afternoon, good morning, everyone. I have three questions. The first one about the gross margin, which came in slightly below your guidance. This is the only KPI, basically, that was below. Could you explain what drove this slight miss? You also provided a guidance for Q1, but not for Q2. Could you share what you have built into your budget for the next quarter and over the full year? Secondly, thank you very much for providing all the details on the performance of your six core Prestige brands and four core Consumer brands. Does this give us an indication of the portfolio you intend to retain as part of your strategic review? Given the absence of a skincare brand from this list, should we interpret this as a potential intention to exit the skincare category at some point?
Lastly, on the impact of the Gucci license exit, I get the impression that there is a very wide range of estimates for the EBITDA impact next year. Even so, I assume that this impact will be relatively mechanical. Could you please help us quantify it more precisely? I see the consensus on adjusted EBITDA for EBITDA at $680 million next year. Does that seem reasonable to you considering the impact of the license exit? Thank you very much.
Good afternoon. I will take the first part of the question. This is Soraya Benchikh. I will take the first part of the question and then pass it over to Markus for the second part. Firstly, let me start with the gross margin and where we landed for the first quarter. Our gross margin declined, as you saw in our statement, by 120 basis points. About 50 basis points of this came from the headwinds from the Middle East freight and material costs, and the rest was basically down to unfavorable mix and excess and obsolescent stock. We are very focused on the controllable drivers that impacted excess and obsolescent stock. We are working through these through better planning, basically, to reduce this because we have had a more scattered approach to innovation with smaller innovations that were not successful.
As we concentrate, and you rightly highlighted in our statement, that we have concentrated behind our six brands, we will shift to fewer and bigger launches, and that will also help us in terms of the planning and having less obsolescent stock. This should reduce a better S&OP, better demand planning and forecasting, and fewer bigger launches will reduce our E&O as we work the inventory down. These benefits will build over time, but we are very clear on what we can control in terms of the impact on the gross margin. Markus, do you want to-
As for portfolio, first of all, we are very pleased with our Top six brands growing 5% in the first quarter. Still more work to do, because we need broader growth, we need faster growth, and we are working on that. But we are pleased with that, and we are also pleased with the progress we are making in our consumer business, where decline that was 8% in first fiscal 2026 is now down to 3%, and we are catching up with market share.
On skincare, actually, we have very much improved profitability, and we are pretty happy with that too. Now, what this means for your question, it is important for us that all of our business units do well, be it Prestige, be it consumer business, be it skincare, and we are on the way of doing that because it will also give us the strategic optionality of the future.
To answer your question directly, I would not draw conclusions from what happened in the first quarter to the future portfolio. That is far too early. We are in the middle of a strategic review. We will commit ourselves to complete it by the end of the calendar year, which is close, but we are still working on it. That was Gucci, right? Back to you, Soraya.
Yes. Okay. This is the strategic review or the Gucci? No, Gucci.
I mean to say the impact of the Gucci exit.
Sorry, can you remind me what the impact of the Gucci exit? Okay, we are at the moment in the middle of transitioning the Gucci business. I think the exact timing of it is still to be determined. But in the impact of the Gucci exit, we have reached a deal on Gucci. We are protecting the fiscal 2028 cash flow. And in terms of the value, have we communicated value?
Of the deal?
Yeah.
Yeah.
No, the value of the impact.
Yes, I can step in here on the value of the impact. We are addressing this at the moment as part of the overall savings package that we are also going to come out with before Christmas. But to give you an indication, and it is the same indication I gave last time, Gucci was a double-digit part of our portfolio at a gross margin of about 70% in line with the Prestige portfolio and an A&CP level of about 29% and a profitability in line with the Prestige portfolio. You can think about that Gucci impact is about 40% of the contribution of the net sales. So it is a sizable impact that we will have to manage, but we have plans.
We are finalizing the plans, and we will be back to you with those plans latest by January because we are going to complete this all by the end of this calendar year.
Just overall, the agreement basically that we reached with Gucci is to compensate one less year of profit and cash flow and inventory, and also to fund the restructuring costs that will come out of it. So we have received $250 million upfront, and the total value of the agreement is $400 million. Hope that answers the question.
Thank you. We'll take our next question from Nik Modi with RBC Capital Markets. Please go ahead. Your line is open.
Hi, thank you for taking the question. This is Clark Leon for Nik Modi. In the prepared remarks, you called out a partnership with Brandlight that's designed to strengthen your visibility across AI-driven search. Can you give us a little bit more color on the measures of success for this partnership and how you plan to optimize for different AI platforms, given that each platform leverages unique combination of inputs to derive product recommendations? Thank you.
Yeah, thanks, Clark. I mean, we are in the process of really modernizing our advertising quite drastically, both when it comes to advocacy, influencer, creator management, and when it comes to AI search. So the collaboration with Brandlight is a key pillar in this strategy. I'm fully aware that the algorithms and the keywords and the content is different from platform to platform, but this is exactly why we are working with this company that gets us ahead of the game. We are concentrating, this is very important, we want to get this 100% right. We want to make a big impact. That's why we concentrated it on the top six brand in the top five markets.
This is something that we can So we'd rather go into depth, market by market, brand by brand, to get this right, to have the right impact and to be in the top of AI searches versus going too broad in the beginning. So depth versus breadth, this is what we're doing with Brandlight.
Thank you. We will take our next question from Sydney Wagner with Jefferies. Please go ahead.
Hi, thanks for taking our question. Congratulations on the Marc Jacobs license extension and just the success of that makeup launch. Curious to hear what differentiated the launch and which elements are maybe transferable across CoverGirl and the broader color portfolio. Also just wondering, with the contribution from the pipeline fill, would Prestige sell-in still have been aligned with sell-out if you excluded that benefit?
Thanks for the question, Sydney. In terms of success factor, you mean for the makeup launch? Specifically, that we can apply to CoverGirl?
Yeah, correct.
Okay, yeah. I think there's a couple of principles that made this launch very successful initially, and we're going to keep it up. One principle is that we have co-developed the whole proposition together with Sephora. Being in the kitchen with the retailers is really some strategy that we're going to use in the future on all of our makeup brands going forward, because it kind of enables us much more to win with the consumers that frequent that retailer. Okay? We're going to be much more focused on, like, which is Gen Z in the Sephora case, and you see the Marc Jacobs proposition really fits to it, thanks to that collaboration. Number two, we have actually a fairly tight SKU portfolio on Marc Jacobs, which enables you to manage your SKU productivity and shelf space productivity much, much better.
This is something we will also apply to other brands. Number three, we have based this whole brand launch on advocacy, influencers, creators, not on broad-based mass marketing. I think these are important learnings that we will transfer to other brands because they are very effective in terms of sellout, in terms of success. You had a second question, right? Can you just remind me again? Oh, yeah, the total prestige sellout. I got it, yeah.
Yes.
If you take out from prestige, you take out the Marc Jacobs Beauty pipeline, because obviously the shelves had to be filled in the first quarter, our total Prestige business would still be up. Our Top six would still be up, probably more in the neighborhood of 3% than 5%, but still growth.
Okay, thank you. If I can just squeeze one more in there. With the greater share of A&CP now concentrated behind the Top six brands in Prestige and Top four in Consumer, would the incremental investment be most visible, and which areas do you expect to have the biggest near-term impact there? Thank you.
I think you will see the biggest impact in. We have allocated a lot of the incremental investment to improve our capabilities and our impact in advocacy. This is all the working with influencers, creators that help us build our brands. If you see, we have some good news to report. We have on Burberry, the share of influence we have in the category went up by 50 basis points. In other brands, it also went up to 100 basis points. We are getting much better in the influencer advocacy game, which drives the business today in fragrances and in makeup. This is where the majority of the incremental investment we will
Thank you. We will move next to Olivia Tong with Raymond James. Please go ahead.
Great, thanks. Good morning. I wanted to ask you a couple of questions. First, if you would not mind expanding on what you see as the mile markers of success in what is clearly a transition year. I know the performance will not be linear, but Markus, can you help us understand how you gauge whether the plan is proceeding as expected? Soraya, I am interested in your thoughts on KPIs as well. Then specifically for Soraya, we talked a lot about what you can deploy within this organization when we met, and I wanted to focus on forecasting accuracy, specifically on inventory, and how far through the inventory cleanup are you? Because excess and obsolescence is still ahead even though sales drag was at the more favorable end of your guidance range.
Just understanding what is going to change or has changed in forecasting and innovation planning to help that. Thank you.
All right, so let me take the first part of the question. I think we are making good progress in our Coty.Curated strategy. You see this in the results of the first quarter. You see this in the concrete share of A&CP that we have increased behind the core brands. I always talk about focus and sharper priorities. That is what we are doing. An important element is also innovation. We have launched four bigger innovations in this quarter, BOSS Bottled Beyond for Her, the Mood Stones by Kylie, the Marc Jacobs Beauty, and the Burberry Goddess Amber Vanilla. All of these launches are tracking ahead of their objectives, which tells us that disciplined initiative management and fewer, bigger, better is starting to work for us. I have seen a lot of good green shoots here.
We are not there, and we fully admit that because it takes time to make all these changes stick with the organization, to embed them in the organization. But we are on our way. Would we like our progress to be faster? Yes. We are fully working on it, no? We can give you full guidance how this whole thing is going to look, come together, once we complete our strategic review and once we also complete our savings and restructuring program to make up for the contribution of the loss of Gucci. Okay? Stay tuned. This will come very soon.
Yeah. Thank you for the question. For the forecasting reliability and our inventory, working through our inventory. I think forecasting reliability, basically, we are working to improve our core tools and processes. We are enhancing our S&OP. We have developed and deployed some AI tools to actually help us with the backbone of our forecast. But I think the crux of the matter has been with the level of scattered innovations that we have had in the past, and we are working through the inventory remnants of this, and this takes time. We are getting more and more granularity and have a lot more visibility than we possibly have had in the past. We had a little spike in inventory because of this, but I am very confident as we work through it.
As Markus just said, by us focusing on fewer brands. Having bigger and fewer bets, when I look at the cycle plan that we have planned over the next 18 months, two years, then we should be able to better forecast our innovations and be able to also course correct with the new tools to ensure that we are not holding onto too much stock. In short, we are working on it. We are working through the inventory that we currently have, and we will get there, but it will just take a little bit of time.
Got it. Thanks. Just following up a quick one. If you could give any early thoughts on holiday, either in the Western markets or 11/11 in the East. Thanks very much.
Holiday is just starting, but what I can say about holiday is, especially in the U.S., is that retailers are starting earlier with their holiday activities, and we obviously actively participating in these activities because last year, the main activities happened very late in the quarter, and people don't like to wait for that. You want to have more security on your sales and your shipment, also from a retailer perspective. So, holiday is starting earlier and earlier. That's the trend that I'm observing this year.
Thank you.
Thank you. We'll take our next question from Jonna Kim with TD Cowen. Please go ahead.
Thank you for taking my question. The first one on CoverGirl, you have seen nice improvement there. How sustainable do you think that growth improvement is just going forward, and what are key strategies that you have to improve the performance? Then just the second one, overall, in the U.S. Prestige return to growth in the quarter, how much of that is innovation versus the underlying trends in the core portfolio, and what gives you confidence that you can sustain and/or accelerate in growth from here? Thank you.
Okay. On CoverGirl is under a program we are calling Color the Future, which is also like a part of Coty.Curated, and we are very pleased with the CoverGirl almost now catching up with the market in terms of consumption. Net sales are down just 2% this quarter versus almost like 8% in the first half of fiscal 26, and we have seen a gradual improvement quarter by quarter, and we hope this will, or expect this will go on like this. What makes us very confident about this is that we have, on CoverGirl, we have smaller innovation bundles, but more powerful innovation bundles. Better innovation, more incremental innovation that needs to earn its place on the shelf and not just being thrown out there.
We already see early success in Q1 because the innovation we launched in spring, we are having actually lower returns than we had the year before. That means things have been selling out better, things have been more productive on the shelf, number one. Number two, we are very disciplined to supporting with media our two biggest properties, like Simply Ageless and Lash Blast, and not deviate into smaller things. We are always on for our biggest properties that really drive the business and that are really liked by consumers. Number three, we have very exciting innovations going in the market right now, and innovation coming up. You may have seen the new Showstopper Mascara of CoverGirl, which is a very exciting innovation with a proprietary mascara brush technology and a very luxurious packaging.
Sharper bundles, more consistent advertising over time, and better innovation makes us confident that we can sustain this trajectory. On Prestige, I mentioned before that we are pleased with the 5% growth of the Top six brands, and even without the major launch of Marc Jacobs Beauty, which was the main launch, we would still be up 3%. We have the innovations that we brought out now that look strong, and these are innovations that I believe have staying power and we can support as we go on. We have not seen the best of the innovation yet, especially if you consider that on BOSS Bottled Beyond for Her, we have not launched it yet in the U.S. and in the U.K. That is going to happen in spring, so still a lot of mileage in that innovation.
And ever since we've put out BOSS Bottled for Her, we had share growth on Hugo BOSS in Germany, which is the biggest market for Hugo BOSS after a long time. We see not only shipment and sales growth, but we see sellout and share growth behind these innovations. So, we are confident we can keep that up, and we have a fairly good pipeline on Burberry, on BOSS, and on new brand Etro that we're going to bring out in the beginning of 2027. So, we're fairly confident that our innovation will keep driving our business.
Thank you.
We'll take our next question from Javier Escalante with Evercore ISI. Please go ahead.
Good morning, everyone. Congratulations on the extension of Marc Jacobs. This is basically my question, Markus. I believe that you managed this business with Procter a long time ago, and it was a very different view of the industry itself and the business model with licenses. I would like to hear your view, your strategic view about this license model, how it's evolving. 40 years to me qualify as a perpetuity. We saw something similar with Kering Beauté. Is this where the business is going? To unlock co-investment, you need these very long licenses to de-risk situations like Gucci happening. Will you seek similar long-term partnerships with core brands like Burberry and BOSS? I have a follow-up, but this is, if you can keep it very kind of like strategic, what's happening? This is 40 years is a long time. Tell us what's happening.
I think what is happening in the industry is, the industry has become. Fragrances has been a growing category for the last couple of years, and it is still growing very nicely. It was just like 5% up globally in the first quarter. There is a lot of activity, there is a lot of competition, and we launch things. We need investment, and we need security that this investment is going to pay off and that we can continue to reinvest to drive these brands. The longer the license contract, the better it is. It is not only for us from an investment point of view, but often also better for the licensee because there is a royalty stream they can bank on in the future. Interestingly enough, a lot of our contracts today are already brands that we either own or we are on almost perpetual licenses.
We feel pretty good about the longevity of our fragrance, and we will be striving with all of our licenses and also new licenses to extend licenses as long as possible and as early as possible so that we all have security to invest.
Markus, I take your response. I mean, you can agree or not, that yes, your inclination would be to go back to Burberry and to go back to BOSS and say, "We would love to continue the partnership. We are increasing our investment behind it, but we also need longer durations to de-risk that investment and make this a true partnership for the long term." Is that a good characterization of what you just said?
That sums it up pretty well.
Okay. Could you tell us what happened to, because there were a lot of licenses prior. How many licenses are in Prestige? In your curated approach, would you think that the idea would be to approach these licensees and unwind so that you have a more curated, but at the same time, a more sustainable, say, equity story proposition for minority shareholders? Thank you.
I think when you look at the license fragrance portfolio, its duration is one question. The other question is also, you want to have a portfolio that goes for the right target groups, if it is Gen Z, Gen X, probably a stronger region in North America. Some brands might be stronger in China, in Asia, in Europe. So, you need to have a pretty good balance. What we are also striving for in the, when we drive brands in the more uber-prestige market, uber-prestige, high prestige, super high prestige, no matter how you want to call it is a growing part of the business. We are just increasing our investment behind Atelier des Fleurs of Chloé, which is very successful in this investment, in this area.
We will be launching Etro in spring in the super premium segment, and we are just coming out with the Burberry Parfum Collection, also in the super premium segment. The marketing in the super premium segment is slightly different than from the non-super premium segment because you have to be strong in-store. So, all of these brands have, in terms of curation, have different KPIs that we need to respect. We think we have a fairly balanced portfolio with world-class licensees and licensors.
Thank you. We will take our next question from Anna Lizzul from Bank of America. Please go ahead. Your line is open.
Hi. Good morning and good afternoon, everyone. Thank you for the question. I was wondering if we could discuss more the outlook within the different geographies. There is certainly some encouraging results here from the Americas with improvements in innovation, but it looks like in Europe, a bit of a different dynamic given the softer market consumption there. I was wondering if you could touch on the broader political environment and the impact to sales. Also, how should we be thinking about the cost outlook, just given the pressures you are seeing from freight in the Middle East, and what your level of confidence is on delivering on cost management to mitigate this in the near term? Thank you.
Okay. Let me just go on, see what I see in terms of market development and our development in these markets, and then Soraya can add some color when it comes to costs out of the Middle East and how we are dealing with that. Again, yeah, we are pleased with our progress in the U.S. It is the biggest fragrance market, so it is important for us to win. So, not there where we need to be, but progress, and we will, behind Coty.Curated, make this stronger as we move along. We are also very pleased with our development in Asia. China had a particularly strong quarter in Q1, so our total Asia business is up 8% in net sales. Europe is the area that we need to focus on fixing.
We have good market growth in Spain, Italy, and we have fairly soft market growth in Prestige in Germany and France. So, the market growth in Europe is on average lower than in the other geographies, but it is a big part of our business, so we are very aware of that. We are making progress on Hugo BOSS, which is our biggest brand in Europe. I just mentioned the BOSS Bottled for Her launch, which comes fully incremental, because obviously it is a female launch, and BOSS is a mostly male brand. This is our number one target, is to make Hugo BOSS grow again in Europe, and I think we are in a good way. We just signed a partnership, you may have seen that, with HYROX in a lot of geographies.
We are working together with HYROX in big events, which is going to increase our advocacy, our influencer and creator standing. So we are pleased with that. We also curate our portfolio in Europe. Hugo BOSS important, Burberry important, and the other brands, the regional brands that are important in countries like Germany, we are not rejecting. So we are not there where we need to be in Europe, but we are on the way.
Okay. When it comes to the outlook and looking at cost pressures, we really, the Middle East headwinds that I outlined in describing the margin, we expect them to persist for the rest of the year. Currently, what we've built into our forecasting is, particularly on oil, that impacts our input costs, a $30 million-$40 million impact. We think that now, if the barrel price stays above $100, we're going to be in the upper range of this. Generally, with the macro pressures, if they do continue at this level or intensify, we're looking to pull productivity and fixed cost levers first to preserve the room to invest behind the brands. Productivity is happening on all lines of the P&L, not just on fixed costs. We're also looking at the ROI thresholds on our marketing investments.
We've rolled out tools to several markets to measure the effectiveness of our spend. Yes, this is a transition year. There's lots of moving parts, but we are going to work productivity really hard to preserve the investment behind our brands, because our priority is still to achieve the quality growth that we're pursuing on the top line. I hope that answers it.
Great. Thank you. Very helpful.
Thank you. At this time, this concludes Oh, I'm sorry. Go ahead.
No, there's no more questions. Let me just conclude the call.
Yes.
Or do we have more questions?
We have no more questions at this time.
Okay. Okay. Let me just conclude it then. Summarizing it all, Q1 came ahead of our expectations, but it's obviously not where we want to be. We want to be better. 2027 is a transition year for us, and as we mentioned a couple of times, the recovery will not be linear. Still, we have very encouraging early signs. Our Top six core Prestige brands grew 5% like-for-like, and we expect growth on our Top six core Prestige brands in Q2 as well. We will keep investing behind our core brands, turning stronger performance into cash, and we also reduce debt. We remain on track to complete the strategic review by the end of calendar 2026. We know that your confidence is earned through consistent delivery, and we will be transparent and accountable along the way. Thanks for joining us today.
Thank you.
This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.