Coty Inc. COTY, a major player in the global beauty industry, shared its preliminary results for the first quarter of fiscal 2025, reiterating its optimistic adjusted EBITDA growth forecast. The company is ramping up its cost-reduction efforts across all areas to enhance savings.

The global beauty market has shown solid growth, yet the growth rates have dipped slightly. The prestige fragrance segment is thriving, driven by increases in both volume and pricing strategies. In contrast, the mass beauty category is facing slower growth, thanks to waning unit demand. While many regions experience resilient beauty growth, the U.S. market saw a slowdown in the latter half of the fiscal first quarter. 

For Coty, tight inventory and order management by retailers has led to sell-in figures lagging behind sell-out in several markets, including the United States, Australia, China and Travel Retail Asia, each contributing only a small percentage to the company's overall business. Despite this, Coty has demonstrated robust revenue growth in other key markets, achieving mid-single to double-digit percentage increases. With limited exposure in China, Coty remains relatively insulated from its challenges.

Image Source: Zacks Investment Research

COTY’s Performance Insights

This Zacks Rank #3 (Hold) company’s first-quarter fiscal 2025 sales grew by approximately 4-5% on a like-for-like (LFL) basis, below the company’s earlier estimate of 6%. Considering the ongoing caution among retailers and the gradually slowing U.S. market, Coty now expects moderate growth in fiscal second-quarter LFL sales.

Management anticipates some acceleration in growth during the second half of the year, driven by easier year-over-year comparisons, improved alignment between sell-in and sell-out, several robust launch initiatives across both divisions and selective distribution expansion.

The combination of lower-than-expected order patterns in the second half of the fiscal first quarter, investments in high ROI sell-out initiatives, the timing of specific fixed costs and the profit impact from the divestiture of the Lacoste license are contributing to adjusted EBITDA, which is projected to be approximately flat to moderately lower year over year in the quarter, despite significant gross margin expansion.

Coty’s Strategic Cost Reductions & FY25 Outlook

In response to an increasingly uncertain demand landscape, characterized by cautious retailer behavior and a complex macroeconomic environment, Coty is amplifying its cost-reduction strategies across all aspects of its operations. The company is targeting savings significantly above its initial goal of $75 million for fiscal 2025.

By combining ongoing sales growth, continuous gross margin expansion and heightened cost savings for fiscal 2025 and beyond — while maintaining advertising and promotion expenses in the high 20s percentage — Coty expects adjusted EBITDA for fiscal 2025 to grow 9-11% year over year, aligning with previous guidance and anticipating a return to adjusted EBITDA growth in the fiscal second quarter. 

This growth target, alongside moderate revenue growth, suggests an even stronger adjusted EBITDA margin expansion for fiscal 2025, following a 30 basis points increase in fiscal 2024. In addition, Coty aims for leverage close to 2.5x by the end of calendar year 2024, although tight inventory management by retailers may introduce variability in cash inflow timing.

COTY’s stock has dropped 9.5% in the past three months compared with the industry’s 10.9% decline.