Coty Narrows Sales Decline, Sells Gucci License Back to Kering for $400 Million
The beauty company's like-for-like revenue decline narrowed to 1% in the fiscal fourth quarter from 7% in the prior quarter, even as it agreed to hand the Gucci Beauty license back to Kering.
Coty Inc. (COTY) posted a sequential improvement in organic sales trends in its fiscal fourth quarter while simultaneously agreeing to unwind one of its largest prestige beauty licenses, setting the stage for a year of transition as the company restructures its operations and leans harder on cash generation.
The beauty company reported fourth-quarter revenue of $1.27 billion, up 1% on a reported basis from a year earlier, with like-for-like sales declining just 1%—a marked improvement from the 7% organic decline recorded in the fiscal third quarter. For the full fiscal year ended June 30, revenue fell 2% on a reported basis and 5% on a like-for-like basis to $5.81 billion, with a 4% foreign-exchange tailwind partially cushioning the organic shortfall.
The most consequential development of the quarter was not the earnings themselves but Coty's agreement to sell the Gucci Beauty license back to Kering for approximately $400 million—$250 million in cash at signing and $150 million due by September 2027—ending the arrangement roughly one year early, by June 30, 2027. The transaction removes a significant revenue and profit contributor from the fiscal 2028 outlook and underscores Coty's willingness to simplify its portfolio even at the cost of a near-term top-line step-down.
Profitability remained under pressure across the year. Fourth-quarter adjusted gross margin contracted 140 basis points year over year to 60.9%, weighed down by lower cost absorption from reduced volumes, elevated excess and obsolescence charges, and tariff costs. Adjusted operating income for the quarter fell 42% to $39.5 million, though that represented a sequential improvement from the third quarter's 51% decline. For the full year, adjusted operating income dropped 27% to $626.7 million, with margin narrowing 370 basis points to 10.8%.
The divergence between Coty's two business segments widened further. Prestige, home to fragrance brands like Burberry and Hugo Boss, posted a fourth-quarter like-for-like revenue decline of just 0.5% and generated adjusted EBITDA of $85.8 million, down 17%. Consumer Beauty, which includes mass-market cosmetics and color cosmetics, saw like-for-like revenue fall 3% and adjusted EBITDA plunge 67% to $7.8 million. Over the full year, Consumer Beauty swung to an adjusted operating loss of $43.2 million from a prior-year profit of $79.7 million, while Prestige remained solidly profitable at a 17.6% operating margin despite a 13% decline in adjusted operating income to $669.9 million.
Geographically, the Americas and Asia Pacific provided the brightest spots in the fourth quarter. Americas revenue rose 9% on a reported basis and 6% on a like-for-like basis, while Asia Pacific grew 11% on a reported basis and 7% on a like-for-like basis. EMEA, by contrast, declined 8% on a reported basis and 10% organically to $528.9 million, dragged down by weakness in the Middle East, Germany, and Central and Eastern Europe.
Cash generation offered a counterpoint to the profit erosion. Full-year free cash flow rose 25% to $348.2 million from $277.6 million, and operating cash flow grew 9% to $537.8 million, reflecting tighter working-capital management even as earnings declined. Fourth-quarter free cash flow more than doubled to $72.6 million. Net debt fell to $2.91 billion as of June 30 from $2.96 billion at the end of March, with leverage at 3.4 times net debt to adjusted EBITDA. Coty had already bolstered its balance sheet by monetizing its remaining Wella stake in December 2025 for $750 million, deploying the proceeds toward debt reduction.
Coty announced a broad organizational restructuring, including rightsizing the commercial organization and Consumer Beauty R&D and global marketing functions, and integrating Prestige R&D and sustainability with supply chain under a single leader. Departures include the chief commercial officer for Prestige and the chief scientific officer.
Early brand-level signals in the U.S. Consumer Beauty business offered some encouragement: Sally Hansen is now outperforming its category in units, and CoverGirl has narrowed the gap versus the category in both value and units. In Prestige, the Marc Jacobs Beauty makeup launch at Sephora drew an exceptional consumer response, with sell-outs running ahead of targets and expansion into hundreds of Sephora stores and travel retail planned for September of fiscal 2027.
For the first quarter of fiscal 2027, Coty guided to like-for-like revenue declining in the low- to mid-single digits, adjusted gross margin contracting roughly 50 to 100 basis points, and adjusted EBITDA declining in the low-teens percentage range—a sequential improvement from the second-half fiscal 2026 rate of decline. First-half free cash flow is expected to exceed $300 million, signaling the company's confidence in sustaining strong cash conversion through the transition.