Coty cuts FY25 EPS view to 49c-50c from 50c-52c, consensus 43c

As part of FY25 being a transition year, both in Q3 and even more so in Q4, Coty (COTY) is continuing to clean the baseline including assuring that retailer inventories are rightsized relative to the current demand trends, that the Company is rebalancing our resources within Consumer Beauty to overdrive our profit engines while scaling its cosmetics innovations, and that the business remains disciplined in its promotional activity to protect the health of its brands. All of these efforts are targeted to prepare for a gradual improvement in sales trends over the course of FY26, underpinned by multiple levers, including several major launches in both divisions, geographic and channel expansion, and incrementally higher pricing contribution. And at the same time, Coty is actively intervening in key areas of the business to set the Company on stronger footing into FY26 and beyond. This includes stepped up fixed cost savings and productivity savings to protect the P&L and fuel its brands, and making concrete changes in its organizational set-up and leadership in key markets like the U.S. to improve execution and sell-out trends. The continuation of current category trends, coupled with Coty’s active interventions to clean up the baseline of the business to prepare for healthier FY26 business improvement, are driving Coty’s expectation for a high single digit LFL decline in sales in Q4. This translates to a 2% decline in FY25 LFL sales. On the reported revenue side, Coty sees a mid single digit decline in reported sales, which embeds a roughly 3% headwind from FX. The Company continues to expect continued expansion in FY25 gross margins to approximately 65%, consistent with its prior outlook. Coty remains on track to deliver EBITDA margin expansion at the lower end of its guidance range, with approximately 70 basis points of expansion to roughly 18.5%. This translates to roughly flattish EBITDA in FY25, which includes a low single digit headwind from FX. The benefit from both lower interest expense and a lower tax rate is supporting relatively stronger EPS delivery, with FY25 EPS expected to be $0.49-0.50, near the low end of its prior guidance range. On the cash flow side, Coty now expects FY25 free cash flow of approximately $300M. Finally, Coty expects leverage at the end of FY25 to be relatively inline with its leverage at the end of Q3.