Coty Q1 2027 Sales Fall 1.6% as Free Cash Flow Improves

Coty Inc. (NYSE: COTY) reported a 1.6% like-for-like sales decline for its fiscal first quarter of 2027, a better result than its guidance for a low- to mid-single-digit decrease, as stronger U.S. trends and milder-than-expected declines in the Middle East supported performance. Free cash flow also increased sharply, although lower gross margin contributed to a 7% drop in adjusted EBITDA.

Net revenue totaled $1.56 billion in the quarter ended during fiscal 2027. Coty said sell-in and sell-out were broadly aligned across both Prestige and Consumer Beauty, while its like-for-like sales trend improved from declines of 6% in the first half and 4% in the second half of fiscal 2026.

Adjusted EBITDA fell 7% year over year to $274 million, with the adjusted EBITDA margin contracting 120 basis points to 17.6%. Adjusted earnings per share excluding the equity swap were unchanged at $0.15.

Adjusted gross margin declined 120 basis points to 63.3%. Coty attributed the pressure to higher freight and materials costs in the Middle East, excess and obsolete inventory linked to elevated prior-year demand forecasts, and a sales mix that included higher volumes from Brazil. The company is working to improve demand and supply planning, but said current oil prices are expected to increase the Middle East-related gross-margin headwind through the remainder of fiscal 2027.

Core Prestige brands support sales

Prestige generated $1.06 billion of revenue, with like-for-like sales down 1%. Coty’s six core Prestige brands—Hugo Boss, Burberry, Calvin Klein, Marc Jacobs, Kylie Cosmetics and Chloé—represented 73% of divisional sales and collectively grew 5% on a like-for-like basis. Five of the six brands recorded growth.

The company allocated 76% of Prestige advertising and consumer-promotion spending to those brands, up from 68% in the second half of fiscal 2026 and 64% in the first half. Coty said first-half fiscal 2027 Prestige launches were tracking ahead of target.

Marc Jacobs fragrance sales rose at a double-digit rate, driven by the Daisy franchise, while the brand’s newly launched makeup line exceeded retail-sales targets after entering about 600 Sephora stores in the U.S., U.K., Australia and Canada, as well as online. Coty also extended its Marc Jacobs license to a 40-year term.

Kylie Cosmetics posted double-digit like-for-like brand growth, supported by double-digit fragrance gains and high-single-digit makeup growth. Burberry, Hugo Boss and Chloé each delivered low-single-digit growth. Calvin Klein benefited from CK One and its newer Euphoria franchise, though overall brand trends were moderately softer.

Consumer Beauty remains under pressure

Consumer Beauty revenue was $500 million, down 3% like for like. Its four core brands—CoverGirl, Rimmel, Sally Hansen and adidas—accounted for 58% of divisional sales, while their share of the division’s advertising and consumer-promotion investment increased to 71% from 64% a year earlier.

Coty highlighted signs of progress in several markets. CoverGirl narrowed its retail-sales gap with the U.S. mass cosmetics category, while Sally Hansen regained the No. 1 position in U.S. nail products, with a 17.9% share in the first quarter. Rimmel also moved closer to category performance in the U.K.

The company’s Consumer Beauty innovation strategy calls for fewer and more focused launches. Coty said these products were producing lower returns and markdowns than in prior years, while new mascara technology was being used across both CoverGirl and Rimmel.

Cash generation and debt reduction

Free cash flow rose to $85 million from $11 million a year earlier, driven by improved working capital. Free-cash-flow conversion, calculated as free cash flow divided by adjusted EBITDA, increased to 30.8% from 4%.

Net debt declined by about $300 million from the end of fiscal 2026 to approximately $2.6 billion, leaving leverage at about 3.1 times net debt to adjusted EBITDA. Coty said further deleveraging remains a top priority.

Management’s broader priorities include concentrating investment on core brands and markets, simplifying and right-sizing the cost base, improving cash conversion and reinvesting productivity savings in advertising and consumer promotion. The company also remains committed to completing its strategic review by the end of calendar 2026.

Second-quarter outlook

For the second quarter of fiscal 2027, Coty expects a low-single-digit percentage decline in like-for-like revenue, while its six core Prestige brands are expected to continue growing. Foreign exchange is projected to have a low-single-digit negative effect on reported revenue.

Adjusted EBITDA is forecast to decline by a high-single-digit percentage year over year, and adjusted EPS excluding the equity swap is expected to range from $0.16 to $0.18. Coty projects more than $300 million of free cash flow for the first half of fiscal 2027.

The company cautioned that its recovery is unlikely to be linear. Its outlook remains exposed to gross-margin pressure from Middle East freight and materials costs, elevated oil prices, inventory obsolescence, currency movements, tariffs, geopolitical disruption and weaker consumer demand. Execution of the strategic review, cost restructuring and portfolio changes also remains subject to timing and implementation risks.