Coty still in recovery mode

Published: 2026-05-17 13:08:07 ET COTY

The market appears to be growing weary of successive restructurings at the fragrance and skincare specialist.

Eloi Suinot

Published on 05/17/2026 at 01:08 pm EDT

Deleveraging remains one of the primary pillars of the company's investment case. Net debt now stands at 3.4x EBITDA, at just under $3bn: it still represents about 5x operating profit. Last December, Coty raised $750m to strengthen its balance sheet following the sale of a 25% stake in its hair care brand, Wella, to KKR.

In terms of management, Sue Nabi, who has spearheaded the bulk of its deleveraging efforts, was dismissed late last year after five years at the helm. The Reimann family, which controls Coty, has initiated a governance overhaul, with the appointment of new directors. The baton has been passed on to Markus Strobel, a veteran of Procter & Gamble, who has been named interim President and CEO. This new team is tasked with continuing the portfolio reshuffle and initiating the operational improvement that the market has long been awaiting. Investors have yet to buy into this scenario; indeed, a third of Coty's market capitalization has evaporated since their arrival at the start of the year.

The brand portfolio is therefore expected to change. L'Oréal acquired the beauty division of Kering, making it unlikely that Coty will renew the Gucci license after 2028. Markus Strobel has even alluded a potential early exit.

The group also aims to simplify its consumer business, which has become a drag on performance. Within Consumer Beauty, Coty intends to focus its efforts on CoverGirl, Rimmel, Sally Hansen and Max Factor. Priorities have now been ranked: the first objective is to regain ground in North America, followed by a relaunch of Rimmel in the UK, before addressing the rest of the European portfolio. More broadly, Coty is withdrawing from markets that are too small or not profitable enough, while it is scaling back secondary launches.

Coty is seeking to break away from a "sell-in" culture, which has involved pushing high volumes of products into distribution networks, often resulting in returns, heavy discounting and pressure on margins.

The group now intends to manage its brands based on "sell-out" data, reflecting actual consumer demand. This transition may weigh on reported sales in the near term, as Coty ships fewer products to distributors. However, in theory, it should improve revenue quality, shelf productivity and medium-term profitability.

For now, however, results provide little evidence of this improvement. Both segments posted a decline in revenue, while margins also contracted. Adjusted EBITDA is negative in Consumer Beauty, even before accounting for the $363m impairment charge taken on this business. Even the Prestige segment, considered the group's growth engine, is suffering from margin erosion. Quarterly EBITDA consequently fell by nearly 40%.

It is worth noting that distributors are destocking, as in-store sales are outpacing sales to retailers in key markets. This suggests that final demand is resisting better than reported figures might suggest. However, at this stage, the pace of the operational turnaround remains too uncertain.

The group has seen 2/3 of its market capitalization go up in smoke since the beginning of 2025. While valuation ratios have broken through historical floors, the stock does not appear to be an obvious anomaly for the time being.