Good morning and good afternoon, everyone. My name is Chelsea and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's Third Quarter Fiscal 2026 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, May 6, 2026, at 8:00 a.m. Eastern Standard Time or 2:00 p.m. Central European Time. Please note that on May 5, at approximately 4:30 p.m. Eastern Standard Time or 10:30 p.m. Central European Time, Coty issued a press release and prepared remarks webcast, which can be found on its Investor Relations website. On today's call are Markus Strobel, Executive Chairman of the Board and Interim Chief Executive Officer; and Laurent Mercier, Chief Financial Officer. I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Coty's earnings release and reports filed with the SEC, where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except where noted, the discussion of Coty's financial results and Coty's expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. With that, we will now open the line for questions. Our first question will come from Filippo Falorni with Citi.
First question, Markus, I was hoping you can elaborate on the sell-in versus sellout gap that you called out yesterday, both for Prestige and Consumer Beauty, different drivers there. But how should we think about it going forward into Q4 and as you start thinking about fiscal '27? And then one question for Laurent. On the margin side, can you provide some color on the exposure to oil and higher oil prices, both from a raw material standpoint but also from a distribution and logistical standpoint?
On your first question, on the Prestige side, it was good that we saw some sellout growth. Not much but it was positive and we're happy about that. The sell-in was trailing. There are three reasons behind this. First is the Middle East because when this hit us end of February, we basically couldn't sell anything in March. The Middle East, for us, is a mid-teens region and was growing very strongly. So a good part of that sell-in problem is attributable to the Middle East. Second, we're still in a highly promotional environment, which can be visible in the gross-to-net. Finally, a lot of our European retailers stocked up quite a bit for the holiday, for the Christmas period, and our sellout was not as high as they had intended it to be. They were working down some inventory in Q3. All these three factors combined led to that gap between sell-in and sellout. When it comes to Consumer Beauty, the good news is that we have closed the gap to the category a bit, especially on Sally Hansen and on CoverGirl in the U.S. On both of these brands, we are now growing versus the market in unit volume and we are catching up in value. Why have we not seen this in the sell-in? There are multiple reasons. First, we decided to get our whole organization focused on sellout and market share. This is a big cultural shift. In Q3, we sold in much slimmer, much sharper bundles because historically we sold in very large bundles, a lot of volume; the problem with that is if it doesn't sell out, it comes back as returns and obsolescence. We avoided that this time. So we sold in less but we sold through much more. That's how we gained against the category. This is a short-term effect of selling in less because we changed our strategy to drive retail productivity. Second, we exited some smaller markets in Consumer Beauty, especially in color cosmetics in Southeast Asia and in Mexico. When you exit, you don't sell in. We believe that long term, the focus on sellout, the sharper bundles and much more retail productivity will make us a stronger company. Over time, sellout will equal sell-in.
On the second question, Middle East has two implications on the top line and margin. Middle East is a mid-single-digit percentage of net revenue for the company, and there is an impact from oil price. Roughly speaking, a $1 increase in oil price impacts our profit by about $2 million on a gross basis. This is before any intervention on productivity, change of sourcing, pricing, or other activities. Timing is delayed because we hold inventories on components and our procurement team has some hedging policies with our suppliers that protect both suppliers and us. All in all, we expect to be protected against oil inflation roughly by the end of calendar year 2026. In terms of scope, the impact is on freight, on glass, and on plastic components. Procurement teams are actively optimizing sourcing to avoid the full impact. The teams have demonstrated ability and agility over the last years to navigate volatility, and they are fully engaged while ensuring we keep top quality products.
Our next question will come from Olivia Tong with Raymond James.
You mentioned retail destocking is mostly complete but promotional levels are obviously still higher than you'd like. And at least in the near term, Middle East is likely a continued headwind. Could you give us a better sense of when you expect that sell-in and sellout to converge? Is this a next 12 months endeavor? Or could it potentially take longer? I understand your comments to Filippo about some of the actions that you're taking, particularly in Consumer Beauty, but would love a little more detail on that. And then longer term, can you talk about some more of the building blocks to get you closer to category growth and whether you may need to take even more drastic actions, particularly in Consumer Beauty to get you there?
Let me start with how we get to category growth, both on Prestige and Consumer Beauty. They run under the Coty.Curated framework. First, get the right innovation out there and focus on the right innovation. For fiscal '27, we identified our best innovations, innovations that complement the brand and have a halo effect, and removed small activities that do not contribute. We have cut the number of activities to make the innovation we bring to market bigger and better. We're doing this on Prestige and on Consumer Beauty. We already see that some of our reduced bundles with bigger, better innovation are far ahead of objectives, some three times ahead. We can appeal much more to consumers and get more traction. Second, improve consumer engagement. By doing many activities in the past, we had spread our media thin. We're changing that: creating fewer assets, putting more money into working media, and focusing on advocacy such as influencers. We were slow to adopt this modern approach but we're catching up quickly and expect better consumer response. Third, change company culture to be sellout oriented. For every innovation, we now ask what the sellout plan is, what the joint business planning with the retailer is, and whether it fits into retailers' cadences so plans are synchronized to drive sellout and then sell-in will follow. Fourth, apply an ROI lens to everything. We have good ROI measurements now for media and marketing spending to see what moves the needle. Across these four elements under Coty.Curated, we believe this will have a big impact over time. We put the framework in the last call and are putting it into the market now. We expect improvement in 2027. It will likely go faster on the innovation and ROI sides because decisions are already made and data exists. Moving asset creation to working media takes more time due to lead time requirements, and changing an organization from sell-in to sellout orientation takes time too. When everything comes together, sellout and sell-in should equate, giving us a healthy business from which to grow and reduce the gap versus the market. We want to grow at least with the market and ultimately outgrow it.
Our next question will come from Sydney Wagner with Jefferies.
We're encouraged to hear some progress early from CoverGirl. Which of those strategic steps do you think are most repeatable outside of the U.S.? And several mass retailers are developing and broadening their beauty offerings. How do you think about where Coty brands fit into that evolving mass retail environment and how your strategy fits around there?
Looking at CoverGirl and Sally Hansen, we had many failed efforts in recent years to position brands where they didn't fit. For example, we tried to turn CoverGirl into the ultimate Gen Z brand; that wasn't credible. Retailers often tell me they want an offering for Gen X because Gen X women have spending power yet are underserved. For CoverGirl, we repositioned the brand to appeal to Gen X, and retailers have supported that. The go-to-market mix needs both advocacy and some traditional media focused on core franchises like Simply Ageless and Lash Blast—things people know and trust. We will bring innovation on these existing franchises rather than newness for the sake of newness. This approach is highly appreciated and has helped CoverGirl get much closer to the category; we are outgrowing the category in U.S. units. We believe this model is applicable outside the U.S. We'll apply it to Rimmel in the U.K. and to Bourjois and Max Factor in Europe.
Our next question will come from Oliver Chen with TD Cowen.
Regarding the focus on the sellout culture, what does that mean in terms of your systems and capabilities or working capital and what you're thinking that requires? It sounds quite prudent. On the promotional environment and the European accounts being overstocked, how long might that persist? What are you monitoring in terms of the relationship of what you're seeing there relative to guidance? And Laurent, on the A&CP shift, was that planned or in reaction to marketplace conditions?
Sellout culture is the more difficult part because culture change takes longer than strategy change. We're implementing this across the organization. In business reviews, we now ask for selling plans, retailer plans, retailer engagement, and retailer verification of plans so we ask the right questions. At a senior level, we are connecting with the right retailers. We will put some of these metrics into our evaluation system; when you put market share into performance evaluation, you see a shift toward sellout almost immediately. It's a mix of performance metrics, KPIs, measurement, and daily reinforcement. We're also building capability for joint business planning with retailers, not just selling in and hoping it sells. Curation helps because fewer, bigger initiatives allow focused planning versus throwing too many things out where bandwidth is limited. That will help. Regarding retailer inventory, we don't see much structural destocking in trade; structural destocking would mean retailers broadly reduce inventory days on hand, and we don't see that. Our Christmas sellout wasn't as great as we wanted, and we worked through that in the first quarter. Going into the next holiday period, Mother's Day and Father's Day, we're much more attuned. As we adopt sellout culture, sellout and inventory should be more closely correlated. It should get better over time.
To build on that and address working capital: as part of Coty.Curated and the sellout focus, there are strong benefits to cash and working capital. Focusing on the big SKUs and reducing the tail affects inventory and working capital positively. We are emphasizing forecast accuracy and understanding dynamics with retailers to be more efficient on inventory and reduce excess and obsolescence. Procurement's supplier streamlining projects also contribute. These actions have concrete implications on top line, gross margin and working capital. On A&CP, our level in Q3 is flat in absolute terms, so as a percentage it has increased. There was no cut or drastic reduction; it's tight monitoring. When we say focus, it means focusing on big bets and where we see strong ROI. The decision to reserve money from Q3 and allocate it to where we see strong ROI, for example Mother's Day and Father's Day for Prestige, was a conscious decision during the quarter. We are not rigid—when we see opportunities we reallocate funds.
Our next question will come from Susan Anderson with Canaccord Genuity.
How should we think about the exit of Orveda and some of the brands from smaller markets? When should we expect the Orveda exit to occur? Can you give any details on how large that business was?
We started transitioning out of Orveda in February. We reserved for the associated costs in Q2 and are executing now, which means closing some boutiques; some may be taken over by the previous licensor. We expect to be out more or less completely by the end of this fiscal year—around June, July, August. We can reallocate spending from this business to core fine fragrance brands. We do not break out individual brand sizes, but Orveda was not a large business. Regarding other brands, mostly in Consumer Beauty, we exited some smaller markets that are not economical; the volumes per market are fairly small. We'll focus Consumer Beauty on our most important franchises: CoverGirl, Rimmel, Sally Hansen, Max Factor. Priorities: win in North America, win on Rimmel in the U.K., and then win the rest of Europe.
Are you able to quantify the tariffs you paid over the last year? Any insight on if there's a chance for refunds?
Roughly, it's about $30 million impacting the P&L this year. We are looking carefully at any opportunities to obtain refunds and depending on how the situation evolves, if and when refunds are possible, we will consider that to help the P&L.
Our next question will come from Charles Scotti with Kepler.
First, you mentioned the competitive environment remains very intense. Could you provide more details on this and who is putting pressure on pricing and in which regions? More broadly, do you think that, similarly to the luxury industry, consumers are starting to push back against perfume price increases and could prices eventually start to decline? Could you push more on smaller formats to adapt to lower purchasing power? Second, there have been media rumors suggesting you could dispose of certain licenses to accelerate deleveraging. These rumors have been denied but do you have any comment? Regarding Gucci more specifically, you previously seemed open to a disposal ahead of license maturity. Could you give an update?
First, the beauty market is extremely resilient. We saw 5% growth in the market in Q3—5% in Prestige and 5% in mass. Consumers are shopping across a wide price spectrum and we have not seen negative reaction yet. There is more promotion in the market as players fight for share, which is more about building sellout and market share than absolute price declines. We believe consumer resilience remains intact. On rumors about divesting parts of the Prestige portfolio, there is no truth to that. We categorically deny it. There are no plans; we are very happy with our Prestige portfolio and each brand has an important role. For Burberry and Hugo Boss, our biggest brands, they are global and we will continue to build them strongly. Regarding Gucci, we are open to everything if it creates value for us and our shareholders. If anything becomes definitive, we will notify the public as required. Nothing to report at the moment; we'll keep you posted.
Our next question comes from Andrea Teixeira with JPMorgan.
You and Laurent talked about SKU rationalization and brand rationalization in Consumer Beauty—this has been a long journey. What inning are you in and how many more iterations do you think are needed? Related to costs, you mentioned returns and obsolescence impacting numbers. How should we think about where margins will land and how long will it take as you focus more on sellout versus sell-in? It seems you will incur costs to restructure and get better returns.
On getting innovation to a place that makes sense for shelf and retail productivity: in the past we launched so many innovations each spring and fall that we crowded out productive SKUs on shelf. You end up with things that don't sell and you lose productive SKUs, which returns as obsolescence. We're still suffering the hangover of that. Q3 was the first quarter where we began breaking that cycle. We'll break it further with a sharper fall bundle. It's not just reducing the number of properties; it's bringing properties to market that resonate with consumers. We'll be more consumer-based and trend-based to meet the market and create trends. Early results are very good—some innovations are well above expectations and help build market share in volume while catching up in value with fewer bundles and SKUs. It will likely take one to three iterations of those bundles to see the full effects and less obsolescence over time. Give us a few quarters to see the effects.
On E&O, look at initiatives end to end. It's not just reducing SKUs; it's precision in forecasting, inventory, and reducing E&O and returns. In Q3, E&O hurt our gross margin in both Prestige and Consumer Beauty. By reducing bundles, we reduce inventory, reduce E&O, and reduce retailer returns, which will flow into the P&L. There are some exceptional elements now, such as closing markets in Consumer Beauty which can cause short-term inventory cuts and returns, but those are temporary and will disappear. These decisions will show benefits over time and be visible in gross margin improvement.
Our next question will come from Bonnie Herzog with Goldman Sachs.
On FY '27, how should we think about the impact from the Middle East? Is the 2- to 3-point headwind you expect in Q4 a good proxy? Could you provide more context on these pressures and any investments to support launches? Ultimately, is it reasonable to assume continued EBITDA declines or could EBITDA start to flip positive?
There are many moving pieces and volatility. Middle East is mid-single-digit percent of Coty overall; it's a very strong and dynamic fragrance market and creates a headwind. Within the region, dynamics differ. Travel retail is the most impacted channel due to reduced travel; Emirates is affected by tourism and currency shifts, while markets like Saudi are relatively protected. We monitor this closely and manage P&L and investment in the region agilely with a strong local team. On your investment question, the big focus is sellout, which will drive performance improvement. It will take discipline to improve sellout and reduce the gap versus the category. Our goal is to improve the EBITDA year-on-year trend over fiscal '27. We also need to manage potential inflation, like oil. There are short-term benefits and headwinds next year, but the organic trend must improve through better sellout and an improving EBITDA trajectory.
Our last question will come from Anna Lizzul with Bank of America.
You mentioned the promotional environment being elevated. Could you comment more on both Prestige and Consumer Beauty and when you expect this to normalize?
We are seeing some elevated promotion from specific retailers. I would not call it a major change versus previous quarters. We protect our brands and innovations, and we avoid playing a broad promotional game. In Consumer Beauty, we've been cautious on price increases versus many competitors, and our sellout in units, especially in the U.S., is growing. That is encouraging and helps avoid aggressive promotional behavior. You can see tangible results in sellout improvement in CoverGirl in the U.S. We manage revenue management and promotionality very closely and remain disciplined. When normalization occurs for peers, that's for them to comment on; we stay disciplined and targeted.
A final closing comment: we are not yet where we want to be, but we're improving. Q3 demonstrated our ability to protect profitability and cash flow while taking concrete steps to strengthen execution. Coty.Curated is guiding the shift—sharpening priorities, simplifying the operating model and scaling what works. With sustained focus and disciplined execution, we are confident Coty is well positioned to deliver more consistent profitable growth and long-term value creation. I want to thank all Coty employees around the world who are working hard to make this happen, and especially our colleagues in the Middle East who are doing a tremendous job under high uncertainty. Thank you very much.
Thank you, ladies and gentlemen. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.