COTY - NYSE

Hello, everyone. This is Olga Levinzon, Coty's Senior Vice President of Investor Relations. Thank you for joining us today for the prepared remarks portion of Coty's Fourth Quarter Fiscal 2025 Earnings. On Thursday, August 21, 2025, at approximately 8:00 a.m. Eastern Time or 2:00 p.m. Central European Time, we will hold a separate live Q&A session on our results, which you can access via our Investor Relations website. Joining me for our presentation are Sue Nabi, Coty's CEO; and Laurent Mercier, Coty's CFO. Before I hand the call over to Sue, 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 the 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. Thank you. I will now turn it over to our CEO, Sue Nabi.

Thank you, Olga. Welcome, everyone. As fiscal '25 closes, marking the fifth year that Laurent and I have had the privilege of leading Coty, it's important to reflect on what has been accomplished in the last 5 years and where we are going next. Today, Coty is a much stronger, more focused and more resilient beauty leader with 5 years of consistent performance. These solid foundations position us for continued profitable growth and industry leadership in innovation, science and, of course, creativity. Let me turn it over to Laurent to review our progress in the last 5 years, our recent results and fiscal '26 outlook.

Thank you, Sue. Over the past 5 years, Coty transformed, refining our strategy, strengthening our portfolio and consistently delivering results. We also consistently outperformed global peers, particularly in Prestige, delivering like-for-like growth ahead of global peers like L'Oreal, Estée Lauder, Shiseido and LVMH Perfume and Cosmetics division in most quarters from fiscal '21 to fiscal '24. A key pillar of our transformation is our strengthened leadership position in the Prestige fragrance business, underpinned by a step change in our capabilities. Prestige fragrances are now a $3.5 billion business for us, delivering a robust CAGR of plus 10% from fiscal '21 to fiscal '25. This is a testament to our brand portfolio, consistent execution and our ability to repeatably deliver blockbuster launches in this offer- driven category. Our transformation also includes revitalizing Consumer Beauty over the past 5 years. We restored this business to growth, stabilized distribution and renewed the brand equities across key brands, including CoverGirl and Rimmel. These efforts translated to a plus 2% CAGR from fiscal '21 to fiscal '25, signaling the meaningful progress after multiple years of decline in Consumer Beauty. Importantly, we achieved all of this while delivering strong financial results. From fiscal '21 to fiscal '25, EBITDA grew at a CAGR of plus 9% from $760 million in fiscal '21 to $1.08 billion in fiscal year '25 despite absorbing several hundred million in sales loss from our divestiture of Lacoste and our Russia exit. We are now on our second year of delivering EBITDA above $1 billion. Over that same period, we expanded our EBITDA margin by 190 basis points to 18.4%. We also remain disciplined in deleveraging the company, reducing our leverage ratio from around 6.8x in fiscal '21 to around 3.5x in fiscal year '25, a reduction of around 3.3 turns. Our financial transformation is also reflected in our significantly improved credit profile. Since fiscal '20, we have received 12 consecutive debt rating upgrades. Today, Coty is just 1 notch below investment grade across all 3 major rating agencies, a clear recognition of our strengthened balance sheet, consistent execution and disciplined financial strategy. While we have made significant progress, this year brought its own set of challenges. The combination of fueling multiple growth engines, maintaining high 20s percentage A&CP investment and meeting EBITDA and deleveraging goals added pressure in an increasingly complex market. These dynamics shaped the difficult fiscal year '25 backdrop, and we expect these pressures to persist through the remainder of the calendar year. From fiscal year '21 to fiscal year '24, we delivered strong top line growth, profitability and deleveraging despite significant external challenges, including the Russia exit, the Lacoste license divestiture and supply constraints. However, this strong and our focus on meeting financial commitments mask early signs of emerging challenges in the business. Specifically, we were delayed in intensifying weaknesses in our U.S. execution, retailer inventory buildup and headwinds from lapping fiscal year '24 innovation, all of which were significant pressure points in fiscal year '25. As we shared last quarter, we have been actively depleting this trade inventory, which drove our very weak Q4 and expect further though somewhat lower destocking impact into the first half of fiscal year '26. Importantly, fiscal year '24's blockbuster launches Burberry, Goddess; Cosmith, Kylie Jenner; and Marc Jacobs, Daisy Wild created a high comparison base, adding more pressure to fiscal year '25, which focused more on extensions. In fact, we have continued to build key fragrances franchises with like-for-like Prestige fragrance revenues 18% higher than 2 years ago, highlighting our strong underlying expansion. This is a key learning, and our focus going forward is to return to blockbuster launches and ensure steadier innovation cadence to reduce volatility in sales growth. The U.S., our largest individual market at nearly 1/4 of sales was a major headwind in fiscal year '25 and the top driver for our underperformance. While we've consistently gained share in Prestige across most regions, we lost share in the U.S. in both prestige and mass. The U.S. Prestige beauty market grew by approximately 4% in fiscal year '25, but our like-for-like sales declined by a mid- single-digit percentage. The U.S. mass beauty market declined by roughly 1% in fiscal year '25, while our like-for-like sales declined by a mid-teen percentage. This underperformance drove all of our like-for-like sales decline in fiscal year '25 and the majority of it in Q4. Investor focus on our U.S. mass business led to a disproportionate investment in that area at the expense of our true centers of excellence, Prestige and mass fragrances. Going forward, we intend to allocate our investments where ROI and both short- and long- term opportunities are strongest, even if it means further weakness in the U.S. Nielsen data. The challenges of fiscal year '25 coincided with moderating growth in the broader beauty market. Prestige fragrance growth has moderated gradually from exceptional growth in prior years, though market trends are incrementally stronger in Q4 compared to Q3. The mass cosmetics category saw a sharper category slowdown from high single-digit percentage growth in fiscal year '24 to mid-single-digit percentage decline in Q3 and low single-digit percentage decline in Q4. Our analysis of cosmetics category weakness points to value-seeking behavior, some fatigue with innovation as consumers circle back to basics and less frequent usage, particularly with Gen

Thank you, Laurent. As the beauty market evolves, we're entering the next phase of Coty's transformation. We are refocusing on our core strength, the categories, brands and capabilities where we have a clear right to win and can deliver outsized returns. This strategic shift will help us prioritize investment, streamline execution and unlock greater value in the most attractive areas of the market. As we shared at CAGNY earlier this year, we are adjusting our strategy in step with the rapidly evolving beauty market. Our strategic focus is leveraging Coty's leadership and best-in-class capabilities in global fragrances and scenting to drive strong growth. Fragrances already represents over 60% of our revenues and even larger portion of profits, making them a powerful growth and profit engine. At the same time, we are focused on growing Coty's footprint and diversification in a select number of structurally profitable and growing beauty categories and geographic markets where we can scale effectively and deliver outsized returns. Our focus on scenting and fragrances across the full price spectrum from $5 to $500 and across our owned and licensed brands remains unwavering. It's a category where Coty has a proven right to win, supported by our best-in-class capabilities across R&D, manufacturing, marketing and of course, distribution. Our unwavering focus on fragrances is grounded in both scale and strategic capabilities. In the highly attractive $50 billion prestige fragrances market, Coty is a top 3 player with 12% market share, right in line with the second player, LVMH. Amongst the top 5 global fragrance players, only Coty and L'Oreal operate licensing models, meaning luxury brands have a limited set of partners who can build scaled global multi-category beauty businesses. We also lead the mass fragrance market, a $7 billion category across developed markets like U.S. and Europe. Here, we hold the #1 position with 11% market share, sorry, well ahead of peers, positioning us well to expand our portfolio with new owned and licensed brands. Our leadership in fragrances is underpinned by best-in-class end-to-end capabilities. We have leading internal R&D capabilities, including over 80 active patents and patent applications, mainly focused on fragrance longevity. And this know-how is anchored by our fragrance center of excellence in Geneva, including our leading perfumers. We also operate one of the largest fragrance plants in the world with a production capacity of over 200 million units every year. Commercially, we reach about 30 directly managed markets and have distribution across over 20,000 doors for our top brands in fragrances among the largest globally. Few global beauty players operate a licensing model and offer true end-to-end capabilities across R&D, manufacturing, marketing and distribution, giving us a distinct competitive advantage. Fragrances remain a structurally growing category, and we expect the structural drivers behind this renaissance to continue. We are seeing new cohorts entering the category, including men, Hispanic consumers and Gen