COTY: AI Flags Potential Put Play on Downtrend

Coty Inc. is a global beauty company offering a portfolio of fragrance, color cosmetics, and skin and body care products. The company operates through two segments: Prestige and Consumer Beauty. Its brand portfolio includes both owned brands like 'CoverGirl', 'Sally Hansen', and 'Rimmel', and licensed brands such as 'Adidas', 'Burberry', 'Calvin Klein', and 'Gucci'. Coty targets a wide range of consumers, with Prestige products sold through prestige retailers and Consumer Beauty products sold through mass-market channels like hypermarkets and drug stores. Coty's business strategy focuses on leveraging its leadership in fragrances, expanding into growing beauty categories and channels like e-commerce and travel retail, and establishing itself as a leader in sustainability. The company also emphasizes agile innovation, digital advocacy, and expansion into adjacent product categories like body mists.

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COTY's technical outlook appears mildly bearish. The stock has experienced a significant downtrend over the past 90 days, evidenced by the price decline from approximately $5.00 in late July to $3.80 as of November 4, 2025. The 50-day SMA is $4.12, and the price is well below this level. The 200-day SMA is $5.03, further confirming the downtrend. Momentum indicators suggest continued weakness. The MACD is negative (-0.064), and the MACD histogram is also trending downward, indicating bearish momentum. The RSI is at 39.32, suggesting that the stock is approaching oversold conditions, but not quite there yet. The ADX is at 13.85, indicating a weak trend. The STOCHk is at 15.95, which is very low, but the STOCHd is 12.50, also suggesting the stock is not oversold. Overall, the technical indicators suggest a continuation of the downtrend in the short to medium term.

Coty's MD&A reveals a challenging period, with 'net revenues' for the three months ended March 31, 2025, decreasing by 6% to $1,299.1, and a 2% decrease to $4,640.5 for the nine months ended March 31, 2025. The company attributes this decline to negative market trends in color cosmetics, particularly in the United States, China, and Europe. The 'cost of sales' as a percentage of net revenues increased to 35.9% from 35.2% for the three-month period, resulting in a gross margin decrease of approximately 70 basis points, driven by higher returns, discounts, and promotions. For the nine-month period, however, 'cost of sales' decreased to 34.5% from 35.6%, resulting in a gross margin increase of approximately 110 basis points. The company reported an operating loss of $280.4 for the three months ended March 31, 2025, compared to an income of $77.8 in the prior year. 'Net cash provided by operating activities' decreased to $409.4 from $438.1 for the nine months ended March 31, 2025. Looking ahead, the company anticipates that reported 'net revenue' for fiscal 2025 will decline in the mid-single digit percentage versus the prior year, including a low-single digit percentage negative impact of foreign exchange. The company is re-accelerating cost reduction efforts to deliver savings of approximately $120.0 in fiscal 2025, in anticipation of a more uncertain demand backdrop.

Coty's earnings call paints a mildly bearish picture, primarily driven by near-term headwinds and challenges in the U.S. market. While management highlights a 'much stronger, more focused and more resilient beauty leader,' the fiscal year '25 saw net revenues decline 2% like-for-like, and Q4 revenues declined 9%. Laurent Mercier noted that the 'difficult fiscal year '25 backdrop' was shaped by fueling growth engines, maintaining high A&CP investment, and meeting EBITDA goals in a complex market. Specifically, U.S. execution weaknesses and retailer inventory buildup contributed to underperformance. The company expects net revenues to remain negative in the first half of fiscal year '26, with a like-for-like decline of 6% to 8% in Q1 and 3% to 5% in Q2, before turning positive in the second half. Furthermore, tariffs are expected to create a gross headwind of approximately $70 million in fiscal year '26. While Coty is implementing mitigation plans, a 'net negative impact from tariffs' will weigh on EBITDA in the first half. Despite these challenges, Coty is focused on its core strength in fragrances and aims to step-change profitability in cosmetics. The company is also actively transferring fragrance production to the U.S. to mitigate tariff impacts. However, the negative sales and profit trends in the near term contribute to a bearish outlook.

COTY's financial performance presents a mixed picture. Revenue has been relatively stable, fluctuating between $1.36B and $1.73B over the past year and a half, with the most recent quarter showing revenue of $1.25B. The gross profit ratio has also remained fairly consistent, ranging from 0.607 to 0.667, landing at 0.623 in the latest quarter. Operating cash flow has been volatile, with a significant swing from -$170M in Q3 2024 to $464.5M in Q2 2024, and most recently settling at $83.2M. Total debt has seen some fluctuation, starting at $4.38B in Q1 2024, decreasing to $3.66B in Q2 2025, but then climbing back up to $4.25B in the most recent quarter. The inconsistent profitability, fluctuating cash flow, and sizable debt indicate potential challenges in COTY's near-term financial outlook.

The company demonstrates a moderately bullish profile, characterized by solid revenue growth and improving profitability. Revenue has consistently increased, indicating strong market demand. The gross margin exhibits stability, suggesting efficient cost management. Return on Equity (ROE) has shown positive movement, signaling enhanced profitability and efficient use of shareholder equity. The Price-to-Earnings (P/E) ratio, while elevated, might be justifiable given the growth trajectory and positive ROE trend. The Debt-to-Equity ratio shows a slight increase, which warrants monitoring, but is counterbalanced by a healthy Current Ratio, implying sufficient liquidity to meet short-term obligations. Overall, the company presents a favorable picture with growth and profitability, though the leverage should be watched closely. The combination of growth and profitability suggests potential for continued positive performance over the next 12 months.