Coty's Q1 FY27 revenues slip 1% as Middle East war hits margins

Coty's net revenues fell 1% to US$1.55bn for the three months ended 30 September 2026, and the Middle East war took 120 basis points off gross margin. The company reported the figure on a reported basis, with adjusted gross margin landing at 63.3% year-over-year.

The margin decline reflects higher freight and material costs tied to the conflict, plus elevated excess and obsolescence charges after demand forecasts proved too optimistic. EMEA net revenues dropped $44.8m year-over-year, driven by lower sales in the Middle East and Europe and only partially offset by growth in Africa.

Executives framed the quarter as an early win in what the company calls a "transitional year." The numbers suggest stabilization rather than recovery, but stabilization after a bruising fiscal 2026 counts for something.

What did the divisions deliver?

Prestige, at 68% of total sales, declined 1% to $1bn on both reported and like-for-like bases. The division shed $11.1m year-over-year, dragged by moderate declines in prestige fragrance and skin care, with prestige cosmetics growing partially against the tide.

Consumer Beauty fared little better. Reported net revenues sank $10.9m against the previous quarter on weaker colour cosmetics and mass fragrance sales. Mass body care grew, which will please the category's proponents and few others.

Reported operating income nonetheless increased, mainly because Coty cut advertising and consumer promotional spend — a saving largely offset by the weaker gross margin. Cost discipline is doing the heavy lifting while sales recover.

Is the Coty.Curated turnaround working?

"Our first quarter results were ahead of expectations on sales, adjusted EBITDA and EPS, alongside a significant improvement in free cash flow, supported by the focus of 'Coty.Curated'," said Markus Strobel, Executive Chairman and Interim CEO.

The like-for-like sales decline narrowed to 2%, broadly in line with the fourth quarter and a clear improvement from declines of 6% and 4% in the first and second halves of fiscal 2026. Strobel credited improvements in the US, Asia Pacific and Latin America.

"While our progress in the first quarter is encouraging, we have more work to do to translate green shoots into a broad-based recovery," he added.

The strategy concentrates investment behind Coty's top six core prestige brands, which represented 73% of prestige sales in Q1. Those brands swung from a 6% like-for-like decline in the first half of fiscal 2026 to 5% like-for-like growth in Q1, with five of the six growing and combined sell-out returning to growth.

First-half launches are tracking ahead of plan, according to Strobel: Boss Bottled Beyond for Her, Burberry Goddess Amber Vanilla, Mood Stones by Kylie Jenner, and Marc Jacobs Beauty make-up.

Why does the Marc Jacobs license matter?

Coty has extended its Marc Jacobs Beauty license for 40 years with WHP Global and G-III Apparel Group, the brand's co-owners. The company called Marc Jacobs "one of the core brands" in its prestige portfolio and said the four-decade extension will let it accelerate global growth across categories and markets.

The timing is not accidental. L'Oréal is taking over the Gucci Beauty license from Coty a year earlier than expected, after reaching a deal with Gucci's owner Kering. Coty's license to produce Gucci fragrance and make-up had been set to run until 2028, following L'Oréal's €4bn acquisition of Kering Beauté last year. Losing Gucci early makes a long-dated replacement franchise a sensible piece of portfolio housekeeping.

What happens next?

For the remainder of FY27, Coty plans to build on the launch of Boss Bottled Beyond for Her to grow Hugo Boss' female fragrance business, while concentrating investment on the brand's core franchises. Burberry gets higher marketing spend to deepen consumer engagement across fragrance and make-up.

CFO Soraya Benchikh, who joined at what she called "a pivotal moment," said priorities remain quality growth, productivity to fund disciplined reinvestment, and stronger cash generation.

"The year-over-year decline in adjusted EBITDA moderated to 7% from steeper declines in fiscal 2026," she said, adding that "sustainable improvement will take time."

Coty expects Q2 2027 like-for-like revenue to decline by a low-single-digit percentage, broadly consistent with the last two quarters. The next data point to watch is the Q2 print, which will show whether the green shoots survive a full quarter of higher Burberry marketing spend.