Mounting Debt And Margin Risks Will Impair Future Performance

Key Takeaways

• Elevated debt and limited deleveraging restrict investment in innovation and expose Coty to earnings pressure amid persistent high financing costs.
  
• Shifts to sustainable beauty, regulatory demands, and digital-first competitors threaten Coty's market share and margins, increasing revenue volatility and long-term profitability risks.
  
• Strong innovation, expanding fragrance leadership, digital growth, operational improvements, and favorable demographic trends position Coty for sustained revenue resilience and margin expansion.

Catalysts

Manufactures, markets, distributes, and sells branded beauty products worldwide.

• Continued high debt levels and impending refinancing needs, coupled with limited progress on deleveraging, are likely to constrain Coty's ability to invest in innovation or brand building, resulting in pressure on net margins and heightened risk to future earnings, especially as debt costs remain elevated into 2026.
  
• While fragrances have been resilient, ongoing shifts in consumer preference toward clean, sustainable, and green beauty products expose Coty's portfolio to accelerated customer attrition and may force costly reformulations or packaging changes, eroding gross margins and increasing the risk of revenue stagnation.
  
• The proliferation of indie and direct-to-consumer upstart beauty brands-particularly those seen as more agile or digital-first-is expected to persist, eroding Coty's market share and pricing power, which will compress revenue growth and put long-term pressure on profitability.
  
• Increasing regulatory scrutiny and compliance demands around ingredient transparency and sustainable packaging are expected to raise structural costs, leading to margin degradation over time as Coty is forced to overhaul legacy products without corresponding pricing power.
  
• Operational execution risks, including ongoing retailer inventory reductions, supply chain complexity, and challenges integrating new brand launches across regions, are likely to keep revenue growth volatile and prevent sustained expansion in EBITDA, especially as digital channel competition intensifies and traditional distribution continues to weaken.

Coty Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Coty compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Coty's revenue will decrease by 0.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -6.5% today to 4.4% in 3 years time.
• The bearish analysts expect earnings to reach $264.5 million (and earnings per share of $0.34) by about August 2028, up from $-381.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, up from -9.6x today. This future PE is lower than the current PE for the US Personal Products industry at 22.2x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.7%, as per the Simply Wall St company report.

Coty Future Earnings Per Share Growth

Risks

• Coty has demonstrated strong innovation with successful product launches such as HUGO BOSS Beyond Bottled and a robust perfume mist attack across a dozen brands, supporting incremental sales and expanding market share, which is likely to drive top-line revenue and margin expansion.
  
• The company's growing leadership and distribution gains in both Prestige and mass fragrances-especially as fragrances become central to beauty consumption across price points-position Coty to capitalize on global secular demand for affordable luxury and self-care, supporting sustained revenue and earnings growth.
  
• E-commerce and digital initiatives (including exclusive launches in travel retail and strong online growth in both fragrance and skin care), combined with targeted traditional advertising in key segments, are improving consumer engagement, driving faster sell-out rates, and are expected to lift both revenues and net margins.
  
• Ongoing operational improvements, cost controls (through SKU rationalization, inventory management, and productivity programs like All-in to Win), and anticipated proceeds from the Wella stake sale enhance Coty's financial flexibility and are likely to drive improved net margins, cash flow, and earnings.
  
• Long-term demographic and consumer trends-including continued growth in the Chinese beauty and skincare market (with brands like Lancaster far outpacing the market), stable demand across Gen Z, men, and Hispanic consumers, and growing appetite for personalization and scent layering-suggest Coty's diversified portfolio is positioned for long-term revenue resilience and expansion.

Valuation

• The assumed bearish price target for Coty is $3.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Coty's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $3.5.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $6.0 billion, earnings will come to $264.5 million, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 10.7%.
  
• Given the current share price of $4.2, the bearish analyst price target of $3.5 is 20.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.