Coty Announces Major Portfolio Restructuring
Global beauty giant Coty Inc. (NYSE: COTY) has initiated a formal strategic review of significant assets within its Consumer Beauty division, marking a pivotal moment in the company’s ongoing transformation. The announcement, made on September 30, 2025, signals a potential portfolio purification that could see the separation of mass color cosmetics brands and Coty’s distinct Brazil business through sales, spin-offs, or other strategic transactions. This strategic shift comes as the company seeks to sharpen its focus on higher-growth, higher-margin segments amid changing market dynamics. The move follows similar strategic reviews in the consumer goods sector as companies adapt to evolving consumer preferences and competitive pressures.
The assets under review represent substantial revenue streams for Coty, with the mass color cosmetics portfolio—including iconic brands like CoverGirl, Rimmel, Sally Hansen, and Max Factor—generating approximately $1.2 billion in annual revenue. Additionally, Coty’s Brazil business, comprising a portfolio of local brands, contributes close to $400 million in annual sales. The strategic review, advised by Citibank, reflects management’s determination to address underperforming segments while capitalizing on the company’s strengths in the global fragrance market.
Strategic Rationale Behind the Portfolio Realignment
Coty’s decision to explore separation options for these Consumer Beauty assets stems from their financial underperformance relative to the company’s Prestige division. Over the past decade, Coty had invested heavily in mass beauty brands following its $12.5 billion acquisition of several Procter & Gamble beauty brands, but this strategy has faced significant headwinds. The mass beauty category has encountered rising competition from lower-cost online rivals and digitally-native brands that have quickly built strong consumer followings.
The challenges have been particularly pronounced in the US market, where drugstore destocking, tightening consumer spending, anti-theft measures by retailers, and recent immigration policy changes have collectively dampened demand for mass-market beauty products. This strategic pivot mirrors broader retail transformations as companies respond to shifting consumer behavior and market conditions.
The performance differential between Coty’s divisions is stark: from fiscal year 2021 to 2025, Prestige fragrance sales grew at a compound annual growth rate (CAGR) of approximately 10%, while Consumer Beauty grew only 2% over the same period. In fiscal year 2025 specifically, Consumer Beauty’s like-for-like revenue declined by 5%, while Prestige fragrance revenue remained flat year-over-year. This underperformance has impacted Coty’s financial metrics, with free cash flow declining from $369.4 million in FY24 to $277.6 million in FY25, and financial leverage increasing from 3.2x to 3.5x.
Creating a Unified Fragrance Powerhouse
The remaining Coty entity, often referred to as “RemainCo,” will undergo a significant realignment to bolster its leadership position in the global fragrance market. The company plans to more closely integrate its Prestige Beauty and Mass Fragrance businesses, which together account for approximately 69% of total sales, to create what management describes as a unified and powerful “fragrance engine.”
This strategic focus is well-timed, as the global luxury perfume market is forecast to grow from $52.0 billion in 2025 to $79.5 billion by 2030, representing a CAGR of 8.9%. By concentrating resources on this high-growth, high-margin segment, Coty aims to drive sustainable, profitable growth while optimizing its brand portfolio. The move aligns with the investment strategy of Coty’s controlling shareholder, JAB Holding Company, which is known for actively managing portfolio companies through divestment of noncore assets to enhance value.
The organizational redesign includes the appointment of current Board member Gordon von Bretten as President of the Consumer Beauty division, where he will oversee mass cosmetics, mass skin, and personal care businesses during this transitional period. This leadership appointment comes as other global manufacturers are making strategic leadership changes to navigate evolving market conditions.
Division Performance and Market Position
Prestige Division: This segment serves as Coty’s primary growth and profitability driver, focusing on luxury beauty products with a strong emphasis on fragrances. The division holds a leading global market position with iconic licensed brands including Gucci, Burberry, Hugo Boss, and Calvin Klein. Distribution occurs through premium retail channels such as high-end department stores, specialty retailers like Sephora, and global travel retail outlets. While fragrances remain the cornerstone, the division is expanding into high-margin prestige skincare and color cosmetics categories through brands like Lancaster and cosmetics lines from Gucci and Kylie.
Consumer Beauty Division: This segment manages Coty’s portfolio of mass-market brands designed for broad consumer accessibility through channels like supermarkets, drug stores, and e-commerce platforms. The diverse product offerings span color cosmetics, body care, mass market fragrances, and hair care. Despite housing heritage brands with significant global recognition, this division has faced market challenges, slower growth rates, and intense competitive pressure, particularly in the US mass cosmetics market.
In fiscal year 2025, the Prestige division accounted for 64.8% of total revenue, while Consumer Beauty contributed the remaining 35.2%.
Financial Performance Highlights
Fourth Quarter FY25 Results:
Total revenue decreased 8.1% year-over-year to $1,252 million, though this represented a 3.8% beat versus consensus estimates. The decline was driven by weakness in both divisions, with Consumer Beauty revenue falling 12.3% YoY to $491.8 million, primarily due to lower sales in color cosmetics and body care. Prestige revenue declined 5.3% YoY to $760.6 million, attributed to underperformance in the key US market relative to the broader Prestige beauty category and proactive inventory management with retailers.
Adjusted EBITDA fell 23.1% YoY to $126.7 million, with the corresponding margin contracting approximately 195 basis points to 10.1%. The decline was primarily driven by lower sales and decreased gross profit, coupled with reduced profitability in the Consumer Beauty segment. Adjusted operating income declined 37.3% YoY to $67.7 million, with the margin contracting approximately 252 basis points to 5.4%.
Full Year FY25 Results:
Total revenue decreased 3.7% YoY to $5.9 billion, representing a 0.7% beat versus consensus estimates. Consumer Beauty revenue fell 8.3% YoY to $2.1 billion, driven by ongoing weakness in the global mass color cosmetics market, particularly in the US. Prestige revenue declined 1.0% YoY to $3.8 billion, due to lower net revenue in prestige makeup and skincare categories, along with continued underperformance in the US market and inventory adjustments with retailers.
Adjusted EBITDA fell 0.9% YoY to $1,082 million, though the corresponding margin expanded approximately 52 basis points to 18.4%, driven by fixed cost savings and continued gross margin expansion despite the sales decline.
Future Outlook and Strategic Implications
The strategic review represents a critical phase in Coty’s ongoing transformation, designed to bring enhanced clarity and focus to the corporate strategy. By potentially divesting noncore business lines, Coty aims to optimize its brand portfolio, address underperforming segments, and cultivate a more streamlined and financially compelling investment profile. The separation of the reviewed businesses would benefit the remaining Coty entity through a less complex operational footprint, enabling more intensive focus on higher-growth and higher-margin fragrance and prestige beauty portfolios.
This portfolio purification is intended to bolster Coty’s capacity to realize synergies within its core operations, accelerate organic growth, and solidify its leadership position in its most defensible and profitable market categories. As the company navigates this transition, stakeholders will be watching closely how Coty manages the operational and security considerations that accompany major corporate restructurings in today’s digital business environment.
The timeline for completion of the strategic review and any potential transaction has not been announced, with any resulting transaction subject to customary conditions including regulatory and final board approvals. As Coty moves forward with this strategic initiative, the beauty industry will be closely monitoring how this portfolio realignment positions the company for sustainable growth in an increasingly competitive global market.
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