Coty Stock

Good morning and good afternoon, everyone. My name is Chelsea, and I'll be your conference operator today. At this time, I would like to welcome everyone to Coty's Fourth Quarter Fiscal 2026 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, August 20, 2026, at 8:00 a.m. Eastern Time or 2:00 p.m. Central European Time. Please note that on August 19, at approximately 4:30 p.m. Eastern Time or 10:30 p.m. Central European Time, Coty issued a press release and prepared remarks webcast, which can be found on its Investor Relations website.

On today's call are Markus Strobel, Executive Chairman of the Board and Interim Chief Executive Officer; and Laurent Mercier, Chief Financial Officer.

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 those 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.

With that, we will now open the line for questions.

[Operator Instructions] And our first question will come from Filippo Falorni with Citi.

So I wanted to ask a bit about fiscal '27. Obviously, you characterized it a transition year and the framework you provided in the prepared remarks was helpful. But I love to hear a bit more of your KPI internally that you're looking to achieve throughout this transition year. And maybe talk a little bit more about the potential sources of upside, both from a top line and profit standpoint and any risk that you see as you think about this transition year?

Okay. Yes, Filippo, you probably know that in the last couple of quarters, our sellout has been trailing below the category, okay? And obviously, that has led to lower sell-in and has led to all of the problems that we have. So our objective is to drive sell-out and to drive market share. This is new thinking for the organization. The organization was traditionally sell-in focused, and it takes some time to this adaptation. So we believe, as we outlined in the first quarter, probably see a similar trend that we have seen in the last 2 quarters, but then we want to sequentially improve that. We have some strong incremental innovation coming up. We have a more disciplined approach to spending. We focus on fewer bets. And we believe that this will, over time, decrease the sell-out gap versus the market.

Now the question is how long this will take? I cannot answer you that today. If this takes -- if this catches on faster, there will be upside. If this takes longer, then we better manage. And so far, we have tried to give a 50-50 balanced picture on that. But it all depends on how fast can we drive sellout, how fast can we drive market share. That's an important KPI for us. We have even changed all our bonus systems for fiscal '27, where market share sell-out is now a very important KPI and it has not been the case before. So we believe the whole organization will be focused on this, and we hopefully see some upside here. This is about sales.

And we talk about EBITDA, obviously, we're reducing the decline rate we have seen in the last 2 quarters. And is there upside? Yes, that depends on how the Middle East is going to shape up, how oil prices are going to shape up. We've built in $20 million, $30 million of costs for an oil price between $90 and $100. This is getting better, might be getting a little bit better. And also, we are still waiting for a potential tariff refund, which is about $30 million that comes or comes not depending when it comes, but there's an upside. And of course, we keep working on future productivity and cost savings effort on which we have delivered quite a good result in the last couple of years. So that's kind of my balanced view on this.

Our next question will come from Javier Escalante with Evercore ISI.

Laurent, thank you very much for all the help, you're going to be missed. I have 2 questions on the presentation. One, if you can talk about what's happened in EMEA, excluding the Middle East. I believe that most of it is consumer brands in Europe. But if you can talk about why there is no improvement there, that would be helpful. And particularly on the consumer side, if you can give us -- if you can walk us through what is the portfolio there beyond the core brands that you always talk about more kind of like the smaller brands, what's happening there?

And moving into the U.S. is the second question. You made some comments about SKU reduction and also there is some comments about capital spending related to marketing equipment. So if you can talk about whether that pertains to the U.S., what does it mean for CoverGirl? And if you can give us an update in terms of shelf reset heading into the fall?

Okay. Let me just unpack this. Javier, for your first question, the European -- more European brands versus the U.S. brands. I mean we have started our Color the Future performance improvement program in the consumer business in basically in January, and that's a version of Coty.Curated for consumer. And we have started this program in the U.S. So we have started all the interventions we have been making a simpler lineup, more powerful innovation, but fewer SKUs that we ship in and all these kind of things on -- since it's U.S., mostly on brands like CoverGirl and Sally Hansen. We see great traction. They have -- both brands have reduced the gap versus the market substantially over the year. And Sally Hansen is now even growing ahead of the market even in value. So we have been positively surprised by how quickly the interventions take on.

We also believe these interventions will help our EBITDA over time because part of our EBITDA decline on Consumer Beauty is returns, obsolescence because you get -- when the innovation is not selling, you get it back in the U.S. trade. And if you're selling less, more powerful things and we have fewer SKUs on the shelf that are turning much more quickly, we're going to have less excess and obsolescence as we move along. So this is a very big part of our EBITDA building plan in Consumer Beauty.

So having said that, we started this program in the U.S. and now we are rolling it out to the rest of Europe, the last country is the U.K. where some good traction now on Rimmel, especially in the last month where Rimmel is catching up with the category finally. And as a final step, in the next few weeks or months, we're going to roll this out to our mostly European brands. These are brands like Max Factor and Gua Sha that are mostly prevalent in Central Europe and in parts of Western Europe. And we have not implemented these interventions there yet, but they are about to come. So I'm expecting that we're going to see some improvements there as well.

Coming back to the SKUs and the CapEx, you know that CapEx in makeup in cosmetics is very expensive. So we're going to be -- we've done a lot of improvements with procurement and in the work with our vendors to have great quality installations, but at a lower price. So our CapEx is going down. And we will -- when we look at the 20% SKU reduction on shelves, we don't believe this is going to have any material impact on our sales. On the contrary, that's going to leave the space for the fast turning SKUs because in the past, with an innovation not working, you put in a slow turner and the fast turner goes out of the shelf. It doesn't make much sense. So we're very, very deliberate about that. So we believe we're going to see a continuous uptick in our consumer business over the next couple of months.

But just to double-click, if you can comment on the shelf resets getting into the fall. Do you think that the phasing -- the total phasing to the consumer in the U.S. for CoverGirl and Sally Hansen is going to held up? Or how is it going to change? And then the color on Europe was interesting, but I'm more interested in the brands that you don't talk about. Like you used to have brands at least that I remember, something called ASTOR, Manhattan. The brands -- what is happening to them?

I'm happily talking about them. I'll come back to your first question in a second. Happily talking about ASTOR -- ASTOR?

The brands that are not -- that you rarely talk about.

Manhattan -- Manhattan is basically the equivalent of Rimmel in Germany, okay? It's the same portfolio that's just called the Rimmel brand in Germany. Manhattan has it's historical reasons. And in Europe and again, Manhattan, Max Factor, Bourjois are all brands on which we're going to bring the interventions now. We haven't done it on these brands in Europe yet, okay? But it's coming. So we hopefully can replicate the U.S. success model.

When it comes to shelf space and shelf resets, we have mostly managed to have stable shelf space. Shelf space is always under threat. If you sell out, it's not great. But the improvements we have seen in Q4, this is the time when shelf space is being decided. We have lost a bit. We have gained a bit. But overall, we should be stable. So we don't see a big risk from losing shelf space or anything like this for the time being.

Our next question will come from Anna Lizzul with Bank of America.

I was wondering if you could comment on the promotional environment here. You mentioned in fiscal '26 that had been elevated throughout the year. And just wondering as well in terms of competitors' actions here, we've seen some pricing reductions being taken and then pricing being elevated again. I'm curious for your take on some of the competitor actions in the Mass side in particular.

Yes. On pricing, things are going a little bit back and forth. We have seen -- in the Prestige, we have seen a lot of pricing competition in the key holiday season from October to December, but this has abated a bit ever since then, which actually is good. And in consumer, I think what all the companies are doing now we've been doing, okay, what are the -- instead of going up in price or down or being broad-based, but being much more surgical, okay? What type of businesses, what type of SKU can I support a higher price and what kind of SKUs I cannot support a higher price, right? So that differentiation is, I think, going to help us stabilize this pricing and promotion environment a little bit in the next couple of months.

Great. And then in terms of your strategic review for the Consumer Beauty business by the end of calendar '26, is that really a hard deadline? Is that something you're working towards that there's room to see if there's maybe not an agreement made by that time? Curious on just how flexible you are there.

I know I'm sticking my neck out on this 2026 thing. So it's our very, very, very strong aspiration to get it done by then. I mean, at the end of the day, if the results are 10x better, if we have another month, then yes, of course, we would do that. But it's our intent to finish this by calendar '26.

Our next question will come from Susan Anderson with Canaccord Genuity.

I guess maybe just to dig in a little deeper on the Consumer Beauty business, particularly the improvement you saw in the U.S. with CoverGirl and Sally Hansen. I guess I'm just curious, is that being driven by the better marketing, sharper price points? Are you guys being more promotional there? Or is it new innovation? I guess maybe just a little bit of color on what's driving that? And then just the performance internationally versus the U.S.

Yes. So I think it's actually on the contrary, it's less driven by promotions. It's more driven by actually building advertising because on brands like CoverGirl or Sally Hansen, we have been in and out of advertising over the years. But we have made a choice to concentrate our funds in really actively building advertising. We are back on television with CoverGirl mentioned that we are targeting Gen X, Gen X still watches television quite a lot. So we're back nationally on air, and we are focusing our efforts on our 2 biggest franchises, which is Simply Ageless and LashBlast really focusing on the core.

And on CoverGirl has really helped us dramatically to improve the gap -- the sellout gap versus the category, and we're getting now very close. Same thing on Sally Hansen. We're back on national advertising on Sally Hansen in the nail care category, coupled with some very good innovation like our Insta-Dri innovation has found an extremely good reception.

So if I have to sum it up, I think where we're going with Coty.Curated and Color the Future is much more putting the money where we have a return and where we also have long-term equity building to drive our brands and drive our core franchises versus competing everywhere and in every SKU and so on and so on and so on. I would say focus and focused spending.

Okay. And then just the performance internationally versus the U.S. because I think you noted that Mass body and skin care helped to drive the growth. So I guess, was that the Brazilian business as well?

Yes. Yes. I mean Brazil is also back to growth, which is where the skin care part comes from. So Brazil is a bit of a wobble at the beginning of the year, but they're doing well now. They're back. The market is growing. We are growing, and we are about to grow share again in Brazil. So that's going in the right direction. And again, Europe, I think I have mentioned in the question before, where we are not as far advanced yet in the implementation as we were in the U.S., but we see the U.S. working. And obviously, we're going to replicate this in Europe. And good initial response on Rimmel in the U.K.

Our next question will come from Steve Powers with Deutsche Bank.

Markus, I wanted to ask on -- you explicitly stated the goal of returning the underlying portfolio, excluding Gucci to growth in fiscal '28. There are a lot of balls in the air as you think about fiscal '27. But I guess I just wanted to get a better sense of your confidence around that goal. And I guess the key building blocks, the most critical assumptions or the things that we should be looking for to develop over the course of '27 to be able to hit that target.

Yes. I think that Steve 2 or 3 points that are extremely important. One of them is for us really the focus on our big brand franchises, okay, and the role that every brand franchise plays in our portfolio. For example, our big global brands, Burberry, Hugo Boss, there's no excuse if you don't grow. So we've got to make these products grow. And for us, one of the most important things apart from focusing and spending the money of them, is to create more incremental innovation that creates a halo effect on the total business. We have not done that successfully last year because our innovation has been performing well, but it was not incremental enough. It didn't create a halo.

I'll give you one example on Hugo Boss that we had a very good launch with BOSS Bottled Beyond. I mean, one of the top 2 male launches of the year, doing very well, building share in the U.S., but it hasn't driven up the total franchise. What we're just in the process of doing, we have just launched starting in Travel Retail, Boss Beyond for Her -- women, right? So we are creating a female business for Hugo Boss, which obviously by definition is going to be incremental. And we have constructed in a way and tested it and confirmed it in a way that every dollar that we spend on the female campaign has a halo effect on the male campaign as well. So that's kind of what we're trying -- the way we look at our big brands and our innovation to construct innovation for better for incrementality and also better for the total halo effect.

And then playing our portfolio where the strengths are, again, big global brands and then we have probably more regional brands at the moment in Marc Jacobs, where we are very strong in English-speaking countries, U.S., U.K., even Australia, where we have actually double-digit fragrance growth in the last 6 months. And now we're bringing the makeup, cosmetics line on top but we are concentrating it on the markets where we can win with this proposition. So it's all about focused investment, having a right to win and incremental innovation that creates a halo effect.

Yes. Very good. Okay. If I could ask a follow-up. You mentioned efforts underway to develop plans to moderate the sales and profit impacts as we look to fiscal '28 from the Gucci departure. I guess how much of that planning is dependent on the rest of the portfolio resuming growth, as we just talked about versus you being able to actually restructure some costs specifically to mitigate the financial impact through restructuring? How much is growth-oriented versus cost out, if that makes sense?

Yes. What we're trying to do, I mean, I think we -- on this one, we are trying to go with belt and suspenders, okay? So we're going to grow these brands. That's a big part of the building blocks. And we're also bringing new brands like Swarovski [ HO ] next year. But our cost savings program, restructuring program alone can get the gap. That is our intention, okay? Because if we achieve that and we bring the growth on top of our big global brands, I think then we're going to be in very good shape, right? So it's a belt and suspenders approach. And hopefully, all these activities are going to add up to more than what we need because in the end, we always get a little bit less and then it's going to be good. So that's our approach. And you will hear more about our restructuring program in the next few months because we're also still working on the study for the consumer business, there are a lot of independencies. So we just want to come to the market once and say this is, this is what we're going to do, and then it's execution.

Our next question will come from Olivia Tong with Raymond James.

I'm not sure how much you can share, but can you give us an update on the strategic review of Consumer Beauty that you expect to be done by calendar year-end? In the past, you had flagged that Brazil would be a cleaner exit potentially versus the U.S. business. So just a little bit of more color there would be great.

Yes, it's very ring-fenced and it would be easier in isolation, but we are not looking for necessarily the team and easy looking for the best solution that creates the most value for us. So we keep working on the future review as a total, including everything in consumer.

Got it. And then you just mentioned to Steve about the plan to -- with respect to Gucci and absorbing the incremental costs and how you will look at cost overall. But now that we know that it's a low double-digit percentage of sales with healthy profit, can you give us a sense on some of the specific actions you're going to take to minimize the overhead challenges. Presumably, some of that cost may go to L'Oreal, but maybe not very much. And I understand that you'll be satisfying the inventory for a period of time. But just given that they probably don't need a ton of handholding in this category beyond the initial inventory, what can be done?

Yes, I would imagine they're not -- they don't take too much handholding. You probably got that right. But I think, first of all, we are super happy with the deals we made with Kering because it was our objective. And we did it in our terms. It was really our objective to get the full compensation of a year of profit and cash. We wanted to get funds that help us to pay down debt, and we wanted to get some money that help us with the restructuring plus you want to solve the inventory question. So all of these things have been addressed. So that's why we're happy with that deal.

When it comes to our fixed cost savings, there's obviously quite a chunk of money in allocated overhead, okay? Because the way you have to look at the business is that we have -- in Prestige, we have a scaled R&D organization. We have a scaled manufacturing, distribution organization. And we also have our central VP, all the corporate functions, they're all working for Prestige. So with the brand in the low double digit teens, that's quite a sizable money. So we are looking at a very serious restructuring program that will encompass our go-to-market setup, manufacturing and distribution network a continuous delayering of the organization, which we have started anyway to get to faster decision-making and more agility and of course, also a rightsizing of our central organization to reflect initially lower sales.

Our next question will come from Sydney Wagner with Jefferies.

So you've now built market share into the fiscal '27 incentive structure to help reinforce the sell-out culture. How are you thinking about making sure that doesn't inadvertently encourage chasing volume promotionally in a market that's already quite competitive. Just curious what guardrails you have in place so the comp structure and the margin discipline stay aligned?

Yes. No, I mean, our total bonus structure, which I'm not going to go into the details, probably taking half an hour to explain this, is -- has market share as a big KPI, but there's also a sales component and there's an EBITDA component. There's a very, very strong EBITDA component. So we cannot just really, really do promotion to increase sales, it comes at the expense of profit, right? So I think the way it is calibrated, I think then we have done a decent job to put the guardrails already into the design of the program. And while we believe this is superior is you just focus on sales, especially then end of the year, end of the quarter and people are starting selling stuff in that doesn't sell out, then you get exactly to these wide swings in inventory that we want to avoid. We want to have sell-out growth, but sellout growth then pretty much in line to with sell-in so that we get out of these inventory swings.

Our next question will come from Andrea Teixeira with JPMorgan.

So Laurent, I want to expand also my gratitude and wish you well. We -- so just thinking of what you discussed about the Consumer Beauty brands, I was like you obviously said that you want to maximize returns and make bigger bets. But you also mentioned that some of the European brands you want to also reinvest like Bourjois, I think you mentioned Manhattan and [indiscernible], if I'm not mistaken. But just to make sure that we understand and layering that with that strategic review for Consumer Beauty in the middle of this kind of promotional environment. So I was just wondering how to think through the end of the calendar year, which is your first half, how we should be thinking of that improvement? And in terms of like I believe you mentioned the number of SKUs that you're going to be taking out. Is that something you implement? And what is the time line for that?

No, I think -- here we go. Again, when we look at the investment profile and how we're running this, again, U.S., we are investing into advertising, equity building. We intend to do this in Europe as well. But again, we are behind in Europe. And this is -- no matter what the outcome of the strategic review is, this is the right thing to do. So this is the way we create value. We have a better business. We create value for our us so we create value for somebody else, and that value will be reflected at one point in time. So what we're doing, I think, is spot on and it's going to put us in a better position in any scenario. When it comes to the SKUs, it's basically part of the shelf resets that happen in spring and in fall. That's when we're going to be executing this in the next few months.

You quantified that's helpful. Because I mean, to be fair, this is happening for the last decade, right? I mean this has been always -- and this is natural for a lot of the CPGs, in particular in beauty, you're going to always have to take down as you layer innovation. What is this now? And what is the actual percentage of SKUs that you're taking out and how much you're losing shelf space? I'm assuming that comes at a cost of losing shelf space.

I think it's -- this is not necessarily directly related. It can be a time, but it doesn't have to because at the end of the day, every retailer is also interested to have on the shelf of high-volume SKUs. So if you take a slow-moving SKU out and then suddenly you negotiate for 2 facings on the fast-moving SKU, this helps everybody, helps the manufacturer and helps the retailer. So it's a very detailed fine-tuned discussion retailer by retailer, almost like store by store to have the right assortment for the retailer and have the right assortment for the store because what you want to see is turns on the shelf, right? And products that don't turn are not helpful for anybody.

We have one more question in the queue. This is one from Oliver Chen with TD Cowen.

This is Julia Shelanski on for Oliver Chen. I'm curious as you think about the upcoming innovation calendar, how important is the ongoing recovery in Travel Retail versus realizing the full potential of those launches in terms of -- versus what you're seeing in domestic and specialty channels?

Can you just say that again because I just had a very bad connection for a second here. I just come to the other side of the table to the microphone. Could you ask the question again? I'm sorry.

Yes, apologies. As you think about the upcoming innovation calendar, how important is the recovery in travel retail to realizing the potential of those launches versus what you're seeing in domestic and specialty channels?

I think Travel Retail is an important channel for us because Travel Retail is not only there to create sales, Travel Retail is there to create the image. So that's why we have -- like I told you an example with BOSS for Her, we started in Travel Retail because you can get amazing space and the travel retailers see their stores, especially in the airports more as drawing consumers. In the past, when things in the airports were cheaper than domestic, people went in there for the price. That's no longer the case. Now they go in there for the entertainment, for the in-store presence for what's happening in the store.

So if you come with launches in Travel Retail, you can get amazing placement because you have the retailer to stop the travelers and get them into the store. In return, it gives you a very good image because you don't have 2 or 3 SKUs on the shelf. You have a big display or a very nice stand with beauty consultants and so on and so on. So I think Travel Retail for us is important and Travel Retail for us is actually growing nicely.

We've now reached our allotted time for questions. So I'd like to turn the call back over to our speakers for any additional or closing remarks.

Yes. Before we wrap this up, let me just reiterate a few points. And I -- just be very clear. I mean, we had good improvements this quarter, but we're obviously not satisfied at all with our current level of performance, but we know what it takes to make it better. We have strong brands, leading positions in attractive categories and a clear framework to strengthen execution. While we've given guidance for Q1 only, we are targeting to deliver fiscal year '27 EBITDA and free cash flow close to fiscal '26 levels. Our priorities are straightforward: improve the sellout, close the gap to market, strengthen profitability. We are implementing the changes needed to achieve those objectives and we will continue to act with focus and urgency.

Thank you for your continued interest in Coty, and thank you for joining us today. Have a great rest of your day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation, and you may now disconnect.

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 2026 Earnings. On Thursday, August 20, 2026, 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 Markus Strobel, Coty's Executive Chairman of the Board and Interim Chief Executive Officer; and Laurent Mercier, Coty's Chief Financial Officer.

Before I hand the call over to Markus, 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. With that, I will turn it over to our Chief Executive Officer, Markus.

Thank you, Olga. Hello, everyone. Thank you for joining us. Before I begin, I first of all, want to thank you, Laurent, for your leadership as CFO. On behalf of the Board and the entire company, I want to thank you for your many contributions to Coty over the last 9 years. I would also like to congratulate Soraya on her appointment as Chief Financial Officer. We are pleased to have her stepping into this role as part of an orderly transition as we continue executing our strategy.

Our fourth quarter results were ahead of expectations, an encouraging step as we improve execution consistency. The strong cash discipline across the company also fueled higher free cash flow in fiscal '26, even in the face of profitability headwinds. At the same time, we are not where we want the business to be. Fiscal '27 will be a transition year as we strengthen core franchises and simplify the portfolio and organization, positioning Coty for more consistent growth and sustainable value creation over time. With that, let me turn it over to Laurent.

Thank you, Markus. Now let me begin by walking you through the sales and sell-out trends in the quarter. While the macro environment remains volatile, our focus continues to be on the areas we can control, strengthening sell-out, improving execution and allocating resources behind the brands, markets and initiatives with the greatest potential to create value. Starting with our Q4 performance. Coty delivered Q4 like-for-like sales down 1%, reflecting sequential trend improvement and coming in ahead of our guidance of a mid-single-digit like-for-like decline.

Relative to our expectations coming in, the better-than-expected like-for-like sales performance was supported by stronger-than-expected customer orders in the U.S. in both Prestige fragrances and mass cosmetics as well as a milder impact from the Middle East. Specifically, the Middle East conflict impacted our Q4 total sales by a little over 1%, whereas we had anticipated a 2% to 3% impact for the quarter. We ended fiscal year '26 with a 5% like-for-like decline in sales, which included quarterly variability driven in part by prior year comparisons and the timing of commercial and portfolio actions like exiting underscaled markets and launches.

We remain focused on disciplined execution and improving sellout across the portfolio, though quarterly fluctuations may continue over the course of fiscal year '27 as we make necessary adjustments. Let me start with the broader market backdrop and sell-out performance. Despite continued macroeconomic and geopolitical uncertainty, consumer demand for beauty remains resilient. In Prestige, the market grew approximately 6% in the second half of fiscal '26, while the mass beauty market grew approximately 5% over the same period. Against that backdrop, our sellout performance remained below the market in both divisions.

In Prestige, our sell-out declined 1% in the second half and was slightly negative for the full fiscal year. The timing of several key consumer and retail events differ year-over-year, including Easter in Europe and Amazon Prime Day in the U.S. As a result, we believe the 6 months view provides a more representative comparison of both market growth and our sellout performance. However, our conclusions remain consistent. The Prestige beauty market remains robust, though very competitive. Our major Prestige fragrance launches are performing well, but they have not yet generated the halo across the core portfolio that we are targeting, particularly in the second half.

And at the same time, our smaller flankers are not sufficiently differentiated. These 2 factors are resulting in the modest decline in our sell-out. This is exactly what we intend to improve in fiscal year '27 as all of our brand plans are aimed at driving both incrementality of innovation and the halo for the portfolio. In Consumer Beauty, our sell-out declined 2% in the second half, which is an improvement relative to the 4% sell-out decline for the full fiscal year. While still clearly below the market growth levels, this improvement in our Consumer Beauty sellout is being driven by the U.S., where we are seeing some early green shoots for Sally Hansen and CoverGirl as well as acceleration in our sell-out growth in Brazil.

In sum, our focus is improving sell-out in both divisions and steadily closing the gap to the market. Let me now turn to our Prestige division. Prestige like-for-like sales improved sequentially to down 0.5% in the fourth quarter and exceeded our expectations. Within the divisional total, Prestige Fragrance like-for-like revenues declined 1% in Q4 and by approximately 4% in the second half, which is now almost aligned with our Prestige fragrance sellout trends in the second half.

In parallel, we saw strong momentum in Prestige Cosmetics, which delivered double-digit sales and sell-out growth, supported by Kylie, Burberry and the early contribution from the Marc Jacobs makeup launch. The estimated impact on Prestige sales from the Middle East conflict was approximately 1.5% in the quarter, lower than we had initially anticipated. We saw encouraging momentum from innovations across the portfolio, including BOSS Bottled Beyond, Cosmic Kylie Jenner Intense, and Calvin Klein Euphoria Elixirs.

Let me now turn to Consumer Beauty sales trends. While results remain below where we want them to be, we saw an improvement in trends in the fourth quarter with like-for-like sales declining 3%. Color Cosmetics remained pressured, though trends improved sequentially as we continue to implement the actions associated with our turnaround plan. Encouragingly, Sally Hansen returned to sales growth, supported by continued positive sellout momentum over the past 6 months. We are also seeing improving sellout trends in CoverGirl and a narrowing gap versus the broader category. And in the U.K., Rimmel gained volume market share in the last 3 months and is narrowing the gap to the broader category.

Lifestyle Fragrances remained challenged, though sales trends improved compared to prior quarters. While we still have considerable work ahead, these results provide early evidence that the actions we are taking are beginning to gain traction. Our focus remains on strengthening sell-out, improving execution and positioning Consumer Beauty for more sustainable growth over time. While our financial performance remains impacted by the challenges we have discussed throughout the year, we are making progress against our strategic priorities. I will now walk you through our financial results for the fourth quarter and full fiscal year.

Turning to gross margin. In the fourth quarter, our adjusted gross margin was 60.9%, down 140 basis points year-over-year and in line with our expectations. For the full fiscal year, adjusted gross margin was 63%, down 190 basis points. In the quarter, the primary drivers of the year-over-year decline were cost absorption impact from lower volumes, elevated excess and obsolescence in both divisions and the impact from tariff. We remain focused on simplification, operational discipline and productivity actions as we aim to stabilize gross margins over the course of fiscal year '27.

Turning now to our Savings Program. Our All-in-to-Win program continued to deliver strong results in fiscal year '26 with total productivity and fixed cost savings of more than $250 million ahead of our target. These savings were generated across procurement, supply chain, overhead and organizational efficiencies, reflecting continued focus on productivity and disciplined cost management. Importantly, these actions are contributing to a structurally leaner cost base. Our underlying fixed cost structure declined 4% year-over-year in fiscal year '26 despite the inflationary backdrop, partially offset by a headwind from the partial restoration of variable compensation.

We expect to accelerate our savings initiatives in fiscal year '27 and beyond as we rightsize our cost structure across the P&L. Turning to EBITDA and EPS. In the fourth quarter, our adjusted EBITDA and adjusted EPS, excluding the equity swap came in at the high end of our guidance range and ahead of expectations. That said, performance remains below where we want to be in absolute terms, and we are not satisfied with the current level of profitability. We continue to invest behind our core brands and franchises with A&CP remaining in the high 20s as a percentage of sales.

Adjusted EBITDA declined 26% year-on-year in Q4 and 22% in fiscal year '26, primarily reflecting top line pressure, lower gross margins and the year-over-year impact from variable compensation. Adjusted EPS, excluding the impact of the equity swap was breakeven in the fourth quarter and $0.34 for the full fiscal year. As we move forward, we remain focused on improving execution, strengthening operational discipline, and building more consistent profitability over time.

Let me now walk you through our adjusted EBITDA delivery by division. Starting with Prestige. Adjusted EBITDA declined 17% in Q4 and 12% in fiscal year '26. The fiscal year '26 EBITDA decline was driven by cost of goods sold absorption headwinds from lower shipment volumes, higher trade spending, and higher tariff costs. In Q4, the EBITDA decline primarily reflected a step-up in A&CP behind Prestige makeup initiatives as well as some COGS absorption headwinds. Even amid these near-term pressures, Prestige delivered a strong adjusted EBITDA margin of 20.5% in fiscal year '26, highlighting the resilience of our scaled global beauty platform. In Consumer Beauty, adjusted EBITDA continued to be under pressure in Q4, declining 67% year-over-year.

As we discussed previously, Consumer Beauty profitability was heavily pressured by supply chain cost under absorption due to lower sales, higher excess and obsolescence and higher tariff-related costs. Importantly, in Q4, Consumer Beauty adjusted EBITDA improved by $32 million sequentially from Q3, supported by tighter cost control and seasonally stronger sales. Turning now to free cash flow. Despite over a $200 million decline in our fiscal year '26 EBITDA, we delivered very strong free cash flow of $348 million, an increase of approximately $70 million year-over-year and well ahead of our guidance.

This performance reflects disciplined working capital management across the organization, year-over-year reduction in cash bonuses, a $34 million reduction in cash paid for interest and a $25 million lower CapEx. Importantly, this demonstrates strong cash conversion and disciplined balance sheet management in a difficult operating year. Strong cash generation remains a key priority as we continue to fund strategic investments, strengthen the balance sheet and position the company for sustainable long-term value creation.

Turning now to our balance sheet and capital structure. Debt paydown and deleveraging remains a top priority for Coty and an important element of our long-term value creation framework. We exited fiscal '26 with net debt of $2.9 billion, and this balance does not incorporate the first tranche of proceeds we received in July from the Gucci transaction. Net debt declined by nearly $840 million year-over-year, reflecting progress against our debt reduction objectives through the Wella monetization and strong free cash flow generation. In turn, we exited the year with leverage of approximately 3.4x. Even as we navigate evolution of our portfolio, we continue to target leverage of approximately 2x over time. In parallel, we continue to evaluate our portfolio and assets to support a simplified Coty with a stronger balance sheet. Let me turn it back to Markus to discuss our outlook.

Thank you, Laurent. Let me walk you through our outlook for the first quarter of fiscal 2027. As we continue to see quarter after quarter, consumer demand for beauty remains resilient with solid demand growth in fragrances and cosmetics. At the same time, consumers are increasingly selective in their purchase decisions, which is manifesting in several ways, in some cases, benefiting more premium brands and products and in other cases, benefiting more accessible offerings. We are continuing to implement our Coty.Curated strategic framework, focusing on core brands and markets, reducing portfolio complexity, increasing agility by simplifying the organization and identifying savings opportunities across the P&L to support increased investment in consumer engagement and protect profitability.

We expect first quarter fiscal '27 like-for-like revenue to decline by a low to mid-single-digit percentage. While we expect Q1 sell-out trends for both divisions to be broadly consistent with trends in the second half of fiscal '26, the timing of customer orders and prior year comparables are contributing to fluctuations in our year-over-year sales trends. On a reported basis, we anticipate foreign exchange to have a neutral impact in the quarter. We see Q1 adjusted gross margins declining by approximately 50 to 100 basis points year-over-year, driven by cost of goods absorption, headwinds from lower shipment volumes and elevated though sequentially lower excess and obsolescence, partially offset by productivity initiatives and procurement actions.

Altogether, we expect Q1 adjusted EBITDA to decline by low teens percentage, reflecting a sequential improvement from the more significant declines in the second half of fiscal '26. This is expected to translate to adjusted EPS, excluding the equity swap of $0.11 to $0.13 per share. Anchored in the seasonal strength of our business in the first half and continued disciplined CapEx and working capital management, we expect free cash flow in first half fiscal '27 of over $300 million. Let me briefly share how we are approaching fiscal '27. As we have discussed, our objective is to restore growth while improving the quality of our business through greater focus, simplification and operating discipline.

Fiscal '27 will be a transition year as we strengthen the core business and continue shaping a simpler, more focused Coty, factoring both the Gucci exit by fiscal '28 and final portfolio decisions related to our strategic review by the end of calendar '26. Given Coty.Curated remains in the early stages of implementation with uneven quarterly performance trends, coupled with the ongoing strategic review, we will not be issuing full year fiscal '27 guidance at this stage. However, I do want to share a framework of the moving parts for fiscal '27. We have several large, highly incremental launches planned in fiscal '27, coupled with smaller targeted launches designed to strengthen core franchises. We remain mindful of several external factors, including potential volatility in our cost of goods due to the Middle East conflict and oil prices. Assuming oil prices remain at or below $100 per barrel, the anticipated impact to our cost of goods should be limited to $20 million to $30 million, which is embedded in our outlook.

As it relates to tariffs, our refund submission for fiscal '27 is in process, which could represent upside of up to $30 million, though it is currently not embedded in our assumption. We also expect the normalization of variable compensation, which will be a year-over-year headwind to our cost base. At the same time, we are accelerating our fixed cost reduction efforts, building on the progress already achieved through our productivity programs and continuing to simplify the organization. Altogether, we are targeting improvement in year-over-year EBITDA trends over the course of fiscal '27.

Last month, we reached a critical deal with Kering, securing significant immediate and future cash proceeds totaling $400 million plus inventory proceeds in exchange for the early transition of the Gucci license a year ahead of schedule and supporting Kering with this transition. This was a positive outcome for Coty in the context of a license, which was already set to exit the portfolio. While it's far too early to provide an exact outlook for fiscal '28 when Gucci is no longer in our business, I do want to provide context on some of the financial parameters, our plan to offset the loss and the strength of our core portfolio.

As part of the agreement with Kering, Coty received $250 million in cash at signing and will receive an additional $150 million no later than September 30, 2027, plus additional proceeds for the inventory. We plan to use these proceeds to support 3 primary objectives: reducing debt, investing in our core prestige fragrance and beauty brands to accelerate growth, and funding the organizational optimization required to align our cost structure with the future scope of the business. In the meantime, we will continue to operate the Gucci Beauty brand through at least June 30, 2027. It is important to contextualize the size of Gucci Beauty in our portfolio. Gucci Beauty contributes a low-double-digit percentage of our total revenues. From a margin standpoint, Gucci Beauty's profitability is broadly consistent with that of Coty's overall Prestige division.

At the same time, it's important to emphasize that our Prestige brands are all supported by shared R&D, manufacturing and distribution backbone. And of course, the central Coty functions support the full Coty portfolio, including Gucci. As such, without any interventions, the mechanical impact to our profit in the first year of the Gucci Beauty exit would be sizable. We're actively developing a plan designed to moderate the sales and profit impact in fiscal '28 from the exit of the Gucci Beauty business and position the business for success in fiscal '29 and beyond.

Starting on the cost side. To address the anticipated substantial central and divisional costs expected to remain following the Gucci exit, we are developing a significant fixed cost savings plan, which we expect to begin implementing in the second half of fiscal '27. We will share more details as the program is finalized, but the key components of the program we'll address are global go-to-market setup, manufacturing and distribution footprint, the layering of the organization and rightsizing the central organization. In addition to this incremental fixed cost savings program, we will also be continuing to generate productivity savings across the P&L and particularly in cost of goods, targeting several hundred million of additional savings over the next 3 years.

Coty has a well-established track record of executing robust fixed cost and productivity savings, delivering over $1 billion of cumulative savings in the last 6 years, which fueled both significant investment in the business and close to 200 basis points of adjusted EBITDA margin improvement between fiscal '21 to fiscal '25. Our track record gives us confidence in our ability to execute these actions, which are designed to simplify the operating model with the new scope of the business and strengthen our profitability and margins. We are developing plans to help moderate the fiscal '28 profit impact following the Gucci exit while fueling the growth in fiscal '29 and beyond.

The first part is an amplified innovation and expansion pipeline for our core Prestige fragrance brands such as Burberry, Hugo Boss, Calvin Klein, Marc Jacobs, Chloe and Kylie as well as targeted investment into Davidoff and Jil Sander. This will be funded by a combination of more focused and streamlined business efforts in our skin care business, concentrating our funds in the highest ROI opportunities and moving funds from nonworking spending to media advocacy investments.

Second part of the plan is to build out fully incremental portfolio initiatives, including the launch of Marc Jacobs makeup and Etro fragrances, which we'll build over the course of fiscal '27 and a major launch of fragrances under Swarovski fragrances in fiscal '28. And finally, the sales acceleration efforts will be accompanied by the Savings Program, which we are developing.

Taken together, this plan is being designed to deliver on several key objectives. First, return our underlying portfolio, excluding Gucci, to growth in fiscal '28; second, moderate the mechanical adjusted EBITDA decline in fiscal '28 with profit recovery resuming in fiscal '29 and beyond; and third, continue to steadily lower our net debt in fiscal '27 and fiscal '28 from the current $2.9 billion. And while leverage will mechanically increase in fiscal '28 due to the step down in profit even as net debt declines, our goal remains to drive our leverage towards 2x over time.

I do want to note that these financial objectives are based on the current scope of the business with Gucci exiting by fiscal '28. These objectives, therefore, do not contemplate the completion of a strategic review and any resulting decisions, which we aim to finish by the end of calendar '26. It is important to highlight that our core portfolio remains robust with long-duration licenses and strong market positions. Excluding Gucci, 97% of our portfolio is either an own brand or under perpetual or long-term license. And even after adjusting for the Gucci brand exit, remain the #3 player in both the Prestige fragrance market and the total fragrance market, including prestige and mass.

Of course, this does not include any of the new brands we will be launching in the next couple of years, including Swarovski. So the potential is significant to reinforce and then grow our market share in our core fragrance business. Let me turn to our broader strategy and the progress we're making under our Coty.Curated strategic framework. As a reminder, Coty.Curated is about focused investment, sharper priorities, scaling what works, stopping what dilutes and removing layers that slow execution. Applying this framework to the Coty business means disciplined execution, operational effectiveness and sufficient multiyear marketing support. While we are still in the early stages of this journey, the decisions we are making today are intended to create a more focused organization, a stronger portfolio and a more consistent foundation for long-term value creation.

Let me now turn to how we have translated the Coty.Curated framework into action over the past several months. First, we are simplifying and delayering the commercial organization to improve agility, accountability and decision-making speed. Second, we are reinforcing an organization-wide focus on sellout and market share. As I have said before, consumer demand is our North Star and to better align the organization behind these priorities, we have updated our fiscal '27 incentive compensation structure to include market share as one of the KPIs. Third, innovation plans across both Prestige and Consumer Beauty are centered around a smaller number of big bets so we can concentrate our resources behind the initiatives with the strongest potential.

Fourth, we are stepping up advocacy and consumer engagement, supported by a more streamlined agency model and broader deployment of generative AI and generative engine optimization capabilities to improve content efficiency and brand discovery across brands and markets. This enables us to redirect resources away from nonworking spending and towards the activities that most directly influence consumer demand. And finally, we continue to apply a more rigorous ROI lens across the portfolio. A good example is Prestige Skin Care, where profitability has improved in the past quarter as we have focused our investments in the areas where we see returns. While we are still early in the journey, these actions are helping position the company for more sustainable growth and more consistent performance over time.

Building on our more targeted innovation agenda in fiscal '27. One of the most important changes under Coty.Curated is a more selective and disciplined approach to resource allocation. In fiscal '27, we are concentrating resources behind fewer, bigger and more scalable initiatives with the strongest potential to create meaningful impact. In Prestige, our first half large priorities include BOSS Bottled Beyond for Her and Marc Jacobs makeup, coupled with more targeted launches like Burberry Goddess Amber Vanilla and Kylie Cosmetics Mood Stones fragrances, which are designed to strengthen the core.

In the second half, we concentrate resources behind key launches across Hugo Boss and Burberry, coupled with targeted incremental innovation behind other key brands. We will also launch the Etro fragrance collection in selective distribution channels. In Consumer Beauty, we are applying the same discipline by focusing investment and execution behind our largest brands and core franchises. First half priorities include CoverGirl's Trublend Sun and Stop Bronzing Glow serum, Rimmel Oh My Gloss! Slip Stick, Max Factor's Lasting Blur, and Sally Hansen's Miracle Gel and Insta-Dri seasonal shade stories.

In the second half, we will follow with additional high-impact innovation across these brands designed to support their core franchises. Across both divisions, our innovation is designed to drive greater incrementality, strengthen core franchises and create a broader halo across each brand. We are seeing some early progress within the core portfolio as we implement our Coty.Curated strategy. Starting with Burberry, a core pillar of our prestige portfolio and a brand we intend to overdrive in fiscal '25 and beyond. Over the last several years, we have built significant momentum in Burberry fragrances, which has risen from #29 globally in 2019 to #15 today.

At the same time, Burberry makeup is also gaining traction, delivering strong double-digit growth in both the fourth quarter and fiscal '26 and expanding the potential of the broader Burberry Beauty franchise. As we focus on amplifying consumer engagement, we're also seeing improvements in Burberry's consumer advocacy. Burberry's prestige fragrance category share of influence increased by 80 basis points. At the same time, given Burberry's global brand desirability, the current consumer engagement and advocacy share is below its potential, and we are focused on accelerating this further in fiscal '27.

Building on our multiyear momentum with Burberry, our fiscal '27 plans include a meaningful increase in marketing investment and consumer engagement as well as relaunching a brand-new impactful campaign and incremental innovation behind one of Burberry's core franchises, all aimed at amplifying fragrances and makeup. Turning to Hugo Boss, another core pillar of our Prestige portfolio. Hugo Boss fragrances continue to gain shares in the U.S. and Canada, while the Boss Bottled franchise maintains a top 5 position in Europe, gaining share in fiscal '26. This demonstrates the strength of the core franchise even as performance is affected by smaller tail lines, an area our sharper portfolio focus is designed to address. We are also seeing encouraging momentum in consumer advocacy and engagement. Hugo Boss Prestige fragrance category share of influence increased 100 basis points. Building on the success of Boss Bottled Beyond, one of our key fiscal '27 priorities is the launch of Boss Bottled Beyond for Her, which will extend the franchise into the female fragrance segment and is intended to create a strong halo across the core.

We also plan to relaunch The Scent, a dual gender franchise to better appeal to Gen Z consumers. Together, these initiatives are designed to broaden Hugo Boss consumer reach, strengthen momentum and reinforce the brand as a leading global fragrance franchise. Let me now turn to Calvin Klein, another iconic pillar of our Prestige portfolio. Euphoria Elixir is a strong example of how focused innovation supported by disciplined activation can translate into tangible results. The launch is helping drive share gains across Germany, France, Italy and Mexico, while the broader CK fragrance business delivered mid-single-digit sellout growth in the fourth quarter.

Advocacy momentum is also accelerating with Calvin Klein Prestige fragrance category share of influence rising by 60 basis points. Looking ahead to fiscal '27, we will continue to amplify the Euphoria Elixir launch while leaning into renewed 1990s nostalgia, levering CK One's position as one of the era's defining fragrances. Turning to Marc Jacobs. Marc Jacobs fragrances sales grew double digit over the past 6 months, supported by the Daisy Murakami collection and Perfect Absolute. Our launch of Amazon Premium Beauty in July '25 has broadened consumer access and fueled online share gains throughout fiscal 2026 by creating a halo across the broader brand. Organic advocacy accelerated during this period due to the early buzz generated by the launch of Marc Jacobs Beauty with earned media value doubling year-over-year.

Importantly, combined with innovation and channel expansion, this engagement is strengthening the core fragrance business while building awareness as we expand the brand into the makeup category. In June, we launched makeup under Marc Jacobs Beauty, demonstrating how we can leverage the strength of an established fragrance franchise to extend the brand into new areas of beauty. The initial response from consumers and influencers has been very strong. Although the collection is currently only available online, early Sephora sellout is already ahead of our targets. Beginning in September, we will significantly expand its reach through a rollout into hundreds of Sephora stores across the U.S. as well as Travel Retail.

This phased approach allows us to build brand heat and validate consumer demand before scaling distribution, consistent with the focused and disciplined approach underpinning Coty.Curated. While it's still early, the initial response reinforces our confidence in Marc Jacobs Beauty's potential beyond fragrance. Let me now turn to Kylie Cosmetics, which is delivering standout momentum across both fragrance and makeup. Over the past 6 months, fragrance and makeup sales each grew double digits, demonstrating the strength of Kylie as a multi-category beauty brand across both retail and e-commerce. Fragrance momentum is also translating into marketplace gains with Kylie gaining unit share across the U.S., the U.K. and Canada.

In fiscal '27, we will build on this performance with 2 priority initiatives: the Mood Stones fragrance collection and new lip kits. These launches are designed to strengthen Kylie's position as a scaled multi-category beauty brand across fragrance, lip and face. Let me now turn to Chloe, another important pillar within our prestige fragrance portfolio. Chloe Atelier des Fleurs continues to demonstrate the strength of our ultra-premium fragrance strategy with sales growing again in fiscal '26. We have also seen an encouraging consumer response to the recent Les Essences Méditerranéennes collection, reinforcing the appeal of the brand's elevated positioning and distinctive fragrances. Looking ahead, we will continue to build on this momentum by supporting the core franchise while carefully expanding the brand's presence within the attractive ultra-premium fragrance segment.

Let me now turn briefly to Davidoff. In fiscal '26, the brand delivered double-digit sell-out growth across Italy and Spain. And Davidoff's Cool Elixir is broadening the brand appeal among millennials, materially reducing the average age of its core consumer by approximately 10 years. Davidoff also remains one of the top 15 men's Prestige fragrance brands in Germany. Let me now also touch on what we are seeing in Fragrance Mists. Mists continue to grow and importantly, they are incremental to the portfolio. The Mists we've launched under several of our Prestige fragrance brands are bringing new, younger consumers, particularly Gen Z, into our brands. We are excited to have recently launched fragrance mist under Marc Jacobs, offering a lighting format in staple packaging.

From a profitability standpoint, gross margins on mists are comparable to our broader Prestige division, which reinforces that this is a complementary subcategory, supports the core franchise. Now turning to Consumer Beauty. Let me provide an update on Color the Future, our performance improvement plan for Color Cosmetics. As we outlined last quarter, the program applies the principles of Coty.Curated to the cosmetics business, sharper priorities, fewer and more impactful innovations, consistent support behind core franchises and a leaner operating model.

We are now executing this strategy across 4 key areas. First, we are continuing to implement a new operating model for global brand marketing and new product development designed to strengthen our speed to market, advocacy and overall agility. At the same time, we are rightsizing the organization and selectively increasing external sourcing to improve innovation relevance and speed to market. Second, we are meaningfully reducing complexity. Our fiscal '27 innovation bundles include 16% fewer SKUs. We are also leveraging shelf resets, regulatory dynamics and new launches to remove approximately 20% of our total SKU base, which we expect will result in negligible revenue impact.

Importantly, our exits from underscaled markets were completed in Q4, and we don't expect any further P&L impact from this area. Third, we are sharpening our brand equity, expression and consumer targeting to drive salience, awareness and consideration. CoverGirl and Max Factor are refocusing on Gen X consumers while we plan to maintain Rimmel existing brand equity and assets. Finally, Pencil, our AI-enabled content production capability went live on July 1 and is expected to improve content speed and meaningfully reduce content production costs in fiscal '27. We have also renegotiated supplier terms for merchandising capital expenditure.

Together, these actions demonstrate concrete execution of Color the Future, supporting our objective of improving Consumer Beauty growth and profitability over time. These operational changes are beginning to support better trends in our cosmetics brands. With the U.S. serving as a pilot market for Color the Future, improving sellout and closing the gap to the category remain key priorities. Sally Hansen is showing very encouraging progress. Over the last 52 weeks, Sally Hansen trailed the category by 6 points in sales on a value basis. In the last 4 weeks, the gap narrowed to just 1 point with the brand growing 5% compared with 6% for the category.

Unit performance is even stronger with Sally Hansen growing 5% in the last 4 weeks against flat category. Sally Hansen's significantly improved performance has been supported by a return to more consistent media support behind core brand pillars and agile on-trend color collections and display programs for Insta-Dri. While still early, this trajectory provides encouraging initial evidence of improving execution under Color the Future. For CoverGirl, sales trends on both a value and unit basis are improving. Sales on a retail value basis improved from 6% decline over the last 52 weeks to slightly positive in the latest 4 weeks, while unit declines narrowed from 8% to nearly flat. Although CoverGirl continues to trail the category, the gap has narrowed substantially.

Importantly, CoverGirl sales also returned to growth in the quarter, increasing by a mid-single-digit percentage. Similar to Sally Hansen, this improvement has been supported by more consistent and new, more equity-based media and advocacy support, particularly behind our top 2 franchises, Lash Blast and Simply Ageless. At the same time, we start more proactive targeting a multigenerational audience with a particular emphasis on Gen X, and we are now rolling out the new visuals and assets across our website, social handles and retailer POS.

Turning to Rimmel in the U.K., where turnaround actions are in earlier stage, but encouragingly, retail brands are beginning to improve. sales on a value basis improved from 3% decline over the last 52 weeks to a decline of just 0.5% in the last 4 weeks, meaningfully narrowing Rimmel's gap to the category. Unit trends have improved even further, moving from a 4% decline to a 1% decline and outperforming the category by 1 point in both the last 12 and 4 week periods. While more work remains to return Rimmel to sustained growth, trajectory provides encouraging early evidence that our actions are beginning to take hold.

Turning to mass fragrances. Q4 like-for-like sales declined by a low-single-digit percentage, although trends improved sequentially. Where we have focused on scale, performance remains stronger with adidas fragrances delivering high-single-digit like-for-like growth in Q4. This reinforces our decision to concentrate resources behind core brands and priority markets while simplifying the broader portfolio. To guide this work, we're introducing our Future of Scenting, a framework built on the principles of Coty.Curated and designed to deliver greater focus, scale and more consistent returns.

As part of our strategy to strengthen the fundamentals of our business, we are also actively positioning our brands to win in the emerging playing field of agentic shopping, starting first with generative engine optimization, also known as GEO. Several of our brands and markets have taken a head start in activating GEO action plans to improve their visibility and rankings on AI platforms, and we are now actively deploying their playbooks across the broader Coty portfolio in both Prestige and Consumer Beauty. We are measuring our brand's GEO traction with visibility score, which captures how often the brand in question appears in the answer of an unbranded AI query.

As an example, Marc Jacobs has already reached a strong AI positioning in the U.K. with an 8.7 visibility score, while Hugo Boss in the U.K. has reached a 6.3 visibility score. But the real highlight of the last quarter has been Rimmel in the U.K. with a visibility score of 13.8, driving its brand ranking in large language models from #7 several months ago to #4 currently. The local team achieved this impressive result in such a short period of time through multi-step action plan, including enhancing the brand web page, optimizing the product description pages on retailer websites, refining our social media strategy and amplifying our editorial content approach.

We are cascading this GEO playbook across the full portfolio so that we capture our fair share in the accelerating area of AI discovery and shopping. Let me take a step back and frame where we are and where we're going. As we close today, let me be clear, while our results were ahead of expectations, we are not yet where we want to be. Over the last 3 quarters, we have taken concrete steps to simplify the portfolio, we focus on the core and reduce debt, including the Wella monetization in late 2025 and the recent early transition agreement with Kering.

Our near-term outlook reflects both the opportunities ahead and the realities we need to navigate, including periods of volatility and the impact of portfolio changes that will weigh on our results before actions fully take hold. Fiscal '27 will be a transition year as we strengthen our core business by completing the work to shape a simpler, more focused Coty, factoring both the Gucci exit by fiscal '28 as well as final portfolio decisions related to our strategic review of Consumer Beauty by the end of calendar 2026.

We have important strengths to build on, including leading brands, strong category positions, solid cash generation and a differentiated end-to-end global platform. Through Coty.Curated, we've established a clear plan to sharpen execution, strengthen our core franchises, accelerate our brands with the strongest growth potential and structurally improve productivity across the business. We know there's no shortcut, and we will continue to be transparent about our progress and our challenges along the way. As I've said before, it will take time, but it will eventually happen.

Okay. Good morning. Our next presenting company is Coty Incorporated, trades on the New York Stock Exchange under the symbol COTY. Their first time at the IDEAS conference, so we're very glad to have them here today. Presenting on behalf of the company is Olga Levinzon, Senior Vice President of Investor Relations and Head of M&A. Olga?

Thank you so much. Thank you, everyone. So it's my pleasure to be here today to introduce you to Coty, and we are one of the leading global beauty companies. My name is Olga Levinzon, and I lead Investor Relations and M&A at Coty, and I've been at the company for 13 years.

So I want to start with a fascinating statistic. Did you know that the majority of Gen Z consumers in the U.S. have a repertoire of over 4 different fragrances or perfumes that they rotate on a weekly basis and on a regular basis. And these same Gen Z consumers use fragrances at least 3 times per week. Maybe some of you have also noticed your own fragrance wardrobe at home also expanding in recent years. This is a drastic change from prior decades when the average consumer had one favorite or signature scent that they return to again and again and only use periodically.

Today's consumers have embraced what we call a fragrance wardrobe, buying fragrances that fit different occasions during their week and tapping into new scenting trends as they emerge. This drastic change in consumer behavior is what has driven the U.S. prestige fragrance market to more than double in the last 6 years, and it now surpasses over $10 billion. And as one of the top fragrance makers in the world who has been driving this category for over 120 years, Coty is squarely in the middle of this consumer trend, and we will continue to benefit from this fragrance growth going forward.

So if you take one thing away from this presentation, it is this. Coty has the heritage, the brands and the capabilities to turn our 120 years of beauty leadership into long-term shareholder value. What makes Coty an attractive investment opportunity? I would summarize it in 3 points. First, we have a scaled platform in a very resilient global beauty market. If you look at the data over the last several decades, the global beauty market has consistently grown approximately 3% to 5% almost every single year. And this continues in the current environment as well. Even with the current macro uncertainty and pressured consumer sentiment, the beauty categories where we play are still growing 4% to 5% year-to-date.

Second, Coty has a portfolio of highly desirable brands. Our brands all have distinct brand equities and positioning. We own many of our brands, but for the ones that we operate under a licensing structure, these licenses carry a long-term duration. And we operate this portfolio with a strong vertically integrated business model, which is a point of differentiation for many of our competitors who outsource much of their operations.

Third, we've recently unveiled a new strategic framework called Coty.Curated, which aims to improve our business performance and execution. Coty.Curated is all about sharpening our priorities, being more targeted with our investments and establishing multiple levers for long-term profit growth.

Let me share our beautiful portfolio of brands to give you a sense of who Coty is. How many of you have heard of Burberry or Hugo Boss? Well, we are the beauty partners of these iconic brands, taking their brand story and legacy and translating it into beautiful fragrances and makeup collections. We also own many of our own brands who are equally iconic and storied, such as CoverGirl makeup, Sally Hansen nail polish and Philosophy skin care. The great thing about our portfolio is that it covers the full range of price points from $5 nail polishes to $300 ultra-premium fragrances. In the K-shaped economy like we have today, this pricing diversification gives us a true competitive edge versus many of our consumers.

And just as importantly, we are not overly reliant on any single brand. Here, you can see a snapshot of Coty by the numbers. We are the #2 player globally in both fragrances and in mass cosmetics based on a portfolio of over 60 brands. In the last 12 months, we've generated $5.8 billion in sales and $880 million in EBITDA. We have an employee base of over 11,000 employees, and we have local operations in approximately 30 countries, even as our products are sold in over 120 countries. And we produce the majority of our products ourselves with 7 manufacturing plants around the globe.

All of this reaffirms that Coty has the legacy, the brands and the capabilities to turn 120 years of beauty leadership into long-term shareholder value. Beauty is a very unique category, operating at the crossroads of being a staple, a discretionary category and a luxury and aspirational category. This is why it is critical that our executives have extensive beauty expertise. Nearly all of the leaders that you see on this slide, starting with our Chairman and CEO, have a deep knowledge of beauty from both Coty or other global beauty companies. And our 5 new independent Board members who recently joined our Board also come with many years of beauty experience.

As you can see here, we play in many parts of the beauty market, including fragrances, cosmetics, skin care and body care. However, we operate the business in 2 divisions. Our Prestige division accounts for 2/3 of our sales and is primarily composed of our prestige fragrances, which sell in more premium channels like Sephora, Macy's and Bloomingdale's at price points which are often $100 or more. Our Consumer Beauty division accounts for 1/3 of our business with products selling at more accessible retailers like Walmart and Target and Amazon at price points often under $20.

Our business is diversified geographically as well. As you can see here, North America and Western Europe are our biggest regions, and each of them are under 30% of our sales. We also have a strong footprint in Eastern Europe, Middle East, Latin America and the global travel retail channel of duty-free stores.

We have premier infrastructure and a very strong distribution network across channels. Our global manufacturing capabilities are a key differentiator for us with 7 manufacturing facilities across 3 continents, producing over 1 billion products annually. Our manufacturing capabilities are a crucial competitive advantage in today's complex supply chain and tariff backdrop.

We also have extensive commercial and distribution reach with directly run operations in 30 countries. Our brands are sold across many channels, including luxury department stores, perfumeries, mass retailers and e-commerce retailers. And we distribute over several million orders annually, reaching over 400,000 retail doors around the globe. There are a few players who rival our commercial scale and reach in beauty.

In the last 7 years, we have been premiumizing our portfolio with our higher-margin Prestige business of premium brands consistently outpacing our Consumer Beauty business of more accessible brands. Fiscal year-to-date, our Prestige business accounted for 2/3 of our sales and over 90% of our profit.

Looking forward, there are 2 key things we are focused on with regards to this divisional mix. First, we are laser-focused on continuing to overdrive our Prestige business, which is the growth and profit engine of the company. And second, we are focused on improving the performance and profitability of our Consumer Beauty division, while in parallel, our executive team and Board continue a strategic review of this business.

Coty has leading fragrance brands, innovation and capabilities. Our unwavering focus on fragrances and grounded in both scale and strategic capabilities. In the highly attractive $50 billion Prestige fragrance market, Coty is a top 3 player with 12% market share, right in line with LVMH. And we're also one of the few fragrance makers who operate licensing models, which is a critical part of our business. What this means in practice is that when desirable luxury brands like Burberry and Marc Jacobs want to enter beauty, they almost always choose to partner with a specialized beauty player like Coty to develop, manufacture and market their beauty products.

Such licensing arrangements are beneficial for both sides. The luxury brands benefit from our global scale, vertically integrated business model and extensive beauty expertise while receiving a risk-free royalty stream. At the same time, we build strong beauty brands, which benefit from the awareness and desirability of the luxury houses. 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 scale, global and multi-category beauty businesses for them.

With this backdrop, we continue to attract new and desirable licenses, most recently adding Swarovski, Etro and Marni to our portfolio, reinforcing Coty's position as a preferred partner for luxury brands. Key to operating a successful licensing business is diversification of the portfolio and reducing the license duration risk. In the last couple of years, we proactively renewed and significantly extended many key licenses, including Hugo Boss, Marc Jacobs, adidas and Davidoff for an additional 15-plus years. Crucially, 85% of our portfolio is either an owned brand, a perpetual license, which we view like an owned brand or a license with a very long-term remaining duration of 6 years or more.

Looking at our Prestige division specifically, our business remains very long term in nature with approximately 80% of our brands being either owned or long-term license. This underscores the strong foundations of our portfolio. We've also established a track record of building and scaling prestige beauty brands. Here, you can see some of the biggest brands in our portfolio, including Burberry, Hugo Boss, Chloe and Marc Jacobs. In the last 6 years, we've grown Burberry Beauty by a fantastic 140%, Hugo Boss by over 30%, Chloe by close to 70% and Marc Jacobs by almost 50%. We are true brand builders, underpinned by our extensive beauty expertise and vertically integrated model.

On the Consumer Beauty side of the business, we sell into mass retailers like Walmart and e-com players like Amazon. And color cosmetics is our largest category, accounting for 20% of our sales. We remain the #2 player in mass cosmetics globally with 12% market share. Underpinning our #2 position in mass cosmetics globally are several key brands with each one maintaining a strong position in a few core markets.

CoverGirl is our beloved North American icon, representing Easy Breezy beauty and ranking #4 in both the U.S. and Canada with 5% global market share. Rimmel, which embodies cool and edgy London beauty, ranks #2 in the U.K. and top 5 in Poland and Germany, fueling 4% global market share. Sally Hansen remains the undisputed leader in the nail category, ranked #1 in the U.S., Canada and Australia, and they are complemented by our smaller brands, Max Factor and Bourjois.

Within our Consumer Beauty division, we also have a sizable business in mass fragrances, which are fragrances sold in mass retailers usually priced under $30. Key brands in the business include adidas fragrances, Vera Wang and regional brands like Bruno Banani. Together, they drive our 11% market share in developed markets, putting Coty at #1 within this fragmented category.

Let me shift now to Coty's financial trajectory. In the 4 years between fiscal '21 and fiscal '24, we delivered significant revenue, margin and profit expansion. Our sales on a like-for-like basis expanded by over 10% in fiscal '22, fiscal '23 and fiscal '24. However, in fiscal '25, and in the last 12 months, we have seen more challenged business dynamics, reflecting both the normalization of growth in the category, some retailer destocking and our own executional challenges.

The lower sales volume, coupled with the impact from tariffs have also pressured our gross margins. We expanded our gross margins by close to 500 basis points between fiscal '21 and fiscal '25 to approximately 65%, fueled by a multipronged work stream on procurement, revenue management and SKU rationalization. However, with the recent challenges, our gross margins in the last 12 months ended at 63.3%. This sales and gross margin dynamic translated to our EBITDA margin and to our EPS. Between fiscal '21 and fiscal '25, we steadily expanded our adjusted EBITDA margin by close to 200 basis points, reaching 18.4% last year. In parallel, our profit expansion and reduced interest expense fueled a significant increase in our EPS from $0.05 in fiscal '21 to $0.50 in fiscal '25. However, in the last 12 months, the more challenging business dynamics drove a reduction in both the EBITDA margin and EPS.

Our strong profit and margin projections -- progression through fiscal '25 was fueled in part by our strong cost savings program. The organization has been actively identifying both fixed cost savings and ongoing productivity savings, contributing over $850 million over a 5-year period. These savings were critical in funding reinvestment in the business to accelerate our growth, while in parallel strengthening our profit and our cash flow. We are on track to deliver an additional $200 million or more in savings this year with additional savings identified for next year and beyond.

One of the true performance highlights in the last 5 years has been our significantly improved balance sheet. In fiscal '21, our leverage was very elevated at almost 7x. We made clear at that point that our #1 capital allocation priority would be to steadily reduce our leverage towards more normalized levels, targeting 2x over time. And through the combination of strong organic free cash flow, strong EBITDA expansion and certain asset monetization, we have reduced our leverage by over 4 turns in the last 5 years. As a result, we exited calendar '25 with leverage at 2.7x, the lowest level in almost a decade.

The strong execution in deleveraging and strengthening our operational and financial performance has also been recognized by the debt rating agencies. Since fiscal '20, we've been upgraded 6x by Moody's and 5x by S&P. We are now one notch below investment grade at all 3 rating agencies.

With a dynamic external environment and our recent more challenged performance, we announced at the start of the calendar year a new Chairman and Interim CEO, Markus Strobel. Prior to Coty, Markus spent his career at P&G, primarily in their beauty and personal care business. After an initial assessment of Coty's business, Markus concluded that many of the challenges Coty has faced in the last year stem from trying to do too many things at the same time, resulting in organizational focus and our resources being spread too thin.

We, therefore, unveiled in February a new strategic framework called Coty.Curated. Coty.Curated is all about setting sharper priorities and deliberate choices, focusing our investments behind our core brands and core markets and finally, ensuring that all new initiatives and launches are there to support the core business as that is the only way to build sustainable growth in the long term. We have already begun implementing Coty.Curated framework in recent months.

The organization is already focusing on the biggest brands and markets, strengthening our plans for the upcoming fall 2026 holiday season to ensure we win with the winners and where it matters. Our resources will be concentrated behind our biggest bets, while we have cut smaller launches, which won't move the needle.

With consumers increasingly engaging with brands and discovering new innovation online and over social media, we are reallocating more of our marketing spend from content production to consumer and influencer engagement and advocacy. And culturally, we are refocusing the full organization on improving our market share rather than short-term financial delivery. These changes will take time to drive results, and the path will not be linear, but we are confident that this focused approach will return Coty to a path of sustained top line and bottom line growth over the long term.

So in sum, this is a really dynamic time in the world. Consumers are craving the small items that boost their mood and boost their self-confidence and beauty is at the epicenter of this trend. I hope you come away from this presentation with the following points. Coty has a scaled platform in a resilient global beauty market. We have a portfolio of highly desirable brands with distinct equities, long-term duration licenses and a differentiated vertically integrated business model. And the Coty.Curated strategic framework is setting in motion sharper priorities, targeted investments and multiple levers for long-term profit growth.

And the one thing I want to leave you with is this: Coty has the heritage, the brands and the capabilities to turn our 120 years of beauty leadership into long-term shareholder value.

Thank you, and I'll be happy to take any questions now.

So first, thank you for showing up. I mean I think it must be very hard for somebody to bring [indiscernible] over the last 10 years and 75% over the last year [indiscernible] basically. I mean if you look at the -- it's trading at 2x EBITDA. Is that basically what you said you have EBITDA of $880 million and the market cap is about 1.7?

Yes. I mean on an enterprise value, it's more like 5 or 6. But yes, it's obviously down a lot.

And you compare yourself with a number of other brands and companies, and you've done the worst of all those. So I wanted to hear more like a reflection of what exactly went wrong and what exactly is changing because as recently as a few months, there was a class action lawsuit filed against Coty for telling stories that weren't true. So can you talk a little bit about what have you learned? And what is it that you're going to do different in a significant way to turn this thing around?

Sure. I mean I think it's always helpful to kind of set the challenges of the last 12 months versus the track record in the last -- in the prior 4 years where there was actually very strong momentum. So I don't want to discount the progress that the company and the leadership team executed in fiscal '21, '22, '23 and '24. I mean, double digits...

[ But it wasn't related to ] stock gains.

It was during that period. So our stock went from about $3 in 2020 to, I think, $12 to $13 in calendar '24. So it really did translate for a long period of time or a multiyear period into share price performance. Now obviously, since that point, in the last 1.5 years, the performance has been challenged. And between that and some of the portfolio dynamics that are happening around one of our key brands, Gucci, which will exit the portfolio in the next few years. And we have to specify and share with externally exactly how to think about that in the coming years as well as some of the portfolio reviews. I think right now, the stock has pulled back a lot, and part of it also reflects our executional challenges.

So on your question around what went wrong, what can we do better on a go-forward basis. As I mentioned, I think as the performance did well over a multiyear period, resources went into too many different directions. So trying to improve cosmetics, trying to fuel fragrances, trying to launch an ultra-premium fragrance line, trying to reboost our skin care presence. It was spread too thin. And I think the result of that was underperformance and market share loss over a period of time, and that is exactly what we're trying to course correct.

[indiscernible]

Yes. So JB effectively actually built Coty in the early '90s. They're effectively a holding company that set about acquiring different consumer brands and beauty brands. That ultimately got split up on the consumer side into what is now Reckitt Benckiser and on the beauty side, what is now Coty. So they own Coty privately for about 20 years. They took it public in 2013. We've been a public company, but a controlled public company where they have consistently owned more than 50% of the shares. But they've obviously been very supportive. I mean they've been behind the company for 30 years now.

[indiscernible]

So I mean that's for him to answer, but I would say what he has shared in his conversations is that he needs to set the pace of the turnaround, really see it start delivering before remaining Chairman by passing kind of the baton on the CEO side. So I think it's -- for the foreseeable future, he will continue to play in both roles.

[indiscernible] So my question now is, how is [indiscernible]?

Yes. So there's a strategic review underway for our Consumer Beauty business. That's part of it. But like any company, we're also assessing the broader portfolio. There's -- obviously, we have a new Chairman, but we also have new Board members. So there needs to be a holistic discussion amongst all of them to assess and on us to come to you to the market ideally this calendar year with a framework around what is the end state portfolio.

[indiscernible] Can you talk a little bit about the industry dynamics that will take you to the point [indiscernible]? Is there anything within the industry that Coty as a company [indiscernible]?

Yes. I mean I think the -- we have beautiful brands and really strong capabilities, which we've proven. Obviously, performance in the last year has been -- has not met the mark, but it means that we're starting from a strong baseline, right? So purely improving the execution behind our brands will already closing that gap to the category. If the category is growing 3% to 5%, simply taking the execution and growing in line with the category will already mean strong acceleration in top line and in the business with 60-plus percent gross margins, that by necessity also benefits the bottom line quite substantially as well.

And we're a very cash-generative business. In the last few years, on average, we generate $300 million plus/minus in annual free cash flow. Like this is a very strong business. So when the top line is working, it really does benefit the full P&L, cash flow and balance sheet. Now in terms of adjacent opportunities, we want to do that, but we want to do that in a targeted way so that we're not repeating prior mistakes of trying to chase too much at the same time.

So the top priority is focusing on the core. But at the same time, looking at adjacencies like ultra-premium fragrances, launching these beautiful collections of priced at $200, $300 plus. We've done that under Chloe. We're doing that under Burberry. There's other brands as well, Jil Sander. We've launched fragrance mist, so giving consumers who are maybe priced out of the category with products that are nice, maybe not the same concentration, not the same scent profile, but you can buy a Calvin Klein mist for $20 or $30. So it's bringing in Gen Z consumers. It's bringing in consumers who may not be able to afford the more premium products. So I think we want to approach certain adjacencies, but in a very targeted way.

[indiscernible] balance sheet shows [ $3.4 billion ] [indiscernible]

So we've been very active and proactive around both extending and balancing out the maturity ladder. So we had a sizable over $1 billion of maturities due in calendar '26. We came to the markets last fall in the transaction that was significantly, significantly oversubscribed, got very attractive cost of debt on that. So now our first maturities come in calendar '28, but they're very staggered beyond that. So it's not one giant kind of tranche.

[indiscernible]

The nice thing about beauty is that there's pricing power. Now we don't want to abuse that pricing power. It needs to be very deliberate, very targeted on a SKU-by-SKU basis. But this is a category that is desirable for consumers. It's one of the last things that they cut. If you kind of map out price elasticity of different consumer categories, beauty is one of the least price elastic categories out there. So again, we don't want to abuse that power, but there's room to take pricing if needed.

So I think I heard you say earlier that you are backward integrated [indiscernible]. So I guess from my point of view, capital intensive and a lot of fixed cost. So what are the advantages of [indiscernible]

When we look at -- so I think, obviously, when there are cycles, having -- if you're in a down cycle, if you have an asset-light model, there's benefits from that. But if you look over a cross-cycle period, we have one of the largest -- we are -- fragrances is our profit engine. We have, I think, the largest fragrance manufacturing plant in the world in Spain. It's not the largest, it's one of the largest, which actually gives us objectively like some of the best cost of goods, cost per unit in the industry. I think that's a key point of differentiation and it helps us fuel the investment behind our brands.

The fact that we are not relying too much on external suppliers, particularly for the fragrance business, the fact that we have our own internal R&D means that we can actually differentiate our products in a much bigger way. For many of the -- not the very established scale global players, but many of the upstart beauty brands, they're all relying on the same third-party manufacturers who come in R&D engines, which means the differentiation between these upstart brands is really just their marketing engine.

For us, we have our internal perfumers, our own internal R&D. We have IP around different parts of the fragrance composition, long-lasting scents, how it diffuses. So the core technical differentiators for our core business, it becomes very important that, that is in-house.

Well, great. Thank you, everyone.

Thanks for joining us today. I'm Oliver Chen, TD Cowen's retail, new platforms and luxury analyst. We're excited to have Vanessa Reggiardo here. She's EVP of Consumer Beauty, Global Brands and Innovation from Coty. We also appreciate everyone's vote on the Extel poll as well. If you could vote, we'd love to have your vote if we've earned it. Thanks so much for being here.

Thank you. It's great to be here.

So it's very timely because you announced new leadership and a new strategic framework for your Consumer Beauty business. What's different about how the division is being run now compared to how it was run in recent years?

Yes. No, thanks for that question. So it's an exciting time to be with Coty, and we are on a transformation journey. The Consumer Beauty division a couple of years ago, pretty much '20 to '25 was pretty much, I guess, identifiable by a fragmented approach to leadership. So we had a CCO, a CBO, we had a Head of R&D, a Head of Supply Chain and basically just very slow and complex decision-making with very limited accountability.

So back in fiscal '26, pretty much the fall of last year, we were lucky to have Gordon von Bretten appointed as President, and he now has end-to-end responsibility for the entire division. So pretty much fully integrated, including the commercial markets, all the functions. So we're really driving simplicity and agility in decision-making and making sure that we're all in the same boat going in the same direction.

He's also assembled a great leadership team, again, that integrates commercial with cross-functional partners. And then I'm lucky enough to sit on the team and head up both brand and innovation, which is also a new hybrid, if you will, to make sure that we are managing our innovation in service of our core portfolio.

For those less familiar, what are the major brands in the portfolio and approximate mixes in the portfolio?

Yes, sure. So it's about $1.2 billion worth of retail sales. Our flagship brand is CoverGirl, Sally Hansen, those are our two primary U.S. brands. And then in our European markets, we have Rimmel, Max Factor and Bourjois.

It sounds like a really cool combination, innovation plus brands. Why did that role make sense? And what's on your mind for being the most innovative possible?

I think that it was an interesting combination and really applaud Gordon for kind of being a trailblazer in terms of merging the two because when you operate them as discrete entities, you're obviously not servicing the same goal and agenda.

So you might have discrete innovation, however, not haloing your core business or your key franchises. And I think the other thing is it gives us the opportunity to really manage the portfolio at a macro level in addition to a brand bespoke level.

And why did the business not have end-to-end previously? What was the rationale versus why it's so advantaged now?

That's a great question. I don't necessarily know because I wasn't in the role at the time. But I think that they were basically, again, looking to just bring a new approach and just a more integrated approach to leadership.

On the Color the Future framework, which we spoke a little bit about, what actions have you started to take?

Yes. I think I have a slide. Let's take a quick look. So those are some of our great brands. So hopefully, they look familiar. And then just in terms of our priorities, our actions are really rooted in three big buckets, first and foremost, around brands. So like Oliver said, we're excited to have such portfolio heritage iconic brands such as the one we mentioned. But at the same time, while they enjoy great brand awareness and millions -- hundreds of millions of consumers around the world, we don't want to rest on our laurels, and we need to make sure that their equities are differentiated and salient and driving relevance.

So we are really fine-tuning our equity agenda for each of our brands, making sure that CoverGirl is easy, breezy, beautiful, effortless for our core Gen X and Millennial consumers. We are really excited about living the London look with Rimmel. Max Factor is a heritage iconic brand, and we're really sharpening the pencil there for both visual expression and pipeline to make sure that we're catering to our Gen X consumer.

Sally is our #1 brand. It's a category captain, and we are rooted in bringing care to all things color. And then Bourjois is our cheeky Parisian brand with great accessible price points and a fantastic pipeline. So that's a priority from a brand point of view. From a product point of view, we're really looking again to combine the brand NPD approach to make sure that we are introducing products that address a real consumer need that are first and fast to market and are very accessible from a price point perspective. And we're creating a new center of excellence in terms of managing all things innovation.

So that's super important. And then from an activation point of view, very deliberate and intentional use of redirecting what we're calling nonworking spend to direct fuel to drive our brands, specifically in the areas, of course, of PR and influencer marketing, et cetera. The other thing very important at the heart of it, if you will, is this enabler that we're calling our new operating model.

And basically, just as recently as yesterday, we made some announcement changes, whereby we're going to be changing the ways we work and creating hubs. So an NPD innovation hub to look at things at a macro portfolio level and through the lens of segments, face, nail, lip, eye, for example, and then at the same time, giving us an opportunity to rethink, again, how we work from a brand point of view.

So we have NPD hub, and we're also looking to implement what we're calling advocacy hubs, we'll have one based in the U.S. that will oversee both CoverGirl and Sally and one based in the EU that will oversee our European brands.

That sounds like you're doing a lot of things. How do you prioritize -- how do you-- investing behind the hubs differently? And also the idea of cultural relevance, what does it mean to you? It sounds like you define these brands with much more clear parameters.

Yes. That's a great question. I think Rimmel is a wonderful example. So Rimmel really is rooted in culture of music and street and all things in London. So I think really making sure that we understand who the target consumer is, what makes this brand relevant and resonate with that person or with that consumer and then really double-click on there. I think that we do have a lot of things in action all at the same time, and we are on a transformation journey. And oftentimes, we don't have the luxury of doing things in sequence.

Yes. That's true. Okay. And CoverGirl, you're refocusing on a customer, Gen X. I really think you had focused -- tried to focus on Gen Z and Alpha. Why do X? It is your heritage, and I think it's a great idea.

So I think that we want to do both. I think that CoverGirl like Factor, for example, are multigenerational brands. However, we over-index in Gen X for both CoverGirl and Max Factor. We understand that, that group, that cohort is over 70% of total global beauty purchasing power. So we know that, that's the sweet spot. We know that, that's who's buying our products now, but at the same time, being tactical because we want to make sure that we also bring new consumers into the franchises.

What's also interesting about your background, Vanessa, you were the General Manager for Kylie Cosmetics. Is that your favorite brand? Or is Rimmel your favorite brand?

CoverGirl is my favorite brand, although you're supposed to love all your brands equally. But the Kylie experience was super great, had a fantastic time working closely with Kylie and the teams, and we were lucky to do great things together. So for example, we doubled the sales in just over 3 years. We entered new geographies.

So we're actually selling the brand now in over 65 markets internationally, and 2/3 of the volume is done outside the U.S. continuing with Kylie at the forefront of launching great on-trend first products and then the thing that we were super excited about was entering the white space category of fragrance, which proved to be such a home run and true incrementality and really building fragrance as a destination for her as a brand.

And I think what's interesting is we're able to really apply lots of those learnings. And I think maybe the biggest one was how do we really apply an indie agile mindset to a brand that's iconic within a big global matrix organization. So I think that's about being, again, nimble, agile, provocative, curious, making sure that we're building end-to-end teams with full accountability. I think that, that's a common practice. And I think, again, it's all about the right product at the right time with the right storytelling.

What will be the hardest part of CoverGirl and the evolution going forward?

I think it's interesting. The good news is that we're starting to see some really exciting bright spots. And I think we have really great anchors in the brand. Lash Blast is one of them. Simply Ageless is one of them. And I think the fact that we play in all segments is critically important. I think the other thing that we're doing is we're turning up our innovation, but we're being more focused and curated.

So it's not more for more. It's actually much more specific so that it halos the core. And we're reinvesting in our icons in addition to our new. So we really feel like we've applied the pages of playbooks that are successful. We understand what's going on in the marketplace. We understand who our core consumer is, and we're fine-tuning all those pieces and parts.

We've had many companies here, including Costco, where you see trade up, you see trade down. You see a little bit of both, but it's a very competitive Mass and Masstige color cosmetics market. What do you think about pricing and making sure your value proposition is strong? And the consumer is pretty stretched.

Yes. So I think that, that's obviously a fair observation. And we're really excited to be able to offer such high-quality items at an accessible price point. So for example, in the case of CoverGirl, we have an EDLP with Walmart at $9.99, like the under $10 is super important.

In the case of Bourjois in Europe, same thing, under EUR 10. So we're really excited to be able to bring high-quality on-trend products at that affordable price point, and we really think that, that's a differentiator for us.

You have a lot of other brands too. These multiple brands under the umbrella as well as smaller brands, too. What's going to happen to the whole portfolio? What's best for the division?

Yes. And I think that by Gordon now leading the ship and us looking at things at a macro level, that's a very important question. So we're really trying to make sure that all the pieces of the puzzle fit together to drive growth for the entire portfolio as opposed to, again, what's right for any specific brand in any specific geography.

So for us, as a division, must-wins are CoverGirl in the U.S. at key retailers such as Walmart and Walgreens and CVS, for example. In the case of Rimmel, it's about winning in Boots in the U.K., for example. So we have very specific brand market combinations that will hopefully, again, in aggregate, drive growth for the division and for the portfolio.

Another key theme we all think about is like simplify to amplify and also a consumer and that's bombarded by so much. So one strategy is making bigger bets. Why are you doing that? What kind of risk are you underwriting indoor opportunity?

I think that, again, historically, we thought more was more, was better. And actually, it's not. We're really excited to have Markus now at the helm, and he's come up with a really great mantra, if you will, "Coty curated." So we're really using that as a filter through which we really make sure that we're checking the boxes of focus and prioritization.

So for example, what that means for our brands is that we typically launch spring and fall bundles, which have been very SKU intensive in the past. So in spring '26 and in fall '26, we are reducing the size of those bundles by double digits, so really being very specific and focused.

And at the same time, making sure that those innovations halo our core franchises, which enable us to then spend with sufficiency to make sure that, again, by the time they hit the wall and hit the consumer that there is a great degree of virality and already demand being built up.

On this aspect of innovation, how do you balance core -- and your core product versus the importance of trend drops that are fun and relevant to the consumer?

I think that when you are brands like ours, you're lucky enough to fire on all cylinders. So face, lip, nail, eye, they all need to work, right? In the case of the segments of face and eye, they're the biggest, they're the largest, they're the fastest growing. That's where most loyalty is. And I think if you're launching a new foundation, it's more complex, right, because it's got efficacy, it's got a diverse shade range, for example.

In the case of mascara, there's so much technology that goes into volume or length. In the case of lip, however, we think that we can be a little bit more quick, a little bit more fun, a little bit more trend-driven and bringing new finishes and formats and sensoriality, particularly through that segment. And regardless which segment, very intentionally now moving forward, making sure that when we're launching a new item, it is in service of a key icon franchise like Lash Blast or like Simply Ageless, which is a key face pillar for CoverGirl.

Yes. That's what you're balancing, service and you're organized about it. We love -- I love heritage brands. I also love new emerging upstart brands and founder-led brands. How do you compete? And what are the right strategies and philosophies you have?

Yes. I think that if we look at what's driving the category today across the markets, it is a combination of what we call these power legacy brands together with our upstart indies. And growth right now is really being driven primarily by L'Or al Paris, and they are, of course, best-in-class, and we're happy to be a peer among that group. At the same time, we have brands like NYX or Catrice or Essence.

And I think what they bring is a sense of quickness, is a sense of shiny penny. And at the same time, however, consumers love brands that they know, that they trust, that have authority in the space. So I think brands like ours, like L'Or al can bring those things, but at the same time, offer the same trend-driven innovation as some of these indies. And I think whether it's TikTok or Amazon, how do you create virality and demand for the brands, which I think the indies, of course, do a great job.

What are your thoughts on distribution is rapidly changing, and I love TikTok and TikTok Shop. I love Walmart, too, and I love Sephora. What's happening now with Amazon and they're a big force in beauty. How do you balance these channels?

Yes. No, that's great. Our channel strategy is diverse. Obviously, we're trying to react to all the different puts and takes in terms of what's going on. Brick-and-mortar is the biggest piece of our business. Obviously, online is also a significant component.

In the case of Amazon and TikTok, we are really learning there. Our Amazon business and TikTok shops are growing. And right now, we're still using them as a sense of a platform to jump off and really make sure that we're driving awareness and demand.

And on TikTok, what do you see as the future there? TikTok Shop and also they've done a good job in live streaming. What's on your mind for innovation?

Yes. I think that, again, anything we can do to be spontaneous to be driving curiosity and also just surprise and delight. And I think that, that's what those channels bring. I think that they also bring, again, an organic authenticity to the product, to the brand, and I think consumers are really buying into that whole experience.

Easy-breezy.

Easy, breezy, effortless, yes.

Color the Future framework. You've been on this for 8 months, early progress in CoverGirl and Sally Hansen. Is that progress continuing? What are you seeing in your European cosmetic brand?

Yes. Thank you for the question. So I think we're really excited. So it has been a couple of months of our journey. Our Color the Future program has really taken root in the U.S., and we're really excited to show some bright spots that are quite meaningful in the CoverGirl example. So the category is the blue bar. CoverGirl is the purple bar. And you can see steady period-over-period improvements, whether it be in value or in units.

And you can see quite substantial, like I said, momentum, if you will, across the business, really being driven by a focus on our icons, Lash Blast and Simply Ageless primarily. And we're really excited to be able to show that, that momentum is continuing. So we're really narrowing the gap in terms of us in the category, and we feel very bullish about the future.

What's happening at Lash Blast and Simply Ageless that impresses you most?

I think with Lash Blast, again, it is just an iconic product as is Simply Ageless. I think Simply Ageless is specifically is a great example of this Gen X consumer looking for high-performance, hybrid efficacious products where you have great color payoff, but also skin caring benefits.

And I think that we're uniquely positioned in the market because there aren't too many other brands offering such an identifiable solution, if you will, for the consumer. And Lash Blast is just the OG. It doesn't get any better.

That's cool. I love the OG. What about European cosmetics brands?

Yes. And European cosmetics and actually -- if you don't mind, quickly on Sally, because Sally, we're really excited and proud to say that we are the #1 nail care in the U.S., #1 brand and really have seen such a remarkable resurgence, both in value and in units. So the pink is the category. The orange is Sally, which is our logo color.

And you can see just such a hockey stick performance from minus 5% to plus 4% in value and actually outpacing the category in units most recently. So we're really, really thrilled about that. And as it relates to our European brands, also seeing some very great momentum there. For example, Poland, one of our biggest markets, it's the fourth largest market in Europe. And our brands of Rimmel, Factor and Bourjois are very significant there, and we're posting in recent months mid-single to as upwards as 10% growth versus prior period. So very encouraging.

At Sally, what has been the secret to success with innovation?

Yes. So it's a combination of innovation as well as investment. So we have portfolio plays. So we have Miracle Gel, which is a fantastic bottle and brush solution. We have Insta-Dri, which is fast drying, and we're very quickly garnering our fair share in artificial. So it's a combination of the right portfolio, right shades and again, with stepped-up levels of investment.

One focus area as well is gross margin. So profitability has declined in the Consumer Beauty division. How are you thinking about improving profitability into next year?

Yes. Thank you. It's a critical area of focus because we want growth, but we want profitable growth. And the biggest downward elevator, if you will, in terms of profitability was gross margin. So we had basically a contraction of about 400 basis points. And there were three primary drivers of that. One was supply chain overhead, just given sales decline in the moment, so we couldn't absorb that.

The second was tariffs. And then the third was excess and obsolescence because we had some initiatives that just didn't meet our expectations. So those were kind of the drivers, if you will, of the issue. And then moving forward, very importantly, we really have an all-points bulletin, we're looking at every single line within the P&L to make sure that we are trying to be as accretive as possible.

And we have a couple of very key work streams. Number one is indirect procurement on both merchandising and media. We have a very strict mindset about designing to cost our innovation. We are rightsizing the portfolio, again, in terms of not only the new, but rationalizing the tail across the assortment.

And at the same time, making sure that we're being very mindful about what I mentioned earlier about nonworking A&CP and doing a pivot to make sure that we're investing properly in our brands. One other thing super important and as recently as yesterday we did just announce kind of a new operating model and new org structure. So we're also trying to take a look -- a very hard look at our fixed cost structure.

That's a good question then. What's your hypothesis across fixed operating structure, of areas that you're going to dive deeper into?

So right now, at the top of the to-do list, again, just coming off of yesterday, we are creating this innovation hub, which, as a result, will enable us to take another look and rebalance the new product agenda, what we make versus what we buy. And as a result of that, we will be taking a rightsizing, if you will, to our R&D organization in the U.S.

What's the hardest part about innovation? This could be a 3-hour conversation.

That's such a great question, the hardest part of innovation. I think it's again having the foresight being so consumer-centric and launching -- if you're lucky enough to have the stars aligned, launching the right product at the right time and then just great storytelling.

How do you have the right parameters for failing properly?

You know what, I think that, that's a really interesting point. I think it's okay to fail and it's okay to make mistakes, but we have to do so as a collective and do it quickly and learn and then move on.

Yes. Okay. One more, and then I'll open up to the audience. The Coty at large is rethinking fragrance as a scenting market. How are you approaching lifestyle scenting? It's another sizable business. What is that?

Yes. Lifestyle scenting. So my specific area is more focused on color, but happy to share some thoughts on fragrance or lifestyle scenting. So lifestyle scenting represents just about 7% of Coty's business compared to color, which is about 20%. So it's still sizable, and we know that there's a lot of upside potential there. So what we did with color was we identified a transformation program called Color the Future, and the future of scenting is the equivalent, if you will, on the lifestyle scenting side.

That program is running about 4 to 5 months behind our color program, but probably the same guiding principles and tenets will apply. So we're really focused on a few key initiatives. The portfolio is first and foremost. And then at the same time, there are a number of probably about 5 key focus areas or priorities. We look at them through the lens of brand and geography.

So the first is at a brand level. We're so lucky to have Adidas or Adidas depending on your geography. And we really think that, that has untapped potential. We are also lucky to have regional brands called Bruno Banani and Mexx, which we also think are really exciting jewels in the crown, if you will. And then we have other organic owned brands called Jawhara and Chanson, and we think that there's also opportunity to grow those.

So that's from a portfolio point of view. And then from a geography point of view, we think that the U.S. lifestyle scenting market is vast and that it's really not slowing down. We have not yet garnered our fair share there. So as a geography, that's a key area of focus. And then finally, in the case of Brazil. Brazil is probably the biggest fragrance market in the world, and we have a very strong foothold in body care. So we have big visions and ambitions to make sure that we have a fair share of fragrance in Brazil.

Body mist relative to fragrance, what are the TAMs or relative opportunities that we should understand?

Yes. So we understand that, that is an important and still very relevant and growing segment within fragrance. Last year, we had a big Coty-wide initiative to really enter into that category, whether it be brands like CK, Adidas, for example, or even Kylie. And then moving forward, I think it's about really what is the right fit for purpose and proportion mist to fine fragrance to, for example, ancillaries. So all that work is really underway, and it's a very exciting time for fragrance.

Feel free to raise your hand if anybody has any questions. One question we're asking everybody at the conference is your best use cases of AI that you're most excited about?

Yes, that's great. Besides Copilot in the office. We are excited to really have recently inked a partnership with a company called Pencil, and we're really looking to leverage them and their AI expertise in terms of helping us with our asset production to be more relevant, to be more scalable, to be more effective and efficient. So that's an active program right now that we're running through our owned brands, and we're really excited about what that potential can be.

What do you think it will do? What do you think your company or the industry looks like in 5 years from the lens of AI?

Through the lens of AI? I don't know. I think sharper, more natural, more efficient. And I think probably AI lets us build the beauty world that we want it to be.

And as you think about purpose as well in Gen Z and Gen A, how can you match mission and alignment with brands?

I think that, that's a great point, and we don't want to have to choose. I think with brands like ours, we're lucky to be able to play in the multigenerational space, whereby we can talk to and embrace and cater to Gen X.

And at the same time, we're driving new customers into the franchises every single day. And I think it's also now probably about reverse influencing, right? Mothers influencing their daughters, daughters influencing their mothers. And I think we're lucky to have a portfolio that celebrates all of that.

Other topics we're focused on is biotechnology, wellness as well and humanization as well as growth factors, which I'm using, and I'm using peptides as well and NAD. What do you -- do those excite you and your innovation mindset? Or are they overrated?

I don't think they're overrated. I think it's really important to bring efficacy, like I said, to our daily beauty routines, whether it be hair, body, makeup, it doesn't matter, whether it's peptides, niacinamide, hyaluronic acids or whatever is the next thing. And I think that the consumer today is getting smarter and looking for things that are just delivering more and more benefits. So...

How do you figure out the next thing?

Listening.

But who? Because you can listen to a lot of people.

Well, that's true. That's true. I think, again, just having your ear to the ground and listening to your core consumer, but also all the things that she or he is doing in an adjacent fashion because sometimes the conversation is not so linear.

One thing that is a challenge/opportunity because we've worked with so many direct-to-consumer brands versus wholesale. How do you think you manage change in the wholesale context relative to what you're seeing directly with your consumer?

I think that, that's interesting. We were lucky enough to attend NACDS and really had some great conversations with some of our key partners. And I think in addition to the obvious things, they're looking at KPIs as it relates to service, right?

So making sure that you're on time and in full. So I think that you're managing each constituent through the lens of what's important to them. Of course, your key retailer also wants productive core and innovation. But at the same time, they want 99% service, and they want it on time and in full, which is the right KPI.

Yes. And as you think about your portfolio, which is pretty vast, what do you think about 10-year-olds going to Sephora and 5- to 10-year-olds using products relative to the aging baby boomer?

I think that today, we live in a world of experimentation and people are introduced to different things at different ages. And so long as it's done in a safe and empowering way, I think that that's okay.

And juxtaposing, we talked a lot about changes happening in the organization. What about people? And how will that manifest in terms of the right people at the right place at the right time for everything you're doing, because you listed maybe 20 things.

I think that people are at the center and at the heart of everything, making sure, like you said, that we have great, motivated, capable people to help us drive this transformation agenda, which is daunting and exciting at the same time.

So we want people who can opt in, who can feel motivated by the power of change and who can really drive impact and results. And I think that in order to do that, you have to be able to be a Maverick, fearlessly frank and not take no for an answer. So where there's a will, there's a way.

The theme of the conference is also Future of the Consumer. What do you think consumers care about? You spoke a lot about this, and it's a little different for to your brand equities. But what would you say is the future of the consumer?

You know what, I think that whether or not it's now or tomorrow, I think that consumers look for products and brands and relationships that are just authentic and organic. I think they want to feel something. They want to feel an emotional connection. And in the end, they want a product that really delivers on its promise. So that's what I think.

How do you balance innovation and emotions?

I think that emotion can fuel innovation. I think that we're lucky enough to work in an industry whereby people use products so that they feel good or even a better version of themselves. And I think that there's emotion in every single thing we do, whether it's core or new and every day we work together as a team. So it's about fun. It's about being provocative, it's about being curious. And I think it's about being a change agent and keeping consumers at the heart of everything we do.

Well, thanks for also sponsoring our experiential con...

Yes, sure. I hope everybody enjoys.

Vanessa, it's been a pleasure to learn about magic, logic brands and innovation and also what you're doing across the portfolio. Congrats on the momentum. And we learned a lot about the equities and how you're reestablishing relevance. Thanks a lot.

Great. Thank you. Pleasure.

Good morning and good afternoon, everyone. My name is Chelsea and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's Third Quarter Fiscal 2026 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, May 6, 2026, at 8:00 a.m. Eastern Standard Time or 2:00 p.m. Central European Time. Please note that on May 5, at approximately 4:30 p.m. Eastern Standard Time or 10:30 p.m. Central European Time, Coty Issued a press release and prepared remarks webcast, which can be found on its Investor Relations website.

On today's call are Markus Strobel, Executive Chairman of the Board and Interim Chief Executive Officer; and Laurent Mercier, Chief Financial Officer. 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 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.

With that, we will now open the line for questions.

[Operator Instructions] Our first question will come from Filippo Falorni with Citi.

First question, Markus, I was hoping you can elaborate on the sell-in versus sellout gap that you called out yesterday, both for Prestige and Consumer Beauty, different drivers there. But how should we think about it going forward into Q4 and as you start thinking about fiscal '27? And then one question for Laurent. On the margin side, can you provide some color on the exposure to oil and higher oil prices, both from a raw material standpoint but also from a distribution and logistical standpoint?

Yes. Thanks, Filippo. On your first question, I mean, first of all, on the Prestige side, it was good that we saw some sellout growth. Not much but it was good and we're happy about that. But the sell-in was trailing. There's basically 3 reasons behind this. #1 is the Middle East because when this hit us end of February, we basically couldn't sell anything in March. And Middle East for us is a mid-teens region, was growing very highly. So a good part of that sell-in problem is attributable to the Middle East. #2, we're still in a highly promotional environment, so -- which can be visible in the gross to net.

And finally, what we also saw is that a lot of our European retailers stocked up quite a bit for the holiday, for the Christmas period and our sellout was not as high as they had intended it to be. So they were working down a little bit of inventory in Q3. So all these 3 factors combined led to that gap between sell-in and sellout. When it comes to consumer, first of all, the good news on consumer is that we have closed a bit the gap to the category, especially on Sally Hansen and on CoverGirl in the U.S. Actually, on both of these brands, we are now growing versus the market in unit volume and we are catching up in value. Now why have we not seen this in the sell-in? There is basically multiple reasons behind this. #1, we have basically decided to get our whole organization focused on sellout and market share. This is for us, a big cultural shift. So in the Q3, we sold in much slimmer, much sharper bundles because you sell in a big -- in the past, we sold in very big bundles, a lot of volume, problem with it, if it doesn't sell out, it comes back in returns and obsolescence.

We avoided it this time. So we sold in less but we sold through much, much more. That's how we got up against the category. So this is a short-term effect of selling in less because we changed our strategy in the way we drive retail productivity. And #2, we also exited some smaller markets on the consumer business, especially on color cosmetics in Southeast Asia and in Mexico. And obviously, when you exit, you don't sell in. So we believe that long term, the focus on sellout and the sharper bundles and much more retail productivity will make us a stronger company. And over time, sell-in -- sellout will equal sell-in.

Yes. So Filippo, I can take the second question on -- so Middle East, indeed, there are 2 implications on, of course, the top line margin. So Middle East is a mid-single digit net revenue for the company. And of course, the other impact is indeed on oil price. So what I can tell you, if you have to keep in mind some numbers is that roughly speaking, $1 impact from oil price is impacting our profit by $2 million. This is roughly the gross number. So this is before any intervention on productivity, change of sourcing or any other kind of activities or ultimately even pricing. So -- but just to have in mind. So now but the timing is -- there is some delay, #1, because we have inventories on components. #2, also that procurement team, they have also some hedging policy with our suppliers, which is also protecting suppliers and as a result is protecting us.

So all in all, it means that we are protected against oil inflation roughly by the end of calendar year '26, okay? So this is the rough cut. And maybe just to conclude on this but indeed, what are the scope impacted. So #1 is freight. This has a impact on freight. And it's also on glass, obviously and this is where procurement teams are really finding, optimizing in terms of sourcing, okay, how we can avoid this impact. And #3, it's about components, when we have some plastic components, okay? So again, we are managing this very tightly. I mean the procurement teams have really demonstrated over the last years ability and agility to navigate this kind of volatility of inflation, was the case 3-4 years ago when there was a peak of inflation. So again, the teams are really full on and managing all these elements, while at the same time, of course, making sure that we keep always the top quality products.

Our next question will come from Olivia Tong with Raymond James.

Can you -- you mentioned retail destocking is mostly complete but promotional levels are obviously still higher than you'd like. And at least in the near term, Middle East is likely a continued headwind. So perhaps can you give us a better sense of when you expect that sell-in and sellout to converge? Is this a next 12 months endeavor? Or do you think it could potentially take longer? I understand your comments to Filippo about some of the actions that you're taking, particularly in Consumer Beauty but would love a little bit more detail on that. And then just longer term, can you talk about some more of the building blocks to get you closer to category growth and whether you may need to take even more drastic actions, particularly in Consumer Beauty to get you there?

Okay. I mean let me just start with how we get to category growth, both on Prestige and Consumer Beauty. And they're pretty similar, okay, because they both run under the Coty.Curated framework. So #1 is getting the right innovation out there and focusing on the right innovation. So what we have done already for fiscal '27, we have identified what is our best innovation, what is innovation that complements the brand that has a halo effect on the brand. And what are some small things that we have been doing in the past that we should not be doing at all. So we have cut our number of activities but we're going to make the innovation that we bring to market bigger, better and make sure it has a halo effect on the brand. So that's point #1. And we're doing this on Prestige. And we're also doing this on consumer because we already see now that some of our reduced bundles with bigger, better innovation, some of our items are far ahead of objectives, some of them 3x. So we've seen we can appeal much, much more to the consumer, get more traction.

Second point is getting consumer engagement, improved consumer engagement. As I mentioned in the last call, by doing so many activities, we have invested a lot of money in creating assets or even have enough -- sufficient money to put these assets out there for consumers to see. So we're changing that, creating fewer assets, having more money in working media and especially focusing more on what we call advocacy, which is a modern way of doing marketing, influencers.

We have been a bit slow on this one because we still had a very traditional marketing mix up until last year but we're catching up very quickly so that we believe that consumers will respond much, much more to offering. #3 and this is very important when you mentioned the sellout, and we are changing our whole company culture to sellout oriented. It used to be fairly sell-in oriented. But now we are -- for every innovation, for everything that we're doing, we're asking what is the sellout plan? What is the joint business planning with the retailer? Does it fit into the cadence of the retailers to have a really fully synchronized plan to drive sellout and then sell-in will follow.

And #4 is on everything that we do, we put the ROI lens. Does it -- we have very good ROI measurements now of all our actions, of our media spending, marketing spending. And we're seeing everything what we do, does it move the needle? Yes or no. So across these 4 elements, which is basically Coty.Curated on both Prestige and consumer, we believe this is going to have a big impact over time. Now there will be -- we had a framework. We put out this framework in the last call, as you remember, we're putting into the market now. And hopefully, it will improve quite a bit in 2027. It's probably going to go much faster on the innovation side because we decided this already. It's going to go much faster on the ROI side because we have the data.

Moving asset creation to working media is going to take a little bit more time because you need some lead time to do that and getting the whole organization that has been traditionally focused on sell-in, sellout oriented will also take a little bit more time. When everything comes together, we believe we will finally be in a position that sellout and sell-in kind of equate. And we have a very healthy business from which to grow and reduce the gap we have versus the market. We want to grow over time at least with the market. And in the long term, obviously, we want to outgrow the market.

Our next question will come from Sydney Wagner with Jefferies.

So just curious on -- we're encouraged to hear some of the progress early from CoverGirl. Which of those strategic steps do you think are most repeatable outside of the U.S.? And then we are seeing several mass retailers developing and broadening their beauty offerings. So can you talk about how you think about where the Coty brands fit into that evolving mass retail environment and kind of how your strategy fits around there?

Yes. I found it quite interesting, when we look at CoverGirl and Sally Hansen, we had a lot of failed efforts in the last couple of years to position the brands where the brands don't fit. I think at one point in time, we tried to turn CoverGirl into the ultimate Gen Z brand. That didn't really work because this was not credible for the consumer. And each time when I go see a retailer in the United States but also in Europe, they always say, please, please, please, can anybody do something for Gen X, because Gen X women have money, they're ready to spend it but nobody talks to them and nobody has an offering for them.

So basically, what we're doing, what we've done with CoverGirl, we made CoverGirl, again, the -- in the process of making the penultimate Gen X brand and retailers really support us in this. What this means, the way we're going to market, we need to have a good mix of advocacy. As I just mentioned, we've got to improve that but also some traditional media to focus on the core properties, Simply Ageless, Lash Blast, all these kind of things that people know, that people trust in. So where we bring innovation on these existing franchises versus news, news, news, all the time. And I think that it's highly appreciated that helps us now to actually get much closer with CoverGirl to the category. And we're actually outgrowing the category at the moment in terms of units in the U.S. And I believe this model is also applicable outside of the U.S. We're going to apply this on Rimmel in the U.K. and on some of our other properties like Bourjois and Max Factor in Europe.

Our next question will come from Oliver Chen with TD Cowen.

Regarding the focus on the sellout culture, what does that mean in terms of your systems and/or capabilities or working capital and what you're thinking that requires? It sounds like it's quite prudent. And then as you mentioned earlier, Markus, on the promotional environment that you're seeing as well as the European accounts being overstocked, how long might that persist? Or what are you monitoring in terms of the relationship of what you're seeing there relative to guidance? And lastly, Laurent, on the A&CP shift, was that planned? Or was that in relation to what you were seeing in the marketplace?

Okay. In terms of sellout culture, which is obviously like probably the more difficult part because culture change is usually more difficult and takes a bit longer than strategy change. What we're doing is, we're trying to implement this in all parts of the organization. So when we do a business review, we're basically what are the selling plans? What is the retailer plan? How we can engage with the retailer? Has the retailer verified these plans? So they can start asking the right questions but also personally on the top level, connecting with the right retailers, which we're doing. And #2 is we will also, as we move forward, putting some on the -- these metrics into our evaluation system.

If you put market share, right, into your way -- into way -- how you evaluate the organization, you see a shift to -- on sellout almost immediately. So I think it's a mix of putting it into our performance metrics, KPIs, measure it and drive it home with the organization every single day. But also building the capability for joint business planning with retailers, not just selling it in and hope it sells with top line media but having the right plan every time. It's much easier to have the right plan. If you go back to the curation, if you have fewer, bigger initiatives because you can focus on that to make the right plan versus throwing out too many things where you just don't have the bandwidth and the capacity to do the right plan. So I think this is going to help us quite a lot.

When it comes to retailer inventory, again, we said before that we don't think there is any more -- much more structural destocking in the trade. Structural destocking means retailers are in general, dramatically reducing their inventory or their days on hand. We don't see that at the moment. It was just for us that all our Christmas sellout was not as great as we wanted. Now -- and we've worked through that in the first quarter. Now as you go into the next holiday period, which is Mother's Day and Father's Day, we're obviously much more attuned to that. And now that we get into the sellout culture, I think we will be better in sellout and sellout and inventory will be much closer correlated than what they have been -- what they were in the past. So I think it's going to get better over time.

Laurent?

Yes. So Oliver, I will take -- just maybe to build on -- and your first question about the working capital, I would like to build on this also to make clear that as part of the Coty.Curated and again, this focus on sellout, I mean, there are also some strong benefits on cash and working capital because, of course, by focusing on the big SKUs, reducing the tail, it has some implication on inventory and on working capital. So that's one and it's part really of the discussion. And #2, when we say focus on sellout culture, it's also behind this and is also to have a very strong focus on forecast accuracy, really understand better the dynamic with the retailers. And again, by doing this, is really to be much more efficient on our inventory and also on excess and obsolescence. So it's really a big element and that's also what you -- you saw that -- what procurement implementing alliance progress -- project, which is really about streamlining of supplier ecosystem.

So it's also another benefit as part of this particular thing. So that's very important. And it has indeed concrete implication on top line, on the gross margin and also on the working capital and the cash. So now I go to your last question on A&CP. First of all, I want to remind that our level of A&CP in Q3 is flat, okay, which means that even in terms of percentage, it has increased, okay? So it's really that there is no cut or drastic reduction and it's part of our tight monitoring that we are implementing. When we say focus, it's, of course, focusing on the big bets but it's also focusing on where we are seeing strong ROI.

And this is also the analysis and the decision we made during the Q3 that -- we believe that we need to preserve and we need to invest more for the A&CP and indeed Mother's Day and Father's Day are really A&CP, especially for Prestige. And this is a conscious decision that we made during the quarter, say, okay, let's reserve some money from Q3 because we are in a good place. And then we allocate this money where we are seeing, in fact, a strong ROI. So that's really part of the new dynamic, okay, not to be absolutely stuck on some decisions made 3 months ago. We are seeing how things are evolving. And when we have to make the decision to reallocate some money, we do it. So it's absolutely conscious decision.

Our next question will come from Susan Anderson with Canaccord Genuity.

Alec Legg on for Susan. I guess how should we think about the exit of Orveda and then also some of the brands from smaller markets? And then when should we expect, I guess, Orveda exit to occur? And can you give any details on how large that business was?

Well, let me put it that way. Orveda, we have started transitioning out of Orveda since February, basically. We have reserved for all these costs in our Q2 already. We're executing this at the moment, which means closing some of these big boutiques. Some of them might be taken over by the previous licensor. We're still working on that. We think we're going to be out more or less completely by the end of this fiscal year. So come June, July, August, we should be out of that business and can reallocate some of that spending that we have on this business on our core fine fragrance brands. The size of the business, we don't break out individual brands but you can imagine it was not huge, to say the least. So that is Orveda.

And from the other brands, you mentioned mostly the consumer business where we exited some smaller markets because they're just not economical. We cannot create any scale or make any money or have any ROI. And with our new ROI culture, we will continue some of these but will not be -- it will not be dramatically pronounced because the volume per market there is fairly small. We will focus in Consumer Beauty on our most important franchises, CoverGirl, Rimmel, Sally Hansen, Max Factor. We've got to win in North America. That's job #1. We've got to win on Rimmel in the U.K. That's job #2. And then we got to win in Europe of the rest of our portfolio, job #3, in that priority.

That's really helpful. And then just a quick follow-up. Are you able to quantify the tariffs you paid over the last year? And any insight on if there's a chance for getting refunds on that?

Yes, Laurent.

Yes, indeed. So roughly, it's about $30 million impacting the P&L this year. And of course, I mean, we are looking carefully at any opportunity to refund and depending how situation is evolving, okay, if -- when and if we can do it, of course, this is something we will contemplate to helping with our P&L.

Our next question will come from Charles Scotti with Kepler.

Two questions from me, please. The first one, you mentioned that the competitive environment remains very intense. Could you provide more details on this and who is putting pressure on pricing and in which regions? And more broadly, do you think that similarly to the luxury industry, consumers are starting to push back against perfumes price increases and could prices eventually start to decline at some point? Or could you push more on smaller formats to add up to a lower purchasing power? And then second question, there have been many media rumors suggesting that you could dispose of certain licenses to other industry players in order to accelerate your deleveraging. I think these rumors have since been denied but do you have any comment on this topic? And regarding Gucci more specifically, you previously seemed open to a disposal ahead of the license maturity. Could you give us an update on this matter, please?

Okay. Okay. I have to make -- this is 3 questions, I have to make sure I don't forgot them, one by one, in terms of the price. First of all, I mean, you got to know that the beauty market is extremely resilient. We saw again 5% growth in the market in Q3 and both 5% on Prestige and 5% on the mass. So basically, the consumer is shopping across a very, very wide price spectrum. And so far, we have seen an amazing resilience of the consumer out there. Yes, there is a bit of -- everybody is fighting for market share. So there is a lot of promotion in the market but that has more to do with, yes, building sellout and market share than it has to do with absolute price levels. So we believe we're still in good shape when it comes to the resilience of the consumer, at least we haven't seen anything negative yet.

On the rumors that you may have heard that we will be divesting anything in our Prestige portfolio, I can say here for everybody, very clear that there is no truth to this. We categorically deny this. There is no plans whatsoever. We're very, very happy with our portfolio. We're very, very happy with our brands on the Prestige side. And each of them has an important role to play for us in the future. And if you go to the specific article, our Burberry and Hugo Boss, our biggest brands, they are our global brands and we love them and we continue to strongly build them in the future, okay? Very, very clear, no doubt about that. And when it comes to Gucci, yes, obviously, we are open to everything, to an early exit if it creates value for us. We need to create value for us and for our shareholders. And if anything becomes clear and fixed, we will obviously notify the public as -- based on our requirements, okay? Nothing to report here at the moment. We'll keep you posted.

Our next question comes from Andrea Teixeira with JPMorgan.

Markus, you and Laurent, you both talked about like going back to the SKU, about the SKU rationalization, brand rationalization, Consumer Beauty. This has been obviously a very long journey. And I just wanted to see what inning you are in terms of that, if -- how many more iterations of that you think you need? And then related to that on the cost side, I think you talked about returns or obsolescences impacting your numbers. How -- again, how we should be thinking where these margins will land? And how long do you think you're going to take as you focus, to your point, more in the sellout vis-a-vis the sell-in? It seems to me that you're going to have to incurring something, kind of restructuring those brands and making sure that you get the best returns on those.

Yes. Well, I think in terms of getting the innovation to a place where it really makes sense for shelf and retail productivity. I mean in the past, you probably know that we put out such a big innovation bundle every spring and every fall that we almost like crowded out productive SKUs on the shelf. So it's a double whammy. You have stuff out there that doesn't sell and you have lost some productive SKUs. And if you add it all up, it's all coming back to you in either returns or obsolescence, okay? And we're still suffering from the hangover of that. But this quarter, Q3 was the first time where we are breaking that cycle. And we're going to break the cycle even more in the fall bundle, which is going to be sharper. And the most important thing, it's not like just reducing the number of properties. It's actually important to bring properties out there that resonate with the consumer.

So we're going to be much more consumer-based, much more trend-based, trying to meet the market in creating some of these trends. And the first results we have seen now and are really, really good. I mean we have some of the innovations are really far above our expectations and they help actually to build market share in volume but also catching up very much in value now to the market with actually a much smaller number of bundle and a much smaller number of SKUs, much more efficient model. It's probably going to take us 1, 2, 3 iterations with those bundles to work through that and see the full effects as we will see less and less obsolescence over time. But give us a few quarters and you will see the effects of this.

Laurent, that was the second part. Go ahead on...

Yes. I think on -- when we were talking about E&O and I think is really to build on this and what we were referring before. I think it's really important you look at all these initiatives really from an end-to-end element or cycle. It's not just one bucket about reducing the number of SKUs but it's how we can be very precise. And again, it will have some implication on forecast accuracy, on inventory and E&O indeed today. This is -- as you saw in the Q3, it's really an element which is hurting our gross margin in Prestige but also in Consumer Beauty. So by reducing this and to give the example, reducing the bundle, it's indeed a way that we are reducing inventory. We reduced E&O but also we will reduce the returns that we get from retailers.

So this will flow into the -- into P&L. And also there are also currently some, let's say, exceptional elements. Markus was referring to some markets that we are closing in Consumer Beauty because they are not profitable. It also triggers, I would say, as a short term that sometimes it's impacting -- we need to cut some inventory here and it's hurting E&O or even in some cases, we have some returns. So these are also some exceptional costs that as time goes, will disappear. And then on the other hand, we get really the benefit from this -- from the decision. So it takes time. But again, it's really part of a very consistent plan and it will be visible in the gross margin improvement.

Our next question will come from Bonnie Herzog with Goldman Sachs.

I had a couple of questions on your FY '27. First, how should we think about the impact from the Middle East? Is the 2- to 3-point headwind that you expect in F -- Q4 a good proxy? And then could you provide a little more context of these pressures and maybe investments to support your launches in the year? Ultimately, is it reasonable to assume continued EBITDA declines? Or could EBITDA start to flip positive?

Yes. Thank you, Bonnie, for the question. I think we agree on -- in your question that there are a lot of moving pieces. So is -- we always made clear that we operate in an environment where there is a lot of volatility. And indeed, currently, the geopolitics is bringing, of course, some additional volatility. So on Middle East and I think like all of us and we read the news every day, as you understand the big number, so mid-single-digit percentage of the size of Coty as a whole. Indeed, it's a very strong fragrance business and also very dynamic. So indeed, it's creating a headwind. Now you need really to understand that within Middle East, there are different dynamics. The channel, which is the most impacted is travel retail, which, of course, given the circumstances is drastically reduced. Also in Emirates because you have a lot of tourists and currency, of course, this is very -- to the minimum.

But on the other hand, you have markets like Saudi, which are pretty well protected. So we need to understand these dynamics. We are monitoring as we go. And also, we are managing the P&L equation and the investment and the spending of the region according to how the situation is evolving and we have a very good team on site and very close to all the actions and really the agility. So we'll keep you posted. But of course, we are making sure that we are managing this very closely within our equation. So now on your second question, again and again, the big focus and it brings all the discipline in the organization is a focus on sellout. So this is really what will drive the performance and the improvement.

Of course, at some moment, it will be visible in the sell-in but that's really a matter of discipline that Markus shared loud and clear. So gradually improve our sellout to reduce the gap versus the category which is resilient. And of course, is really -- our goal is really indeed to improve our EBITDA year-on-year trend over the course of fiscal year '27. So that's for sure. At the same time and we've been very clear, we need to manage potential inflation, which is the first question from oil increase. And also, we've been very clear in the presentation that there are also some short-term benefits that also will create some headwind next year. But again, the trend -- the organic trend is, we need to improve sellout and of course, we need to improve the trend of our EBITDA trajectory.

Our last question will come from Anna Lizzul with Bank of America.

I know you talked a bit about the promotional environment here being a bit elevated. I was wondering if you could comment more on both the Prestige and Consumer Beauty lines of business and when you expect this to better normalize?

Indeed, yes, we are seeing some promotion being more elevated. So indeed coming from specific actors, specific retailers. I think this is something that I will not call as a major change versus what we observed in the previous quarters and what we flagged. But we are always making sure that we are protecting our brands, we are protecting our innovation and indeed that we are not playing that game. I will insist also and you saw in the Consumer Beauty presentation that we have been also very cautious in terms of price increase versus most of our competitors.

And you see that in fact, our sellout in units especially in the U.S. is growing. So this is very encouraging. And it really helps also to avoid playing this kind of promotionality game. So again and you see tangible results in the sellout improvement in CoverGirl in [indiscernible]. So we are managing this very closely, managing really all the revenue management approach. So again, so this is the way we are looking at it. When it will normalize, I can tell you on our side, we stay very disciplined on this. And then on how our peers want to play that game, of course, this is a question that you can raise with them. But again, we stay very disciplined, managing the revenue management in a very targeted way.

So we'll -- just let me do -- just a final closing comment. Obviously, we are not -- no -- to be honest, we're not where we want to be yet where we want to be but we're improving. And I think Q3 demonstrated our ability to protect profitability and cash flow while taking first concrete steps to strengthen execution across the business. Coty.Curated is the framework that's guiding the shift, sharpening our priorities, simplifying our operating model and scaling what works. With sustained focus and disciplined execution, we are confident Coty is well positioned to deliver more consistent profitable growth and the long-term value creation.

And I want to use this opportunity again to thank all Coty employees around the world who are working very hard to make this happen and especially our colleagues in the Middle East are doing a tremendous job under a high state of high uncertainty. So thank you very much.

Thank you, ladies and gentlemen. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

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 Third Quarter Fiscal 2026 Earnings. On Wednesday, May 6, 2026, 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 Markus Strobel, Coty's Executive Chairman of the Board and Interim Chief Executive Officer; and Laurent Mercier, Coty's Chief Financial Officer.

Before I hand the call over to Markus, 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 Executive Chairman and Interim Chief Executive Officer, Markus.

Thank you, Olga. Hello, everyone. Thank you for joining us today.

Before I discuss our results for the quarter, I want to take a moment to thank our colleagues around the world, many of whom I've had the pleasure of meeting in recent months for their continued dedication and hard work on behalf of Coty. I also want to acknowledge our colleagues, retail partners and suppliers in the Middle East who have been affected by the conflict in the region. Your safety and well-being remains our top priority, and we are deeply grateful for all that you do.

Now let me begin by walking through the sales and sell-out trends in the quarter. Overall, while the environment remains mixed, our focus is squarely on underlying sell-out trends across the portfolio, including areas where we are seeing resilience, areas where we see pressure, where sell-out trends remain challenged, and we are not performing yet at the level we expect, and the actions we are taking, including tighter prioritization, sharper allocation of resources and a continued shift towards supporting fewer, higher impact core initiatives to improve performance over time.

Importantly, we remain focused on sell-out. As we see sell-out improve, we expect sell-in to follow, and that principle will guide how we manage the business, particularly in a more volatile uncertain environment.

Turning to our Q3 results. Coty's like-for-like sales declined 7% in the quarter. Importantly, this includes an estimated 1.4% negative impact from the Middle East, driven by the escalation of the conflict during the quarter. Excluding that impact, our like-for-like sales were in line with the guidance we previously shared.

The reason the Middle East impact is more pronounced for Coty is primarily portfolio and channel mix. The region represents a mid-single-digit percentage of our total sales, including local travel retail. And given fragrances are a dominant category in the Middle East, we are seeing a more sizable impact on our Prestige business.

The disruption to the Middle East region had a larger effect on our near-term trends because we had anticipated stronger Middle East growth this quarter. As the conflict in the Middle East continues, we expect it to remain a headwind to sales in the near term, particularly in Prestige. That said, it is important to look beyond the reported top line and focus on the underlying category and sell-out trends across the portfolio, which we'll walk you through next.

Let me now put our performance in the context of the broader beauty market. Beauty demand remained resilient across Prestige and Mass despite a mixed macro backdrop. In Prestige, the global beauty market grew approximately 5% in Q3 and 4% year-to-date, reflecting continued strength in core beauty categories. Importantly, the growth in Prestige fragrances continues to be fueled by a good balance of volume growth and price/mix growth.

In mass beauty, the market also continued to grow at approximately 5% in Q3 and 4% year-to-date. As you can see, the category continues to grow overall, underscoring the opportunity to improve our own execution.

Turning to our Prestige performance. Prestige sell-out was slightly positive in Q3, indicating continued consumer interest in our brands even as reported sales were pressured. On the revenue side, Prestige like-for-like sales declined 5% in the quarter. This includes an estimated 2-point headwind from the Middle East.

Excluding that impact, Prestige like-for-like sales were in line with our expectations. From a sell-out perspective, performance was mixed by category. We saw strong momentum in Prestige cosmetics in the U.S., while Prestige fragrance sell-out declined modestly. The gap between our Prestige sell-out and like-for-like sales was driven by a combination of 3 factors.

First, the estimated 2% impact of the Middle East conflict on our orders late in Q3. Second, the promotional environment. And third, more moderate sell-in in Q3 following a somewhat softer holiday period, even as our data tracking suggests that the structural retailer destocking is largely completed.

We are also encouraged by recent innovation, including BOSS Bottled Beyond, Cosmic Kylie Jenner Intense and early positive reads on the recent launch of Calvin Klein Euphoria Elixirs. At the same time, our focus is not simply on launching innovation, but in ensuring that innovation drives stronger incrementality and a broader halo on our core franchises as we move into fiscal '27.

Turning to Consumer Beauty. In the third quarter, sell-out trends showed some improvement, reflecting early progress across parts of the portfolio, though that performance remains uneven. In Q3, Consumer Beauty sell-out declined by approximately 3%, while like-for-like sales declined 10%. While our sell-out performance continues to trail the market, the gap has gradually narrowed, driven primarily by our color cosmetics brands. In the U.S., CoverGirl and Sally Hansen are outperforming the category on a unit basis and narrowing the gap on a value basis.

Our European brands remain under pressure. At the same time, lifestyle fragrance was a large drag in Q3 and year-to-date, reflecting a portfolio where historically, priorities and resources were spread across too many initiatives, limiting consistency and impact.

For the division, a large part of the gap between Q3 like-for-like sales and Coty's sell-out reflects actions we have taken to streamline underscale launches and markets in mass cosmetics, including exiting small, sub-scale markets that were not meeting our profitability thresholds. These actions are impacting our year-over-year shipment trends but are supporting some sequential improvement in our sell-out trends to more concentrated resource allocation and organizational focus.

While performance remains a work in progress, the more recent sell-out trends indicate that we are moving in the right direction even as results may fluctuate month-to-month.

With that, let me hand the call to Laurent, who will walk you through our financial results and outlook.

Thank you, Markus. As Markus outlined, we are navigating a complex external environment while in parallel working to instill greater focus and operational discipline across the organization.

I will now walk you through our financial results for the third quarter, and then will provide an update on our outlook.

Turning now to gross margin. In the third quarter, our adjusted gross margin was 61.8% in Q3, down 250 basis points. On a year-to-date basis, adjusted gross margin was 63.6%, down 200 basis points. Importantly, this performance was in line with our expectations given the operating environment and the mix dynamics we discussed last quarter.

The primary drivers of the year-on-year gross margin decline in the quarter were threefold. First, supply chain cost under absorption, given the sales declines, particularly in Consumer Beauty. Second, higher excess and obsolescence, largely reflecting smaller-scale Consumer Beauty initiatives that did not meet expectations and where we are now taking decisive action to streamline future initiatives. And third, tariff and freight headwinds, which continue to impact input costs across the business.

Looking ahead, given the current macroeconomic and market backdrop, we expect these pressures to persist into the fourth quarter, though we anticipate some moderation in the headwinds year-on-year as the benefits of increased focus and simplification begin to flow through.

Turning to EBITDA and EPS. In the third quarter, adjusted EBITDA and adjusted EPS, excluding the equity swap came in ahead of our Q3 guidance. That said, it is important to be clear that performance remains weak in absolute terms, and we are not satisfied with the current level of profitability. While we outperformed expectations this quarter, there is a meaningful work to do to strengthen operational control and execution across the business. We continued to invest to support our core brands and franchises with A&CP remaining in the high 20s as a percentage of sales.

Adjusted EBITDA in the quarter declined year-on-year, primarily reflecting top line pressure and lower gross margins. Relative to our guidance, our adjusted EBITDA upside came from better execution on fixed cost reduction and the decision to reallocate some A&CP towards key Q4 consumption events. We are making progress against our transformation program announced in April 2025, including in headcount reduction, which is supporting our cost control efforts.

Adjusted EPS, excluding the equity swap declined to $0.02. As we look ahead, our focus remains on improving execution, tightening operational control and building more consistent profitability over time.

Let me now walk you through our adjusted EBITDA delivery by division. Starting with Prestige, adjusted EBITDA declined year-on-year in the quarter, reflecting top line pressure and lower gross margins driven by low fragrance shipments and higher tariffs, coupled with the mechanical impact on fixed costs from lapping the bonus accrual release in the prior year. That said, Prestige continues to demonstrate a relatively solid EBITDA margin structure, supported by the strength of the category, the scale of our core franchises and disciplined cost management.

Turning to Consumer Beauty. Consumer Beauty adjusted EBITDA was under significant pressure in Q3. This was driven almost entirely by gross margin headwinds, some of which were more temporary in nature. Three main factors drove the Consumer Beauty gross margin decline: first, supply chain costs under absorption given the sales declines. Second, pressure from higher excess and obsolescence, reflecting the impact of lower-scale initiatives that were launched in the past 1 to 2 years that did not meet expectations. And three, impact from tariff costs. Taken together, these factors explain the Consumer Beauty EBITDA performance you see on this slide.

As you may have seen in our press release, Consumer Beauty reported results included a $363 million impairment charge. Following the significant decline in the Coty share price over the last 3 months, we recorded this impairment charge, reflecting a reduction in the carrying value of the business driven by lower forecasted revenues and a higher weighted average cost of capital.

As we look ahead, we see clear levers to moderate the pressure on Consumer Beauty profitability in fiscal year '27, driven by improved mix, tighter execution and better absorption, which Markus will discuss in more detail later on this call.

In Q3, we generated fixed cost savings of over $15 million in addition to over $50 million in productivity savings. Importantly, we are making progress against our transformation program announced in April 2025, including a headcount reduction of over 400 positions year-to-date, on track to meet our targets laid out when we announced the program. We continue to expect about $200 million in cumulative fiscal year '26 savings with additional savings in fiscal year '27 as we further improve cost efficiency while maintaining investment behind key priorities.

Let me now turn to capital allocation and our balance sheet priorities. Deleveraging remains our #1 capital allocation priority in the near term. Year-to-date, we have generated $276 million of free cash flow, an increase of $33 million or 14% year-on-year, supported by continued focus on cash generation and discipline around working capital and CapEx even in a more challenging operating environment. As a result, we exited the third quarter with leverage of approximately 3.4x, and we remain firmly committed to continuing to reduce leverage towards 2x over time with the objective of achieving and sustaining an investment-grade credit profile.

In parallel, we continue to take a disciplined and selective approach to portfolio and asset evaluation, always with a focus on maximizing long-term shareholder value and strengthening the balance sheet.

Let me now walk you through our outlook for the fourth quarter. Consumer demand in key beauty categories has remained resilient, particularly in fragrances and cosmetics. While the Middle East conflict continues to weigh on sales trends in the region, consumer demand in developed markets has remained broadly consistent with recent periods.

Against this backdrop, we are steadily implementing our Coty curated strategic framework, focusing on core brands and markets, reducing complexity across the portfolio and identifying savings opportunities across the P&L to support both increased consumer engagement and profit protection. We expect fourth quarter fiscal year '26 like-for-like revenues to decline by a mid-single-digit percentage. This assumes a moderate sequential improvement in both divisions from easier prior year comparisons, largely offset by ongoing Middle East headwinds that we estimate will reduce Q4 sales by 2% to 3%.

On a reported basis, we expect foreign exchange to be broadly neutral in the quarter. Gross margin is expected to decline by approximately 100 to 200 basis points year-on-year, reflecting operating deleverage from lower shipments, tariff impacts and elevated sequentially lower excess and obsolescence, partially mitigated by productivity initiatives and procurement actions. We anticipate fiscal year '26 adjusted EBITDA of approximately $838 million to $848 million with an adjusted EPS, excluding the equity swap of $0.33 to $0.35.

Q3 profit came in ahead of guidance, supported by tight control over both marketing and fixed costs, is allowing us to protect investment during key Q4 commercial period, particularly Mother's Day and Father's Day.

Based on this guidance, we estimate Q4 adjusted EBITDA of $85 million to $95 million and adjusted EPS, excluding the equity swap of breakeven to a loss of $0.02 per share. Overall, while the near term continues to reflect many of the same challenges outlined on our last earnings call as well as some new macroeconomic challenges, our outlook reflects a measured and realistic view as we close out the fiscal year.

Before I turn it back to Markus, let me briefly frame how we are thinking about fiscal year '27 at a very high level. First, we have targeted incremental launch activity planned in fiscal year '27. And importantly, this innovation is deliberately designed to support and strengthen our core franchises rather than add complexity. Our focus is on fewer higher, impact launches that support our core franchise, reinforce brand equity, improve mix and drive more productive performance in the core business across both divisions.

As we plan for fiscal year '27, we are mindful of cost headwinds that could affect our cost of goods sold, particularly those linked to the Middle East conflict and elevated oil prices, and we are building those considerations into our planning assumptions.

Next, we expect a normalization in incentive compensation, including the restoration of the bonus accrual, which will be an important year-on-year factor in the cost base. And finally, we are identifying additional fixed cost savings opportunities with the objective of improving the underlying cost structure while maintaining a balanced approach to growth and profitability.

Stepping back, this is not about providing concrete guidance. It is about being transparent on the key building blocks and challenges we are focused on as we work to position the company for more consistent performance over time.

Now let me turn it back over to Markus.

Thank you, Laurent. In February, I introduced a new strategic framework Coty.Curated. At its core, this means focused investment and sharper priorities. Coty.Curated is about scaling what works, stopping what dilutes and removing layers that slow execution. Applying this framework to the Coty business means disciplined execution, operational effectiveness and sufficient multiyear marketing support.

Let me now bring the Coty.Curated framework to life through 4 clear lenses, which we are beginning to implement already. First, innovation. We have identified the Prestige priorities that can have the greatest impact in fiscal '27, which means making deliberate choices. We will significantly reduce the number of smaller launches so we can concentrate our resources behind the initiatives with the strongest potential to scale and create meaningful halo effects across the portfolio.

Second, advocacy. One of the clear lessons for me is that too much of our spending has gone into asset creation and not enough into consumer-facing support. In fiscal '27, we will be stepping up consumer engagement spending with a sharper focus on advocacy, influencers and working media. This will be funded in part by lower marketing asset production costs, including broader use of AI and content creation for own brands alongside procurement savings.

Third, we will become much more sell-out driven as an organization. On north star is consumer demand, not just shipping products into the trade. That means reorienting the company around market share, retail productivity and sell-out because when sell-out works, sell-in follows. We also need to step up the quality of our joint business planning with our key retailers. We have begun to systematically reinforce this in all of our business reviews as the most critical KPI for the organization.

And fourth, the ROI lens. We are moving skin care out of the investment phase of the last few years. This means sharpening our focus on the core markets, franchises and channels of our 2 prestige skin care brands, Lancaster and Philosophy, while in parallel exiting all of the operations and boutiques of the Orveda brand. Put simply, fewer, bigger bets, more effective consumer activation, stronger sell-out discipline and a much harder focus on ROI. This is what Coty.Curated means in practice, and we will continue to share both our progress and additional action steps in the coming quarters.

Let me give a tangible example focused on the U.S. market, which is emblematic of broader Coty with regards to what's working, what's not working yet and what we will be gradually fixing. The U.S. is our largest individual market, accounting for roughly 1/4 of our sales, and our underperformance in this market drove the vast majority of the sales pressure in fiscal '25. Entering fiscal '26, the Coty organization made deliberate interventions and choices in the U.S. Prestige market. This included allocating more marketing support to the region, building on iconic franchises like Burberry Her, Burberry Goddess and Gucci Flora, launching unique exclusives like Marc Jacobs Daisy Murakami and expanding new brands in the market, specifically Hugo Boss and amplifying our prestige makeup range led by Kylie Cosmetics.

While these efforts returned our Prestige business to moderate growth in Q3 with our sell-out growing 2%, this is still several points below the market level and also below the growth we have targeted for the U.S. at the start of the year. There are some things which have worked well. The distinctive packaging of Marc Jacobs Daisy Murakami has driven strong consumer engagement, causing the collection to sell-out.

Kylie Cosmetics continues to perform strongly in the U.S. and globally, supported by core franchises like Kylie lip kits and momentum behind the Skin Tint Blurring Elixir foundation.

On the flip side, more traditional fragrance extensions like Burberry Goddess Parfum and Gucci Gardenia Intense have not cut through, with consumers gravitating towards new pillars and truly distinctive offers.

Our U.S. channel strategy is also mixed. We are performing well with 2 key retailers, Ulta and Amazon and continue to see opportunities to improve our approach with Macy's and Sephora. Over the coming year, we will put in place more elements needed to compete more effectively in the calendar '26 holiday season, including more distinctive launches, stronger advocacy, tailored retail plans and further momentum in Prestige makeup with Kylie Cosmetics and Marc Jacobs.

Let me now turn to Burberry, which is one of the clearest examples of what a focused, disciplined prestige playbook can deliver. Over the past several years, we have built Burberry into a true pillar of the Coty portfolio and the progress here is very tangible. Between fiscal '19 and fiscal '25, we grew Burberry brand sales 2.6x with retail sales quadrupling over the same period, reflecting substantial progress for the brand. What is especially encouraging is that this growth is not coming from one single hero product. Coty has built 3 core fragrance franchises, Burberry Her, Burberry Hero, and Burberry Goddess, with all 3 entering the Global Top 20 in the last few years, whereas the brand did not have any Top 20 franchises prior to 2022.

At the same time, in the increasingly competitive fragrance market, it is clear that we need a more disruptive approach to storytelling, consumer engagement and packaging to take these 3 franchises to the next level. Burberry makeup also delivered strong growth off a smaller base as we activate key products like Burberry Brit lip veil and Beyond Wear Foundation. Burberry is a good example of where Coty's capabilities in innovation and execution are working.

Our next step now is to keep amplifying both fragrance and makeup with the same principles I've been talking about today, focus on the core, support the winning franchises and driving halo effects across the full brand, all supported by a significant increase in marketing spend and consumer engagement.

Turning to Hugo Boss. BOSS Bottled Beyond remains a top-ranked launch, driving share gains fiscal year-to-date for the BOSS Bottled pillar across all key markets and reinforcing Hugo Boss's leadership position in Europe, while also establishing a meaningful presence in North America, where the brand has historically had a smaller footprint. That North America traction is particularly encouraging as it represents a real long-term growth opportunity for us.

On the other hand, sales for the brand's second largest pillar, Boss The Scent have been under pressure over the past year. Encouragingly, the recent activation for The Scent Male have returned this franchise to sell-out growth in the U.K. and France in March, and we are focused on broadening this momentum in other key markets.

Our next step is to increase investment and activations behind Boss The Scent, while continuing to support the strong performance we are seeing in BOSS Bottled.

Next, let me turn to another core brand, Calvin Klein. This year, we increased our innovation and activation behind the brand, beginning the launch of a mist collection and followed by the recent Calvin Klein Euphoria Elixir launch. We are still in the early stages of the Euphoria Elixir launch, but the initial indicators are positive in Europe and Travel Retail Americas, with sell-out for the total Calvin Klein brand returning to growth in March.

In U.S., we are encouraged to see that total CK female is growing, including a new and incremental rollout at Ulta. Importantly, the launch is attracting Gen Z and millennial consumers to the brand.

Turning to Kylie Cosmetics, which continues to perform strongly in our Prestige portfolio. In makeup, we saw a very strong performance with like-for-like sales increasing over 50% in Q3, reflecting strong consumer engagement with the brand's lip products and the continual viral success of the Skin Tint Blurring Elixir. In fragrances, Kylie is gaining share across both Europe and North America, supported by successful innovation in both the current and prior year, including the brand's most recent innovation, Cosmic Kylie Jenner Intense. And importantly, Kylie Cosmetics was also named the 2025 Cosmetics Brand of the Year by Ulta Beauty, reflecting the brand's strong resonance with consumers and retail partners.

Turning to Marc Jacobs. We are seeing continued momentum in key franchises like Perfect and Daisy, coupled with strong consumer demand for the Daisy Murakami collection. As a result, in the third quarter, Marc Jacobs delivered high single-digit like-for-like sales growth with double-digit sell-out growth in the U.S. fiscal year-to-date.

Looking ahead, makeup under Marc Jacobs Beauty is set to launch in June 2026, which will allow us to expand the brand into multi-category distribution. Importantly, this expansion is designed to be incremental, leveraging existing brand equity while maintaining focus on execution and profitability.

We're also seeing continued benefits from the Amazon launch in July 2025, which has driven incremental growth and market share gains, while creating a halo effect across the broader Marc Jacobs brand, both online and in brick-and-mortar channels.

Turning to Chloe, which continues to resonate well in both Europe and Asia Pacific. Chloe remains a Top 20 female fragrance brand in Europe, supported by the Chloe Signature icon. At the same time, Chloe Atelier des Fleurs is strengthening its position in the ultra-premium fragrance segments in Asia Pacific. We are building on this momentum with the recent launch of Les Essences Méditerranéennes. Early response to the launch in China has been encouraging, including a #6 ranking at Sephora China in March and strong social engagement. We believe this dual region, dual-price-tier approach gives us room to continue building the brand over time.

In sum, there are very few beauty players capable of building successful multi-category and multi-price-tier global beauty brands like we have done with Kylie, Burberry, Chloe and soon Marc Jacobs. And we intend to continue to amplify these brands by prioritizing fewer, higher impact initiatives, maintaining consistent support behind the core, and ensuring that innovation delivers a broader halo across the brand over time.

Let me also touch on what we're seeing in fragrance mists. Mists continue to grow and importantly, they are incremental to the portfolio. The mists we've launched under several of our Prestige fragrance brands are bringing new, younger consumers, particularly Gen Z into our brands. In fact, Calvin Klein mists ranked #4 in Europe on a year-to-date basis as of March, which gives us confidence in the relevance of the format and the way we are activating it.

From a profitability standpoint, gross margins on mists are comparable to our broader Prestige division, which reinforces that this is a complementary subcategory that supports the core franchise. As we sharpened focus and execution in Prestige, we're also advancing Color the Future to improve our Consumer Beauty cosmetics business.

As a reminder, Consumer Beauty Cosmetics accounts for around 20% of our sales. And over the last 8 months, Gordon and his team have been developing and implementing the Color the Future program, which applies the principles of our Coty.Curated strategic framework to the cosmetics business. The program has begun to show improving sell-out trends relative to the market. At present, the better trends are primarily in the U.S., but the goal is to leverage the successful elements to the global mass cosmetics portfolio. This playbook includes: first, consistent media support behind iconic franchises, reversing historical tendency to shift media support from one product to the other, with an overemphasis on newness as opposed to hero pillars.

Second, more impactful innovation, as we deliberately narrowed our spring innovations and amplified our seeding program with influencers. And third, refocusing on the core cohorts of our brands, Millennial and Gen X consumers who still remain the dominant force in the mass makeup category, accounting for 70% of category sales. Building on our objective to focus on our efforts on fewer but more impactful initiatives, we have already significantly reduced the number of SKUs in our spring 2026 innovation bundles while in parallel boosting our productivity per SKU. We're also on track to launch 15% fewer innovation SKUs in the fall 2026 bundle.

In addition to improving sales trends, we are focused on materially improving Consumer Beauty profitability after a weak fiscal '26. We are targeting improvement in fiscal '27 Consumer Beauty profitability through a number of levers. First, lower excess and obsolescence via improved planning and fewer low-volume initiatives. Second, over $10 million reduction in asset production costs in part through AI deployment. And third, designing a lean and efficient operating model across R&D, manufacturing, marketing and sales. The operational changes we began to implement are starting to support better trends.

As mentioned, the U.S. has been our lead market in implementing our Color the Future playbook, and this is where we have seen the most positive reversal in trends. As we've returned to a steadier support model for core brand pillars, including CoverGirl, Lash Blast mascara and Simply Ageless face makeup, honed our activations behind a few key launches and double down on strategic retailers like Walmart and Amazon, we've seen encouraging progress.

CoverGirl sell-out has improved significantly from an 8% decline in the past year to just a slight decline in the past 3 months, significantly reducing the gap to market. Of course, we are not done yet as our aim is to return CoverGirl to sales and sell-out growth, particularly in the now healthier, growing mass cosmetics market. Encouragingly, CoverGirl is now outperforming the U.S. mass cosmetics category in unit terms, which is an important measure given the significant pricing some peers have taken in the last 6 months.

The recent Sally Hansen trends in the U.S. are stronger. Sally Hansen sell-out has reversed from a 6% decline in the last year to now 4% sell-out growth in the past 3 months and 9% growth in the past month, almost in line with the nail category. And on volumes, Sally Hansen is now strongly outperforming the category. While much of this trend improvement is fueled by the hero pillars, more impactful innovation is playing a role as well.

Recent CoverGirl innovation, particularly the Skin Enhancer Baked Blushes and Wrap Mascara are performing ahead of our initial expectations. I also want to touch on mass fragrances, where year-to-date performance reflects the consequences of too much complexity. Overall, mass fragrance sales have declined year-to-date. The multiple under scale and fragmented mass fragrance initiatives that Coty launched in recent years diluted organizational focus, stretched resources too thin, and did not deliver the scale or consistency we should expect from such a profitable high-growth category.

That said, with brands where we have focus and scale, the results are much different. Our largest global brand, adidas Fragrances continues to grow in Q3 and year-to-date, supported by the adidas Vibes collection. We're also encouraged by the momentum behind Jawhara, an internally developed brand, which is performing well across multiple markets.

Looking ahead, we are refocusing mass fragrances on our core brands and priority markets, simplifying the portfolio and reallocating resources towards initiatives that can scale and deliver more consistent returns. This is very much purposefully aligned with our broader Coty.Curated strategic framework as we make deliberate choices to reduce complexity and ensure that our investments position us to perform sustainably over time.

Let me close with what Coty.Curated really means in action. It means we're focusing on the core, our core brands, our core markets and the initiatives that can have the greatest impact. It also means making harder choices. We will do fewer things, but we will do them better. We will back the winners, reduce complexity and make sure our investments are strong enough and sustained enough to create real impact, all of which will take time. So while we do expect gradual improvement in sales trends into Q4 and beyond, this will not be linear and it will not happen overnight.

At the same time, the opportunity in this business is significant as few in the industry can rival the power of our brands, our top-notch know-how in fragrances, the scale of our manufacturing and our global reach. Similarly, very few beauty players have a proven track record of scaling global beauty brands with a multi-category and multi-price point portfolio approach. We are already seeing early signs that sharper focus is helping in parts of Prestige, Consumer Beauty and the key growth channels. These are early green shoots, not end results, but they're encouraging.

And finally, this is about unlocking savings to invest for growth and profit. We want to simplify the business, free up resources and put more money behind the brands and activities that strengthen sell-out, market share and long-term profitability. The message is balanced and simple. There's a lot of opportunity in our business, and there's also a lot of work to do. We are moving in the right direction, but it will take discipline and consistency.

I'm confident Coty will improve over time as we execute with greater focus and discipline.

Good morning and good afternoon, everyone. My name is Clay and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's second quarter fiscal 2026 question-and-answer conference call. As a reminder, this conference call is being recorded today, February 6, 2026 and at 8 a.m. Eastern Time or 2:00 p.m. Central European Time. Please note that on February 5 at approximately 4:30 p.m. Eastern Time or 10:30 p.m. Central European Time, Coty's issued a press release and prepared remarks webcast, which can be found on its Investor Relations website.

On today's call are Markus Strobel, Executive Chairman of the Board and Interim Chief Executive Officer; and Laurent Mercier, Chief Financial Officer. 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.

With that, we will now open the line for questions. [Operator Instructions] We'll take our first question from Filippo Falorni with Citi.

Markus, maybe can you give us a bit more color on the color, the future performance improvement plan for Consumer Beauty. You mentioned in the prepared remarks yesterday, there's a lot of different initiatives commercially, including streamlining the portfolio. What are you thinking those potential impacts are going to be on sales near term and then a little bit longer term? And then, Laurent, on the margin side, Consumer Beauty has been significantly below corporate average? Do you have an aspiration of what their business operating margins can get back to?

All right. Thanks, Filippo. I'll take that on. there's about 3 or 4 principles how we are addressing the consumer business priorities and focus on our business building plan. It's imperative for us to get back to sellout growth and to market share growth. We got to be the masters of our destiny and win in the market. That's our ambition. Now how are we going to do that? Number one, we're going to focus on our most iconic assets. These are brands like CoverGirl, where we have assets in there like Lash Blast, Simply Ageless and iconic brands like Rimmel. We started doing this in the last couple of weeks, and I'm very encouraged by the early results.

We have seen declines on these franchises in the high single digits. Now they went down to the low single digit to the mid-single digits. So it's nothing to write home about. Nothing that we are happy about. We're going to see the power of focus on the key assets. Number two, you know that cosmetics is driven very much by the big innovation bundles that come in spring. In the past, we had gigantic innovation bundles with lots of SKUs that kind of -- most of them didn't work and they crowded out productive SKUs on the shelf. So you've got kind of the double -- and you got returns from the trade. So we're avoiding this. We're going to bring our first bundle in fiscal '26, which is sharper, streamlined with better SKUs, fast rotation, and we also protect our existing fast-rotating SKUs on the shelf.

This leads me to the question you had, when do we see sellout? Obviously, if we sell in a smaller bundle, you're going to see initially less pipeline fill. And you're going to see this in Q3. But the focus we're getting with this and the sellout velocity on the shelf will improve sell-out as we go along and hopefully get our business back on track. That's number two. Number three is that we -- when we do these big bundles and these big advertising campaigns, we have a lot of money on asset creation. But we have very little money to -- in what we call working ACP working spending to show the wonderful assets to the consumers in digital, in advocacy, via influences and so on and so on and so on.

So by having smaller sharper bundles. We're going to free up asset creation money, put it into working media. And we also did a lot of exciting experiments with AI in color cosmetics to create assets in a much more efficient way. We have a couple of experiments that show as we can probably create assets at 70% to 80% cost reduction versus what we're doing now. And again, money we can reinvest into consumer, consumer-facing businesses. These 3 actions together will compound and beyond the Q3, which is the harm for us, right? Our expectations will get us into a much better future on color cosmetics.

Yes. Yes, maybe Filippo to take your second question on the profitability for Consumer Beauty. I mean you heard really from markers that number one, there is a clear diagnosis on where we have the gaps and the work that Gordon and the team initiated that in front of each gap, okay, there is a clear action plan. So now of course, it takes some time really to implement these actions. Markus was giving the example of innovation. So the team really has designed really a detailed innovation plan, but this is going to pay off in fiscal '27, okay?

But on top of this is, of course, reignite the sell-out and then volumes will also reverse the gross margin trend because currently in the gap, there is some fixed cost under absorption. So we have really these elements. A lot of work done really on platforming across all our great brands. ANCP detailed work, really how to optimize ANCP. And of course, there is an overall work on SG&A optimization. So I'm not going to give you a precise number, but I can tell you that all these initiatives are currently really under high scrutiny and you will start to see really some improvement in fiscal '27, which will be part of the profit recovery for the global company.

We'll take our next question from Rob Ottenstein with Evercore.

Great. I -- just to kind of understand things a little bit better. I want to just sort of throw out a friendly challenge, which I'm sure will be easy for you to review. But it, I think, help understand things a little bit better. You're -- based on the management comments from what I understood, there's a problem with focus brand, SKU proliferation, you want to get the portfolio right, so you can really focus on the key brands. And that -- all of that makes sense. But this is also happening within the context of very significant changes in where and how the consumer buys, drug stores where you're pretty heavily exposed, have been very weak.

Department stores have been weak for many years. Amazon has become a huge driver. So I was wondering if you could just kind of talk about your strategy within the context of these very important route-to-market changes and how the consumer shops and why you feel it's more important to get rid of SKUs first rather than get the RTM footprint right first and how you're balancing those 2.

Yes. I don't think this is a contradiction. I mean #1 focus is to drive sell out and market share because we have been underperforming market in the last 18 months, and this is obviously not sustainable for us. We got a minimum growth with the market and ideally slightly ahead of the market. This is our objective, okay? Focus on SKUs. This is one thing. And I can tell you examples about that, that this really makes a gigantic difference in the performance, but obviously, in the channel footprint, this is something we are addressing as well. We actually in -- we're proxy doing in our prestige portfolio pretty well on Amazon. We have grown sales by like 30%. In the last 6 months, we've launched a Majek brand in Amazon in July. This is doing very well, double-digit growth.

And the fun fact is that launch in Amazon has a halo effect on actually on brick and mortar. The similar thing we're seeing in the TikTok shop in the U.K. where we have -- when the volumes are still small today, but the marketing effect we're getting and the increase in the algorithm rankings has a huge halo effect on the other channels. So we are investing into the new channels. But again, it's always important to take the other channels along because our consumer also shops there. When I talk about less is more to build the core, this applies to the portfolio but also applies to the channels because we also need to have the new channels to be successful and the halo effect building our core in our existing channels. I think this is where the magic happens.

And are you making any changes in terms of channel strategy?

Of course, we're going to invest, obviously, in our business, we've got to go where the consumer goes, okay? So we're investing heavily in online. We're investing heavily in e-commerce. We're investing in TikTok shops and everywhere where consumers go. But it's for us also important that we are -- especially in our cosmetics business, protect the channels where our existing consumer shops as well. As we get new consumers, that's great. But brands like COVERGIRL and [Audio Gap] with the right joint business planning activities with the drug stores. And these customers, we can [Audio Gap].

Nik Modi with RBC.

Yes. So I guess just, Markus, any views on kind of how you intend to manage the business [Audio Gap] just a quick bigger picture strategic.

Let me get to your first one, Nik. I mean, how are we addressing this? And I think we've mentioned this in previous calls. I mean, job #1 for us is to drive our big brand franchises. And we have many big brand franchises that are basically over $0.5 billion, like HUGO BOSS, Burberry to the next level. There is still a huge growth potential. Mark Jacobs is huge growth potential. Glo has huge growth potential.

So basically, these brands that we have, where we see the potential where we bring out new -- so we are basically pretty busy cooking, new initiatives and new innovation for the year '27, '28, '29 that coincide with the Gucci exit in June 28, I think it is to really have the right pipeline to build our top line sales and compensate part of this.

Second job to be done is building the new brands that we have acquired. We have new licenses with Sarofsky Armani, Ato. And we have big plans for Zurowski. We're going to come up with what we hope to be a real blockbuster in 2027. And number three, obviously, on Gucci, as we get closer to the license exit, we probably also need to kind of tweak this a bit to keep our profitability intact. So these are the 3 actions we're taking there.

Now your question on gearing. And I mean, we are always open for deals that create value for us that create value we are open.

Got it. And then just I guess, this kind of gets at Filippo's question on the Consumer Beauty business, but newness is so important in fragrances. How does that kind of -- does that conflict with this whole notion of kind of streamlining the complexity of the portfolio?

Yes. Not necessarily. I think newness -- let understand what newness is in fine fragrances. People love it when you -- they like to experiment, they like to layer and so of course, you're going to come up with new propositions. But the new propositions need to be tailored in a way that they drive the total portfolio or the total brand. I give you 1 example, we've launched Bossotti Beyond in summer. That's a pretty successful initiative. It's the #2 male initiative of the year. We have already 90 basis points share in the U.S. because we wanted to crack the U.S. for HUGO BOSS with this initiative. And it's working very well.

Problem is our HUGO BOSS franchise in total is not growing. So the innovation is great, but it has no halo effect on the core. And often what happens is we bring in new innovation, many SKUs, it's pretty cool. Everybody sells the innovation and then we're losing shelf space on SKUs that are loved by consumers and are fast rotating, right? So that is something we need to avoid in the future and be much more surgical, how we bring our innovation to market and also how do we build in a halo effect, right?

So that if you launch one, it halos on the other by joint merchandising or there's tons of other things that we can do. So yes, innovation is the lifeblood of this category, but innovation executed in a way that it has an effect on the core. If I do a boss bottle beyond I wanted to grow the total HUGO BOSS franchise and not only the innovation itself. And we're applying this discipline, this logic, this idea of building in halo effects into innovation in everything, pretty strong effect moving forward.

To Olivia Tong with Raymond James.

Markus, I was wondering if you could give some views on your assessment of the internal controls of the company, and sort of prioritization, what's your starting point because is it the brand, the marketing, innovation, SKU management, IT, it sounds like it's all of the above. So do you think this is a company in need of significant reinvestment? Are there costs that you can take out? And I guess, most importantly, do you trust the answers that the analytics are providing?

Yes. That's -- thanks, Olivia, for that question. Number one, I mean, we have a very, very creative organization. We have an amazingly creative people that come up with very awesome things where even I, with my long beauty experience, I have to say, wow, This is really cool, right? What we are missing a bit is the operational discipline to bring this to market in a way that is sequenced that is properly funded and that is well thought through in agreements, for example, in the plants we go to market. We are very -- often very so excited about the innovation that we are focusing on the sell-in right, which is good for a quarter or 2. But what we've got to focus on is to sell out. How does it reach consumer? Does it meet the consumer needs? Do we have strong joint business planning plans with every single retailer really bring it out and get the sell-out going because if you get the sellout going the sell-in will come, this always equals at the end of the day.

But we've got to start from the sell-out from the consumption from the market shares. That's the big switch that we're going to do. And this -- it's not only words on paper. This is -- it's easy to say, right? I can put this on a PowerPoint chart. It looks great. It's very hard to do to change the mindset of the organization on this 1 and put the processes in and the data and the analytics. That's where we spend a lot of time to say, how do we get to 1 source of truth and every aspect about our business. So when we talk about service to customers, what is the 1 number that tells us, are we meeting service to customers. What is the 1 number that tells us, are we meeting offtake and market share expectations. So we spend a lot of time in -- at the moment, data and AI to really build out our data lake to make sure we have the right questions, the right answers, the right hypothesis and come up with the right actions.

So you're right, there's a lot of investment needed in this space, and we're making these investments.

We'll take our next question from Charles Scotti with Kepler.

Yes. A couple of questions from my side. The first one, could you please provide us more granularity? [Audio Gap] What's explaining this dynamic? And more broadly, what's driving the gap between the expected market growth in Prestige and Consumer and your own expected top line growth? Is it destocking or market share losses? Second question on the gross -- sorry, one by one.

Yes. Yes, maybe I can start with that 1 Charles and then please go on. So indeed, on the Q3, mid-single digits. So as we indicated, I mean it's the main headwind is from Consumer Beauty. And indeed, as we shared just before I mean we are really still in a phase of that we know where the gaps are, the team is really putting in place all these actions, but it takes time. And indeed, we are still in this phase where the examples that too many innovations, then we had to take some returns in some cases. So it's still hurting the top line. And this is something that indeed we are managing.

There is also part that how it's exactly the strategy. We are focusing on the big bets. So there are also some parts where we are deprioritizing okay? So it may -- it's weighing on the net revenue, but for good reasons, okay, it's really with this project it will pick up and then it will improve the gross margin and it will improve the profitability. So there is -- these dimensions that you need to consider in Q3 for Consumer Beauty. But at the same time, we are starting to see some green shoots. And Markus was referring to CoverGirl, simply it's less large blast I mean, are doing good.

So we need really to amplify these initiatives. But again, it takes time. Then on to see that indeed, we have some really sequential recovery from Q1 to Q2. This is what we indicated. I can tell you that the headwinds that we faced over the last year which was related to retailer inventory now is fading out. So we are really now sell in and sell out step by step are really now synchronized. So that's positive.

Now again, Q3, we still have some challenges. Now it's really focusing on sellout. Sell-out will be selling. But sell-out indeed, and we indicated in the call that we still have some headwinds. I mean, U.S. is -- our Q2 was not at the level expected. Q1 sellout was very encouraging. The beginning of Q2 was encouraging, but the end of Q2, in fact, was lower than expected. And these are exactly the reason that Markus was sharing, okay?

So that's really the big indication. We have great assets, great innovations, which are really doing great. But on the other hand, we didn't focus enough on the core. And this is currently what's putting pressure on our sellout and market share, and that all the actions are really in place to correct this. But indeed, it takes time and it's weighing also on our Q3 prestige top line. So that's really the big picture. But keep in mind that these are adjustments and then step-by-step, there will be some sequential recovery on both divisions.

Okay. And on the 200 and 300 bps gross margin contraction, could you break down the key drivers between input cost inflation, product geographic mix, tariffs and promotions? -- what is your full year gross margin assumption? Given that the margin comps also become much easier in Q4, is it fair to assume the same 200, 300 bps margin contraction in Q4 or a little bit less?

Yes, yes. Thank you. So indeed, the Q2 gross margin, I mean, came lower than our initial expectations, and this is indeed what's driving -- putting some pressure on the profit. So what are the big drivers? So on the Prestige division, the #1 is that indeed, we saw in Q2 and especially end of Q2, really some very high promotionality in the market. So it really puts some pressure on trade terms on markdowns. So this is really something that we -- so really from the whole category and the whole sector. So it indicated some headwind on the gross margin, and this is mostly the case in the lease, of course. I mean, come the tariff, indicated tariff is about $8 million for this Q2 will be -- the third element still on Prestige is also the ForEx.

As we discussed last time, I mean, we are -- we have production in the U.S. and we started really to put some more production in the U.S., but we still have big production in Europe. And of course, the euro dollar is creating really headwind [Audio Gap] 2 years ago, okay? So despite these headwinds, we are in a good territory. So we are seeing this pattern remaining in Q3. And then we discussed the #1 -- there are similar components, but there are 2 other elements, which are important is number two, that lower volumes, especially on our color cosmetics brand is creating fixed cost under absorption, which is really hurting our gross margin.

So that's why the sellout and recovery on our big brands step by step will mitigate this hurt. And the second one is the mix. We are doing great in Brazil. On the other hand, as you understand, our big brands in the U.S., which are very high profitable, they are under pressure. So there is also this mechanical mix effect. And again, the plan of the call of the future is really to recover this and stay best to recover. So Q3 will still with the same pattern and then some sequential recovery in Q4, which will continue in fiscal '27.

We'll move next to Oliver Chen with Cowen.

On the Consumer Beauty side, given a strategy edits here, should we expect it to get worse and worse before it gets better just in order to conduct that reset. And also, as you think about Consumer Beauty, what specific innovation are you most feeling most confident about that we should focus on? And on the fragrance side of the house in prestige fragrance, would love your thoughts on your growth relative to the market and what innovation you're most focused on to trends.

Yes. I -- the first question was again I have a slide on -- on the innovation on Consumer Beauty, I think I would not -- I think things will get better. This quarter for us is difficult as we are really changing the way to go to market, sharper bundles, better focus on the base business. It will take some time, but I would not characterize this getting from words to worse. It will not be easy. It will take -- I'm pretty much convinced of this. I've seen the plans. I have seen the way the team is defining the equities of the brand to both appeal to a modern consumer but also make sure that our heritage consumer is being protected and keep loving our brands.

So I'm very excited about that. We have good innovation coming up. We have strong innovation coming up on our core franchises on the Simply Ages on the large class, but also on new items, more trend items like skin tins and all these things that are currently being requested by the market. So we're on it. So I guess the bundle that we're going to bring out the fiscal '26 bundle is going to be good, much better than before. The fiscal '27 bundle will be great. So that's the way we envision it.

In Prestige, we have some pretty exciting blockbusters coming up in the next couple of months. We're going to launch a big cage client female initiative actually now soon, very, very soon. And we are super excited about that because we're trying to already make sure that we have halo effects on the Calvin Klein franchise. Calvin Klein is a big franchise. If you can move the needle there. we can get immediate better sell-out and growth. We will have a big bet with the Marc Jacobs beauty, like the makeup launch in end of the fiscal year. which we try to turn into a big blockbuster as well, very excited when I look at that innovation. So this is our near-term focus to get these 2 things right. And obviously, we have many more things in the pipeline that we can talk when we speak again.

We'll move next to Susan Anderson with Canaccord Genuity.

I guess maybe just a follow-up on the promotional environment. I guess, as things kind of worsened in second quarter in the back half. Was this driven by competitors, I guess, trying to gain more share? Or was it just -- and then do you expect this promotional environment and markdowns to continue in the third quarter? And then just a follow up on Oliver's question as well. Maybe if you could talk about kind of where your prestige fragrances are growing relative to the market?

Yes. So Susan, I can start. So indeed, I mean, we saw some competitors indeed being very, very aggressive on promotions. So that's why I was telling you it came more second half of Q2. Yes, we are taking the assumption that it will stay in Q3. So that's why we are including this in our equation in our gross margin. So now at the same time, this is really the segue to all the strategy and what Markus has just shared. So it's really that on our side. it's really [indiscernible] us and pushing us really to reallocate our resources and really focusing on the sell-out. We have great innovation that we can amplify.

So that's really the motto. And again, as you know, we are really across the full portfolio. We are seeing the Gen Z, I mean entering the category being very excited. -- volumes are growing. So that's very important. So again, we are taking this more as a contractual effect, but we are confident that all the work we are doing will help really to manage and mitigate these headwinds. So again, to be very clear, from a consumer standpoint, there is full confidence. I mean all the caps household penetration, especially in markets like the U.S. new consumers entering the category. This is at stake. And as I mean, new tools picked up, again, these are new tools where really we are seeing great traction. So again, we had, I mean there is we stay absolutely confident that the fragrance category will keep growing mid-single digit, and it's really volume and mix. Okay. So volume is very important and it is the case.

We'll take our last question from Andrea Teixeira with JPMorgan.

One. So I was hoping to see if you can comment, Markus, first of all, welcome. I was hoping to -- if you can talk to the experience you had managing these brands, especially the Consumer Beauty portfolio at P&G and some of the fragrances as well at the time of the decision to sell these brands to Coty. I mean, obviously, it's the question that we -- most of us probably are thinking what's different now with Coty and obviously, the industry has transformed over the last years where Coty has been the stewards of these brands. But what gives Coty a better right to win, and a clarification on the SKU rationalization, what is the top line and gross margin impact over the years and how to think in terms of the cadence of that impact?

Okay. I cannot obviously not comment what went down 10 years ago, I was running the SK2 brand at that time in Asia far away. I can only comment today what we are doing on the business and what gives me confidence. If you look at, for example, the history of COVERGIRL in the last 3 years, there has been a lot of back and forth on the positioning on the equity, right, a brand for like older consumers and then suddenly try to make it a full Gen Z brand, which obviously did not work and then back again and back and forth. I think of every brand that has ever run everything starts with the consumer, okay? Do I understand my consumer? Do I understand my target? Do I write have the propositions for my target? And do I have a strong equity that I'm going to drive and then I'm not going to walk away from. .

So what we have done in the past a couple of weeks under Gordon's leadership is really sharpen and define our equities and basically say whom is CoverGirl for and whom it will appeal to. Who's going to be, who's going to love renal. And we find out there is consumers out there that do, there's consumers that potentially do all the consumers, younger consumers. These brands have broad appeal, and we need to bring it now to life. We need to bring it from a PowerPoint chart into the market. And we're doing that, and it's going to happen over the next couple of weeks and months. And I'm fairly confident that we can get better than we were before.

And the gross margin, the question was...

Yes. Your question, sorry, Andrea was really, okay, how do we see some improvement from all these actions. I mean I think you're familiar with that again. Number one, as I shared, I mean, today, we know what are the headwinds, okay, in our gross margin. So some will naturally disappear or anniversarized, okay? So of course, the tariff, I mean the ForEx, all these headwinds are hurting this year. Next year, they will anniversary. I think Consumer Beauty, you heard really that all these actions will deliver some gross margin. So now on the SKU rationalization, either Consumer Beauty or prestige is, of course, that it has an impact across the new chain. So this is -- And Markus, you can...

Yes. I think one, Andrea, I think, which is very important in that we're doing a lot in terms of becoming more productive and saving costs, improving our gross margin. But in the Beauty category, with the gross margins you have in general in is to drive top line growth because I'm always saying the top line health is bottom line wealth in Beauty, and that's what we all here to do.

At this time, we've reached our allotted time for questions. I'll now turn the call back over to Markus Strobel for any additional or closing remarks.

All right. Thanks for the call. We recognize that our recent financial performance has not met expectations. There's no sugar coating it. This leadership transition marks a fresh chapter, grounded in real discipline and focus. Going forward, we will be transparent about what works and what does not. We're going to set balanced near and long-term targets. We're going to concentrate our resources where they matter most, and we continuously review our portfolio to unlock value. .

Consumer demand is on NorthStar, and we have a clear emphasis on focused execution, sharper priorities. I'm confident that Coty will improve. It will take time, but progress is already underway. As I said in my prepared remarks, it will not happen overnight, but it will happen.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

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 Second Quarter fiscal 2026 Earnings.

On Friday, February 6, 2026, 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 Markus Strobel, Coty's Executive Chairman of the Board and Interim Chief Executive Officer; and Laurent Mercier, Coty's Chief Financial Officer.

Before I hand the call over to Markus, 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 Executive Chairman and Interim Chief Executive Officer, Markus.

Hello, everyone. My name is Markus Strobel. And as you have seen, I officially joined Coty on January 1 as the Executive Chairman and Interim CEO.

Today is my 36th day on the job. Let me tell you, these days have been pretty intense. I had the chance to conduct in-depth business reviews, visit some of our biggest markets like the U.S. and the U.K., see our technical centers and review our R&D capabilities. I managed to speak to some of our key customers and most importantly, met with many of our talented, beauty-minded and passionate people. All this has given me a good sense of the business and a fundamental understanding of our challenges and opportunities.

Since most of you don't know me, I thought I'd give you a quick summary of my background. I spent the last 33 years at P&G, and I retired a year ago in 2024. For the vast majority of my time at P&G, I had the pleasure of working in a variety of beauty categories: skin care, hair care, personal care, as well as almost 10 years working on fine fragrances. In the last 7.5 years, I was the President of the Skin and Personal Care division globally run out of Singapore with brands that you may know like SK-II, Olay, Old Spice and [ Native ].

Fun fact. In my early years working in fragrances, I was in charge of transforming Hugo Boss from a small local fragrance brand into a global success. And one of the ways we did this was by spearheading the launch of the Boss Bottled franchise. Fast forward to today, as I joined Coty, Hugo Boss is now the largest brand in the portfolio. And with BOSS Bottled Beyond as this year's blockbuster launch, it feels like I've come full circle. And the task at hand now is to apply all my experience, both the extensive beauty experience, but also the operational data-driven discipline to help the Coty organization focus and succeed in the beauty market of today and tomorrow.

Coty has accomplished a lot in the last 5 years. The organization significantly strengthened its fragrance innovation and execution capabilities. Growing the Prestige fragrance business at 10% CAGR from fiscal '21 to fiscal '25 is no small feat. Coty revamped the brand equities of the major consumer beauty brands while modernizing consumer engagement and the innovation pipeline. The company grew gross margins by close to 500 basis points and deleveraged the company by over 4 turns in that time. These are major accomplishments, and the team should be very proud of the progress made.

Even though I'm still only a month into understanding the business and assessing the portfolio, it is already clear that Coty has outstanding assets, capabilities and competitive advantages that will position it to succeed in beauty, but if and only if they are paired with the right operational discipline. First, Coty has leading and highly desirable fragrance brands like Hugo Boss, Burberry and Marc Jacobs Jacobs, Chloe. Coty significantly grew each of these brands between 30% and 140% from fiscal '19 to fiscal '25, and there remains substantial room to expand them further.

Second, after visiting our Fragrance R&D Center of Excellence in Geneva, meeting our leading perfumers, understanding our cutting-edge compositions and seeing our proprietary testing, I'm convinced that Coty has stellar fragrance innovation capabilities. Third, I've spoken to the various global and local teams, and I'm very impressed by the amazing creativity and entrepreneurial spirit across the organization. And finally, Coty's vertically integrated model, particularly in fragrances, is a real differentiator and a competitive advantage, enabling Coty to translate our internal R&D and global commercial scale into winning propositions across our multi-tier fragrance portfolio.

But as I say, if you're so smart, why aren't you rich? There is no denying that Coty's financial results in the past 18 months have been disappointing. The stock has also been hovering around at $3 for several months, which I see as a signal that investors are skeptical about Coty's long-term ability to compete in beauty, sustain fair market share and deliver consistent profitable growth. Both things are true. Coty has outstanding assets and capabilities, we have not been delivering at the level that we should.

My takeaway is simple. Our business imperative is to leverage our collective brain power and competitive advantage to deliver the financial and operational performance that reflects Coty's potential. Coty has breadth. Breadth can be a strength, but only when it is curated. This is the foundation of our new strategic framework, Coty. Curated. At its core, this means focused investment and sharper priorities. Coty. Curated. is about making big even bigger, scaling what wins, stopping what dilutes and removing layers that slow execution. Ultimately, success hinges on disciplined execution, operational effectiveness and sufficient multiyear marketing support.

Let me illustrate how complexity quietly dilutes impact. Today, at Coty, we sell more than 40 brands across dozens of markets. This results in over 1,000 possible brand and market combinations, highlighting the significant complexity we manage. The risk is clear. When resources are stretched across too many permutations, our core brands may not get the consistent, concentrated support they need. This manifests in the following ways: Without adequate support, our top initiatives don't reach their full potential in the markets that matter most, the largest, highest growth potential markets where impact should be the greatest.

The creativity of the Coty organization is amazing, and we can create beautiful and cutting-edge assets. But too often, we create too many new assets across too many brands and too many markets. A disproportionate amount of our spending gets tied up in asset creation, and not enough flows into working media and consumer engagement, which can lead to insufficient awareness, trial and purchase. And finally, strong year 1 initiatives may often lack sufficient year 2 support because we are allocating too many resources to new product launches. So many activities, so many projects, but very few make a real difference.

So how do we break this cycle? We will place a much stronger focus on our top markets, brands and initiatives, ensuring they are sufficiently funded and grow year after year. We will refocus investment on the core, ensuring that the more supports the core through built-in halo effects. These insights are not revolutionary, but they are fundamental to every beauty and consumer business that delivers long-term success. Fewer assets, better execution, bigger propositions and more supporting the core. We will share more details about Coty. Curated. in the coming quarters.

Let me share a few examples of what this looks like in practice, focused on our biggest brands and biggest markets. It's only fitting to begin with Hugo Boss. Hugo Boss is Coty's biggest brand in the portfolio. And despite its scale size, Coty has grown this brand by over 30% at constant currency since fiscal '19, a testament to how the strategy is broadly working.

BOSS Bottled Beyond, launched this past fall, is a top-notch innovation and is already ranking as the #2 innovation in key markets. Its strong momentum has driven market share gains for the iconic BOSS Bottled franchise in all major markets, including Germany, U.K., Spain, France, Canada and Mexico. Importantly, by leveraging BOSS Bottled Beyond to unlock the U.S. market for the Hugo Boss brand, the innovation has already captured 90 basis points of share in the U.S.

These achievements highlight the strength of Coty's innovation, creativity and marketing capabilities. But without sufficiently strong operational discipline, the success of BOSS Bottled Beyond did not translate into the growth of the broader Hugo Boss brand in the past 2 quarters. The launch did not generate enough halo impact on the other core Hugo Boss franchises like BOSS The Scent. This is not rocket science, which is why we are putting in place a more holistic plan for next year with continued support and co-merchandising around BOSS Bottled Beyond, a broader brand level halo strategy and sustained reinforcement of the core business.

We've seen similar puts and takes in our largest market, the U.S. As shared in recent quarters, underperformance in the U.S. market in both divisions accounted for nearly all of Coty's fiscal '25 sales decline. The company has taken actions in the calendar '25, including a new leadership team, new organization structure and increased marketing support. However, the results in the last couple of quarters have been inconsistent.

There are many things that are working well in the U.S. We have several scaled leading fragrance brands, just as Burberry and Marc Jacobs, with several female franchises like Burberry Her and Marc Jacobs Daisy ranking in the top 15. We are strongly outperforming in the Prestige makeup category, led by momentum in Kylie makeup. On the retail side, we are strengthening our position with growing customers. As a result of our strong partnership with Ulta, they are now one of our largest retail partners, and we are outperforming with them.

Similarly, we are delivering best-in-class execution in the critical Prestige e-commerce channel with strong double-digit growth in the first half. Amazon is now a leading beauty retailer in the U.S., albeit with a smaller position in prestige fragrances. We are proud to have grown Coty's fragrance sales on Amazon by over 30%, fueled by our existing brands and the successful launch of Marc Jacobs fragrance on Amazon in July. And importantly, our efforts on the TikTok shop in both the U.S. and the U.K. are driving halo for our brands in both e-commerce and brick-and-mortar.

So while many areas of the U.S. business are working well, results during the critical Q2 holiday period were below our expectations. We saw 3 key areas of pressure. First, the prestige fragrance market slowed from 7% growth in Q1 to approximately 3% growth in Q2, with much of the consumer purchasing concentrated at the very end of the quarter. Second, we saw a very aggressive promotional activity in prestige fragrances during the holiday season. This not only suppressed broader U.S. fragrance growth, but also the profit contribution from this key market.

And third, our performance versus the market has been inconsistent. In Prestige fragrances, after lagging the market by 5% to 7% in prior quarters, our fiscal Q1 sell-out was in line with the market. However, in Q2, our sell-out was flattish, underperforming the market by several points in the critical fragrance category. In Consumer Beauty, we continue to see a large gap in our sell-out performance relative to U.S. mass cosmetics category, though the recent changes we implemented are starting to show some modest improvement.

The root cause of this underperformance comes back to the same themes: focus, making choices, prioritizing investment and operational discipline. Over the past couple of years, in both Prestige and Consumer Beauty, Coty's has funded too many projects and initiatives. As a result, high potential core franchises didn't receive sufficient investment or organizational focus. Too much emphasis was placed on launching new innovation, and not enough on the core business. The challenge was most acute in mass cosmetics, where our SKU count in seasonal innovation bundles kept increasing, resulting in less productive SKUs replacing more productive SKUs on the shelves, in addition to incurring more costs from returns.

The good news is that we are clear on our priorities from here. We are actively shaping the U.S. playbook for both Prestige and Consumer Beauty to, first of all, continue winning where we are already strong; and second, concentrate media support, in-store execution and organizational focus behind the brands, franchises, retailers and channels that will move the needle and deliver sustainable sell-out growth.

Burberry continues to be a standout performer in our portfolio. We have grown Burberry by more than 140% between fiscal '19 and fiscal '25, a testament to the strength of the brand and the discipline of our execution over time. Over the past 6 years, we built 3 core fragrance franchises, Burberry Her, Burberry Hero and Burberry Goddess. And in Q2, each grew by a mid-single-digit to double-digit percentage like-for-like. And importantly, Burberry continues to steadily strengthen its position. Burberry's global fragrance ranking improved from #30 in 2019 to #15 in 2025. In female fragrances specifically, Burberry is now within the top 10, up from #27 in 2019, a remarkable step change in just a few years. Complementing fragrances, Burberry Make-up also delivered high single-digit growth in Q2, reinforcing the brand's ability to perform across categories.

Let me move to another example of what's working well, Marc Jacobs. We are seeing continued momentum in key franchises like Perfect. We also saw exceptional performance from the Daisy Murakami Limited Edition collection, which exceeded all expectations and rapidly sold out in the U.S. We are excited to roll out this launch into additional markets in the coming months.

The launch of Marc Jacobs in Amazon last summer has been highly incremental. In fact, the Amazon launch has supported growth across other channels, including brick-and-mortar, with Marc Jacobs U.S. total sellout growing double digits since the launch. Looking ahead, we are excited to launch makeup under Marc Jacobs Beauty in mid-calendar 2026. This combination of strong core franchises, high-impact innovations and presence in top markets and key channels illustrates why disciplined momentum building is central to our strategy across the portfolio.

Kylie Cosmetics is another example of what is working well. In the second quarter, Kylie delivered strong like-for-like sales growth. Fragrance sales more than doubled year-over-year, led by the Cosmic franchise and the brand's entry into fragrance mists. Makeup sales also grew at high single-digit rate, thanks to momentum in lip products and the viral social media success of the Skin Tint Blurring Elixir. Total Kylie Cosmetics brand sell-out growth in Q2 was more than 20%, supported by strong momentum in both makeup and fragrance.

In recent weeks, we launched the next fragrance iteration, Cosmic Kylie Jenner Intense, and this innovation is off to an exceptional start, well ahead of our expectations. And as a further proof of the brand's global resonance and Kylie's own influence, Kylie Cosmetics ranked #2 among all beauty brands in calendar 2025 in social media engagement through creator-led strategies by both [ Tracker ] and Cosmetify.

Moving to our mass fragrance business. The broader Coty issue of pursuing too many small projects, adding complexity without moving the needle, is also evident here. Smaller lifestyle fragrance initiatives have diverted focus and resources from core brands, reinforcing the need to focus and streamline the portfolio. We will discontinue small fragrance initiatives and halt new projects that have been in development, particularly as many of these projects did not resonate with retailers and consumers.

Instead, our focus will be on amplifying core brands like adidas, bruno banani, [ Max ]. In fact, adidas fragrances grew at double-digit pace in Q2. The new adidas [ scenting ] platform, adidas Vibes, is performing well in a number of regions, particularly emerging markets like Central and Eastern Europe and Southeast Asia. But that strength is not yet consistent globally, and we are working to accelerate its performance across markets.

Across Coty, our AI journey is accelerating, and we're already putting real foundations in place. So it's just the tip of the iceberg of what AI can do for our business. Building on our strong sizable AI partnership with Microsoft and ServiceNow, our new strategic collaboration with OpenAI expands our AI ecosystem to support focused applications, including advanced consumer persona insights. We're actively creating digital assets using generative AI, helping us reduce spending, compress time lines and generate more content.

While still in the early stages of implementation, through AI, we've reduced the post-production asset cost for selected fragrance, cosmetics and skin care brands by 70% to 90%. We're also preparing for machine buying. Through generative engine optimization, we're beginning to influence how our brands are represented and recommended across AI engines, an increasingly critical gateway for consumer discovery.

But perhaps most importantly, AI at Coty isn't just about the tools, it's about our people. Through targeted training, hands-on workshops and leadership engagement, we are building an organization where AI becomes part of our employees' day-to-day, strengthening execution today and creating a future-ready Coty.

Now that I've shared my very initial assessment of Coty's portfolio capabilities and playbook, it's fair to ask, now what? What does this mean for Coty's overall strategic direction? I don't have all the answers today, and I will come back to you in the coming quarters with a comprehensive strategic overview and financial road map for the coming years.

But in the meantime, there are some decisions I've made with the support of the Board. First, we will continue with our strategic review of Consumer Beauty. As shared last quarter, under the leadership of Gordon von Bretten, we're activating the Color the Future performance improvement plan to return Coty's Consumer Cosmetics business to growth and profit expansion over the next 1 or 2 years. Laurent will share an update on Color the Future shortly. While delivering the full results of the plan will take some time, I believe this is the right strategic decision for Coty, as the successful execution of the plan will unlock shareholder value regardless of the ultimate decision on the brand portfolio, with value opportunities in both the short and the long term.

The second portfolio decision is around lifestyle scenting. While we will pursue closer coordination across our full fragrance portfolio in R&D and consumer insights, we have decided that lifestyle fragrances will remain under Consumer Beauty to ensure continuity in commercial activities and marketing support. Third, given our focus on scale, reach and profitability, we have made the decision to end our license with the Orveda skincare brand. And finally, in a similar vein, we will also be reviewing our [ tail ] fragrance initiatives with a focus on the smaller geographically dispersed activities.

Now let me hand the call over to Laurent to discuss our financial results and outlook.

Thank you, Markus. As Markus has discussed, we are navigating a complex external environment while in parallel, working to instill greater focus and operational discipline across the organization. Let me provide some context on the broader beauty backdrop and our in-market performance.

In Q2, the prestige beauty market grew approximately 5%. While still solid growth, this indicates some sequential slowing from the roughly 6% growth in Q1. The slower growth was evident in Prestige fragrances, with the category moderating from 5% growth in Q1 to 3% in Q2, with modest growth in both units and price/mix. In Prestige fragrances, there was some incremental slowing in the U.S. and in certain European markets like Germany and the U.K. Against this backdrop, our total sell-out was broadly flattish, though this included weaker than category sell-out in key markets like the U.S., Germany and the U.K., largely balanced by strong sell-out in emerging regions like Asia Pacific, Middle East, Latin America and Travel Retail.

On the revenue side, our Prestige net sales declined by 2% like-for-like. The gap between our relatively stronger sell-out and weaker sell-in was primarily driven by elevated promotionality in the market, which pressured our gross to net. On a gross sales basis, sell-in was broadly aligned with sell-out, indicating that the estimated inventory destocking headwinds we experienced over the past year meaningfully reduced this quarter.

In Consumer Beauty, the market grew by 5% in the quarter. As in recent quarters, our challenge in Consumer Beauty remains a sizable gap between our sell-out and the market, while our sell-in remains broadly aligned with our sell-out. Our total Q2 like-for-like sales improved sequentially to down 3%, at the better end of our minus 3% to minus 5% guidance. We estimate that we have significantly reduced Prestige trade inventory in Q2 and are tightening the gap between sell-in and sell-out. At the same time, top line was held back by slower category growth and continued market share underperformance in several of our key markets, including the U.S., U.K. and Germany.

In Prestige, like-for-like sales were down 2%, an improvement from down 6% last quarter. As discussed, several counteracting forces are at play. On the one hand, the estimated impact from retailer destocking has significantly reduced, and our innovation effort is contributing more strongly to the top line, growing double digits versus last year. On the other hand, the Prestige fragrance market growth has slowed by a couple of percentage points while simultaneously becoming more promotional with aggressive discounting activity during the holiday season. It is also worth noting that the complexity in the business, driven by too many launches and initiatives, contributed to service issues in the Prestige business during Q2. To address this, we are increasing our inventory behind core SKUs to improve service in the coming months.

In Consumer Beauty, like-for-like sales declined 6%, an improvement from an 11% decline in Q1. We are orienting our innovation pipeline towards the highest growth phase subsegment, including highlighters, bronzers and [ thinks ]. Our market share gaps in the U.S. and Europe continue to weigh on sell-in. And while we are focused on turning around our Color Cosmetic business, this work and closing our share gaps will take time.

Specific to Consumer Beauty cosmetics, as Markus mentioned, we have begun implementing our Color the Future performance improvement plan. With the Consumer Beauty leadership team now in place and fully accountable for the P&L, the team has begun to put the plan into action, including: first, reallocating A&CP from nonworking media and asset production to consumer engagement investments behind core parts of the business like CoverGirl U.S. and Rimmel U.K.

Second, streamlining the fiscal year '27 innovation pipeline to ensure a tighter, better supported and more targeted innovation bundle designed to halo on our core brands, improve door productivity and drive margin accretion. Third, doubling down on procurement savings initiatives across various categories, including merchandising and media. Fourth, refining brand equities and positioning across the entire Color Cosmetics portfolio to ensure each brand has a clear differentiated point of view with its core consumers. And finally, executing more locally relevant, disruptive 360-degree activations to strengthen brand visibility and engagement in our key markets.

Next steps in the coming months include reinvesting behind key icons, activating evolved brand equities, leveraging AI to scale content creation at a fraction of the cost and reexamining the full value chain. It is worth noting that some of these actions were part of our Consumer Beauty turnaround 5 years ago, including revamping brand equities, platforming innovation and streamlining SKU count.

While these interventions helped stabilize and grow Consumer Beauty several years ago, operational discipline has slipped across the organization over the past 2 years. For example, the number of SKUs in our annual CoverGirl innovation bundle has almost doubled in recent years, significantly increasing cost. We have already materially reduced the SKU count in the fiscal year '26 spring innovation bundle to focus on the highest potential launches. And our fiscal year '27 plans include further streamlining in the CoverGirl innovation SKU count. With Gordon leading end-to-end, the goal is to reinstate the operational discipline and introduce more transformational full value chain change so that progress is durable.

While still early in the transformation plan, we have seen some early green shoots. For CoverGirl, we have focused marketing activation and investment behind the top franchises, Simply Ageless and Lash Blast. And as a result, these franchises have seen improved retail sales trends. Sell-out has improved from a high single-digit decline in the last 12 months to a low to mid-single-digit decline in the past 3 months. For Rimmel, with culturally relevant, locally executed activations, sell-out has improved from a mid-single-digit decline in the last 12 months to a low single-digit decline in the past 3 months and closing the gap to the category.

Our adjusted gross margin was 64.2%, a 260 basis point decline from the prior year. While we expected adjusted gross margins to decline more sharply in Q2 than in Q1, the decline was worse than anticipated. In Prestige, the promotional environment intensified as we moved through the holiday period, creating a more significant headwind than expected. In Consumer Beauty, we faced fixed cost under absorption from lower volumes and mix headwinds from weakness in the higher gross margin U.S. business, coupled with stronger growth in the lower gross margin Brazil business. Tariff impacts were also higher than in Q1, though broadly in line with our expectations.

Importantly, based on the current external environment, we expect each of these pressures on our gross margins to persist in the second half of fiscal year '26. As these margin pressures flow through the P&L, we made some adjustments to our A&CP investments, though not to the same extent as the decline we saw in our underlying revenue trends. In Q2, A&CP was approximately 27% of net revenues, consistent with the prior year, demonstrating our ongoing commitment to invest behind core brands.

Adjusted EBITDA was $330 million, down 15% year-over-year, at the lower end of our guidance range for a low to mid-teens decline. The decline primarily reflected top line pressure and lower gross margins. The quarter also included a few million dollar expense related to the CEO transition. Our adjusted EPS excluding the equity swap was in line with expectation at $0.33 for the first half and $0.18 in Q2.

In Q2, we generated fixed cost savings of over $10 million, in addition to approximately $40 million in productivity savings. We continue to expect about $200 million in cumulative savings in fiscal year '26. These savings provide us with the flexibility to reinvest in growth and offset inflation and other cost pressures. Despite the challenged top line and profitability landscape, we delivered significantly higher free cash flow in the first half of $524 million, which was well above our guidance of more than $350 million and above last year's first half free cash flow of $411 million. The stronger than guided free cash flow was driven by better receivables performance and the phasing of working capital, which benefited Q2 and will reverse in Q3. On a year-over-year basis, free cash flow also benefited from the absence of cash bonus payments tied to fiscal year '25 company results.

We also completed the divestiture of Wella, right in line with our original commitment to divest our financial stake by the end of calendar year '25. This generated $750 million of upfront proceeds, with the potential to receive proceeds from a further sale or an initial public offering of the business after KKR's preferred return has been met. As a result, we ended the quarter with net debt of $2.6 billion and leverage of 2.7 turns, the lowest levels for both metrics in more than 9 years. We remain committed to bringing leverage closer to 2 turns over time through both organic and inorganic levers.

Now let me discuss our near-term outlook. With Markus new to Coty and only 1 month into the role, he needs time to fully immerse himself in the business, understand the underlying dynamics, refine our strategic priorities and align with the Board. Given this leadership transition, it will be premature to issue full second half of fiscal year 2026 guidance at this stage. As a result, we are withdrawing full fiscal year guidance which had been previously given for EBITDA and free cash flow.

However, we do want to offer visibility for Q3. For Q3, we expect like-for-like revenue trends to decline mid-single digits, driven primarily by bigger declines in Consumer Beauty. We see different drivers across Prestige and Consumer Beauty. In Prestige, we estimate the fragrance market will grow low to mid-single digits, consistent with Q2 and in line with the broader beauty market. While we estimate that the headwinds from retailer destocking significantly reduced in the quarter, the promotional environment intensified as we move through the holiday period and remains elevated, which is a headwind to net sales, and by extension, gross margin.

We are refining investment allocation behind key priorities and strengthening execution playbooks as we work to improve market share over time in several key markets. Finally, in the coming weeks, we will be launching a key female fragrance initiative under Calvin Klein. For Consumer Beauty, we expect the mass beauty category to be flattish to up low single digits, driven by e-commerce. At Coty, we are beginning to implement the Color of the Future performance improvement plan for Color Cosmetic, which will narrow our sell-out gap with the market over time. This includes accelerating in e-commerce, where Coty is currently underrepresented. In the near term, our sell-out gap to the cosmetics category will weigh on our results.

With shelf space broadly stable through spring resets, we are seeing early green shoots in sell-out trends in focused brands like Rimmel globally and key CoverGirl franchises. At the same time, we anticipate weakness in lifestyle fragrances as we streamline small initiatives. Considering the mid-single-digit decline in like-for-like sales, we expect a more significant decline in profitability. Specifically, we see EBITDA declining to $100 million to $110 million in Q3 fiscal '26 compared to $204 million in Q3 fiscal '25. This decline reflects both external factors and our deliberate decision to protect the marketing investments needed to reignite our market share in both divisions.

First, we expect the lower sales at constant currency to drive approximately 1/3 of the EBITDA decline. Next, another 1/3 of the EBITDA decline is driven by the expected 200 to 300 basis points gross margin decline, similar to Q2. This is driven by the same factors: lower sales and unit volumes, negative mix as key profit regions remain under pressure, a highly promotional environment, tariff impacts and ForEx headwinds on COGS. We continue to expect a net impact of under $40 million from tariff in fiscal year '26.

Third, another sizable headwind to profit relates to fixed cost, where ongoing progress on fixed cost reductions is more than offset by the mechanical impact from last year's variable compensation accrual release, something we had anticipated and have highlighted in recent quarters. The final major driver is our decision to protect our marketing investments behind our key brands and to sustain support for recent and upcoming launches. As we reach media sufficiency on these key franchises, we will reallocate investment away from smaller projects that have added complexity without benefiting the Coty P&L. We will be disciplined and pragmatic in the pace of these reallocations. Inevitably, we expect this to result in some lost sales and higher returns in the near term, which is part of the sales equation for the coming quarters. It is also worth flagging that ForEx is expected to be broadly neutral to our Q3 EBITDA, as a benefit on sales will be broadly offset by a headwind to our cost.

With these various moving parts across the P&L, let me give our precise outlook for Q3. We expect like-for-like sales to decline by a mid-single-digit percentage, primarily due to weakening trends in Consumer Beauty. At current exchange rates, we expect ForEx to be a benefit of low to mid-single digits. We see gross margins declining between 200 to 300 basis points year-over-year, consistent with what we saw in Q2. Given the decline in gross margin, the mechanical impact to fixed cost and our commitment to protect A&CP, we expect EBITDA of $100 million to $110 million. We are upholding our commitment to protect A&CP investment, especially behind our core franchises, including continued support for BOSS Bottled Beyond, strong support for the upcoming launch under Calvin Klein and the exciting launch of makeup under the Marc Jacobs Beauty in mid-calendar year '26.

In Q3, we expect interest expense to be in the low $40 million level, and we remain on track to reduce fiscal year '26 interest expense by close to $40 million versus last year to the low $170 million level. With significant debt reductions executed to date, we expect interest expense to decline further in fiscal year '27. Altogether, this translates to approximately breakeven Q3 adjusted EPS, excluding the impact from the equity swap.

Finally, we expect cash outflow in Q3 reflecting normal seasonality of the business, the phasing of working capital which benefited Q2 at the expense of Q3 and roughly $30 million in cash taxes related to the Wella sale in December. Please note that we anticipate the remaining approximately $30 million in cash taxes related to the Wella divestiture to be paid in Q4.

With that, let me turn it back to Markus for concluding remarks.

Thank you, Laurent. Let me briefly summarize what you've heard today. One month into the role, I'm convinced that Coty has amazing initiative, amazing assets and amazing people. And it's equally true that we are not yet performing at the level we need to be. Coty has missed expectations for the past 18 months. Both things are true.

With this leadership transitioning opening a new chapter in Coty's storied history, I'm committed to a few core principles. First, we will provide a realistic and balanced view of the business, sharing what's working, what's not working but where we are making progress, and what's not working and we will cease. Second, we will provide realistic and balanced short- and long-term financial targets, which today means our Q3 guidance, but will become longer term in nature over time.

Third, we will focus the business, make deliberate choices and optimize investments, all with the goal of delivering consistent profitable growth over the medium term. Our North Star will be consumer demand, with a relentless focus on sell-out and market share. And finally, we will continue to review the portfolio to identify the best ways to unlock shareholder value, both in the near and the long term, complemented by other value-driving opportunities. We will follow up by the end of fiscal '26 to share an initial, more detailed view of our strategy, our focus brands and markets and our portfolio. I look forward to meeting many of you in the coming months and quarters.

To conclude, I'm confident that things at Coty will get better. It won't happen overnight, but it will happen.

Good morning and good afternoon, everyone. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's First Quarter Fiscal 2026 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, November 6, 2025 at 9:30 a.m. Eastern Time or 3:30 p.m. at Central European Time. Please note that on November 5 at approximately 4:30 p.m. Eastern Time or 10:30 p.m. Central European Time, Coty issued a press release and prepared remarks webcast, which can be found on its Investor Relations website. On today's call are Sue Nabi, Chief Executive Officer; and Laurent Mercier, Chief Financial Officer.

I would like to remind you that many of the statements today may contain forward-looking statements. Please refer to Coty's earnings release and the reports filed with the SEC for 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.

With that, we will now open the line for questions. And we will take our first question from Rob Ottenstein with Evercore.

I've got a few questions all around the Gucci topic, if you will. So first, can you talk a little bit about how exiting the Gucci license will impact your overall portfolio, how you're thinking about it? And then does the caring announcement with -- along with L'Oreal, actually have any influence at all on how you're thinking about your overall licensing model, any tweaks to that? And then finally, is it at all possible that Kering will try to take the ice license back before its expiration. And can you come to a deal with Kering in terms of an early license termination.

Robert, thank you very much for giving me again, the opportunity to speak about this important topic. So let me start with the first question, which is around how this is going to impact Coty's portfolio. So the public announcement that Gucci license will no longer be part of our portfolio after its expiry. As you can imagine, the focus of Coty for the next several years will be on, number one, we'll be overdriving the brands with the biggest long-term growth potential.

Number two, we will be building, and I should even say, amplifying the new licenses and brands we have recently added to Coty's portfolio; and number three, parallel, we will optimize the Gucci brand during its remaining term while, of course, fully respecting and operating within all of its term. In fact, and it's important for me to have the occasion to say this, the uncertainty over the last few years around the fate of the Gucci license resulting from the public comments of the licensor were a challenge for the Coty organization and the Coty reputation, including whether to build the brand in a strategic or a tactical way and also its role in our overall portfolio.

And now as there is full clarity on the brand direction, we now have a fantastic opportunity to grow the rest of the portfolio with a bigger sense of focus, especially on the ultra luxury part of the business, with a comprehensive portfolio of Alka premium brand. I'm thinking about Atolideflur from Chloé. I'm thinking about Burberry signatures, delude collection, Afinion Coty collection and upcoming Atron and Marni collections.

So even without the Gucci license, it's important to state that we remain firmly in the Top 3 for total Global Fragrances and for prestige fragrances. And with this clarity on the fate of Gucci now, we will work to optimize the brand in a more tactical way until the last day of the license, while focusing on accelerating the rest of our portfolio. As a reminder, and you have seen it probably in our prepared remarks, we have already grown some of our biggest brands, at a fantastic pace in the last 5 years, Burberry by 140%, HUGO BOSS by 33%, Chloé by 70%, Marc Jacobs by 60% and we can now focus even more on further expanding these brands while in parallel building our next stars with brands like Swarovski, just like we have built Gucci.

You may recall that we grew Gucci by 60% over the same period at constant currencies. Now I would like to take this opportunity, Robert, if you allow me, to stress that some of the dilution of media rumors from recent months about Coty potentially exploring the sale of some of our key fragrances, categorically false, may I repeat, categorically false. We are committed more than ever to solidifying our position as a prestige beauty company with an emphasis on fragrance and sending across price points with cosmetics and skin care best-in-class capabilities.

And as you can imagine, our long-term fragrance brands are the backbone of this strategy. Now moving to the second part, which is a very important also question, which is around the impact of these this event on the licensing model. I think that we can say that everything that happened confirms that the winners in Beauty have been and will remain specialty beauty players like Coty. In-housing beauty remains incredibly complex, incredibly costly for non-beauty players, which reinforces the appeal of the licensing model.

May I remember -- remind everyone about why this licensing model is really a stronger model. It offers strong return on investment with no material upfront license or renewal costs, while established brand equity increases the probability of success and of payout. Again, a successful licensing business depends on portfolio diversification and on minimizing the license duration risk. In recent years. As you have seen, we have proactively renewed and significantly extended many key licenses, including HUGO BOSS, Marc Jacobs, Adidas, Davidoff and all this for an additional 15 years plus.

So today, I would say that 85% of our portfolio is either an own brand a perpetual license, which we view like an own brand or a license with a very long-term remaining duration of more than 7 years 85% again. So for our core beauty portfolio, it remains also very long term in terms of nature with approximately 80% of the brands, either being owned or under long-term license.

We also have been very prudent, as I said it for many years now that no single brand in our portfolio accounts for more than approximately 10% of our sales. Now I'm going to answer the last part of your question, which is around an early exit from the license. So again, there is no change to Coty's existing license on our ability to operate the Gucci Beauty license. All contractual rates remain in place and continue as agreed. Coty will continue to manage and operate Gucci Beauty under the same structure already in motion. And overall, we continue to solve this amicably with Kering.

Last part of your question, which is around a potential deal. As you can imagine, we are always open to evaluate any proposal if and only if this creates real value for the company.

And we will take our next question from Susan Anderson with Canaccord.

I guess maybe just a follow-up on the last question. I did see that Coty filed a lawsuit against carrying for Brico contract. I guess maybe if you could just talk a little bit about what that means for Coty, if that maybe helps to sell the license back early. And then also, I don't think you talked specifically about any financial impact when the 2 license does transition to L'Oreal. Not sure if you could give any numbers around that.

Susan. So let me maybe start with the second part of your question, which is around potentially the impact of this exit when it happens. As we have been discussing for some time now, we have been actively focused on risk management in the portfolio of Coty. And again, as I said it earlier, no brand bigger than approximately 10% of our sales. Now that the.

Public announcement has been done that the license will no longer be part of our portfolio after the expiry date. Our focus for the next several years will be on overdriving the brands with the biggest long-term growth potential is going to be also in building and amplifying the new licenses and brands we recently added to the portfolio, and in parallel, optimizing the Gucci brand during its remaining term. As you can know it, Gucci is currently a sizable brand in the portfolio. So the loss of the brand at expiry will mean some profit impact in the year after to address this gap, we will be overdriving again, all the other rest of the portfolio, while also addressing our cost structure.

Now regarding litigation, what I can tell you is that, of course, I will not comment on ongoing litigations. And I can tell you that we will defend our rights until the last day until the last hour of the contract.

We will take our next question from Filippo Falorni with Citi.

Sue, maybe can you comment a bit about the better performance that you're seeing in fiscal Q2 that is driving you to the higher end of the range? Are you seeing an acceleration in some category growth? Is it the inventory dynamic solving itself earlier than expected? And then I had a bigger picture question on the fragrance mist. Can you just help us dimensionalize opportunity in that category and also just the margin profile as you expand there?

Filippo. So on the first question regarding the better performance we are contemplating for Q2, which led to our increase in terms of being at the more favorable part of the guidance I would say that it's a mix of everything, in fact. The dynamism of the fragrance market in the U.S. continues to be very strong. Again, we are talking about a market that's in the mid-single-digit growth. And what we see in Q2 in terms of market dynamics is confirming this element. So we believe it's going to be a good holiday season. This is number one.

Number two, our innovations, specifically the BOSS Bottled beyond launch that started at the end of the Q1, more or less, and it was exclusive to Travel Retail during the summer until the end of August. So it all started in domestic markets around the end of September. This is such a big success that I believe this is going to translate into a stronger selling also for Q2. BOSS Beyond Bottle is today the #2 innovation in Europe, the non PAUSE innovation in volume in the DACH region, #1 in Australia and even #6 in the U.S. as an innovation for a brand that has never been a U.S., I would say, traditionally present brand on this very important market.

So for us, it's really a big strategic bet. And it looks like it's going to be very, very big, which will help us to increase our market share in the mail fragrances, which are also booming, as you know it. Number three, I think the dynamism is also at the entry part of the market, which is around the entry prestige brands, but moreover, around the mist. The mist today are representing more or less 2% of Q1 net revenues in fragrances, which is big, I have to say. We have become the #3 or #4 player in Europe. Number 1 in Italy to take a few examples. Everywhere or every brand that launched its own list is seeing a very strong halo effect on the base business, be it CII, philosophy or Kalinin, that are the first to go to market, and there are other brands arriving soon.

And last but not least, you have a question around -- you had a question around the gross margin of Mist the way we have built this miss is, number one, to make them fully additional, and this is really confirmed, it's really incremental sales for the company attracting consumers, which are the youngest part of the Gen-Z target which are not usually buying into traditional fragrances to that level. So this is one.

And two, it's a gross margin that is in line with the 1 of our prestige fragrances. So there is absolutely no dilution in the way we have crafted and created this new category. So in a way, this Q2 better-than-expected outlook is driven by our ability, and I guess we are the only company doing this to play a high low while at the same time, securing the heart of our business, which are premium fragrances.

And our next question comes from Oliver Chen with TD Cowen.

Laurent, as we are excited about the second half year, what are your thoughts in terms of the key launches and how you'll think about categories and the comparisons as well that will give that return to that growth in the second half. Also, as you think about Consumer Beauty and Brazil, I would love your thoughts there on potential outlines and outcomes and time lines.

Yes. Thank you, Oliver. So indeed, about H2, and indeed, we are confirming that we will be back to growth in the second half of this fiscal. So that's the #1 message. So what is behind this number is that indeed, the continued momentum on the beauty category and especially of the prestige and fragrance category. So we see really consistent, resilient growth of this category. And again, you see the numbers, if I take the Q1 category fragrance growth in the U.S., which is a plus 7%. And our sell-out in Q1 is in line with the category growth.

And indeed, all the work that the new management team is putting in place in the U.S. is really confirming that this trend is going to continue and amplify in the H2. So that's very important category and the U.S. usage, as you remember, was the main issue that we had a year ago. Now we are really already in a good place that we are recovering very fast. So that's really the big element. It's going to be amplified by strong innovation. So as you heard and as you saw, I mean, BOSS Beyond Bottle is off a very good start.

And of course, it's going to continue and amplify and we are coming also in the second half with an additional blockbuster. So again, the fundamentals of this growth as here. And the last element, which I want to highlight, which is very important is that indeed, at the end of this calender '25, we are seeing that our sell-out performance will converge with the selling performance. So indeed, we are seeing already this quarter and we continue next quarter that the level of inventory with retailers is declining significantly, really be back really well synchronized sell out and sell it.

So these are really all the drivers, the key drivers confirming indeed having H2 back to growth and, of course, to continue on this growth trajectory. So indeed, that's on the H2. So indeed, on the consumer beauty, cosmetics, again, I mean, we announced and we made very clear that indeed now is really led by our Gordon Von Bretten, as you know, I mean, as very well the company. I mean it was head of transformation a few years ago. And Gordon is really currently assessing and really reviewing the full potential of this division working on all components.

So the #1 mandate, of course, is really to --, I mean, the profit and the cash generation from color cosmetics. And I can tell you that Gordon is already full speed, really built already a strong team really to manage all these key initiatives. And I can tell you it's covering the full spectrum again, the P&L starting, of course, with top line, gross to net, gross margin, ANCP allocation and of course, the fixed costs.

So it's really -- it in motion, and we will keep you posted, of course, on the progress, on this journey. And second, which is on Brazil. As you know, Brazil is a very -- is a profitable business. I mean, really the work done over the last years really has brought very, very good results. And indeed, I mean, conclusions on Brazil are likely to come before than on Consumer Beauty and on color cosmetics business.

We will take our next question from Olivia Tong.

With respect to fragrances, you've got really substantial growth both in ultra-prestige and is -- so can you talk about the opportunity you see for both of them? And more importantly, how to balance the 2, particularly in terms of the miss side. And then just building on that, just thinking about the barriers to entry on this and then what your view is on price mix impact over time given those dynamics?

Let me take this question. So again, let me start with the spark. So this miss, as I said it earlier, we really designed them with 2 or 3 principles in mind. The first principle is that we have to be the Gen Zs and the consumers are shopping today. And they are shopping this kind fragrances. You could think about a miss like a kind of modern colon. It's not new, the mist. But the way we've designed our miss maybe the comparison that could be done between a Nokia mist and an iPhone on is more or less. That's exactly what we have done. And on top of this, we added entry barriers. Indeed, it's a very important element.

First, in terms of our ability to use the library of winning sands from our Prestige division, and number two, I can tell you that the formulation of our body miss, whatever is the brand, are patented formulations using ingredients that are there to act on the longevity of the sand on the scheme of the body. And this is really a unique know-how to the company, which allow us to do what a lot of brand mix has not been able to do so far which is to create a lasting impression. If you read online, what people love and hey, it's about the miss, they love that it's easy to spray. It's also stackable. The mix phenomenon is incremental because a lot of young users use it as a luxury and then they add their favorite fragrance at the main outfit on top.

So it's not, instead It's with the rest of the fragrance consumption. And if you look at social media, the #1 need gap is that it does not last. So this is where we use this patented technology that allows the fragrance to stay on the skin as true as possible from the moment you spray it on to the end of the day. So that's the first element regarding the mist. And for me, the miss is just a first step into what we call Sensing everything, which I believe is the mission of the company, the know-how of the company and the competitive advantage of the company.

So you'll see many more things arriving in the near future around sending your body. Number two, which is around the ultra premium part of the market, this part, we used to call it niche. I think niche is really a wrong word because it's not that niche, in fact, today, if you look at the biggest niche brands, they represent multiple hundreds of millions of dollars of net revenues in a country like the U.S. or in a country like U.K., it's close to 20% of the prestige fragrance market. So it's a sizable portion of the market and probably the most profitable part of the market too, given the high prices that are used in this area. There, it took us some time to build the portfolio, but now we have a portfolio again, there aren't that many companies that have a portfolio of ultra premium brands again, I quoted earlier, of course, the cloudier collection, the Burberry Signature Collection, the Gelsinger collection, the bus collection the upcoming Marni and Ero collections and of course, the own brand, which is Afiniti.

And we are continuing to chase new names in this area so that we are able to build a court ultra premium business that represents between 10% and 20% of our business. And today, it's only 1%. It's growing at 17%, but we start from a small base. So for me, this is a fantastic growth engine for the future of the company. So again, we are the only company playing high law on top of the core of the market.

We will take our next question from Ashley Helgans with Jefferies.

This is Sidney on for Ashley. Can you talk a little bit more about what you're seeing in terms of promotion and how that may be varied by region or channel? It sounded like there was some challenge from peers leaning into promo. So just curious if that put pressure on you guys to shift your promotional approach at all? And then also just curious about any trade down or up dynamics. As you've mentioned, you are really spanning price point, especially within your fragrance offering. So curious kind of what you're seeing there in terms of consumption trends.

Yes. Ashley, Yes, indeed. So indeed, we are seeing some, indeed, some promotional activity, indeed, I mean, I can tell you indeed from some of our peers. I mean we are very disciplined and very diligent really not to be aggressive on that game. So indeed, we are very choiceful, really focusing on, again, on innovation and continue really to protect indeed our brand. So -- and we are also developing really some ways to avoid this game, which is, as we shared a few times, now we have really dedicated teams working on revenue management.

And revenue management is exactly how to avoid paying this kind of promotional game. I give you some examples is in the U.S. One category, which is growing fast, is a pen spray, pen spray, our smaller format 40 milliliters indeed lower price and indeed instead of promoting some of our icons. In fact, some consumers can go to these -- to this segment, and it's also a smart way to enter the category and then they go to the icon. So we are really developing different formats, different games exactly to match also sometimes some pricing expectation. At the same time, what is very interesting and was the previous point from Sue is that you are seeing that the high premium category is flying, okay?

So it shows that we have really -- with really our capabilities, our know-how and really all the formulation and you know that we are bringing. There is really a path that it's not or it's not only about price. It's really about always the excitement about the category. So I think, again, we are very well positioned, and you understand that this 5 to 500 is the best answer to this promotional environment because we are covering the full spectrum. We are matching the needs of all our consumers and indeed, I can tell you. So we are very choiceful, and we are making sure indeed that we are protecting also our profitability.

So -- and on your last in trade down versus trade up, I mean that's exactly this point about the 5 to 500 million. So it's really managing the full spectrum body it is also a very great answer to this question. I mean, we are seeing GenZ very excited by Body Mist. It's $20 to $30 product that they really enjoy, different formulas, as we indicated. And then it's also passed at some moment to access to more in products. So you're absolutely right. But I think all the strategies, the teams and the tools that we have in place are really helping to navigate in this environment.

In fact, to complement that. Consumers are stacking the sense. This comes from the Middle East. This is a trend that's globalizing. We call it send stacking or sent word work depending on the moment. It's about using a body miss on your skin and then using a lotion on the rest of your body. On top of this, you have your favorite colon for the day and your favorite Elixir for the night. So that's exactly what we are seeing. So no trade down because the more expensive categories are the fastest growing, but it's a story of and rather than a story of Ilera.

And our next question comes from Charles Scotti with Kepler.

I have 3 questions, please, the first one, how is the shift towards e-commerce affecting the selling sell-out dynamics? I suspect that brick-and-mortar retailers are experiencing some destocking partly due to the intensifying competition from online players. So I would like to understand whether the shift to online, particularly in the U.S. could lead to a prolonged period of net destocking in that market.

Second question on EMEA, which, if I'm not mistaken, was 9% like-for-like inQ1, It seems that it's the muscular cosmetics business, which is dragging on growth. Could you comment on the trends of the prestige fragrance business? You mentioned mid-single-digit growth in the U.S. What about EMEA and if you could give us an idea of the price mix volume breakdown of the category, both in EMEA and the U.S., it will be helpful.

And lastly, in China, demand seems to be recovering. You are obviously under indexed on the Chinese market. But you mentioned that the outlook for the fragrance category is quite promising. Who do you think will take the lion's share of the market between the niche brands and prestige brands? And with which brands are you going to tackle the Chinese market more specifically?

Yes. So indeed, I can take the first one, indeed, and we can complement it on China. So indeed, on your question about brick-and-mortars and e-commerce, just to zoom out a little, yes, of course, I mean e-commerce is growing very fast. And you know that now it's more than EUR 1 billion net revenue for total coating and it's growing fast. In the Q1, we are seeing, I mean the sell-out of our e-commerce on both divisions is 5% to 6%. So indeed, we are really taking full opportunity of these channels. So that's, of course, very dynamic.

From a destocking standpoint, no major difference between both. What I will highlight, though, is that, of course, e-commerce players and the #1 being Amazon. As you know, they are very strict and very well organized on their inventory management. So indeed, it means that it is creating -- if you look at the full picture, indeed, reduction of the retailers' inventory. So indeed, you have, I would say, I call it more a mix effect from between e-com and brick-and-mortar.

So that's a fact, but it's not material. The other element is also that it's putting pressure on the brick-and-mortar retailers. And as a result, they are also becoming more disciplined and strict on their inventory management. So I think you need really to look at it more this way between both channels. And EMEA, we are down in the year. It's mostly it's mostly color cosmetic, indeed, as you see for the whole company. Indeed, our prestige fragrance set out is positive.

So it's really dynamic. And again, all the innovation that we are bringing. I mean BOSS Beyond Bottle is the #2 mail PAUSE initiative in Europe. It's #1 in volume in Germany, and we are only at the beginning. So it's going to continue and amplify in the Q2. So you will see really the sellout in EMEA continue to increase.

At the same time, same as the U.S., yes, we are still facing, and we will close by end of calendar indeed from a selling standpoint, facing the retailer destocking. And you know, for example, to glass made public that they are focusing on inventory reduction. So these are really on the first to element. And yes, I will hand over to Sue.

Yes. Bren, maybe I can complement your answer regarding the dynamics of the fragrance market in the U.S. versus in Europe, Again, what we can say is that the prestige fragrance market grew by 5% during the quarter globally. Which is a little slower than a month ago, but it's ahead of many other consumer categories, including color cosmetics. In the U.S., the market remains very strong. As I said it before, 7% of growth in the quarter. And very importantly, this is to answer your question, this includes low single-digit volume growth the category continues to gain users and additional usage occasions.

In Europe, the picture is a bit different, where the market has been growing only by low single digits coming from mid-single digits. This is mainly due to 1 market. It's very important. Well, by the way, Coty is quite small. It's the French market, where the likes of L'Oreal, LVMH Campus are very big. It's the market that is really very big and not very dynamic, whereas markets like the U.K. and Spain remain very strong with a mid-single-digit growth including here again, low single-digit growth from units. So that's the picture between the U.S. and value/volume growth.

Now on China, the market is recovering. That's good news. It's recovering on all the categories that the company is playing on, be it skin care of fragrances or color cosmetics. Coty has posted a 15% sellout growth in the market to be compared to a market that was around 7% of growth, which is a good growth. And this was driven by our skin care business on caster is doing wonders in this market, which is very important. It's the most competitive skin care market in the world, even if it's from a small base. The brand is doing 90% of growth on the market that's more or less 8% to 9%.

So we are growing 10x faster than the market, both in photo protection, which is are but also on traditional skin care with our most riser among the best-selling most risers of the Chinese market. The other part, which is the biggest part of our business, it's 70% of our business. It's fragrances and there, the market is back to growth, and we are growing 2x faster than the market. So your question is what is needed to compete on this market. Exactly the brands we have at Got infact.

There, it's not a question of high low. It's all about high, high, high, high. And the higher you go, the better it is. And again, I've been describing at length the very comprehensive portfolio of ultra premium brands that we have today in our hands again, Atari defer, which is phenomenously doing well in Asia. Burberry Signature, BOSS collection, Gesunder Signature, Marni and Etro upcoming Collection, Afiniti -- and I'm sure I forgot 1 or 2, but this is really a portfolio that will allow us to play in this area like never before to reach here not market, but likely 40% to 50% of the Chinese market are ultra-premium brands.

So there, there is really a big game to be played with a very, very profitable business to build.

And we will take our next question from Anna Lizzul with Bank of America.

I was wondering if I could follow up on the protege fragrance expectations for just the holiday season. Gifting is such a big driver of fragrance sales for many retailers during this time. And should we expect trends, I guess, be more similar as you saw bucol1 on the more difficult comps for Protege Fragrance gifting despite some of the sequential improvement that you might be expecting in the next quarters.

And then on the Mass Beauty side, I just wanted to follow up on the comment regarding the rapid channel shift if you could elaborate on where you're seeing buyers gravitate in Mass Beauty and how it's impacting your business?

Yes. I mean just to confirm again, and we shared with you a few numbers. I mean, we are very confident again about the prestige fragrance performance and category. Again, you know the numbers. I mean it has been very resilient for many years, many quarters, the fragrance index that we talked a lot about, I mean, is fully at play. So we are expecting a similar trend for Q1 also amplified by very powerful innovation and Boston bottle is 1 of them.

We are seeing Gen Z being very, very excited by the category. And again, back to the previous point, what's very fans is 50 to 500, where we are seeing the high premium category growing double digit. And of course, holiday season is a great season for that. And at the same time, we are seeing ultra-premium being very dynamic. So yes, we are expecting really very dynamic trend in the U.S. and also in Europe. So now on the...

So -- and I understood why your question is about the shifts that are happening between, let's say, the brick and mortar e-retailers on 1 side versus Amazon and TikTok shop on the other side if I'm not wrong, then I will elaborate on this. What we are seeing indeed is a shift that's very important. And it's a story of and rather than a story of either again here. It's a question of funnel. And what we see is that a lot of the youngest consumers at least are really looking for what's new on TikTok, almost like a search engine and hyper engine at the same time. It's already also an e-commerce engine, not in every country.

It's the case in U.K. I think it's the second beauty retailer already in the U.K. And this is where we learned our lesson with email, where we really tested the channel to understand how to play with this channel. And we understood that we need to see it as an investment channel now more and more as an e-comm channel, but this is really where you create the cool factor for your brand. And then you move to Amazon, where you get the ratings and the big numbers then after you go to the rest of the retailers, including dot comes from retailers.

So that's really a way that is today played by key players when it comes to how to create virality or how to create desirability and demand. So we are doing this in the U.S. also with CoverGirl that also did a test on TikTok shop recently, and we are amplifying these 2 moves in the coming quarter with the new innovations that are going to be done in Q3. The other thing that we are also seeing is that there is also a shift in terms of PAUSE the share of what we call in the mass color cosmetics brands. If I take the example of MCO Beauty in Australia, which was kind of this kind of indibrands that are quite cheap in terms of pricing, very nimble, very agile mainly from the shale innovation from TPMs, et cetera they are collapsing.

They are collapsing after 1 or 2 years, and this is really something that we are seeing across many regions with these kind of players, including key ones in the U.S., but also in U.K. who are starting to lose market share and we are not giving the growth of the category that retailers are expecting. So we expect a kind of inside the channels, we expect a kind of rebalancing between these in players, which are more or less due players and the more traditional players, which are learning the lesson quite quickly.

And we will take our next question from Shovana Chowdhury with JPMorgan.

I have a couple of questions. You addressed the strategic review to Oliver's question earlier, but I wanted to take a bit further into -- can you give us more color on the results that would inform your decision for each of the options out of this review, whether you decide to keep the business given like you're trying -- you had management changes and you just mentioned you're trying with cover goal testing out on kick to or would it be a JV or an outright sale? Given the strategic review, how do you prioritize the decision of the strategic review versus the well less sales?

Okay. Let me take this last question. SaaS Indeed, what we are doing are 2 stories, 2 very different stories. So you have on 1 side, the Brazilian business, which, as Laurent stated it before, is a very profitable business, a business of $400 million, a business that doubled its size in the last, I would say, decade business that has its own factory that produces more or less 0.5 billion units per year. R&D specialized in melanin rich scans. You have also end-to-end capabilities, be it in terms of digital capabilities, commercial capabilities, marketing capabilities.

And last but not least, with a portfolio of brands that is very different from the global portfolio of brands that Coty is operating elsewhere. So it's really local tires, the #1 ad maker, the #1 male skin care brand in the market, big growth in terms of facing care leadership position in terms of body sensing. So it's really a business that we believe have potentially more chances to continue to do its journey with a new acquirer, if I may call it like this, and this could happen quite quickly, given the size of the business, the profitability and the dynamics.

So that's one. On the other side, regarding the Color Cosmetics business. There, again, the strategic review is a real one. It's not just a word to mean something else. It's really reviewing our strategic options.

The first 1 is by nature to do the job of making this business as growing and as profitable as possible and as quickly as possible. And there, the duo that Gordon and Masa are having at the helm of this business, hopefully, we'll produce quick results that we will see in the coming quarters. then there is a deeper work that's going to be done on the cost structure, on the gross-to-net ability to lower this part that is today very, very heavy, but also on the AMCP allocation.

We believe we went too far in terms of spending a lot on Gen Zs are by nature, the least loyal consumers on earth instead of keeping our key loyal millennial and GenX users, which are the big portion of the market, but also the ones that are growing more and more this kind of market, given the Indibrands are not growing anymore the market. So in a way, that's really the outcome potentially of this part. And there, the first results in 18 months, but it could take longer. So there is not the idea to set the business tomorrow. There is the idea to really assess all the possibilities and see continue to play or not, specifically given the fact that it's going to be more and more, and we see it a business of in and out small players, sometimes they go big, but they become smaller later, and they take a shelf space and they disappear. So that's really something we need to pay attention to. Do we want to play this game or not? Are we equipped to play this game and are we able to do, I would say, positive progress in this area.

Now that have any impact on Velar, -- absolutely not. Vela is a very separate topic. As Laurent said it several times, the standstill period is over since the end of calendar '24. We are on this topic right now. So stay tuned.

And at this time, there are no further questions in queue. I will now turn the meeting back to our presenters.

Thank you, everyone, for your questions, and see you soon.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

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 First Quarter fiscal 2026 Earnings. On Thursday, November 6, 2025, at approximately 9:30 a.m. Eastern Time or Eastern Time or 3:30 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, and thank you for joining us today. After 4 years of industry-leading growth and expansion through fiscal '24, followed by a more challenging calendar year '25, we are committed to reaccelerating our performance and doubling down on our strengths. The results from our recent operational interventions are promising. We are improving our core prestige fragrance performance, accelerating in adjacencies such as ultra-premium fragrances and fragrance mist and remain focused on building our footprint in Prestige makeup and skin care.

We've shown strong progress in improving our execution in U.S. Prestige with the U.S. being our #1 headwind in fiscal '25. We are acting with urgency to transform our Consumer Beauty business while progressing with our strategic review. And we remain laser-focused on strengthening our profitability and balance sheet with our fiscal year '26 business trends steadily improving in line with our expectations. As we solidify our position as a global prestige beauty company, with an emphasis on fragrance and scenting across price points with cosmetics and skin care capabilities, our goal remains delivering strong, consistent performance and outperforming the beauty market.

In the first quarter, total net revenues declined 8% like-for-like, in line with our expectations and guidance. Encouragingly, like-for-like sales trends improved in both Prestige and Consumer Beauty divisions. These sequential improvements reflect the early impact of our strategic interventions, including targeted inventory actions and a renewed focus on our core growth engine, fragrances and scenting. While the environment remains promotional and some pressure persist, our top line trajectory is moving in the right direction. Our fragrance portfolio continues to be a key driver with standout launches and expansion as consumers continue to prioritize fragrances as affordable luxuries. We are encouraged by the progress, and we remain confident in our ability to build momentum as we move through fiscal year '26.

In Prestige, we saw sequential improvement in like-for-like sales trends as anticipated. Sales declined by 7% like-for-like in Q4, improving moderately to a 6% like-for-like decline in Q1. We are, of course, not happy with this performance as we continue to face a bigger gap between sell-in and sell-out than many of our peers following several years of outperformance versus our peer group, which likely also drove retailers to stock up on Coty's blockbusters. As we further shrink the sell-in and sell-out gaps and reinvest behind our brands to drive stronger sell-out during the holidays, we expect further Prestige like-for-like trend improvement in Q2.

In Consumer Beauty now, we are also seeing signs of sequential improvement. Like-for-like sales declined by 12% in the fourth quarter and 11% in Q1. We anticipate further improvement in Q2 as the new divisional leadership drives operational changes. The broader beauty market is moderating after several years of exceptional growth. However, fragrances continued to outperform, benefiting from a structural shift towards affordable luxury often described as recession glam or treatonomics.

The Prestige fragrance category has grown at a mid-single-digit pace in the last 3 quarters, even as other consumer categories languished. Fragrance volumes were up low single digits in Q1, reflecting sustained demand. The mass cosmetics category saw a sharper slowdown in fiscal '25, though we are seeing some trend improvement to low single-digit percentage growth in Q1. These dynamics underscore the importance of agility in navigating the evolving beauty landscape. Against this market backdrop, we saw diverging dynamics between our sell-out and sales performance in each division.

In Prestige, the prestige beauty market grew 6% in Q1, reflecting strong consumer demand across categories, while our sell-out grew 1%. Specifically in Prestige Fragrances, which is our core category, the market grew by 5%, while our sell-out grew around 2%. The couple of percentage points gap between the Prestige fragrance market and our Prestige sell-out reflects the timing of our BOSS Bottled Beyond fragrance launch at the end of the quarter and our more disciplined approach to elevated promotional activities we see in many markets. As anticipated, our Prestige sell-in tracked well below sell-out due to ongoing retailer destocking, though this gap narrowed from the double-digit gap we saw in Q4. Our actions to rightsize inventory levels are impacting near-term results but are necessary for a healthier trajectory ahead.

In Consumer Beauty, the dynamics are different. While the mass beauty market grew 2% in Q1, our sell-out declined 6% and sell-in declined 11%, driven by rapid channel shifts, media investment reallocations away from lower return areas and competitive pressure. These dynamics underscore the importance of our performance improvement plan for the Consumer Beauty Color Cosmetics business alongside the ongoing strategic review.

Now I want to take a moment to discuss the progress we're making to address the challenges we faced in fiscal '25. One of our top priorities has been to address the challenges we face in the U.S. market, which accounted for the vast majority of our sales declines in '25. In the spring, we announced the new regional structure to make Coty nimbler and more aligned with today's evolving channel landscape. We also appointed new leadership in the U.S., and we are now benefiting from a seasoned leadership team and an overarching regional structure that adds another layer of experience and agility. These adjustments are yielding positive green shoots as we close the gap between our U.S. prestige fragrance sellout and the overall U.S. prestige fragrance market from an approximately 5-point gap in Q4 '25 to full alignment with the market in Q1 of fiscal '26.

This progress validates the impact of our organizational and commercial interventions and reinforces our confidence in returning to outperformance in the U.S. market. More effective leadership, sharper execution, better alignment between sell-in and sell-out are driving meaningful improvement across our key metrics in the U.S. In Q1, we closed the gap between our U.S. Prestige fragrance sellout and the U.S. market with both growing approximately 7%, reflecting the impact of targeted interventions and commercial actions. We expect to broadly maintain this alignment in the coming quarters. While our U.S. Prestige revenues have tracked well below our sell-out over the last 3 quarters due to retailer destocking, inventory trends are improving.

With our solid sell-out growth in the last 2 quarters and assuming the Prestige fragrance market continues to grow at a similar pace, we expect our U.S. Prestige sell-in to return to growth in Q2. These results demonstrate Coty's agility and commitment to returning to outperformance in our largest market. We have taken decisive steps to fundamentally improve Coty's ROI and operational efficiency. The next phase of All-In To Win is underway, targeting significant fixed cost savings across the organization. Our newly established performance and operational excellence office is reinforcing operational oversight focused on consistent performance tracking and improving ROI.

In Q1, we generated over $40 million in productivity savings and more than $10 million in fixed cost reduction. We remain on track to deliver approximately $200 million in combined fixed cost and productivity savings in fiscal '26, giving us the flexibility to reinvest in growth, offset inflation and support profit expansion. In light of the tariff landscape, Coty has taken decisive steps to reinforce here again our competitive advantages. We transferred some production of U.S.-bound fragrances to our domestic plants, including mass fragrances, adidas and Nautica and also Fragrance Mist. We will continue to transfer additional fragrance products and adjacencies while we assess the final scope, prioritizing return on investment.

All of these actions reinforce Coty's resiliency and relative cost advantage versus our peers who continue to produce primarily in Europe. With the recent tariff updates, we now expect a gross tariff impact of under $50 million for the year with a net impact of under $40 million, which is approximately $20 million lower than our assumptions several months ago.

As we discussed last quarter, our digital and e-com teams are now embedded within local markets and brand organizations. This structure enables omnichannel execution and empowers commercial decision-making at the local level. In Q1, our e-com sell-out grew mid-single digits in both Prestige and Consumer Beauty, reflecting the effectiveness of our strategy and the demand for our brands online.

As shared last quarter, we are accelerating AI implementation across Coty with a new road map to embed digital innovation throughout our operations. A few priorities include content automation with Agentic AI, smarter decisions through predictive analytics and visualization and better user experiences through chatbots, plus new AI assistance in procurement, for instance, which are transforming contracts and negotiations. And with the rise of Agentic shopping across retail platforms, we are already developing and integrating tools to enhance the shopper experience, including selection optimization and virtual try-ons. These initiatives are optimizing fixed cost investments across back-end functions and reducing the cost of content creation, freeing up funds for working media. We're already seeing some early benefits and expect them to ramp up over the coming years.

Now let me turn it over to Laurent to discuss our financial results and outlook.

Thank you, Sue. Our Q1 results were in line with expectations and guidance. As we navigate the complex external environment and implement necessary changes within Coty, we remain focused on steadily improving our performance trends throughout fiscal year '26.

Our Q1 adjusted gross margin was 64.5%, in line with our expectations. This represents a decline of 100 basis points compared to the prior year, which reflects lower sales as well as a 40 basis points headwind from tariffs. Despite near-term sales and gross margin pressure, we maintained strong support for A&CP in Q1.

Our A&CP investment was approximately 26% of net revenues, up 110 basis points from the prior year. This demonstrates our ongoing commitment to invest behind our brands to drive consumer engagement, long-term growth and value creation.

Adjusted EBITDA declined 18% in Q1, in line with guidance. The decline primarily reflected lower sales and lower gross margin, partially offset by lower fixed costs. Our disciplined approach to cost management and operational efficiency helped mitigate some of the top line pressures even as we invested behind our brands and strategic priorities.

Our Q1 adjusted EPS, excluding the equity swap was $0.15, in line with expectations. As discussed last quarter, we have launched the next phase of our All-In To Win program, targeting $130 million in annual fixed cost savings by fiscal year '27 alongside ongoing productivity savings. In Q1, we generated fixed cost savings of over $10 million in addition to over $40 million in productivity savings. We continue to expect about $200 million in cumulative savings in fiscal year '26.

Altogether, our cumulative savings under the All-In To Win program is close to $900 million between fiscal year '21 and Q1 fiscal '26. These savings provide us the flexibility to reinvest in growth, offset inflation and other cost pressures and support profit expansion.

Shifting to our cash flow and balance sheet. We generated $11 million of free cash flow in Q1, an improvement of $19 million versus last year. As a result, we ended Q1 with leverage of 3.7x, up 0.2 turns from the end of Q4, primarily driven by lower EBITDA. With strong seasonal free cash flow expected in Q2, we anticipate leverage to come down again exiting next quarter. Deleveraging remains a key objective for us, and we are currently actively pursuing the monetization of Wella.

On the balance sheet side, in Q1, we successfully refinanced $900 million of calendar year '26 debt maturities at an attractive cost of approximately 5.6% with strong participation from investment-grade investors. We continue to expect seasonally strong Q2 free cash flow of over $300 million, supporting first half free cash flow of over $350 million, which should cover the remaining portion of our calendar year '26 maturities. And in parallel, our focus remains on deleveraging and smoothing out our maturity towers. These actions reinforce Coty's financial position and reflect our disciplined approach to capital allocation, ongoing deleveraging and risk management as part of our goal to become an investment-grade company.

As we move into Q2, consistent with what we discussed last quarter, we expect sequential improvement in sales and profit trends versus Q1. The organizational changes underway in the U.S. continue to yield results and should continue to build through the year. We still anticipate net revenues to be negative in the first half as strong contribution from innovation, new subcategories and distribution gains are offset by headwinds from trade inventory reduction, a more promotional environment and elevated year-over-year comparisons.

Importantly, we anticipate net revenues will turn positive in the second half, supported by new launches, alignment between sell-in and sell-out and easing comparison. Lower sales, a net negative impact from tariffs and the anticipated restoration of variable compensation are weighing on EBITDA in the first half. However, we expect positive EBITDA in the second half, supported by a return to sales growth, stepped-up contribution from tariff mitigation and the full benefit of our fixed cost savings initiatives.

Let me share more concrete guidance for Q2. We continue to expect a gradual improvement in sales trends through fiscal year '26 from the Q4 '25 like-for-like levels. With strong sales in October, particularly in Prestige, we expect Q2 like-for-like sales to land at the more favorable end of our prior guidance of minus 3% to minus 5% like-for-like with sequential trend improvement in both Prestige and Consumer Beauty. We estimate a low to mid-single-digit ForEx benefit on our reported revenues in Q2.

We anticipate continued gross margin pressure in Q2, driven by lower sales and a sequentially higher net impact of tariffs. Fixed cost savings from the All-In To Win program are expected to broadly offset the negative impact from the resumption of variable compensation. We do expect quarterly phasing of net fixed cost to fluctuate as savings build over the year, while the year-on-year negative impact from variable compensation will be most pronounced in Q2 and Q3. We continue to expect gradual profit trend improvement with adjusted EBITDA declining by a low to mid-teens percentage in Q2, consistent with our prior guidance.

Importantly, with declining Fed rates and some benefit from cross-currency swaps, we expect quarterly P&L interest expense to remain broadly consistent with our Q1 interest in the $45 million to $50 million range, resulting in annual interest expense of around $190 million. This reflects roughly $25 million in interest savings year-on-year or a $0.02 EPS benefit. Therefore, we expect Q2 adjusted EPS, excluding the equity swap of $0.18 to $0.21, bringing the first half adjusted EPS, excluding swap to $0.33 to $0.36, consistent with prior guidance.

We continue to estimate seasonally stronger free cash flow in H1 fiscal '26 of over $350 million, resulting in leverage at the end of calendar year '25, approximately in line with the Q4 '25 leverage level of around 3.5x.

Turning now to our outlook for the second half. We continue to expect our like-for-like sales to return to growth in the second half as sell-in and sell-out reach alignment and supported by several key launches in Prestige as well as more favorable comparisons. We also expect to return to adjusted EBITDA growth in the second half, targeting around $1 billion in adjusted EBITDA for the year. While this outlook implies very strong year-over-year expansion in our second half EBITDA, it is important to remind that this is off very low prior year comparisons, particularly in Q4 '25.

On a 2-year basis, our EBITDA outlook for second half fiscal year '26 is a few percentage points higher than second half of fiscal year '24. The expected profit growth will, in turn, fuel adjusted EPS growth in the second half. Our goal is also to continue deleveraging in calendar year '26 as we target reaching an investment-grade profile.

Now let me turn the call over to Sue to discuss our evolution in lockstep with the beauty market.

Thank you very much, Laurent. Coty has always been a best-in-class fragrance operator. And in this next phase, we are doubling down to become a fragrance and setting powerhouse from $5 to $500. This is a category where Coty has a proven right to win backed by leading R&D and IP, manufacturing, marketing and distribution capabilities combined with a very attractive brand portfolio.

First, we have a strong long-duration portfolio that provides a solid foundation for sustainable growth. Developments in the beauty and luxury industry over the past year all confirm that the winners in beauty have been and will remain specialized beauty players like Coty. In housing, beauty remains incredibly complex and costly for non-beeauty players, reinforcing the appeal of the licensing model. Licenses offer strong ROI with no material upfront license or renewal costs, while established brand equity increases the probability of success and payoff.

A successful licensing business depends on portfolio diversification and minimizing license duration risk. In recent years, we have proactively renewed and significantly extended many key licenses, including Hugo Boss, Marc Jacobs, Adidas and Davidoff for an additional 15-plus years. Today, 85% of our portfolio is either an owned brand, a perpetual license, which we view like an owned brand or a license with very long-term remaining duration of 7 years or more.

Even when looking at our core beauty portfolio, approximately 80% of our brands are either owned or under long-term license. We have also been prudent in ensuring that no single brand in our portfolio accounts for more than approximately 10% of our sales. With the public announcement that the Gucci license will no longer be part of our portfolio after its expiry, our focus for the next several years will be on overdriving the brands with the biggest long-term growth potential, building and amplifying our newly added licenses and brands and in parallel, optimizing the Gucci brand during its remaining term.

The second critical point is that Coty maintains a top position in global fragrances. We remain a top 3 global fragrance player with leading positions in both prestige and mass fragrances. In the highly attractive $50 billion prestige fragrance market, Coty is a top 3 player with 12% market share. Importantly, even excluding the Gucci license, Coty solidly remains the #3 player in prestige fragrances, a position we aim to boost further by overdriving our core brands and doubling down on our new licenses.

Among the top 5 global fragrance players, only Coty and L'Oréal operate licensing models, meaning luxury brands have limited partners capable of building scaled, global and importantly, multi-category beauty businesses, combining prestige fragrances and prestige cosmetics. With this backdrop, we continue to attract new and desirable licenses, most recently adding Swarovski, Etro and Marni to our portfolio, reinforcing Coty's position as a preferred partner for luxury brands.

We also lead the mass fragrance market, a $7 billion category across developed markets, which grew over 10% in Q1. Coty holds the #1 position with 12% market share, well ahead of peers, positioning us well to expand our portfolio with new internally created and licensed brands. Our dominant position across all fragrance price points is a core strength as the category carries higher barriers to entry and stronger consumer loyalty than many other beauty categories.

Success in fragrances is anchored on technical superiority and performance, internal fragrance development and brand names that are both desirable and aspirational. In fact, approximately 90% of the top 20 global prestige fragrance brands were designer brands in 2019 and in 2024. This trend holds even among more price-sensitive Gen Z consumers. In the latest Piper Sandler U.S. teen survey, 16 of the top 20 fragrance brands among male teens were designer or ultra-premium brands. All of this underscores that even in a fragmented beauty market with many new entrants, the fragrance category remains remarkably stable with brand equity serving as a key competitive moat.

Furthermore, our best-in-class fragrance capabilities and our desirable and complementary designer brands will continue to fuel our strong position in Prestige fragrances, while our unique portfolio, which also extends to more affordable consumer beauty fragrance brands will allow us to capture opportunities in the Prestige inspired juice trends. With designer brands remaining critical to success in beauty, Coty's portfolio of leading designer fragrance and prestige cosmetics brands is a key asset. We have nurtured and elevated each of our core brands delivering exceptional growth across our designer brand portfolio over the past 6 years.

Between 2019 and 2025 at constant currency, we've grown Burberry by an impressive 141%, Hugo Boss by 33%, Chloé by almost 70% and Marc Jacobs by almost 50%. These results highlight Coty's ability to unlock long-term value through strategic brand building and innovation across our designer portfolio. Importantly, we have delivered similar momentum and success behind brands exiting the portfolio as we grew Gucci Beauty by 61% between 2019 and 2025 at constant currency.

Building on this, we have an exciting pipeline ahead with major launches and category expansions across our portfolio. We remain on track to launch Marc Jacobs makeup in calendar year '26 with a very distinctive and craveable assortment. Under Etro, we're already taking step to strengthen the brand visibility with consumers. Our repromotion of Etro Nectar and Orange Blossom fragrance has resonated with consumers since its relaunch, setting the stage for what's next. Building on this momentum, we are preparing for Coty's produced fragrance launches starting in calendar year '26, a significant milestone in our partnership and expanding Etro's presence in the prestige fragrance market. We expect to launch Beauty under Marni in calendar year '27, further expanding our reach and category presence.

Looking ahead to calendar year '27, we see a tremendous opportunity for Swarovski, another newly added license. This launch will unlock distribution in over 2,000 Swarovski doors in addition to the tens of thousands of traditional beauty retail doors.

In parallel, we continue building on our multiyear track record of leading fragrance innovation. Our BOSS Bottled Beyond launch is already resonating with consumers across markets. I'm very excited to share that BOSS Bottled Beyond is on track to be the #2 male fragrance launch of the fall in Europe, including the #1 male fragrance launch in Germany in units and the #1 male SKU in Australia. The launch is elevating the Hugo Boss brand equity, strengthening our position in male fragrances and unlocking a significant opportunity in the U.S. where Boss Bottled Beyond is already the #6 innovation despite limited historical presence.

We also had a major Prestige fragrance launch in the second half under a key brand. As we double down on fragrances, we are integrating our prestige and mass fragrances capabilities more closely, leveraging scale across R&D, consumer insight, fragrance library, manufacturing and distribution to strengthen our revenue and profit engine. This coordination will amplify our mass fragrance portfolio. Adidas Vibes marks our largest mass launch in a decade, showcasing the strength of adidas brand and Coty's execution. This launch marks the foundation for a global mass scenting platform designed to expand across categories and geographies.

We continue to roll out our internally developed senting projects with key retailers to drive incremental sales and expand distribution. Building on the booming trend in Arabian fragrances, we recently launched our internally developed fragrance collection Jawhara on Amazon in the U.S. as well as several retailers across Europe. While the launch is in early days, we have already seen some positive results in Germany with Jawhara already amongst Coty's top 10 female eau de parfum in sellout.

We will continue leveraging consumer insights and global reach to continue capturing opportunities across senting formats, trends and price points. Beyond traditional fragrances, we are unlocking new scenting adjacencies within our portfolio. This includes expanding into ultra-premium fragrances and innovative categories that complement our core fragrance business. Our approach positions Coty to lead in emerging scenting opportunities, creating incremental growth platforms that extend the reach and relevance of our fragrance brands.

Two of the fastest-growing fragrance subsegments are ultra-premium fragrances and fragrance mist, positioned at the high and low end of price points, respectively. These subcategories are highly complementary as consumers increasingly embrace scent stacking, a trend rooted in Arabian traditions. Many consumers use fragrance mist as a base, layering premium or ultra-premium scents on top for longevity and for personal expression. With these trends accelerating, Coty is ramping up efforts to capture our fair share in both segments.

Ultra-premium fragrances now represent over 10% of the prestige fragrance market, yet account for only 2% of Coty's first quarter prestige fragrance sales, highlighting here a significant opportunity for expansion. At the other hand, fragrance mists make up roughly 10% of the total fragrance market. While our presence in mist was previously limited, recent launches under multiple brands have grown the mist contributions to 1% to 2% of Coty's Q1 fiscal '26 fragrance sales. We see here substantial room to grow in both ultra-premium and mist segments and are committed to capturing our fair share over time.

Coty's ultra-premium fragrance collections delivered 17% sales growth in Q1, driven by strong consumer demand and the appeal of our differentiated offerings, including our Chloé Atelier des Fleurs, Jil Sander Olfactory Series 1 collections and Infiniment Coty Paris. This performance highlights our ability to capture growth at the high end of the market and reinforces our strategy to expand in segments where appetite is accelerating.

Speaking of ultra-premium fragrances, I want to highlight our latest limited edition launch under Infiniment Coty Paris, Ambre Antique. Originally introduced in 1905, Ambre Antique revolutionized perfumery and defined the modern Olfactory family of amber fragrances. Now 120 years later, we have revived this iconic creation, which is a tribute that honors the original spirit and formula, blending heritage and innovation together in a way that only Coty can.

As we shared last quarter, we are the first and only global beauty player embracing the fast-growing fragrance mist market. In recent months, we've launched mist collections under Calvin Klein, Philosophy, Kylie, adidas Vibes, Nautica and Jawhara with plans to launch mist across over a dozen of our Prestige and Consumer Beauty brands. Mist are affordable, complementary and strongly profitable with similar margin contribution to our core fragrance business. They also unlock to Coty access to the rapidly growing $7 billion fragrance market. Fueled by these launches, mist contributed 1% to 2% of our total fragrance sales during the quarter.

I'm proud to share that our patented mist launches are all off to strong starts. Importantly, the results confirm that fragrance mists are incremental to the fragrance-based business of each of our brands, boosting overall sales. After only a few months in market, our Calvin Klein Mist collection of 4 scents is already the #4 fragrance mist brand in Europe and the #1 mist brand in Italy. And the incrementality is evident with total Calvin Klein fragrance sellout growing at a mid-single-digit percentage with growth in both fragrances and fragrance mist.

Our recent launch of philosophy fragrance mist is also igniting excitement for the brand. In recent months, philosophy's overall fragrance sellout grew double digits with both growth in core fragrances and mist showing particular strength at Ulta. At the end of Q1, we launched Kylie Cosmetics fragrance mist featuring sweet gourmand scent profiles. Once again, we've seen strong incrementality with total Kylie fragrance sales up double digits in Q1, fueled by the successful Cosmic Kylie Jenner 2.0 fragrance launch and strong reception of fragrance mist.

These mist launches showcase Coty at our best, spotting trends early, deploying them across our brands with agility and designing the products for profitability with comparable margins from the start. The vibrant, modern packaging, on-scent trends and accessible price points make our mist standout at key retailers, attracting Gen Z consumers and supporting the layering phenomenon as our beauty advisers encourage pairing mist with traditional perfumes.

And building on our success in traditional fragrances and our extension into mist, we are working to extend into complementary scenting categories with more details to come in the coming quarters. As global temperatures rise, scenting will become increasingly pervasive in daily life across product types and Coty will be at the forefront. These adjacencies represent incremental growth opportunities and reinforces Coty's strategy to lead in scent innovation across multiple touch points.

We're also steadily building our Prestige cosmetics and skin care businesses. In Prestige Cosmetics, Kylie Cosmetics continues to perform exceptionally. Global sellout grew double digits both Q1 and calendar year-to-date, driven by strong momentum across makeup and fragrances. And growth is also broad-based geographically with momentum across all major markets, including the U.S., Europe and Travel Retail. Kylie is now a balanced business with strong pillars in lip, complexion and in fragrances. And for Burberry Makeup, we are focused on fueling our recent launches of Beyond Wear Blush and loose powders.

Now on skincare. Each of our brands is anchored in its unique expertise and brand identity. Orveda, the longevity expert, doubled like-for-like sales year-over-year off a small base. Lancaster, our photoaging and repair expert is accelerating in China with our Q1 skincare sellout nearly doubling. In fact, Lancaster is now ranked within the top 15 UV care brands, and our recently launched Lancaster Golden Lift is now ranked within the top 30, confirming that Coty is capable of driving growth and building its position in the world's most competitive skin care market. And philosophy, our new beauty brand, grew double digits year-over-year. Together, these brands position Coty to steadily scale within skin care.

Our Prestige business continues to gain momentum in China, including Hainan, which represents roughly 3% of our sales. Coty's Q1 China sell-out grew 15%, more than double the market even as our net revenues were lower due to destocking. Fragrances remained the fastest-growing category in China, and our sellout was 1.5x the market. In makeup, we grew at twice the market. And in skin care, we expanded approximately 10x the market, fueled by the momentum we are building in Lancaster skincare. This results reflect the strength of our portfolio and targeted execution in the region. And within our Global Travel Retail business, we saw solid growth this quarter, led by a recovery in Asia.

As we strengthen our fragrance leadership across price points and expand into ultra-premium fragrances, mists and scenting adjacencies, we have launched a full performance plan for our Consumer Beauty business and in parallel, a strategic review. In Consumer Beauty Color Cosmetics, we are focused on transforming the business while pursuing a strategic review. Our portfolio includes iconic brands, including scale brands such as CoverGirl, Rimmel and Sally Hansen alongside medium-sized brands such as Max Factor and Bourjois. The business generated sales of $1.2 billion in '25 with strong gross margin of over 60%, though profitability has been modest.

The mass cosmetics market faced pressure over the past year, but is now returning to moderate growth. Our near-term objective is for the new Consumer Beauty leadership team to drive execution and strategy for meaningful operational improvements. This will generate value for Coty regardless of the strategic reviews outcome.

Since announcing our strategic update in late September, we have moved quickly to achieve our objectives. Gordon Von Bretten, Coty Board member and former Chief Transformation Officer, has rejoined the Coty Executive Committee as the President of Consumer Beauty. This new role gives Gordon end-to-end responsibility of Consumer Beauty, spanning innovation, manufacturing, marketing and, of course, distribution. In recent weeks, he has appointed his leadership team composed of key leaders from within Coty, and they are now in the process of filling key roles at the next level.

A pivotal role within the new Consumer Beauty leadership team is our new EVP of Global Brands and New Product Development, who previously led the Kylie Cosmetics business and helped drive brand growth by over 30% in the last 2 years. She is streamlining core innovation to focus on fewer high-impact initiatives while complementing with trend-driven launches. The team is actively shaping the color cosmetics transformation program with the full plan to be finalized by Q3.

The second part of our Consumer Beauty business under evaluation is our distinct end-to-end Brazil business. It includes iconic local brands, Monange, Risque, Paixao and Bozzano, generating nearly $400 million in sales with strong operating margins. These brands remain highly relevant locally with sustained market share gains in nail, in skin care and in shower gels. Our Brazil business also benefits from a best-in-class platform spanning local go-to-market, R&D, manufacturing and digital capabilities. Importantly, our Brazil business is quite distinct and operated fairly independently of the rest of Coty.

Our desirable local brands, strong management and top-tier platform have fueled sustained market share gains in our Brazilian business, especially in beauty-oriented categories. Risque, our nail brand, remains the #1 brand in Brazil, growing market share by over 400 basis points in the last 2 years to 34.4%. We have also expanded market share in skin care by 140 basis points and in Male Beauty by 390 basis points.

Touching briefly on our continued digital momentum. Despite retailer destocking and cautious inventory management, even in e-com channel, our sell-out trends remained strong across the business. In Q1, our Prestige sell-out grew 5% and our Consumer Beauty sell-out grew 6%, while revenues were lower due to trade inventory reduction.

Social media advocacy continues to fuel strong momentum across our portfolio. Burberry global earned media value from influencer activity nearly doubled year-over-year and our outstanding 360 activation for BOSS Bottled Beyond drove Hugo Boss EMV to grow tenfold versus a year ago. In Consumer Beauty now, adidas Vibes continues to resonate, particularly with Gen Z, driving a doubling of EMV for the brand. Rimmel’s EMV also grew by over 30% year-on-year. We continue expanding our e-com distribution.

While we partnered early with Amazon, several of our prestige brands have not yet listed on the platform. This summer, we added Marc Jacobs to Amazon's premium beauty marketplace. The launch has been strong on Amazon, and we have seen a clear halo effect with total Marc Jacobs sellout in the U.S. up 11% since the Amazon launch, a notable acceleration from prelaunch trends.

Finally, we continue making strong progress on our ESG commitments, reaching new milestones that reinforce Coty's leadership in sustainability and in transparency. This quarter, we published our fiscal ' 25 sustainability report, our first disclosure under the EU Corporate Sustainability Reporting Directive, or CSRD, advancing transparency and data integrity.

Let me highlight a few of the key takeaways from the report. First, on the environmental front, we reduced our water withdrawal by 16% in the first year since setting out our target, putting us ahead of schedule towards our 2030 goal of a 25% reduction. Second, we achieved 100% RSPO certified palm oil, including our sourcing from third-party manufacturers and 99% FSC-certified 14 boxes for our products, strengthening our responsible sourcing practices globally. We also introduced new retailer partnerships and opened our first multi-brand sustainability hub in Travel Retail, showcasing Coty's commitment to innovation and collaboration in ESG.

Finally, we launched an online ingredient resource to provide consumers with clear accessible information about what goes into our products. These achievements underscore Coty's commitment to advancing sustainability.

Let me now wrap up with our key messages for today. Our strategic announcement made in September include focusing and optimizing our portfolio and resources behind our areas of strength. We aim to elevate Coty as a prestige beauty company with an emphasis on fragrance and scenting across price points with best-in-class capabilities in prestige cosmetics and skin care.

This includes closer integration of prestige and mass fragrance businesses, unlocking opportunities in ultra-premium fragrances, mists and broader scenting, developing a performance improvement plan for Consumer Beauty Cosmetics and advancing strategic reviews of our Consumer Beauty Cosmetics and Brazil businesses. Encouragingly, underlying business trends continue to improve, tracking in line to slightly ahead of expectations. We continue to anticipate a return to profitable sales growth in the second half of fiscal '26.

In summary, our medium-term focus remains clear: outperform the beauty market, expand margins, continue to reduce our leverage and deliver sustainable growth within our best-in-class fragrance and scenting portfolio, complemented by Prestige Color cosmetics and skin care.

Thank you very much for your time today. We look forward to connecting on Thursday, November 6, at 9:30 a.m. Eastern Time or 3:30 p.m. Central European Time for our live Q&A session.

Good morning and good afternoon, everyone. My name is Chelsea, and I'll be your conference operator today. At this time, I would like to welcome everyone to Coty's Fourth Quarter Fiscal 2025 Question-and-Answer Conference Call.

As a reminder, this conference call is being recorded today, August 21, 2025, at 8:00 a.m. Eastern Time or 2:00 p.m. Central European Time. Please note that on August 20 at approximately 4:30 p.m. Eastern Time or 10:30 p.m. Central European time, Coty issued a press release and prepared remarks webcast, which can be found on its Investor Relations website.

On today's call are Sue Nabi, Chief Executive Officer; and Laurent Mercier, Chief Financial Officer.

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.

With that, we will now open the line for questions.

[Operator Instructions] And we'll take our first question from Olivia Tong with Raymond James.

So clearly, there's a lot going on with respect to the macros as well as the category. And you gave a pretty detailed guide for Q1 and Q2 on sales, EBITDA and EPS, but kept it pretty open-ended for the second half. So I wanted to understand a little bit about if you could provide a little bit more detail on the second half? What initiatives go into place, what hit versus just the easing comps, your thought process around the magnitude of improvement in the second half versus the first half and the key drivers of that?

Yes, absolutely. Thank you, Olivia, for your questions. So indeed, I think it's very important indeed that we give you very indications for Q1 and Q2. And we have this visibility, and we shared very precise guidance. And indeed, as we highlighted, we are seeing that we are still in the phase of retailers' inventory reduction, which should last till the end of calendar year '25, and that's why we are giving this sequential improvement in Q1 and Q2 despite still negative.

So at the same time, as we indicated, we are seeing the category, especially in prestige fragrance, but also in mass fragrance remaining very healthy, I mean, low to- mid-single digit. And we are seeing also our sell-out performing well in the key markets. So now what it means is that the plan is that we are expecting that end of calendar year '25, this retailer inventory headwind will end and then we're entering calendar year '26 or H2 fiscal '26 in a very healthy manner where our sell-in will coincide with our sell-out.

And this is supported by the market, the healthy market, and our sell-out is supported also by very strong innovations that we just shared during the presentation and which will get full speed in the H2. So this is really the algorithm.

Now indeed, we didn't give more precise numbers on H2 because as you say, there is high volatility. I mean there are a lot of macro movements. But for sure, I mean, I can tell you with a high level of confidence that indeed our H2 will be back to growth once indeed, we are going through this H1. So that's really the redoing and really the logic on the top line.

On EBITDA, that's also a similar approach, okay? So we are really giving very precise indication on the Q1 and the Q2. Then on H2 with the full confidence with top line being back to growth and also all the actions, being at full speed will really bring us to positive EBITDA growth in the H2.

So which means that our EBITDA full year would be above $1 billion. I mean the major gap that we are seeing in EBITDA in the full year is driven by tariff, in a way. So if we exclude tariffs on the full year, our EBITDA would just be slightly negative, but indeed the major headwind is the tariff.

And last but not least, I mean our free cash flow will grow in fiscal '26. So this is really the big picture I can give you to explain to you really where we are we built our guidance this way, and it's also really to give you that it's very built with very strong facts analysis and again, very strong confidence in the H2.

And to add to Laurent, this is Sue speaking. To add to Laurent comment. One thing very important, indeed, there is the launches of H1, specifically the HUGO BOSS Beyond bottle, which is starting as probably the biggest launch of the company's history, even bigger than what we did with but there is a second blockbuster launch happening in the second half of the year also.

So this is a second element to add. And the third element is that the perfume plan of the company with almost a dozen brands of the company going into this area with clearly innovative formulations that I could say a little bit more later maybe are honestly going to represent something that could be like 1 extra launch added to the pipeline of the company if you take them all together. So this is the full image of H2, as Laurent just described it.

Got it. That's helpful. Since you touched on it, I do want to talk a little bit about Consumer Beauty. First, around the mass color side. Just your commentary from last night's prepared remarks around the evolution of investment levels, particularly in mass color and how you're thinking about levels of investment this year versus last year and then going forward?

And then on mass fragrances, you just mentioned that, that's a bright spot. How do you think about this business over time, like both as a percentage of sales, the opportunity to grow this, the ability to differentiate relative to others in the category and effectively, who the audience is for that?

So yes, on the first part, Olivia, which is around how we are going to invest behind our color cosmetics category. Indeed, I think the tone is clear: This is the year of increasing the profitability of this business, and in fact, this was not just a decision driven by the P&L, even if the P&L is clearly telling us to go in this direction.

But it's also driven by what we learned throughout the 2025 year, where we realized that maybe, I would say, the move from traditional media to mainly advocacy, marketing was a little bit too radical for a brand like CoverGirl. So what we are realizing is that this market and including the dynamics of the markets are today hurt by, and this is interesting to hear, innovation fatigue, this is something we hear, and simplification of routines.

These are the things we learned from the recent studies we have made. I think a lot of loyal consumers above 30 years old consumers got lost in translation given the complexity of this category today. A lot of people don't know the difference between an ink, between a better, between a balm, between a liquid lip color, between a lip color and the list goes on.

So there is a kind of innovation state, and we used the influencer marketing tool to talk to everyone. The decision we have made is to dedicate the, I would say, most sophisticated innovative products to the youngest who are those who understand this very well and easily get into the complexity of the category while coming back to traditional advertising when it comes to categories that are the biggest, by the way, in the color cosmetics category such as mascaras and foundations, which are, by the way, the strengthen of our brands.

And we believe that this way of doing will allow us to invest less in absolute value and in a very ROI-driven way. So this is the way I would explain the shift that's driven by consumer understanding loyal consumers that were mistreated in a way for the last 2 years by everyone, including us, but also P&L wise, as I explained earlier.

Now when it comes to the fragrance, the mass fragrance category, this is more or less 7% of the net revenues of the company. It's been growing nicely. The market is growing everywhere around the world. And this is part of what we used to call the fragrance index. But I think today, we are more into what we call the phenomenon, which is the economy of treats.

And we see that as fragrances from $5 to $500 are becoming really the go-to destination in the beauty industry hence, I would say, the dynamism of this category. And this explains why a lot of consumers today are continuing to buy fragrances at every price level, including in mass fragrances.

They are also diversifying the way they wear fragrances, hence, our perfume missed attack. And this category, I know you wrote recently about the profitability potentially of this category. It's for us, it's as profitable as a fragrance launch. So there is absolutely no dilution play in this game.

And we see this game because it's a game of layering. We see this game as a purely additional. It's an $8 billion market, doubling year-on-year. And this is an area where Coty, which is the leader in fragrance at large should play in. So we are playing big. And we believe this is going also to help us in the second half of the year.

Our next question will come from Susan Anderson with Canaccord Genuity.

I was wondering maybe, just to start off, if you could talk about how Prestige excluding fragrance performed and if you have any new innovation coming out in the cosmetic and skin care brands this year and then also just what investments you're making in the area as well?

Thank you for the question. Indeed, that's a good question because if you look at our Prestige portfolio, it's a majority of fragrances, but there is also a color cosmetics category. And this is really what explains also the counter performance in terms of sell-in, but also sell-out in Asia, mainly due to the resellers, as we like to call them today, phenomenon that is shrinking, if not totally drying in Asia between Hainan, China and Korea ecosystem.

This is really one of the key explanations of the figures counter-performance of the division while fragrances continue to grow, including in fiscal '25 year, which was one of the most difficult year we had. So this is one to explain for you.

Second, now it comes to skin care. In skin care, the 2 biggest brands of the company are in the U.S. and Lancaster, which is a European/Chinese brand. The great news is that Lancaster is now growing super, super strongly in China. It's among the top 5 fastest growing brands. It's growing 3x or 4x faster than the skin care market. And it explains also our absolutely outstanding performance. I'm looking at the figures while I'm talking to you, the skin care category outperformed the market by 11% for Coty.

The market was around 3%, as I said, and this is driven mainly by e-com. And on e-com, it's really 2 legs. It's on one side, our fragrance business that is growing 6x faster than the market rate. And our Lancaster business that is growing 40% faster than the Coty China -- than the Chinese ecosystem market. So it's really these figures that I wanted to share with you to give you a vision on prestige, excluding fragrances.

Okay. Great. And then also, you talked about just the higher promotional environment. Maybe if you could talk a little bit about how you expect that to play out this fiscal year and what you're doing to compete in that environment? And then also, I guess, is it similar between Prestige and Mass just in terms of the promotional environment or is one area worse than the other?

Thank you, Susan. Indeed, I mean, absolutely, I mean, we are observing -- I mean now since a few months, indeed some increase of promotional activities from some of our peers. We are managing this very cautiously. And of course, that's really a strategic intention really to protect really our icons and to protect our brand. So how do we manage this?

I mean we are very strict in this promotional policy and also on all the activities. But at the same time, we are playing -- we shared several times that we have team dedicated on what we call strategic revenue management. And this exactly is really how to expand the portfolio and come with new formats.

I just give you 1 example, which is spray, spray is a segment which is really growing very fast in the U.S. So it's 30 milliliters, it's something that you can put in your handbag or easy to take with you. And it's also a fantastic sample, okay?

So we see that some consumers are going there and then when they like they go to the product. But of course, it's also more affordable, but very profitable. So that's the kind of game that we are playing and really to avoid entering this promotional gain. But also when we talk about strategic revenue management and to refer to it, if you take fragrance, I mean, the great news is that you see that fragrance.

Now you have the full range. Of course, you have the prestige price points. But you see the high end, the niche fragrance. I mean, this is the fastest-growing category. So you see that here, it's not -- it's really about the quality and the appetite from consumers. But at the same time, you see mass fragrance is growing very fast. And so we explained also about the body mist. So in a way, we are not -- it's a point of attention, but we are not concerned because indeed, we can feed the consumer needs across the full partition.

Susan, just to complement on what Laurent just rightly said. If you look at the Prestige market, there is 2 parts that are growing the fastest, indeed, as Laurent mentioned. The niche, which is above $150 is growing by 14%, 1-4, and everything under $50 is growing by 11%. These 2 parts of the market are the fastest-growing.

So instead of getting in the game, which is played a lot by the competitors who are heavily exposed to the Asian Chinese ecosystem, which we don't want to enter to the same extent, we put in place the mist, perfume mist a year ago, precisely for this because we understood that for those who are looking for value, you cannot just sell the same brand with a 50% discount, you need to propose specifically for the younger consumer, other ways to increase the basket or to replace the basket with the same profitability.

So the mist we have launched, and I can give you the example of the CK mist that started earlier this summer. If you -- some of you traveled this summer, you could see them in airports and the only place we could you see a teenager queuing were in front of the displays of the CK mist and it boosted also the sales of pen sprays and the sales of 30 mL fragrances.

So that's another way to give people affordability with the same profitability without killing the gross to net equation of our very profitable center business of Prestige Fragrances.

Our next question will come from Ashley Helgans with Jefferies.

This is Sydney on for Ashley. Can you just elaborate a little bit more on the comment on innovation fatigue? I think on the February earnings call, you called out kind of seeing a lack of innovation in color and mass, I believe. So is it feeling like the market got flooded in the last 6 months-or-so. And then just curious, are you only seeing that in color? Is that happening at all in Prestige?

And then on promotion, just can you share how that varies between channels and then how that trended throughout the quarter and what you're seeing quarter-to-date?

Thank you for the question. I'm going to take the first part, and maybe Laurent can complement on the second part of the question.

So regarding the topic of innovation fatigue, which is one of the reasons why the market is not as dynamic as it used to be. You have to calculate also with the simplification of mega proteins, which more or less tells the same story. I think this is something that started maybe 18 months ago and that peaked recently with the inflation of launches.

Indeed, we all felt that we need to do the race and do more and more launches from TPMs in as quickly as 2 months with new new routines, new makeup finishes, et cetera. And in fact, the result is that a lot of consumers got lost in translation; specifically, those above 25 to 30 years old. This we heard it in the consumer studies we have conducted during this first half of fiscal 2025.

We don't see something similar at all in fragrances simply because the market of fragrances is still quite simple. You have missed, which is becoming, for me, like a kind of modern tool which is generous content, easy-to-wear, not overwhelming, easy to pair it with something else and then entry fragrances and then niche fragrances.

And inside these categories, you'll have the usual It's very simple, and people navigate quite simply, and they are educated very well by the court of influencers who are explaining these different ways of using fragrances, explaining the different ingredient trends and explaining what works in terms of for example.

So in fact, what we see is that the dynamism of the scenting category because we should maybe move from the word fragrance to stenting, which is what Coty wants to own from $5 to $500 is all about this -- I'm quoting what consumers told us. For them, it's a hug in a bottle. Hug in a bottle, I think it's a great expression that explains why -- and this is going to last.

If you think about studies about the trend, which is more or less the index -- fragrance index story, they see it lasting for the next 5 to 8 years. So it's not something that's going to be ending tomorrow, it's not anymore the discretionary category, and I've been saying that at length since 5 years, and I still continue to hear people almost willing that this is going to come to an end, but it's not coming to an end, simply because taking care of your brain, taking care of your mood, taking care of your moods in a way, is essential as taking care of your skin. So it's absolutely a must-have rather than a nice to have. So this is for the first part, and I'll let Laurent maybe comment on the second part

Yes. On promotions, I would say that indeed, I mean, we saw this starting on Consumer Beauty and color cosmetic, probably a year ago. And of course, it's also related to the slowdown of the category. So there is always this kind of mechanical reaction that lower consumption and this is especially what we saw in the U.S.

And then it's creating this kind of tension on promotion and as we just explained also linked to some innovation fatigue. So this is really what created this pattern on color cosmetics.

On Prestige fragrance. Indeed, we observed this more recently. It's more in Q3 and even Q4. Again, the reason there are -- I mean, we saw some of our peers also some retailers, back to the point of trade inventory and also pressure on their working capital. So we observe this.

So again, as I just explained before, it's manageable. We are managing this very tightly, we don't want to play the short-term reaction. That's always a trap. Of course, we know there is tension on the top line on results, but this is exactly what we want to avoid.

Again, we want to reduce our inventory with the trade, bring strong innovation. That's always the best answer. And also, we are improving, increasing our media really to support all the icons, all the innovations. And again, as we just discussed, the full range, mass fragrance, Prestige fragrance and also high end. So that's the best answer to this promotional activities. But indeed, we are observing this pattern in the sector.

Our next question comes from Oliver Chen with TD Securities.

This is Julia [indiscernible] on for Oliver Chen. You mentioned resellers and normalization in Asia. Could you provide a bit more details on how you see travel retail evolving into fiscal year '26? And within travel retail, how healthy is the channel today in terms of sell-through, which brands are outperforming? And how are you thinking about channel strategy over the next few years? Tied to that as well if you're seeing any noteworthy consumer trends across regions that could influence demand?

So on travel retail, indeed, that's a good question. In fact, what we are doing is that we are reinforcing the ability of this channel to become a destination to discover newness. There were question marks around so buy in travel retail is still this channel price channel, blah, blah, blah. I think what happened recently and the shift is happening hand-in-hand between us and our partners in Travel Retail is really to make this channel a discovery channel. Hence, our decision to make the key innovations of this fiscal year -- new fiscal year, sorry, travel retail exclusives for 1.5 months, you could see and sign the HUGO BOSS bottle beyond only in travel retail.

And that's also a great said before the products hit the global distribution outside of travel retail. So this is a way to make sure that the consumers who are traveling even if the flow of PAXs is stabilizing, but the consumers who are traveling are more attracted towards this kind of exclusivities that make this channel look almost like a niche boutique with the newness and the things they do not yet find anywhere else, of course, with the price incentive.

So this is what I can tell you about the travel retail today. Our sales in travel retail Americas and in the EMEA region are growing nicely, I have to say it. The only region that is still indeed, as you said it in your question, still heavily affected is the Asian travel retail, which is heavily linked to the Chinese consumption in a way. The good news is that in China, we are seeing that the beauty market is gradually improving with Prestige Beauty specifically in the June quarter positive for the first time in many, plus 3%, and outperformance from the fragrance category at 7%.

So these are elements that gives us confidence that the missing part when it comes to the full travel retail picture, which is the Asian Chinese travel retail region is hopefully going to come back to a little bit more dynamics.

Our next question comes from Andrea Teixeira with JPMorgan.

One, I have a question, so I appreciate the commentary about the mists. And just thinking about how you're going to pivot assuming, of course, you're going to continue to do the successes that you've been highlighting in innovation, in the new category. But also if you think about how to pivot in terms of channels and then your distribution.

Just curious how you're setting yourself up for the balance of 2026 in terms of like the fiscal '26, the second half; in terms of like distribution gains and losses and net of that?

And then a question to Laurent, in terms of like the way we should be thinking of the destocking, and I appreciate that you mentioned that the destocking had an 11% impact in the first -- in the second, I think it's the second half of fiscal '25 and then coming down to 5. So I'm assuming if you can break down what you're assuming for Q1 and Q2 within that guide?

I'm assuming you're still hoping to get the sell-out to grow. I think the numbers in July were quite supportive. But just to think about how sell-through against sell-in and when? It seems like from your commentary, you expect the destocking to last through calendar 2025. So if you can give us like a little bit of that color?

And if I can squeeze one about Wella? When -- and what is the strategic view there are strategic options you were contemplating at this point?

Yes. Thank you, Andrea. So indeed, I can start really from -- on the destocking. Indeed, as we shared several times and we share again. And indeed, that we started to seeing, indeed, this destocking impact, I have to say, indeed, a year ago. But a year ago, as you remember, we were still on a very good trajectory.

I just want to remind that our Q1 Prestige last year was plus 7%. So we just need to remind that we are on a high base. And I want also to remind even though there are some headwinds. But when you look at the fragrance Prestige, the last 2 years of growth if I exclude Lacoste and Russia is plus 18%.

So I think it's important also to zoom out and really to understand that we are coming from a very high dynamic. Then indeed, what we saw starting a year ago was this destocking. So you're right indeed that the gap indeed that at the beginning of the year was pretty high. We saw it -- we see it reducing step by step. So indeed, in the Q4, it was more 5%.

So we are assuming in our model that this gap is going to continue to reduce. And indeed, the big one is the U.S., indeed because this is where we are really the biggest gap. So we need to reduce in Q1 fiscal '26 and then we need to reduce again in Q2 fiscal '26 and then to come to a level of being nil in the Q3 fiscal '26.

So it's gradual. It's gradual. It's sequential. That's why we are very vocal about this sequential. At the same time, as we discussed before, yes, I mean, we feel that retailers are pretty nervous about their working capital. So they are also very cautious on their inventory.

So indeed, there are a lot of moving pieces that we are seeing and is creating indeed this volatility. But again, this gap is going to continue to reduce and will step by step come to 0, and that's why we are absolutely confident that we are back to growth in the H2, and there is no gap between the sell-in and the sell-out. So that's really on the destocking.

I jumped just in the wrong order just to Wella. I mean, we stay absolutely committed to divest, I mean, our stake. I mean we made it very clear several times. So indeed, we are contemplating options and really making sure always that it's good timing and good value for Coty. But this is absolutely a bigger step, a big move that we want to operate for Coty, and we keep you posted. So if I'm back to...

Yes, I'm going to take the question regarding the -- I was trying to understand, in fact, the question regarding the -- if I understood well, Andrea, it's about how we are gaining or losing in terms of distribution.

So we have big distribution gains on fragrances, specifically on mass fragrances, which are up 20% the fragrance miss that we are playing both in mass and in Prestige are purely incremental in terms of shared space, but also in terms of sales while bringing the same profitability.

And then color cosmetics, the distribution is broadly stable. You commented about mist and blockbuster fragrances. It's an and story rather than an either. It's really both that we are playing on, regarding our ability to execute both at the same time. And again, what we are seeing is that we could see a young man or young women buying the key fragrance at the moment from us, while at the same time, buying 1 or 2 mists.

If you think about our Consumer Beauty mists, they are around $10; and our Prestige Mists, they're around $30. So this is very, very affordable and some people even buy 2 to 3 mists to play with this layering phenomenon, together still with the signature fragrance. So it's really an and story, hence, an incremental space, both in Mass or in Prestige.

Our next question will come from Steve Powers with Duetsche Bank.

Great. Laurent, I just wanted to go back to what I thought I heard you say in response to Olivia's original question. I think you had said that absent tariffs, EBITDA for the year you thought would be down slightly. I think you're expecting a $50 million, $55 million net headwind from tariffs.

If I subtract that from where the EBITDA base is, it only gives you like a $20 million, $25 million window to stay above $1 billion. And I think you also said that you expect it to be above $1 billion of EBITDA for the year. So I just wanted to replay that and test what I heard and test your confidence because I think there's at least a $20 million, $25 million EBITDA window in your first half guidance. So just trying to understand where the confidence comes in for the full year.

Yes. Yes, absolutely. So I mean your maths are correct, absolutely. So indeed, we are -- again, we are giving precise guidance in Q1 and Q2 because indeed, visibility coming from the tariffs. And indeed, it's hurting the gross margin in H1. I can tell you that, indeed, the loss that we have on gross margin in H1 is mostly driven by tariffs and also to some extent that the euro-dollar still have some sourcing in Europe.

To the U.S., it's also impacting the gross margin. So this is indeed the major headwind. And at the same time, indeed, flowing into the EBITDA headwind that we are sharing in Q1 and Q2 combined, of course, with a still negative top line.

Now moving to the H2. We start to inject some productivity actions related to tariffs. So the $20 million I'm referring to, I mean, will be really full speed from procurement and from manufacturing. So it will really secure the H2. And second, very important is that the All-in to Win plan that we announced in April will be also at full speed in H2 and will bring savings in the H2.

So to make it very clear, Steve, on your question, yes, there is a tariff headwind, but there is absolute confidence that all the actions that we have in place either on the innovation top line, but also on productivity and savings give us sufficient protection to be above the $1 billion on the fiscal year '26.

Okay. Okay. And then, Sue, if I could, I just -- it sounds like initiatives like skin care, from your perspective, high level, are still on track. I just wanted to get your perspective and any thoughts as to whether or not as you update the strategy, refresh the strategy on fragrances as you've talked about today and last night and also kind of recalibrate on the cosmetics side.

As you do that work, is there any opportunity cost to just distraction from what would have been the strategic investments and prioritization of skin care? Or are those 2 things distinct enough that that the efforts in skincare evolution can progress undeterred as you update on fragrance and cosmetics?

Yes, that's indeed the third question. What I can tell you is that, of course, we are betting -- double betting on the treatonomics, the fragrance index, and the company will own the full spectrum from $5 to $500 from anything that's adjacency sending to classical fragrances and elixirs. But I also believe that part of my role is to prepare for the far future of this company. And the far future of this company is into anything that's around care.

I think fragrances are care of the mind. Skincare is, by definition, the care of the skin. These are 2 categories that have a lot of similarities. They are both very profitable categories, they are both poised for growth for the next, I would say, decades because of the aging of the population and when it comes to skin care and the fact that people are really willing and obsessed with the fact that they want to age gracefully or in good health.

The global warming and the UV, I would say, exposure of human beings for the decades to come will require everyone to use sun protection, this is something I can tell you. So it's also, for me, a bet on the future.

Now coming back to the present, we are going to be much more, I would say, radical in terms of how much we invest. The good news is that the size of the brand is small, and therefore, the growth is almost natural because of the size. So we are going to be very, very careful in making the full resources available behind what is our strength, what is our uniqueness and what is our growing business today and most profitable business also, which is scenting at large.

Our next question will come from Chris Carey with Wells Fargo Securities.

I wanted to ask about cash flow. Laurent, over the next several years, what are the cash commitments that we should be thinking about? I think I'm specifically thinking about the swaps. You also talked about refinancing of certain debt. But I was just wondering if we could get some sense of kind of obligations you might have over the next several years. And I have a more strategic follow-up.

Yes. I mean I keep repeating and saying that, of course, cash and deleveraging remains the #1 imperative. So indeed, I mean, we are building the plan. And as I just shared, I mean, our plan is our fiscal year '26 cash flow, I mean, will increase versus our fiscal '25 and indeed, you understand that we have these headwinds in fiscal year '25.

We still have headwinds in calendar year in the first half of fiscal '26 due to the against these retailers, inventory destocking impact. But then as we are entering the calendar year '26, then we are really back to our normal cash cycle. So that's really with all the ingredients that I would say we are mastering very well.

So starting, of course, with the EBITDA, but also very tight control on the inventory. Inventory, we shared several times and now it's starting full speed that we are implementing a new forecasting tool and it's giving real and it will give more and more strong results in terms of forecast accuracy, which has a direct impact on excess and obsolesce but most importantly, the rate impact on the level of inventory and will help the cash. So we stay very strict on our DSO, very strict on our DPO.

So of course, to make sure that our cash engine is fully in motion. So indeed, the swaps, I mean -- as you know, I mean, the ultimate goal is really that -- it's really something that we can activate at some moment as a share buyback. So of course, we are making sure that it is the right moment and really when we get out of the more difficult context that indeed we can continue again this agenda.

And on your last point here, I mean, refinancing, yes, of course, yes, we have maturity in calendar year '26, so it's a no-brainer that, yes, we are actively working on this refinancing to extend the maturity. I mean, we are in a good position. And of course, taking benefit of our consecutive rating upgrade. Our last refinancing was very successful. We are in a good position. And of course, really to continue this healthy trajectory on cash, refinancing and deleveraging the company.

Yes, we are confident in sell-in Wella as the second half.

Yes, absolutely.

Okay. Great. And just from a consumer beauty standpoint, this balance between revenue and profitability, can you just maybe outline a bit more aspirations for profitability in the business maybe from a margin perspective in the coming few years and how you might I guess, be comfortable with potential revenue impacts if you achieve profitability objectives in the coming few years?

Yes. I mean that's -- I can tell you a priority. I mean, you see -- I mean, of course, in the numbers that we are releasing that, of course, I mean the big pool of our profit generation is from Prestige and this is indeed 90% of the profit. And indeed, that the Consumer Beauty is indeed generating the profit is too low. So we have -- we are working very actively on several initiatives to improve significantly the profitability of this division.

I mean that's the #1 mandate. And as you can imagine, I mean, we are going through, I mean, the full value creation model, so looking at, of course, the cost of goods, I mean, our SG&A. And also on -- yes, on our AMCP, Sue referred to that at the beginning. So is to be more precise and we need to understand where we allocate our money.

And we're also making sure we are protecting our loyal consumers. I mean our brands, we have very strong loyal consumers. So we need to make sure that we keep communicating with them. So it means, and I think this is behind your question, so it's always the trade-off between profitability and top line.

Indeed, this is what we are looking in a very detailed manner. Yes, it may imply that in some cases, in some specific situations where we think that it's not profitable enough, yes, we may take some choices, which may impact indeed the net revenue. And in a way, it's also something that is driving our algorithm also on net revenue. So the #1 mandate now for this division is really profitability.

Our next question will come from Anna Lizzul with Bank of America.

I wanted to ask on the Prestige fragrance market. In the past, you mentioned that growth in Prestige fragrances was due to growth from a few demographics, which included Gen Z, men and Hispanics. And I was wondering if you're seeing a particular pullback from specific demographics or income tiers, particularly in the U.S.? And then on the broader U.S. beauty market, are you seeing any specific income tiers with a pullback or a wider array?

[Technical Difficulty]

Please stand by for one moment while we reconnect the speakers line.

[Technical Difficulty] and there was a disconnection on the main line. So now we are back. Can you hear as well?

Yes, I can hear you now.

Anna, thank you. So I took notes, but my understanding is that on the Prestige fragrance market in the past, the market was fueled by entering the market, and you rightly mentioned Hispanics in the U.S., you mentioned also men, you mentioned also Gen Zs, and if there is a pullback in some of these demographics?

We don't see a pullback in these demographics. We even see a penetration curve continuing to increase among the main demographics that are the Gen Z consumers, specifically the teen male consumers who are today those behind the biggest successes in male fragrances.

That's one of the regions, probably the latest HUGO BOSS beyond launch is resonating so well. It's because it also attracts this younger generation versus what we did in the past. The Hispanic community is continuing to be another consumer of, I would say, very strong and long-lasting fragrances, which we have seen consistently continuing.

And last, but not least, we also see that among Gen Zs, the heavy users proportion has never been higher than now. So they own a lot of fragrances, sometimes 3 or 4, which is what is called the wardrobe effect. And we see now the perfume mix phenomenon becoming part of this scenting index at large, as I like to call it. So to answer in short, we don't see pull back from any of these demographics.

Our last question will come from Priya [indiscernible] Gupta from Barclays.

So Laurent, could you speak a little bit more about your refinancing expectations around the 2026 maturity? Should we continue to expect that, that will be consistent with the secured structure that you currently have in place?

And then secondly, as we're thinking about the path to deleveraging in calendar '26, should we assume that that's primarily driven by improving EBITDA trends as from [indiscernible] the back half of the calendar year and '26 or is there expectation that the sale will also help achieve that outcome?

Yes. Thank you for the question. So on refinancing expectations, I mean, yes, absolutely. I mean it will be consistent, I mean, with the secured structure in place, so absolutely, yes.

So on deleveraging, again, I mean, the model is very clear. And you understand from the guidance we are giving that indeed that Q1 and Q2, of course, will be impacted by the lower EBITDA, but we stay absolutely focused the working capital and the CapEx discipline, then entering calendar year '26.

As I shared before, with EBITDA being back to growth, cash generation, we are going to continue our deleveraging agenda. And indeed, as we shared, we are indeed actively working really on the Wella stake divestiture and indeed to help and support indeed to accelerate our deleveraging.

At this time, we have no further questions in the queue. So I would like to turn the call back over to our speakers for any additional or closing remarks.

Thank you very much. Thank you, everyone. We -- of course, we realize our results are not satisfying. Please know that we are acting with urgency, especially in the U.S., as you have seen it. We have taken all the required action, and we have a clear plan with first and early very, very promising green shoots.

The company is now more focused. It's financially stronger than ever. Of course, no one is immune to market volatility, but these results do not reflect the true potential and value of the business we are building. So we are confident that the real strength of the company will be recognized and visible as quickly as possible in fiscal '26. Thank you very much.

Thank you, ladies and gentlemen. This does conclude today's presentation, and we appreciate your participation. You may disconnect at any time.