Coty Q2 Earnings Miss Reinforces Margin and Leverage Concerns Despite Revenue Beat

What happened

Coty's Q2 2026 earnings per share missed analyst estimates, although revenues topped expectations, highlighting a disconnect between top-line performance and profitability. This outcome aligns with the DeepValue report's identification of ongoing margin pressures from aggressive promotions, new tariffs, and persistent softness in the Consumer Beauty segment. The report further notes that Coty's balance sheet remains strained with net debt to EBITDA at 4.2x and interest coverage barely above 1x, exacerbating financial risks. While prestige fragrances continue to be a relative strength, contributing to revenue beats, the loss-making Consumer Beauty division and tariff headwinds are dragging down overall margins. Consequently, this earnings miss underscores the company's struggle to translate revenue growth into sustainable earnings amid structural challenges.

Implication

The persistent earnings miss indicates that margin recovery is elusive, likely prolonging the timeline for profitability improvements. Elevated leverage limits Coty's ability to invest in growth or withstand economic shocks, keeping the equity high-risk. Revenue beats in prestige categories are positive but insufficient to offset the drag from Consumer Beauty losses and tariff costs. Management's ongoing strategic reviews and cost-saving initiatives are critical but face significant execution hurdles given past volatility. Therefore, until clear evidence of deleveraging and consistent free cash flow emerges, investors should continue to wait on the sidelines.

Thesis delta

The Q2 earnings miss does not alter the core investment thesis from the DeepValue report, which already flagged Coty as a speculative turnaround with significant margin and balance sheet risks. However, it reinforces the urgency for management to demonstrate progress on cost controls and Consumer Beauty restructuring, without shifting the overall 'WAIT' stance until stabilization is evident.