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Coty’s net revenue fell 1% to $1.55 billion in the first quarter of fiscal 2027, the three months ended Sept. 30, 2026. The company said the Middle East conflict contributed to higher freight and material costs and helped push gross margin down 120 basis points to 63.3%. Coty expects a low-single-digit like-for-like revenue decline in its second quarter.
Coty’s net revenue fell 1% to $1.55 billion in the first quarter of fiscal 2027, the company reported, as the conflict in the Middle East contributed to higher freight and material costs and weighed on gross margin. The cosmetics company said gross margin declined 120 basis points year over year to 63.3% in the quarter ended Sept. 30, 2026, while it described the year as a transition period for its business.
Prestige net revenue declined 1% to $1 billion, both on a reported and like-for-like basis, and accounted for 68% of Coty’s total sales. In the prestige division, sales fell by $11.1 million year over year, with moderate declines in fragrance and skin care partly offset by growth in cosmetics. Operating income increased, primarily because advertising and consumer-promotion costs were lower; that benefit was largely offset by lower gross margin.
Coty said its gross-margin decline reflected higher freight and material costs related to the Middle East war, along with higher excess and obsolescence costs associated with elevated demand forecasts. The company did not quantify how much of the margin decline came from the conflict versus other factors. Its EMEA net revenue decreased by $44.8 million year over year, mainly because of lower sales in the Middle East and Europe, partly offset by growth in Africa.
Consumer Beauty also faced a mixed quarter. Coty reported a $10.9 million year-over-year decline in the division, driven by lower colour cosmetics and mass fragrance sales, partly offset by growth in mass body care. The company said first-quarter results were ahead of its expectations for sales, adjusted EBITDA and earnings per share, and that free cash flow improved. Adjusted EBITDA still declined year over year, but Coty said the drop moderated to 7% from steeper declines in fiscal 2026.
Conflict Costs Pressure Coty’s Margins
The results show how conflict-related disruption can affect a consumer-products company through both regional sales weakness and operating costs. Coty attributed part of its lower gross margin to higher freight and material expenses linked to the Middle East war, while reporting reduced sales in the Middle East and Europe. The company’s figures do not isolate the conflict’s precise financial impact, but they show that the pressure extended beyond local demand.
Coty’s outlook also signals that a quick return to growth is not assured. It expects a low-single-digit like-for-like revenue decline in the second quarter, broadly in line with the preceding two quarters. That forecast puts attention on whether investment in key brands and cost controls can improve performance while external costs and demand remain uncertain.
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Coty’s Turnaround and Brand Priorities
Management framed the quarter as part of a broader effort to improve Coty’s performance after a difficult fiscal 2026. Executive Chairman and Interim CEO Markus Strobel said like-for-like sales declined 2% in the first quarter, a narrower fall than the declines of 6% and 4% in the first and second halves of fiscal 2026, respectively. He attributed improvement to markets including the United States, Asia Pacific and Latin America, while cautioning that the business still had work to do.
The company’s Coty.Curated strategy concentrates investment on six leading prestige brands, which represented 73% of prestige sales in the quarter. Coty said those brands shifted from a 6% like-for-like decline in the first half of fiscal 2026 to 5% growth in the latest quarter; five of the six grew, and combined sell-out returned to growth. The company cited launches including Boss Bottled Beyond for Her, Burberry Goddess Amber Vanilla, Mood Stones by Kylie Jenner and Marc Jacobs Beauty makeup as tracking ahead of plan.
Coty has also extended its Marc Jacobs Beauty license for 40 years with brand co-owners WHP Global and G-III Apparel Group. That move comes after L’Oréal agreed to take over Gucci Beauty from Coty earlier than expected, following its acquisition of Kering Beauté. These licensing changes form part of the backdrop to Coty’s efforts to support its prestige portfolio, but do not by themselves establish how much future revenue will change.
“Our first quarter results were ahead of expectations on sales, adjusted EBITDA and EPS, alongside a significant improvement in free cash flow.”
— Markus Strobel, Coty executive chairman and interim CEO
How Long Will Cost Pressure Last?
Coty did not provide a separate estimate of the revenue or margin impact attributable to the Middle East conflict, nor did it specify how much the higher freight and material costs might persist. The report also does not break out the $44.8 million EMEA revenue decline by individual market. It remains unclear whether improved performance among the six core prestige brands will spread across Coty’s wider portfolio or offset continued weakness in other categories.
Management’s comments on launches tracking ahead of plan and early progress on its turnaround strategy are company assessments. The results do not establish whether those launches will sustain sales growth or deliver a lasting recovery. Coty also described its outlook as a forecast, not a guarantee; actual second-quarter results may differ.
Coty’s Second-Quarter Sales Test
Coty expects fiscal 2027 second-quarter like-for-like revenue to decline by a low-single-digit percentage, broadly consistent with the previous two quarters. Its stated plans for the rest of the fiscal year include building on the launch of Boss Bottled Beyond for Her, focusing investment on Hugo Boss’s core franchises, and increasing marketing support for Burberry fragrance and makeup.
The next key indicator will be Coty’s reported second-quarter results, which will show whether the sales trend and margin pressures match its forecast. Investors and other readers will also be watching for updates on freight and material costs, regional demand, and whether growth in the core prestige brands continues.
Key Questions
How much did Coty’s revenue fall?
Net revenue fell 1% to $1.55 billion in the three months ended Sept. 30, 2026, compared with the same period a year earlier.
How did the Middle East conflict affect Coty?
Coty said the conflict contributed to higher freight and material costs and affected gross margin. It also reported lower sales in the Middle East, but did not quantify the conflict’s total financial impact.
What happened to Coty’s gross margin?
Gross margin fell 120 basis points year over year to 63.3%. Coty cited conflict-related freight and material expenses as well as higher excess and obsolescence costs tied to elevated demand forecasts.
What is Coty forecasting for the next quarter?
Coty expects fiscal 2027 second-quarter like-for-like revenue to decline by a low-single-digit percentage, broadly in line with the previous two quarters.
Source: cosmeticsbusiness.com
