📊 Snackable Stat — 67%
Roughly 67% of Coty’s sales now come from prestige fragrances. In other words, two-thirds of Coty’s business is powered by its best-performing category.
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The economics of consolidation and the mechanics of using cost savings beyond just margin expansion
When Mass Cosmetics Hit a Wall
The global beauty industry grew about 7% annually from 2022 to 2024, but by late 2024 the runway was narrowing. The $450 billion market was bifurcating: prestige could still command premium dollars, while mass became a margin-thin battle where retailers and digital-native brands set the pace. Coty felt the squeeze across its Consumer Beauty division.
Consumer Beauty generated $2.1 billion in FY25 but was struggling. The mass color cosmetics business (CoverGirl, Rimmel, Sally Hansen, Max Factor) brought in roughly $1.2 billion annually but faced severe headwinds. U.S. mass makeup declined 3% in 2024 according to Circana data, while prestige makeup grew 5%. The gap widened in early 2025: mass makeup fell another 3% through September while prestige climbed 3%.
Channel dynamics made it worse. Walgreens closed 500 locations in 2024, CVS shuttered 240. Those that remained locked products behind plexiglass. Retailer destocking reduced shelf visibility. Pricing pressure squeezed promotional budgets. Fast-moving online brands like e.l.f. used TikTok Shop and big-box partnerships to pull demand away from drugstore staples.
The numbers reflected the damage. Consumer Beauty's like-for-like sales fell 5% in FY25. An $89 million operating profit in FY24 flipped to a $127 million operating loss in FY25. Adjusted EBITDA margin contracted 160 basis points to 9.5%.
Coty's debt made things worse. The company carried roughly $4 billion from its $12.5 billion acquisition of 43 Procter & Gamble beauty brands in 2015. That leverage made underperformance costlier, since weaker cash generation narrows strategic options. Coty had "paid heavily" to build scale in U.S. mass beauty, only to watch that segment drag while prestige fragrances remained resilient.
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Consolidation and Concentration on Prestige
Coty's answer was to refocus on fragrances and premium brands. After years of being pulled between mass-market volatility and the steadier economics of prestige, management moved to align the organization where the business was already proving more durable.
In late 2025 it announced a major organizational overhaul, merging its prestige and mass fragrance units. The combined fragrance business accounts for roughly 69% of sales. That consolidation wasn't just an org-chart exercise. It signaled that fragrance, unlike color cosmetics, can be run as a portfolio of long-lived franchises with more predictable launch cycles, clearer brand equity, and better operating leverage when the same capabilities serve multiple brands.
CEO Sue Nabi made it clear: fragrances "outperform the global beauty market" and drive the majority of profits. Coty launched a strategic review of its $1.2 billion mass color cosmetics business (CoverGirl, Rimmel, Sally Hansen, Max Factor) and its $400 million Brazil operation, considering partnerships, spinoffs or sales. The goal was to shed or improve underperforming lines while doubling down on hit fragrance franchises.
To fund the refocus, Coty tightened its operating model. The next phase of "All-in to Win," announced in April 2025, targets about $130 million of annual fixed cost savings through FY27, split roughly $80 million in FY26 and $50 million in FY27. Those savings would free resources for blockbuster fragrance franchises, reinforced by long-term licensing moves such as Swarovski. By mid-2025 Coty was signaling it was "done playing the drugstore beauty pageant." Gordon von Bretten was appointed to head Consumer Beauty and refocus the portfolio on growth, margin expansion, and cash generation.
The P&L Anchor
The fragrance-first model was already proving its worth before the formal pivot. In FY2024, Coty reported $6.12 billion in revenues (up 10% YoY) and $1.09 billion in adjusted EBITDA, with operating income rising to $863 million. Free cash flow hit $369 million, and the company aggressively reduced debt from 4.6x EBITDA in FY23 toward roughly 3.4x by mid-2025. That performance validated what management already knew: fragrance was the profit engine worth protecting.
FY2025 stress-tested the model. Sales pressure hit as the broader beauty market cooled and Consumer Beauty continued bleeding. But the underlying economics held. Adjusted gross margin rose roughly 50 basis points to 64.9%. Adjusted EBITDA margin expanded to 18.4%. Free cash flow stayed meaningful at $278 million despite the revenue headwinds. Coty finished June 2025 with $4.01 billion of total debt and a 25.8% Wella stake valued at $1.085 billion providing balance-sheet cushion.
Fragrance growth offset the weakness everywhere else. In FY25, like-for-like fragrance sales grew 9% in ultra-premium, 2% in prestige, and 8% in Consumer Beauty fragrances. Even as cosmetics and skincare wobbled, fragrance carried the P&L. Creditors noticed: Fitch's 2024 upgrade pointed to EBITDA moving above $1 billion and leverage improving from prior peaks. The Gucci fragrance business alone brings in roughly $500 million annually, nearly twice Coty's total free cash flow in FY25. That single license demonstrates why the strategy is built around protecting and compounding fragrance cash generation.
Key Takeaways to consider…
Double down on what's already working, not what you wish would work. Coty didn't try to fix mass cosmetics, it reallocated capital toward fragrance, which was already outperforming. When one part of your business consistently generates better margins and cash flow, that's the signal to concentrate resources, not diversify for the sake of balance.
Structural headwinds require structural responses, not incremental fixes. Retailer destocking, channel shift, and digital competition weren't temporary blips. Coty recognized that tweaking mass cosmetics wouldn't overcome those forces, so it launched a strategic review to exit or partner rather than pour money into a losing battle.
Let channel economics dictate where you compete. Mass retail's shrinking footprint, theft-related lockups, and promotional intensity made it a margin trap. Prestige offered better unit economics and customer willingness to pay. Sometimes the right move is admitting a channel stopped working and reallocating to where the math is better.
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🍫 Power Numbers
$130M - target cost savings from the All-in to Win Program by FY27
$277.6M - FY2025 free cash flow
$500M: Analysts estimated annual revenue from Gucci fragrance license
$750M - the amount Coty sold their remaining Wella stake for in December 2025 while also retaining 45% of proceeds from any sale or IPO (after KKR’s preferred return)
740 - the number of drugstore closures in 2024, accelerating the decline of the channel
🍭 More Sweet Reads
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