COTY

Coty is a quality beauty franchise trading like distressed equity, and both halves of that statement are true. The business still throws off cash — FY2025 operating cash flow of $493M and ~$278M of free cash flow after $215M capex, on a 64.8% gross margin — and fragrance, now >65% of revenue 'and an even larger portion of our profits,' is a genuine structural tailwind the MD&A is leaning into. At a 0.3x price-to-sales and roughly a 16% FCF yield on the $1.71B market cap, the stock is priced for permanent decline, which is a setup that can reward patient holders if the company merely stabilizes.

The problem is the trajectory and the balance sheet. Revenue fell 3.7% to $5.89B (down from the FY2024 peak of $6.12B), operating income collapsed 55.9% to $241M, and the company swung to a $368M net loss / -$0.44 diluted EPS, dragging ROE to -10.4%. The accumulated deficit of -$5.27B, liabilities/equity of 2.24x, and a current ratio of ~0.77 (current assets $1.95B vs. current liabilities $2.54B) all signal a stressed, not pristine, capital structure. Against ~$3.96B long-term debt and only $257M cash (net debt ~$3.7B), EBITDA of roughly $661M (operating income + $420M D&A) implies ~5.6x net leverage — high, and it means the equity is effectively a small, leveraged sliver of enterprise value. Deleveraging at ~$278M FCF/year is slow.