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Investing.com -- S&P Global Ratings has revised its outlook on Coty Inc. to negative from stable while affirming its ’BB+’ issuer credit rating, citing leverage above the downside threshold of 4x.
Despite Coty’s successful strategy execution in recent years that reduced leverage to 3.5x as of December 31, 2024, from 11x at the end of fiscal 2021, the company faced both macroeconomic pressures and company-specific issues in fiscal 2025. The U.S. market, which accounts for nearly 25% of Coty’s total sales, was a major contributor to underperformance.
For the fiscal year ended June 30, 2025, Coty reported a 3.7% revenue decline, with like-for-like revenue down 2% year over year. The company lost market share in both prestige and mass market segments in the U.S. during the fourth quarter. Prestige sales remained flat year over year due to retailer destocking, a more promotional environment, and headwinds in prestige cosmetics. Consumer beauty sales declined 5% year over year because of challenges in the mass cosmetics category, channel shifts to ecommerce platforms, and increased competitive pressure.
S&P expects the first half of fiscal 2026 to remain challenging but anticipates a return to growth in the second half, driven by new product launches, lapping inventory reduction, and easier year-over-year comparisons. The company has implemented a new regional structure and made leadership changes in the U.S.
Coty faces moderate exposure to tariffs, with approximately 28% of its sales in North America. The company’s prestige fragrances manufactured in Barcelona are subject to the 15% U.S. tariff on European imports. The gross impact from tariffs is estimated at around $70 million in fiscal 2026, with non-price mitigation expected to offset $15-20 million.
S&P believes Coty remains committed to debt reduction until leverage returns to its target range of 2x-3x. The company plans to divest its Wella assets, though macroeconomic conditions have delayed the timeline. S&P expects Coty to prioritize debt reduction over shareholder returns until leverage returns to the target range.
A rating downgrade could occur if S&P Global Ratings-adjusted leverage remains above 4x due to worsening macroeconomic conditions, heightened competition, operational missteps, or more aggressive financial policies. The outlook could return to stable if Coty improves operating performance and reduces leverage to comfortably below 4x.
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