Coty Inc. Class A

Good morning and good afternoon, everyone. My name is Chelsea, and I'll be your conference operator today. At this time, I would like to welcome everyone to COTI's fourth quarter fiscal 2025 question and answer conference call. As a reminder, this conference call is being recorded today, August 21st, 2025, at 8 o'clock a.m. Eastern Time or 2 o'clock p.m. Central European Time. Please note that on August 20th at approximately 4.30 p.m. Eastern Time or 10.30 p.m. Central European Time, Cody issued a press release and prepared remarks webcast, which can be found on its investor relations website. On today's call are Sue Navi, Chief Executive Officer, and Laurent Mercier, Chief Financial Officer. I would like to remind you that many of the comments today may contain forward-looking statements. Please refer to Cody's earnings release and the reports filed with the SEC where the company lists factors that could cause actual results to differ materially from these forward-looking statements. In addition, except where noted, the discussion of Cody's financial results and Cody's expectations reflect certain adjustments as specified in the non-GAAP financial measures section of the company's release. With that, we will now open the line for questions. If you would like to ask a question at this time, please press star 1 on your telephone keypad. Once again, that is star 1 to ask a question. And we'll take our first question from Olivia Tong with Raymond James. Please go ahead.

Thanks. Good morning. So clearly there's a lot going on with respect to The macros as well as the categories. And you gave a pretty detailed guide for Q1 and Q2 on sales, EBITDA and APS, but kept it pretty open-ended for the second half. So I wanted to understand a little bit about, if you could provide a little bit more detail on the second half, what initiatives go in place, what hits versus just the easing comps, your thought process around the magnitude of improvement in the second half versus the first half and the key drivers of that. Thank you.

yeah absolutely thank you um thank you olivia for for your question so indeed i think it's it's very important uh indeed that we you know we give you very clear indications for q1 and q2 and and we have this visibility and we share very precise guidance and indeed as we highlighted we we are seeing that we are still in a phase of you know retailers inventory reduction which should last till the end of calendar year 25 and that's why we are giving you know the sequential improvement in q1 and q2 despite still negative so at the same time as we indicated we are seeing you know the category especially in prestige fragments but also in mass fragments remaining very healthy i mean low to mid single digit And we are seeing also our sellout, you know, performing well in the key market. So now what it means is that the plan is that we are expecting that end of calendar year 25, you know, these retailer inventory headwind will end. And then we are entering calendar year 26, or H2 fiscal 26, in a very healthy manner, where our selling will coincide with our sellout. And this is supported indeed by the the market you know the healthy market and our sellout is supported also by you know very strong innovations that we we just shared you know during during the presentation and which will be at full speed in the h2 so this is really the the algorithm now indeed we we didn't give you no more precise numbers on H2, because as you say, there is high volatility. I mean, there are a lot of micro movements, but for sure, I mean, I can tell you with high level of confidence, H2 will be back to growth. once indeed we are going through this H1. So that's really the reasoning and really the logic on the top line. On EBITDA, that's also a similar approach. So we are really you know, giving very precise indication on the Q1 and the Q2. Then on H2 with full confidence, you know, with top line being back to growth and also all the actions, you know, all into wind being at full speed will really bring us to um you know to positive growth in in the h2 so which means that you know our ebitda full year will be would be above 1 billion uh for sure and indeed i mean the the major gap that we are seeing in a bit down the full year is driven by tariffs on tariffs in a way so if we if we exclude tariffs uh on a full year uh our ebitda would just be you know slightly slightly negative but indeed the major headwind is uh is the tax and last but not least i mean our free cash flow will grow in fiscal 26. so this is really the big picture i i can give you to explain to you really why we are we are we built our guidance this way and it's also um really to give you uh that it's very big, you know, these very strong facts, analysis, and again, very strong confidence in the H2O.

And to add to Laurent, good morning, Olivier, this is Sue speaking. To add to Laurent's comments, one thing very important, indeed, there is the the launches of h1 specifically the hugo boss beyond bottle which is starting as probably the biggest launch of the company's history even bigger than what we did with goddess but there is a second blockbuster launch happening in the second half of the year also So this is a second element to add. And the third element is that the perfume mist attack plan of the company with almost a dozen brands of the company going into this area with clearly innovative formulations that I could say a little bit more later maybe are honestly going to represent something that could be like one extra launch added to the pipeline of the company if you take them all together. So this is the full image of H2 as Lauren just described it.

Got it. That's helpful. Since you touched on it, I do want to talk a little bit about consumer beauty. First, around the mass color side, just your commentary from last night's prepared remarks around the evolution of investment levels, particularly on mass color. and how you're thinking about levels of investment this year versus last year and then going forward. And then on mass fragrances, you just mentioned that that's a bright spot. How do you think about this business over time, both as a percentage of sales, the opportunity to grow this, the ability to differentiate relative to others in the category and effectively who the audience is for that. Thank you very much.

So, yeah, on the first part, Olivia, which is around how we are going to invest behind our color cosmetics category, indeed, I think the tone is clear. this is the year of uh you know increasing the profitability of the of this business and in fact this was not just a decision driven by the pnl even if the pnl is clearly telling us to go in this direction but it's also driven by what we learned throughout the 2025 year where we realized that maybe the, I would say, the move from traditional media to mainly advocacy marketing was a little bit too radical for a brand like CoverGirl. So what we are realizing is that this market, and including the dynamics of the markets, are today hurt by, and this is interesting to hear, innovation fatigue. This is something we hear, and simplification of routines. These are the things we learned from the recent studies we have made. I think a lot of loyal consumers above 30 years old consumers got lost in translation given the complexity of this category today. A lot of people don't know the difference between an ink, between a butter, between a balm, between a liquid lip color, between a bullet lip color, and the list goes on. So there is a kind of innovation fatigue and we used the influencer marketing tool to talk to everyone. The decision we have made is to dedicate the, I would say, most sophisticated innovative products to the youngest. Who are those who understand this very well and easily get into the complexity of the category while coming back to traditional advertising when it comes to categories that are the biggest, by the way, in the color cosmetics category, such as mascaras and foundations, which are, by the way, the strength of our brands. And we believe that this way of doing will allow us to invest less in absolute value and in a very ROI driven way. So this is the way I would explain the shift that's driven by consumer understanding. loyal consumers that were mistreated in a way for the last two years by everyone including us, but also P&L-wise, as I explained earlier. Now, when it comes to the fragrance, the mass fragrance category, this is more or less 7% of the net revenues of the company. It's been growing nicely. The market is growing everywhere around the world, and this is part of what we used to call the fragrance index, But I think today we are more into what we call the treatonomics phenomenon, which is the economy of treats. And we see that fragrances from $5 to $500 are becoming really the go-to destination in the beauty industry. Hence, I would say the dynamism of this category. And this explains why a lot of consumers today are continuing to buy fragrances at every price level, including in mass fragrances. They are also diversifying the way they wear fragrances, hence our perfume mist attack. And this category, I know you wrote recently about the profitability potentially of this category. It's for us, it's as profitable as a fragrance launch. So there is absolutely no dilution playing this game. And we see this game, because it's a game of layering, we see this game as purely additional. It's an $8 billion market. doubling year on year, and this is an area where COTI, which is the leader in scenting and in fragrances at large, should play in. So we are playing big, and we believe this is going also to help us on the second half of the year.

Thank you. Our next question will come from Susan Anderson with Canaccord Genuity.

Hi, good morning. Thanks for taking my question. I was wondering maybe just to start off if you could talk about how procedures excluding fragrance are formed and if you have any new innovation coming out in the cosmetic and skincare brands this year, and then also just what investments you're making in the area as well. Thanks.

yeah good morning Suzanne thank you for the question indeed that's a good question because if you look at our prestige portfolio it's a majority of fragrances but there is also a color cosmetics category and this is really what explains also the counter performance in terms of selling but also sell out in Asia mainly due to the you know to the resellers as we like to call them today phenomenon that is shrinking, if not totally drying in Asia between Hainan, China and Korea ecosystem. This is really one of the key explanations of the figures counter performance of the division, while fragrances continue to grow, including in fiscal 25 year, which was one of the most difficult year we had. So this is one to explain for you. Second, now it comes to skincare. In skincare, The two biggest brands of the company are Philosophy in the US and Lancaster, which is a European slash Chinese brand. The great news is that Lancaster is now growing super, super strongly in China. It's among the top five fastest growing brands it's growing three times or four times faster than the skincare market and it explains also our absolutely outstanding performance i'm looking at the figures while i'm talking to you the skin care category uh uh out outperformed the market by 11 percent for koti the market was around three percent as i said and this is driven mainly by ecom and on ecom it's really two legs it's on one side our fragrance business that is growing six times faster than the market rate. And our Lancaster business that is growing 40% faster than the Chinese ecosystem market. So it's really these figures that I wanted to share with you to give you a vision on prestige excluding fragrances.

Okay, great. And then also you talked about just the higher promotional environment. Maybe if you could talk a little bit about how you expect that to play out this fiscal year and what you're doing to compete in that environment. And then also, I guess, is it similar between prestige and math just in terms of the promotional environment, or is one area worse than the other? Thanks.

Thank you, Suzanne. Indeed, I mean, absolutely. I mean, we are observing, I mean, now since a few months, indeed, some, you know, increase of promotional activities from some of our peers. We are managing this very cautiously, and, of course, that's really important. you know, a strategic intention really to protect really our icons and to protect our brand. So how do we manage this? I mean, we are very strict in this promotional policy and also on all the activities. But at the same time, we are playing, you know, we shared several times that we have a team dedicated on what we call strategic revenue management. and is exactly is really how to expand the portfolio and really to come with new formats i just give you one example which is paint spray paint spray is is a segment which is really growing very fast in the us so it's you know 30 milliliters It's something that you can put in your handbag or easy to take with you. It's also a fantastic sample. We see that some consumers are going there and then when they like, they go to the product. But of course, it's also more affordable, but very profitable. That's the kind of game that we are playing and really to avoid entering this promotional game. But also when we talk about strategic revenue management, and so refer to it, if you take fragrance, the great news is that you see that fragrance, now you have the full range. Of course, you have the prestige of price points, but you see the high-end, the niche fragrance. I mean, this is the fastest growing category. So you see that here it's not, it's really about the quality and the appetite from consumers. But at the same time, you see mass fragrance is growing very fast. And so we explain also about the body mist. So in a way, we are not, it's a point of attention, but we are not concerned because indeed we can, you know, feed the consumer needs across the full partition.

Susan, just to compliment on what Laurent just rightly said, if you look at the prestige market, there is two parts that are growing the fastest, indeed, as Laurent mentioned it. The niche, which is above $150, is growing by 14%, one-fourth. And everything under $50 is growing by 11%. These two parts of the market are the fastest growing. So instead of getting in the game, which is played a lot by the competitors who are heavily exposed to the Asian-Chinese ecosystem, which we don't want to enter to the same extent, we put in place the missed opportunity. perfume mist attack a year ago precisely for this because we understood that for those who are looking for value you cannot just sell the same brand with a 50 discount you need to propose specifically for the younger consumer other ways to increase the basket or to replace the basket with the same profitability so the mist we have launched and i can give you the example of the ck mist that started earlier this summer. If some of you traveled this summer, you could see them in airports. And the only place you could see teenagers queuing were in front of the displays of the CK Mist. And it boosted also the sales of pen sprays and the sales of 30ml fragrances. So that's another way to give people affordability. with the same profitability without killing the gross-to-net equation of our very profitable center business of prestige fragrances.

Thank you. Our next question will come from Ashley Helgens with Jefferies. Please go ahead.

Hi, this is Sydney on for Ashley. Thanks for taking your question. Can you just elaborate a little bit more on the comment on innovation fatigue? I think on the February earnings call, you called out kind of seeing a lack of innovation in color in math, I believe. So is it feeling like the market got flooded in the last six months or so? And then just curious, are you only seeing that in color? Is that happening at all in prestige? And then on promotion, just can you share how that varies between channels and then how that trended throughout the quarter and what you're seeing quarter to date? Thank you.

Good morning, Ashley. Thank you for the question. I'm going to take the first part, and maybe Laurent can compliment on the second part of the question. So regarding the topic of innovation fatigue, which is one of the reasons why the market is not as dynamic as it used to be, you have to couple it also with the simplification of makeup routines, which more or less tells the same story. I think this is something that started maybe 18 months ago and that peaked recently with the inflation of launchers. Indeed, we all felt that we need to do the race and do more and more launchers from TPMs in as quickly as two months with new gallinics, new routines, new makeup finishes, etc. and in fact the result is that a lot of consumers got lost in translation specifically those above 25 to 30 years old this we heard it in the consumer studies we have conducted during this first half of fiscal 2025. we don't see something similar at all in fragrances Simply because the market of fragrances is still quite simple. You have mist which is becoming for me like a kind of modern eau de cologne which is generous content, easy to wear, not overwhelming, easy to pair it with something else. and then entry fragrances, and then niche fragrances. And inside these categories, you'll have the usual eau de toilette, eau de parfum, and elixir. It's very simple, and people navigate quite simply, and they're educated very well by the cohort of influencers who are explaining these different ways of using fragrances, explaining the different ingredient trends, and explaining what works in terms of layering, for example. So, in fact, what we see is that the dynamism of the scenting category, because we should maybe move from the word fragrance to scenting, which is what Coty wants to own from $5 to $500, is all about this, you know, I'm quoting what consumers told us, for them it's a hug in a bottle. Hug in a bottle, I think it's a great expression that explains why, and this is going to last you know if you think about contact studies about the tritonomic strand which is more or less the index fragrance index story they see it lasting for the next five to eight years so it's not something that's going to be ending tomorrow it's not anymore the discretionary category and i've been saying that at length since five years And I still continue to hear people almost willing that this is going to come to an end, but it's not coming to an end simply because taking care of your brain, taking care of your mood, taking care of your moods in a way is essential as taking care of your skin. So it's absolutely a must-have rather than a nice-to-have. So this is for the first part, and I'll let Laurent maybe comment on the second part.

yes on uh on promotions um i would say that indeed i mean we we saw this you know starting on consumer beauty and and color cosmetics would be a year ago and and of course it's also related you know to to the slowdown of the category so there is always this kind of mechanical reaction that you know lower consumption and and this is especially what we saw in the us And then it's creating this kind of tension and promotion, and as we just explained, also linked to some innovation fatigue. So this is really what created this pattern on color cosmetics, on prestige, prestige fragrance. Indeed, we observed this more recently. It's more Q3 and even Q4. Again, the reasons are, I mean, we saw some of our peers indeed playing that game, also some retailers back to the point of you know trade inventory and also pressure on their working capital. So we we we observe this. So again as I just explained before we it's manageable. We are managing very very tightly. We don't want to play you know the short term reaction. That's always a trap. Of course we know there is tension on the applying on results but this is exactly what we want to avoid uh again we want to reduce you know our uh inventory with the with the trade uh bring strong innovation that's always the best answer and also we are improving increasing our media really to support uh all the icons all the innovations and again as we just discussed you know the full range mass fragrance prestige fragrance, and also high-end. So that's the best answer to these promotional activities. But indeed, we are observing this pattern in the sector.

Thank you. Our next question comes from Oliver Chen with TD Securities.

Good morning. This is Julia Shilansky on for Oliver Chen. You mentioned resellers and normalization in Asia. Could you provide a bit more details on how you see travel retail evolving into fiscal year 26? And within travel retail, how healthy is the channel today in terms of sell-through? Which brands are outperforming? And how are you thinking about channel strategy over the next few years? Tied to that as well, if you're seeing any more worthy consumer trends across regions that could influence demand. Thank you.

Good morning, Julia. So on travel retail, indeed, that's a good question. In fact, what we are doing is that we are reinforcing the ability of this channel to become a destination to discover newness. uh you know there were there were question marks around should i buy in travel retail is still this channel a price channel blah blah blah i think what happened recently and the shift is happening hand in hand between us and our partners in travel retail is really to make this channel a discovery channel hence our decision to make the key innovations of this fiscal year a new fiscal year sorry uh travel retail exclusives for a month and a half You could see and find the Hugo Boss bottle beyond only in travel retail. And that's also a great warm-up, as I said, before the products hit the global distribution outside of travel retail. So this is a way to make sure that the consumers who are traveling, even if the flow of packs is stabilizing, but the consumers who are traveling are more attracted towards this kind of exclusivities that make this channel look almost like a niche boutique with the newness and the things they do not yet find anywhere else, of course, with the price incentive. So this is what I can tell you about the travel retail today. Our sales in travel retail Americas and in the EMEA region are growing nicely, I have to say it. The only region that is still indeed, as you said it in your question, still heavily affected is the Asian travel retail, which is heavily linked to the Chinese consumption in a way. The good news is that in China, we are seeing that the beauty market is gradually improving with Prestige Beauty specifically in the June quarter, positive for the first time in many, plus 3%, and outperformance from the fragrance category at 7%. So these are elements that give us confidence that the missing part when it comes to the full travel retail picture, which is the Asian-Chinese travel retail region, is hopefully going to come back to a little bit more dynamism.

Thank you. Our next question comes from Andrea Teixeira with JP Morgan.

Thank you. Good morning, everyone. Good afternoon there. One, I have a question. So I appreciate the commentary about the myths. And just thinking about how you're going to pivot, assuming, of course, you're going to continue to do the successes that you've been highlighting in innovation, in the mail category, but also if you think about how to pivot in terms of channels and then your distribution. Just curious how you're setting yourself up for the balance of 2026 in terms of like the fiscal 26, the second half, in terms of like distribution gains and losses and math of that. And then a question to Lohan in terms of like the way we should be thinking of the stocking. I appreciate that you mentioned that the stocking had an 11% impact in the first, in the second, I think it's the second half of fiscal 25 and then coming down to five. So I'm assuming if you can break down what you're assuming for Q1 and Q2 within that guide, I'm assuming you're still thinking hoping to get the sellout to grow. I think the numbers in July were quite supportive. But just to think about how sell-through against sell-in and when. It seems like from your commentary, you expect the stocking to last through calendar 2025. So if you can give us like a little bit of that color. And if I can squeeze one about when and what is the strategic view there, strategic options you are contemplating at this point. Thank you.

Yeah, thank you. Thank you, Andrea. So, indeed, you know, I can start really from, you know, on the destocking. Indeed, as we shared, you know, several times and we share again, and indeed that we started to see indeed this destocking impact, I have to say, indeed, a year ago. But a year ago, as you remember, we were still on the, you know, on a very good trajectory. I just want to remind that, you know, our Q1 prestige last year was plus 7%. So we just need to remind that we are on a high base. And I want also to remind, you know, even though there are some headwinds, but when you look at the fragrance prestige uh the last two years of growth if i exclude lacoste and russia is a plus 18 so i think it's important also to to zoom out and really to understand that we are coming from a very high dynamic then indeed what we we saw starting a year ago was this talking so you you're right indeed that the the gap indeed at the at the beginning of the year was pretty high um we saw it we see it reducing step by step so indeed in the q4 it was more five percent so we we are assuming in our model that you know this gap is gonna continue to reduce and indeed the big one is the us uh indeed because this is where we we had really the biggest gap so really to reduce in q1 she's called 26 and then really to reduce again into two fiscal 26 and then to come to a level of you know being nil in in the q3 fiscal 26 so it's gradual uh it's gradual it's sequential that's why we are you know very vocal about these sequential at the same time as we discussed before yeah i mean we feel that our Retailers are pretty nervous about their working capital, so they are also very cautious on their inventory. So, indeed, there are a lot of moving pieces that we are seeing, and it's creating, indeed, this volatility. But, again, this gap is going to continue to reduce and really, step by step, come to zero. And that's why we are absolutely confident that we are back to growth in the H2, and there is no gap between the selling and the sellout. So that's really on the de-stocking. I jumped just in the wrong order just to Vela. um i mean we we stay absolutely you know committed uh to to divest i mean our stake i mean we made it very clear several times so indeed we are contemplating options and really making sure always that it's you know good timing and good value for copy but this is a absolutely um you know a bigger step a big move that we want to operate for for koti and we we keep you posted um it's

So if I'm back to... Yes, I'm going to take the question regarding, you know, the... I was trying to understand, in fact, the question regarding the... If I understood well, Andrea, it's about how we are gaining or losing in terms of distribution. So we have big distribution gains on fragrances, specifically on mass fragrances, which are up 20%. The fragrance myths that we are playing both in mass and in prestige are purely incremental in terms of shelf space, but also in terms of sales while bringing the same profitability. And then color cosmetics, the distribution is broadly stable. You commented about mists and blockbuster fragrances. It's an end story rather than an either. It's really both that we are playing on regarding our ability to execute both at the same time. And again, what we are seeing is that we could see young men or young women buying the key fragrance of the moment from us, while at the same time buying one or two mists If you think about our consumer beauty mists, they are around $10, and our Prestige mists, they are around $30. So this is very, very affordable, and some people even buy two to three mists to play with this layering phenomenon, together still with the signature fragrance. So it's really an end story, hence an incremental space both in mass or in Prestige.

Thank you. Our next question will come from Steve Powers with Deutsche Bank.

Steve Powers Great morning. Good afternoon, everybody. Laurent, I just wanted to go back to what I thought I heard you say in response to Olivia's original question. I think you had said that, you know, absent tariffs, EBITDA for the year you thought would be down slightly. I think you're expecting a 50, $55 million net headwind from tariffs. If I subtract that from where the EBITDA base is, it only gives you like a $20, $25 million window to stay above a billion. And I think you also said that you expect it to be above a billion dollars of EBITDA for the year. So I just wanted to replay that and test what I heard and test your confidence because I think there's at least a $20, $25 million EBITDA window in your first half guidance. So just trying to understand where the confidence comes in for the full year. Thank you.

Yeah, absolutely. I mean, good morning, Steve. So, I mean, your maths are correct. Absolutely. So, indeed, we are, you know, again, we are giving, you know, precise guidance in Q1 and Q2 because, indeed, we have good visibility and we have also good visibility, you know, coming from the tariffs. And indeed it's hurting the gross margin in H1. I can tell you that indeed the loss that we have on gross margin in H1 is mostly driven by tariffs and also to some extent that the euro-dollar, as we still have some sourcing in Europe, to the U.S., it's also impacting the growth margin. So this is indeed the major headwind, and at the same time indeed flowing into the EBITDA headwind that we are sharing in Q1 and Q2, combined of course with a still negative top line. Now moving to the H2, we start to inject some productivity actions related to tariffs. So the 20 million I'm referring to, I mean, will be really full speed from procurement and from manufacturing. So it will really secure the H2. And second, very important, is that the all-in-to-win plans that we announced in April will be also at full speed in H2 and will bring savings in the H2. So to make it very clear, Steve, on your question, Yes, there is a tariff headwind, but there is absolute confidence that all the actions that we have in place, either on the innovations top line, but also on productivity and savings, you know, give us sufficient protection to be above the $1 billion on the fiscal year 26.

Okay. Okay. Thank you for that. And then, Sue, if I could, it sounds like, you know, Initiatives like skin care, from your perspective, high level, are still on track. I just wanted to get your perspective and any thoughts as to whether or not, you know, as you update the strategy, refresh the strategy on fragrances, as you've talked about today and last night, and also kind of, you know, recalibrate on the cosmetic side, as you do that work, is there any opportunity cost You know, just a distraction from what would have been the strategic investments and prioritization of skin care, or are those two things distinct enough that the efforts in skin care evolution can progress undeterred as you update on fragrance and cosmetics?

that's indeed a fair question uh what i can tell you is that of course we are betting double betting on the tritonomics the fragrance index and the company will own the full spectrum from five to five hundred dollars from anything that's adjacency sending to classical fragrances and elixirs But I also believe that part of my role is to prepare for the far future of this company. And the far future of this company is into anything that's around care. I think fragrances are care of the mind. Skincare is by definition the care of the skin. These are two categories that have a lot of similarities. They are both very profitable categories. They are both posed for growth for the next, I would say, decades. because of the aging of the population when it comes to skin care and the fact that people are really willing and obsessed with the fact that they want to age gracefully or in good health. The global warming and the UV, I would say, exposure of human beings for the decades to come will require everyone to use sun protection. This is something I can tell you. So it's also for me a bet on the future. Now, coming back to the present, we are going to be much more, I would say, radical in terms of how much we invest. The good news is that the size of the brand is small, and therefore the growth is almost natural because of the size. So we are going to be very, very careful in making the full resources available behind what is our strength, what is our uniqueness, and what is our growing business today and most profitable business also which is sending at large thank you our next question will come from chris terry with wells fargo securities hi everyone i wanted to ask about cash flow um laura over the next you know several years

What are the cash commitments that we should be thinking about? I think I'm specifically thinking about the swaps. You also talked about, you know, refinancing of a certain debt, but I was just wondering if we could get a, you know, some sense of kind of obligations you might have over the next several years and I have the more strategic follow up.

Yeah. Yeah, good morning, Chris. I mean, you know, I keep repeating and saying that, of course, you know, cash and deleveraging is, you know, remains the number one imperative. So, indeed, I mean, we are building the plans. And as I just shared, I mean, you know, our plan is really that our fiscal year 26 cash flow, I mean, will increase versus, you know, our fiscal 25. And indeed, you understand that indeed we have these headwinds in fiscal year 25. We still have, you know, headwinds in calendar year uh you know in the first half of fiscal 26 due to the um you know again these retailers you know inventory uh this talking impact but then as we are entering you know the calendar year 26 then we are really back you know to our normal cash cycle so that's really with all the ingredients that i would say we are mastering very well so starting of course with the ebitda but also very tight control on the inventory inventory we share the several times and now it's starting full speed that we are implementing a new forecasting tool 09 and it will give more and more strong results in terms of forecast accuracy, which has a direct impact on excess and obsolescence, but most importantly, direct impact on the level of inventory and will help the cache. So we stay very strict on our DSO, very strict on our DPOs, of course, to make sure that our cache engine is fully in motion. Indeed, the swap, I mean, as you know, I mean, the ultimate goal is really that it's really something that we can activate at some moment, you know, as a share buyback. So, of course, we are, you know, making sure that it's the right moment and really when we get out of a more difficult context that indeed we can continue again this agenda. And on your last point here, I mean, refinancing, yes, of course. We have maturity in calendar year 26. So it's a no-brainer that we are actively working on these refinancing to extend the maturity. I mean, we are in a good position. And of course, you know, taking benefit of our uh you know consecutive uh rating upgrade uh you know our last refinancing was very successful we are in a good position and of course we need to you know to continue this healthy trajectory uh on cash refinancing and deleveraging the company yes we are confident in selling vela yes absolutely

Okay, great. Thank you. And just from a consumer beauty standpoint, this balance between revenue and profitability, can you just maybe outline a bit more aspirations for profitability in the business, maybe from a margin perspective in the coming few years and how you might you know, be, I guess, be comfortable with, you know, potential revenue impacts if, if you achieve profitability objectives in the coming few years. Thanks.

Yeah, I mean, that's, I can tell you a key priority. I mean, you You see, I mean, of course, in the numbers that we are releasing, that, of course, I mean, the big pool of profit generation, you know, is from Prestige, and this is, indeed, 90% of the profit, and, indeed, the consumer beauty is, indeed, generating, you know, the profit is too low. So we are working very actively on you know several initiatives to improve significantly uh the profitability of this division I mean that's that's the number one mandate and as you can imagine I mean we are going through I mean the full value creation uh model so looking at of course the cost of goods I mean our SGMA and and also on uh yes on our amcp uh you know to refer to that at the beginning so it is really to be more precise and really to understand where we we allocate our money and and really also making sure we are protecting our loyal consumers i mean you know our brands we have very strong loyal consumers so we need to make sure that you know we keep uh, communicating with, uh, with them. So it means, and I think this is beyond your, your question. So he's always the trade off between profitability and top line. Um, indeed, this is what we are looking and, you know, in a very detailed manner. Yes, it may imply that in some cases, in some specific situations where we think that it's not profitable enough, uh yeah we may be uh yeah we may you know take some choices which may impact indeed the net revenue uh and in a way it's also something that is driving our uh our algorithm also on net revenue so the number one mandate now for this division is really profitability thank you our next question will come from anna lazul with bank of america

Thank you so much for the question. I wanted to ask on the prestige fragrance market. In the past, you mentioned that growth in prestige fragrances was due to growth from a few demographics, which included Gen Z, men, and Hispanics. I was wondering if you're seeing a particular pullback from specific demographics or income tiers, particularly in the U.S.? ? And then on the broader U.S. beauty market, are you seeing any specific, you know, income tiers with a pullback or a wider array? Thanks so much.

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There was a disconnection on the main line, so now we are back. Can you hear us well?

Yes, I can hear you.

Who is speaking? Is it Anna?

Yes, this is Anna from Bank of America.

okay sorry anna thank you so i'm i'm i took notes but my understanding is that on the prestige fragrance market in the past the market was fueled by co-ops entering the market and you rightly mentioned uh you know hispanics in the u.s uh you mentioned also men you mentioned also gen z's and if there is a pullback in some of these demographics we don't see a pullback in these demographics We even see a penetration curve continuing to increase among the main demographics that are the Gen Z consumers, specifically the teen male consumers who are today those behind the biggest successes in male fragrances. That's one of the reasons probably the latest Hugo Boss Beyond launch is resonating so well. It's because it also attracts this younger generation versus what we did in the past. The Hispanic community is continuing to be another consumer of, I would say, very strong and long-lasting fragrances, which we have seen consistently continuing. Last but not least, we also see that among Gen Zs, The heavy users' proportion has never been higher than now. So they own a lot of fragrances, sometimes three or four, which is what is called the Wadworth effect. And we see now the perfume mist phenomenon becoming part of this scenting index at large, as I like to call it. So to answer in short, we don't see pullback from any of these demographics.

Thank you. Our last question will come from Priya Uri Gupta with Barclays.

Priya Uri Gupta Hey, good morning. Thank you so much for taking the question. Lavron, could you speak a little bit more about your refinancing expectations around the 2026 maturity? Should we continue to expect that that'll be consistent with the secure structure that you currently have in place? And then secondly, as we're thinking about the path to deleveraging in calendar 26, should we assume that that's primarily driven by improving EBITDA trends as some of the cost savings take hold into the back half of the calendar year in 26? Or is there some expectation that the Welles fake sale will also help achieve that outcome? Thank you.

Yeah, good morning, Priya. Thank you for the question. So on refinancing expectations, I mean, yes, absolutely. I mean, it will be consistent, I mean, with the secure structure in place. So absolutely, yes. So on debt averaging, Again, I mean, the model is very clear, and you understand, you know, from the guidance we are giving that indeed that, you know, Q1 and Q2, of course, will be impacted by, you know, the lower EBITDA, but we stay absolutely focused on the working capital and, you know, the capex discipline. Then entering calendar year 26, as I shared before, you know, with EBITDA being back to growth, cash generation, we are going to continue our, you know, deleveraging agenda. And indeed, as we shared, we are indeed actively working really on, you know, the Vela State Diabetes Teacher and indeed to help and support indeed to accelerate our deleveraging.

Okay. Thank you so much.

Thank you. At this time, we have no further questions in the queue, so I would like to turn the call back over to our speakers for any additional or closing remarks.

Thank you very much. Thank you, everyone. Of course, we realize our results are not satisfying. Please know that we are acting with urgency, especially in the U.S., as you have seen it. We have taken all the required action, and we have a clear plan with first and early very, very promising green shoots. The company is now more focused. It's financially stronger than ever. Of course, no one is immune to market volatility, but these results do not reflect the true potential and value of the business we are building. So we are confident that the real strength of the company will be recognized and visible as quickly as possible in fiscal statistics. Thank you very much.

Thank you, ladies and gentlemen. This does conclude today's presentation, and we appreciate your participation. You may disconnect at any time.