Coty expects return to growth in H2 fiscal 26, driven by innovative launches and improved profitability, while addressing retailer inventory pressures.

operator - (00:00:54)

Good morning and good afternoon everyone. My name is Chelsea and I'll be your conference operator. At this time I would like to welcome everyone to Coty's fourth quarter fiscal 2025 question and answer conference call. As a reminder, this conference call is being recorded today, August 21, 2025 at 8:00am Eastern Time or 2:00pm Central European Time. Please note that on August 20th at approximately 4:30pm Eastern Time or 10:30pm Central European Time, Coty issued a press release and prepared remarks webcast which can be found on its investor relations website. On today's call are Su 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 Coty'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 Coty's financial results and Coty's expectations reflect certain adjustments as specific 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 one on your telephone keypad. Once again, that is Star one to ask a question. And we'll take our first question from Olivia Tong with Raymond Jane. Please go ahead.

Olivia Tong - Equity Analyst - (00:02:41)

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 EPS, but kept it pretty open ended for the second half. So 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.

Laurent Mercier - Chief Financial Officer - (00:03:25)

Yeah, absolutely. Thank you. Thank you Olivia for your question. So indeed, I think it's very important indeed that we know we give you very clear indications for Q1 and Q2 and we have this visibility and we share very precise guidance. And indeed, as we highlighted, we are seeing that we are still in the 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, this sequential improvement in Q1 and Q2 despite being negative. So at the same time as we indicated, we are seeing the category especially in prestige fragrances, but Also in mass fragrances remaining very healthy. I mean low to mid single digit. And we are seeing also our sellout, you know performing well in in the key markets. So 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 will end and then we are during calendar year 26 or H2 fiscal 26 in in a very healthy manner where our selling will coincide with with our sellout. And this is supported indeed by the market, you know, the healthy market. And our sellout is supported also by you know, very strong innovations that we just shared you know, during during the presentation and which will be at full speed in the H2. So this is really the algorithm now indeed we we didn't give you know, more Precise numbers on H2 because as you say there is high volatility. I mean there are a lot of macro movements. But for sure, I mean I can tell you with high level of confidence that our H2 will be back to growth once indeed we are you know going through these these H1. So that's really the reasoning and reason the logic on on the top line on EBITDA that also similar approach. Okay so we are really giving very precise indication on the Q1 and the Q2. Then on H2 with the full confidence, you know we stop line being back to growth and also all the actions you know all in to win being at full speed we really bring us to you know to positive EBITDA growth in in the H2. So which means that you know our EBITDA full year will be would be above 1 billion for sure. And indeed I mean the the major gap that we are seeing in EBITDA the full year is driven by tariffs tariff in a way. So if we if we exclude tariffs on a full year or EBITDA would just be you know, slightly slightly negative. But indeed the major headwind is is the tariff. And last but not least, I mean our free cash flow will grow in fiscal 26. So this is really the big picture I can give you to explain to you really why we are. We are we built our guidance this way and it's also really to give you that it's very built you know these very strong facts analysis and again very strong confidence in the to add to Laurent.

Su Navi - Chief Executive Officer - (00:07:06)

Good morning Olivia, this is sue speaking to add to Laurent 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 goodness. 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, 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 Laurent just described it.

Olivia Tong - Equity Analyst - (00:08:06)

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? Like both, you know, 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.

Laurent Mercier - Chief Financial Officer - (00:08:57)

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. The this is the year of, 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 trapiditional media to mainly advocacy marketing was a little bit too rapid 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 butter, between a bone, between the liquid, liquid color, between a Buddha liquid 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 trapiditional 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 is of our brands and we believe that this way of doing will allow us to invest less in absolute value and in a very driven way. So this is the way I would explain the shift that's driven by consumer understanding, loyal consumer that were mistreated in a way for the last two years by everyone, including us, but also PNL wise, as I explained earlier. Now when it comes to the, 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 into what we call the treaty nomics 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. There 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 Coty, 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.

operator - (00:12:50)

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

Susan Anderson - (00:12:57)

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

Laurent Mercier - Chief Financial Officer - (00:13:18)

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 counterpartments 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 expand for you. Second, now it comes to skin care. In skin care, the two biggest brand 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 skin care 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 out outperformed the market by 11%. For Coty, the market was around 3% 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 longcast business that is growing 40% faster than the China than the Chinese ecosystem market. So it's really, it's really these figures that I wanted to share with you to give you a vision on prestige excluding fragrances.

Susan Anderson - (00:15:19)

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 MAs just in terms of the promotional environment or is one area worse than the other? Thanks.

Laurent Mercier - Chief Financial Officer - (00:15:43)

Thank you, Susanne. Indeed. I mean, absolutely. I mean we are observing, I mean now since a few months, indeed some increase of promotional activities from some of our peers. We are managing these very cautiously. And of course that's really a strategic intention, really to protect our icons and to protect our brand. So how do we manage this? I mean we are very strict in these promotional policy and also on all the activities. But at the same time we are playing, we share several terms that we have the team dedicated on what we call strategic revenue management and is exactly how to expand the portfolio and to come with new formats. I just give you one example which is pen spray. Spray is a segment which is really growing very fast in the US so it's you know, 30ml, it's something that you can put in your handbag or you know, easy to take with you. And it's also a fantastic sample. Okay, so we see that some consumers are going there and then you know, when they like they go to the product. But of course it's also more affordable but very profitable. So that's the kind of game that we are playing. And really so to avoid entering these, these promotional game, but also when we talk about strategic revenue management and so refer to it, if you take fragrance, I mean the great news is that you see that fragrance now you have the full range, of course you have, you know, the, the prestige of price points. But you see the, you know, 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 mistake. 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 need across the full as a full participation.

Su Navi - Chief Executive Officer - (00:18:06)

Suzanne, just to complement on what just rightly said, if you look at the market, there is two parts that are growing the fastest. Indeed as Laura mentioned it, the niche which is above $150 is growing by 40, 14% 1, 4 and everything under $50 is growing by 11. 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 an enter to the same extent we put in place the mist perfume missed 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 you, some of you traveled this summer, you could see them in airports. And the only place we could you 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.

operator - (00:19:42)

Thank you. Our next question will come from Ashley Helgens with Jefferies. Please go ahead. Hi, this is Sydney on for Ashley.

Sydney - (00:19:53)

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 and 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 varied between channels and then how that trended throughout the quarter and what you're seeing quarter to date? Thank you.

Su Navi - Chief Executive Officer - (00:20:26)

Good morning, Ashley, thank you for the question. I'm going to take the first part and Neville 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 launches. Indeed, we all felt that we need to do the race and do more and more launches from TPM in as quickly as two months with new galley mix, 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 know, 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 will have the usual eau de toilette or the parfum elixir. It's very simple and people navigate quite simply and they're educated very well by the cost 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 he wants to own from $5 to $500, is all about this. You know, I'm quoting what consumers told us. For them it's hug in a bottle, hugging a button. 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 Tritonomics trend, which is more or less the index fragrance index story, they see it lasting for the next five to. It's not something that's going to be ending tomorrow. It's not anymore the discussion of a 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, you know, 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.

Laurent Mercier - Chief Financial Officer - (00:23:27)

Yes, on promotion, I would say that indeed, I mean we saw this, you know, starting on consumer beauty and color cosmetic a year ago and of course it's also related to the slowdown of the category. So there is always this kind of mechanical reaction that, you know, lower consumption and this is especially what we saw in the US and then it's creating this kind of tension on promotion and as we just explained, also linked to some innovation fatigue. So this is really, you know, what created this pattern on color cosmetic. On prestige, prestige fragments, we observed this more recently. It's more Q3 and even a couple Q4. Again the reason, I mean we saw some of our peers indeed playing, playing that game, also some retailers back to the point of trade inventory and also pressure on their working capital. So we, we observe this. So again, as I just explained before, it's manageable. We are managing 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 plan on results, but this is exactly what we want to avoid. Again, we want to reduce our inventory with a trade, bring strong innovation. That's always the best answer. And also we are improving, increasing our media really to support 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.

operator - (00:25:29)

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

Julia Shalansky - Equity Analyst - (00:25:36)

Good morning, this is Julia Shalansky 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? Add to that as well if you're seeing any noteworthy consumer trends across regions that could influence demand.

operator - (00:26:04)

Thank you.

Su Navi - Chief Executive Officer - (00:26:07)

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. You know, there were, there were question marks around should I buy in travel retail? Is still this channel a price channel, . I think what happened recently and the shift is happening hand in hand between us and our partners now in travel retail is really to make this channel a discovery channel. Hence our decision to make the key innovations of this fiscal year. New fiscal year, sorry, travel retail exclusives. For a month and a half you could see and find the Hugo Boss but beyond only in travel retail. And that's also a great warm up if I may say, before the products hit the, the global distribution outside of travel retail. So this is a way to make sure that the consumers who are travelling, even if the flow of traffic is stabilizing, but the consumers who are travelling 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, 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 Costa positive for the first time in many plus 3% and outperformance from the fragrance category at 7%. So these are elements that gives 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 dynamics.

operator - (00:28:30)

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

Andrea Texiera - Equity Analyst - (00:28:37)

Thank you. Good morning everyone. Good afternoon. There one I have a question so I appreciate the commentary about the misps 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 net of that. And then a question to Lauren in terms of like the way we should be thinking of destocking, I appreciate that you mentioned that the destocking had a 11% impact in the first in the second I think it's the second half of fiscal 25 and then coming down to 5. 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 hoping to get the sellout. I think the numbers in July were quite supportive. But just to think about how sell through again sell in and when it seems like from your commentary do you expect the dish talking to last through Canada 2025. So if you can give us like a little bit of that color and if I can squeeze one about Wella when what is the strategic feel there strategic options you are contemplating at this point. Thank you.

Laurent Mercier - Chief Financial Officer - (00:30:23)

Yeah, thank you. Thank you, Andrea. So indeed, you know I can start really from you know on the on the stocking and indeed as we we shared several times and we share again and indeed that we we started to see indeed these stocking impact. I have to say indeed a year ago. But a year ago as you remember we were still on the you're not on a very good trajectory. I just want to remind that Q1 prestige last year was 7%. So we just need to remind that we are on a high base and I want to so to remind you know, even though there are some headwinds but when you look at fragments prestige 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 saw starting a year ago was these destocking. So you you're right indeed that the gap indeed that the at the beginning of the year was pretty high. We saw it, we see reducing step by step. So indeed in Q4 it was more 5%. So we are assuming in our model that, you know, these gap is going to continue to reduce and indeed the big one is the US because this is where we had really the biggest gap. So really to reduce in Q1 fiscal 26 and then we need to reduce again in Q2 fiscal 26 and then to come to a level of being nil in the Q3 fiscal 26. So it is gradual. It's gradual sequential. That's why we are very vocal about these sequential at the same time, as we discussed before. Yeah. I mean we seem 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 is creating indeed these 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 sell. So that's really on the. On the stocking. I jump just, you know, in the room, just to Villa. I mean, we stay absolutely committed 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 good timing and good value for Coti. But this is absolutely, you know, a big step, a big move that we want to operate for Coti. And we keep you posted. So if I'm back to.

Su Navi - Chief Executive Officer - (00:33:32)

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 mists that we are playing both in mass and in prestige are purely incremental in terms of shedding space, but also in terms of sales while bringing the same profitability. And then color cosmetics. The distribution is broadly stable. You commented about Ms. Myths 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 mist 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 increase.

operator - (00:35:00)

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

Steve Powers - Equity Analyst - (00:35:08)

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 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. But 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 for the full year. Thank you.

Laurent Mercier - Chief Financial Officer - (00:36:01)

Yeah, 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 coming from the tariff. And indeed it's, 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, you know, is mostly driven by tariffs and also to some extent that the euro dollar, as we still have some sourcing in Europe to the US it's also impacting the, the gross margin. So this is indeed the major headwind and at the same time, indeed, flowing into the EBITDA headwinds that we are sharing in Q1, Q2 combined, of course, we just feel 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 only to win that we announced in April will be also at full speed in H2 and we 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. To be above the 1 billion on the fiscal year 26.

Steve Powers - Equity Analyst - (00:37:52)

Okay. Okay, thank you for that. And then sue, if I could, I just want. 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 as you update the strategy, refresh the strategy on fragrances as you've talked about today and last night, and also kind of recalibrate on the cosmetic side as you do that work, is there any opportunity cost, a distraction from what would have been the strategic investments and prioritization of skincare? Or are those two things distinct enough that the efforts in skin care evolution can progress undeterred? As you update on fragrance and cosmetics?

Su Navi - Chief Executive Officer - (00:38:53)

That's indeed the fair question. What I can tell you is that of course we are double betting on the Tritonomics, the fragrance index and the company will own the full spectrum from 5 to $500 from anything that's adjacency scenting to classical fragrances and elixirs. But I also believe that part of my role is to prepare for the soft future of this company and the thought future of this company is into anything but around care. I think fragrances are a care of the mind. Skin care is by definition the care of the skin. These are two categories that have a lot of similarities. They are both very profitable catego categories that 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 something at large.

operator - (00:40:41)

Thank you. Our next question will come from Chris Carey with Wells Fargo Securities.

Chris Carey - Equity Analyst - (00:40:50)

Hi everyone. I wanted to ask about cash flow. Laura, over the next 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 refinancing of certain debt. But I was just wondering if we could get some sense of the obligations you might have over the next several years. And I have the more strategic follow up.

Laurent Mercier - Chief Financial Officer - (00:41:28)

Yeah, yeah. Good morning, Chris. I mean, you know, I keep repeating and saying that of course cash deleveraging is, you know, remains the number one imperative. So indeed, I mean we are building the plan and as I just shared, I mean we, you know, our plan is really that our fiscal year 26 cash flow, I mean we'll increase versus you know, our fiscal 25. And indeed you, you understand that indeed we have these headwinds in fiscal year 25. We still have headwinds in calendar year, you know, in the first half of fiscal 26 due to the, you know, again these retailers, you know, inventory stocking impact. But then as we are entering the calendar year 26 then we are really back 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 or nine and it's giving video and it will give more and more strong results in terms of forecast accuracy which has a direct impact on excess and obsolescence but, but most importantly direct impact on the level of inventory and we help the cash. So you know, we stay very strict on our dso, very strict on our dpo. So of course to make sure that you know, our cash engine is fully in motion. So indeed the swaps, I mean is 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, as a share buyback. So of course we are 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, this agenda and on your response here, I mean, refinancing, yes, of course we have, yeah we have maturity in Canada year 26. So it's, it's a no brainer that yeah, 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 consecutive rating of grades. You know, our last refinancing was very successful. We are in a good position and of course we need to continue this healthy trajectory on cash refinancing and deleveraging. The company. Yes, we are confident in selling Vela. Absolutely.

Chris Carey - Equity Analyst - (00:44:18)

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. I. Guess, be comfortable with potential revenue impacts if you achieve profitability objectives in the coming few years? Thanks.

Laurent Mercier - Chief Financial Officer - (00:44:56)

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 is from prestige and this is indeed 90% of the profit and indeed that the consumer beauty is indeed generating the profit is too low. So we are working very actively on several initiatives to improve significantly the profitability of this division. I mean, that's the number one mandate. And as you can imagine, I mean, we are going through full value creation model. So looking at of course, the cost of goods, I mean our SGMA and also on, yes, on our ancp, you know, refer to that at the beginning so easily to be more precise and really to understand where we allocate our money and 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 communicating with them. So it means, and I think this is behind your, your question. So is always a trade off between profitability and top line. 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 yet, we may be, we may take some choices which may impact indeed the net revenue. And in a way it's also something that is driving our algorithm also on net revenue. So the number one mandate now for this division is really profitability.

operator - (00:47:03)

Thank you. Our next question will come from Anna Lazul with Bank of America.

Anna Lazul - Equity Analyst - (00:47:13)

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 US and then on the broader US beauty market, are you seeing any specific, you know, income tiers with a pullback or a wider array? Thanks so much.

operator - (00:47:54)

Please stand by for one moment while we reconnect the speaker feedline. Once again, please stand by while we reconnect the speaker feed line. There was a disconnection on the main line. So now we are back. Can you hear us well?

Anna Lazul - Equity Analyst - (00:48:38)

Yes, I can hear you.

operator - (00:48:41)

Who is speaking? Is it Anna?

Anna Lazul - Equity Analyst - (00:48:44)

Yes, this is Anna from Bank of America.

operator - (00:48:47)

Okay, sorry Anna.

Su Navi - Chief Executive Officer - (00:48:49)

Thank you. So 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, you know, Hispanics in the U.S. you mentioned also men, you mentioned also Gen Z. 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 Bus 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 continuing to be another consumer of I would say very strong and long lasting fragrances which we have seen consistently continuing. And last but not least, we also see that among Gen Z, 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 wardrobe 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.

Anna Lazul - Equity Analyst - (00:50:24)

Thanks.

operator - (00:50:27)

Thank you. Our last question will come from Priya Oregupta with the bar, please.

Priya Oregupta - Equity Analyst - (00:50:35)

Great. Good morning. Thank you so much for taking the question. Laurent, could you speak a little bit more about your refinancing expectations around the 2026 maturity? Should we continue to expect the battle 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, you know, 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 if there's an expectation that the well estate sale will also help achieve that outcome? Thank you.

Laurent Mercier - Chief Financial Officer - (00:51:22)

Yeah. Good morning Priya. Thanks for the question. So you know, refinancing expectations, I mean, yes, absolutely. I mean it will be consistent, I mean with a secure structure in place. Okay, so absolutely, yes. So on deleveraging again, I mean the model is very clear and you understand from the guidance we are giving that indeed that Q1 and Q2 of course will be impacted by the lower EBITDA, but we stay absolutely focused on the working capital and you know, the CAPEX discipline then entering Canada year 26. As I said before, you know we've been back to growth generation. We are going to continue delivering agenda and indeed as we shared, we are indeed actively working really on the Zela State data and indeed to help and support indeed to accelerate our deleveraging.

Priya Oregupta - Equity Analyst - (00:52:29)

Thank you so much.

operator - (00:52:32)

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

Su Navi - Chief Executive Officer - (00:52:43)

Thank you very much. Thank you everyone. We, of course we realize our results are not satisfying. Please know that we are acting with urgency, especially in the US 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 26. Thank you very much.

operator - (00:53:29)

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