COTY INC. (COTY)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the financial condition and results of operations of Coty Inc. and its consolidated subsidiaries, should be read in conjunction with the information contained in the Condensed Consolidated Financial Statements and related notes included elsewhere in this document, and in our other public filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 (“Fiscal 2025 Form 10-K”). When used in this discussion, the terms “Coty,” the “Company,” “we,” “our,” or “us” mean, unless the context otherwise indicates, Coty Inc. and its majority and wholly-owned subsidiaries. Also, when used in this Quarterly Report on Form 10-Q, the term “includes” and “including” means, unless the context otherwise indicates, including without limitation. The following report includes certain non-GAAP financial measures. See “Overview—Non-GAAP Financial Measures” for a discussion of non-GAAP financial measures and how they are calculated.

All dollar amounts in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.

More information about potential risks and uncertainties that could affect our business and financial results is included under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q and other periodic reports we have filed and may file with the SEC from time to time.

Forward-looking Statements

Certain statements in this Form 10-Q are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, strategic planning, targets and outlook for future reporting periods (including the extent and timing of revenue, expense and profit trends and changes in operating cash flows and cash flows from operating activities and investing activities), the Company’s future operations and strategy (including the expected implementation and related impact of its strategic priorities), ongoing and future cost efficiency, optimization and restructuring initiatives and programs, expectations of the impact of inflationary pressures and the timing, magnitude and impact of pricing actions to offset inflationary costs, strategic transactions (including their expected timing and impact), the strategic review of the Company’s consumer beauty business, including its mass color cosmetics business and associated brands and the Company’s distinct Brazil business comprised of local Brazilian brands, and any transactions related thereto, use of proceeds from any transaction and the timing and outcome of the strategic review, expectations and/or plans with respect to joint ventures, the timing and size of any future distribution related to the Wella Distribution Rights (as defined below), the Company’s capital allocation strategy and payment of dividends (including suspension of dividend payments and the duration thereof and any plans to resume cash dividends on common stock or to continue to pay dividends in cash on preferred stock) and expectations for stock repurchases, investments, plans and expectations with respect to licenses and/or portfolio changes, product launches, relaunches or rebranding (including the expected timing or impact thereof), plans for growth in certain categories, markets, channels and other white spaces, synergies, savings, performance, cost, timing and integration of acquisitions, future cash flows, liquidity and borrowing capacity (including any refinancing or deleveraging activities), timing and size of cash outflows and debt deleveraging, the timing and magnitude of any “true-up” payments in connection with our forward repurchase contracts and plans for settlement of such contracts, the timing and extent of any future impairments, and synergies, savings, impact, cost, timing and implementation of the Company’s ongoing strategic transformation agenda (including operational and organizational structure changes, operational execution and simplification initiatives, fixed cost reduction plans, continued process improvements and supply chain changes), the impact, cost, timing and implementation of e-commerce and digital initiatives, the expected impact, cost, timing and implementation of sustainability initiatives (including progress, plans, goals and our ability to achieve sustainability targets), the expected impact of geopolitical risks including the ongoing war in Ukraine and/or the ongoing war in the Middle East on our business operations, sales outlook and strategy, expectations regarding the impact of tariffs (including magnitude, scope and timing) and plans to manage such impact, expectations regarding economic recovery in Asia, consumer purchasing trends and the related impact on our plans for growth in China, the expected impact of global supply chain challenges and/or inflationary pressures (including as a result of the war in Ukraine and/or the ongoing war in the Middle East, or due to a change in tariffs or trade policy impacting raw materials) and expectations regarding future service levels, inventory levels and excess and obsolescence trends, expectations regarding the expanded use of artificial intelligence (“AI”) and advanced analytics in our operations and the timing and impact thereof, and the priorities of senior management. These forward-looking statements are generally identified by words or phrases, such as “anticipate”, “are going to”, “estimate”, “plan”, “project”, “expect”, “believe”, “intend”, “foresee”, “forecast”, “will”, “may”, “should”, “outlook”, “continue”, “temporary”, “target”, “aim”, “potential”, “goal” and similar words or phrases. These statements are based on certain assumptions and estimates that we consider reasonable, but are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual events or results (including our financial condition, results of operations, cash flows and prospects) to differ materially from such statements, including risks and uncertainties relating to:

•our ability to successfully implement our strategic priorities (including leveraging our leadership position and

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capabilities in global fragrances to fuel strong expansion and continue to grow our footprint and diversification in a limited number of structurally profitable and growing beauty categories and geographic markets at scale), achieve the benefits contemplated by our strategic initiatives (including revenue growth, cost control, gross margin growth and debt deleveraging), and compete effectively in the beauty industry, in each case within the expected time frame or at all;

•our ability to anticipate, gauge and respond to market trends and consumer preferences, which may change rapidly, and the market acceptance of new products, including new products in our skincare and prestige cosmetics portfolios, any relaunched or rebranded products and the anticipated costs and discounting associated with such relaunches and rebrands, and consumer receptiveness to our current and future marketing philosophy and consumer engagement activities (including digital marketing and media), and our ability to effectively manage our production and inventory levels in response to demand;

•use of estimates and assumptions in preparing our financial statements, including with regard to revenue recognition, income taxes (including the expected timing and amount of the release of any tax valuation allowance), the assessment of goodwill, other intangible and long-lived assets for impairments, and the market value of inventory;

•the impact of any future impairments;

•managerial, transformational, operational, regulatory, legal and financial risks, including diversion of management attention to and management of cash flows, expenses and costs associated with our transformation agenda, our global business strategies, the management of our strategic partnerships, the strategic review of our consumer beauty business, and future strategic initiatives, and, in particular, our ability to manage and execute many initiatives simultaneously including any resulting complexity, employee attrition or diversion of resources;

•the timing, costs and impacts of divestitures and the amount and use of proceeds from any such transactions;

•future divestitures and the impact thereof on, and future acquisitions, new licenses and joint ventures and the integration thereof with, our business, operations, systems, financial data and culture and the ability to realize synergies, manage supply chain challenges and other business disruptions, reduce costs (including through our cash efficiency initiatives), avoid liabilities and realize potential efficiencies and benefits (including through our restructuring initiatives) at the levels and at the costs and within the time frames contemplated or at all;

•increased competition, consolidation among retailers, shifts in consumers’ preferred distribution and marketing channels (including to digital and prestige channels), distribution and shelf-space resets or reductions, compression of go-to-market cycles, changes in product and marketing requirements by retailers, reductions in retailer inventory levels and order lead-times or changes in purchasing patterns, impact from public health events on retail revenues, and other changes in the retail, e-commerce and wholesale environment in which we do business and sell our products and our ability to respond to such changes (including our ability to expand our digital, direct-to-consumer and e-commerce capabilities within contemplated timeframes or at all);

•our and our joint ventures’, business partners’ and licensors’ abilities to obtain, maintain and protect the intellectual property used in our and their respective businesses, protect our and their respective reputations (including those of our and their executives or influencers) and public goodwill, and defend claims by third parties for infringement of intellectual property rights;

•any change to our capital allocation and/or cash management priorities, including any change in our dividend policy and any change in our stock repurchase plans;

•any unanticipated problems, liabilities or integration or other challenges associated with a past or future acquired business, joint ventures or strategic partnerships, which could result in increased risk or new, unanticipated or unknown liabilities, including with respect to environmental, competition and other regulatory, compliance or legal matters, and specifically in connection with our strategic partnerships, risks related to the entry into a new distribution channel, the potential for channel conflict, risks of retaining customers and key employees, difficulties of integration (or the risks associated with limiting integration) and management of the partnerships, our relationships with our strategic partners, our ability to protect trademarks and brand names, litigation, investigations by governmental authorities, and changes in law, regulations and policies that affect the business or products of our strategic partnerships, including the risk that direct selling laws and regulations may be modified, interpreted or enforced in a manner that results in a negative impact to the business model, revenue, sales force or business of any of our strategic partnerships;

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•our international operations and joint ventures, including enforceability and effectiveness of our joint venture agreements and reputational, compliance, regulatory, economic and foreign political risks, including difficulties and costs associated with maintaining compliance wi

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the financial condition and results of operations of Coty Inc. and its consolidated subsidiaries should be read in conjunction with the information contained in the Consolidated Financial Statements and related notes included elsewhere in this document. When used in this discussion, the terms “Coty,” the “Company,” “we,” “our,” or “us” mean, unless the context otherwise indicates, Coty Inc. and its majority and wholly-owned subsidiaries. The following discussion contains forward-looking statements. See “Forward-Looking Statements” and “Risk Factors” for a discussion on the uncertainties, risks and assumptions associated with these statements as well as any updates to such discussion as may be included in subsequent reports we file with the SEC. Actual results may differ materially and adversely from those contained in any forward-looking statements. The following discussion includes certain non-GAAP financial measures. See “Overview—Non-GAAP Financial Measures” for a discussion of non-GAAP financial measures and how they are calculated.

All dollar amounts in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.

OVERVIEW

We are one of the world’s largest beauty companies, with an iconic portfolio of brands across fragrance, color cosmetics, and skin and body care. Our brands empower people to express themselves freely, creating their own visions of beauty; and we are committed to protecting the planet.

Strategic Progress

We have been engaged in the process of strategic planning and portfolio assessment designed to position us for consistent, profitable growth. In September 2025, we announced a strategic review of our consumer beauty business, including its mass color cosmetics business and associated brands and our distinct Brazil business comprised of local Brazilian brands. Markus Strobel was appointed by the Board of Directors (the “Board”) as Executive Chairman of the Board and Interim Chief Executive Officer (“Interim CEO”), effective January 1, 2026, and in March 2026, the Company’s Board of Directors appointed five new independent directors. While our long-term objectives remain focused on value creation, growth, profitability, and deleveraging, our Interim CEO continues to conduct a comprehensive review of the business to assess opportunities to enhance performance, strengthen competitive positioning, and improve execution across key areas. We are also evaluating our central organization, manufacturing and asset base, and certain market structures to adjust our scope and size for our future business.

We are focused on leveraging our leadership position and capabilities in global fragrances to fuel expansion. We have sharpened our priorities to capitalize on structural tailwinds in the fragrance market, while responding to recent performance challenges. We will continue strengthening our presence in a limited number of structurally profitable and growing beauty categories, in growth channels such as e-commerce and the Travel Retail channel, all while continuing to deliver against our key sustainability priorities. We are methodically implementing the Coty.Curated strategic framework announced in the third quarter of fiscal 2026, centered on sharper priorities, more focused investments, improved execution, and increased support behind our core businesses. In both divisions, we are focused on returning to market share growth, accelerating data-driven operations powered by AI, and improving our advocacy capability and execution. On July 2, 2026 we announced that the Interim CEO will temporarily take direct control of Prestige commercial operations. This change will bring leadership closer to the markets, allows for faster decision-making, and sharpens accountability for sell-out and market share. As part of these changes, Coty will integrate Prestige R&D and sustainability with supply chain into one simplified function. Bringing prestige innovation, sustainability, and supply chain together under one leader streamlines how the company develops and delivers behind its core businesses. As part of the ongoing strategic review of the Consumer Beauty business, we continue to make progress on our “Color the Future” roadmap to improve Consumer Beauty cosmetics performance, supported by more consistent media investment behind key franchises, a more focused innovation pipeline, ongoing value chain optimization, and actions to stabilize gross margins over time.

Global Economic Landscape and Business Impact

Our products are marketed, sold and distributed in approximately 122 countries and territories. As a geographically diverse company we are susceptible to global economic trends, geopolitical conflicts, domestic and foreign governmental policies, and changes in foreign exchange rates. We remain attentive to economic and geopolitical conditions that may materially impact our business.

Tariffs: Recent changes in U.S. and international trade policies—particularly tariff increases—and the ongoing uncertainty surrounding such policies may present challenges to our business operations and financial condition. These challenges may include supply chain disruptions and commodity price volatility, resulting in increases in our cost of goods sold. Under the current tariff framework, the biggest areas of potential challenges for us are prestige fragrances shipped to the U.S. from our Barcelona plant, and the sourcing of various components and marketing materials from China. In response, we have evaluated more diversified sourcing strategies, strategic pricing adjustments and cost-reduction initiatives to help offset these pressures and protect our profitability. We are optimizing our supply chain to enhance resilience and agility in response to changing tariff

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environments. We have successfully transitioned mass fragrance production, production for certain entry-level prestige fragrance products, and fragrance mists to our U.S. manufacturing site.

In the short term, we are accelerating dual sourcing for certain entry-level prestige products by leveraging regional input materials, and future launches will be developed with dual production capabilities. We expect that any increases in our cost of goods sold will be balanced with minimal price adjustments to ensure competitiveness. On a longer-term basis, we are evaluating expanded regionalization strategies, including potential additional U.S. investments. We will also continue to collaborate with external partners to strengthen our domestic manufacturing capabilities, supporting our goal of a robust, U.S.-based supply chain.

On February 20, 2026, the U.S. Supreme Court issued a decision addressing the scope of tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). This ruling may allow for the recovery of IEEPA tariff amounts previously paid. The ruling leaves uncertainties regarding the timing and administration of any potential IEEPA tariff refunds by the U.S. government and may be subject to further legal and regulatory developments. Following the U.S. Supreme Court ruling, the administration replaced the invalidated IEEPA tariffs with tariffs under Section 122 of the Trade Act of 1974, in addition to any existing non-IEEPA tariffs. On April 20, 2026, Customs and Border Patrol “(CBP”) began accepting phase one IEEPA claim submissions for validation and processing in the Consolidated Administration and Processing of Entries system. On May 7, 2026, the U.S. Court of International Trade (“CIT”) ruled that Section 122 tariffs are unlawful; however, the court’s injunction applies only to the named plaintiffs, while tariffs remain in effect for all other importers pending appeal. On May 29, 2026, the administration issued notice to the CIT of its intent to appeal the court’s order requiring universal refunds and the reliquidation of finally liquidated entries. On July 24, 2026, the previous Section 122 tariffs expired and tariffs under Section 301 with rates of 10% to 12.5% went into effect. The Company is actively pursuing refund recovery activities related to IEEPA tariffs following ongoing validation and reconciliation of its claims; however, recovery of such amounts is ultimately contingent upon CBP review and acceptance of the Company's submissions and supporting documentation. As a result, the amount and timing of any refunds ultimately received could differ materially from the amounts claimed.

We have incurred $29.3 in costs related to tariff increases, after mitigating actions, in fiscal 2026. We expect to incur $3.4 in costs, after mitigating actions, in the first quarter of fiscal 2027. Despite our efforts, reductions in consumer confidence and discretionary spending could impact demand for our products and negatively affect our sales. We are closely monitoring developments, evaluating potential impacts, and proactively taking steps to mitigate adverse effects on our business.

Middle East Conflict: In February 2026, geopolitical tensions in the Middle East escalated significantly leading to a military conflict involving the United States, Israel, and Iran, and resulting in regional instability and increased volatility in global energy markets. We have mitigated certain direct impacts, including those related to disruptions in regional shipping routes such as transit through the Strait of Hormuz. Continued or expanded conflict could adversely affect global economic conditions, supply chains, transportation logistics, and customer demand, and is expected to impact our financial condition, and results of operations. Impacts may vary depending on how conditions develop across the region and in global markets. Net revenues in the Middle East accounted for approximately mid-single digit percentage of our consolidated net revenue for fiscal 2026 and declined year over year by a mid-single digit percentage, with a larger impact in the second half of the year after the start of the regional conflict. The Middle East accounted for approximately mid-single-digit percentage and low-single-digit percentage of Prestige and Consumer Beauty segment fiscal 2026 net revenues, respectively. We currently estimate that, if Brent crude oil prices fall within the range of $90 to $100 per barrel due to the Middle East conflict, our operating results in fiscal 2027 could be impacted by an increase of approximately $20.0 to $30.0 in cost of goods sold.

Market Trends and Sales Performance

Changing market trends continue to impact sales of our products across and within product categories and geographic regions. Consumer demand for beauty remains resilient, with continued growth in fragrances and cosmetics, although consumers are increasingly selective in their purchasing decisions.

•Fragrances: We believe fragrances will remain a structurally advantageous, though highly competitive, category, supported by beauty category-leading brand loyalty, strong consumer demand, increasing usage, broader price points and formats, and expanding global penetration. Overall, the Prestige fragrance market grew by mid-single digits. Our net revenues from prestige fragrances decreased by a low-single digit percentage in fiscal 2026, compared to low-single digit growth in the prior year. The Gucci license exit will result in a decrease in net revenues and net income in fiscal 2028; we expect partial mitigation of the impact as a result of anticipated major launches across several of our top brands and a planned calendar 2027 debut of Swarovksi fragrances. Net revenue from Consumer Beauty fragrance declined by high-single digits in fiscal 2026, while the mass fragrance market grew by low-double digits. Within our Consumer Beauty segment, we are planning to concentrate resources behind core brands and priority markets while simplifying the broader p

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