# Coty Inc. (COTY) — Financial Analysis

**Exchange:** NYSE  
**Coverage as of:** 2026-Q2  
**Updated:** 2026-05-28  
**Tier:** Free primer (step 2 of 19)  
**Sibling pages:** /stocks/COTY/thesis · /stocks/COTY/memo

## Financial Snapshot

---
source: coverage-next-full
step: 04
type: financial_quality
ticker: COTY
company: Coty Inc.
generated: 2026-05-28
---

### Step 04 — Financial Quality (incl. Adversarial Sweep)

#### Key Findings

- **Earnings quality: medium.** GAAP vs. adjusted divergence is sizable (FY25 GAAP net loss $367.9M vs. adj. EBITDA $1.08B), driven primarily by **impairment charges and amortization of intangibles** [S1][S3]. Not a fabricated-earnings concern, but the adjustments are real recurring economic costs from prior acquisitions (P&G Beauty 2016).
- **Balance sheet quality: low–medium.** Goodwill $4.06B + Intangibles ex-GW $3.21B = $7.28B, **61% of total assets** [S1]. Heavy impairment exposure if discount rates rise or revenue trajectory disappoints. FY19–FY20 saw cumulative ~$5B of impairments from the P&G Beauty deal, which is the cautionary tale.
- **Adversarial sweep: clean.** No active short-seller report, no SEC investigation, no securities-fraud action of note. Industry-wide talc-related claims exist but not specifically material for COTY versus larger CPG defendants.
- **Net: mixed.** Acceptable financial quality but with explicit asset-impairment exposure that is structural to the licensed-fragrance business model (acquisitions get capitalized as intangibles/goodwill and amortize/impair over time).

#### Implications for Thesis and Valuation

- Use adjusted EBITDA as the primary cash-flow proxy, but discount it for **recurring stock-based compensation** ($50M in FY25, down from a $195M FY22 spike from CEO grant vesting), **restructuring charges** (run-rate ~$50–100M/year for cost programs), and **license-related amortization** (intangibles ex-GW amortizing ~$300–400M/year run rate).
- Free cash flow conversion has averaged ~50% of adj. EBITDA over FY22–FY25, in line with prestige beauty norms but below IPAR (~70%).
- The goodwill + intangibles base is a **valuation tail risk**, not a base-case concern. The FY25 charge mix did not show a major fresh impairment; current intangible amortization is on schedule.

#### Objective

Assess earnings quality, balance-sheet conservatism, and the disclosure environment around COTY; run an adversarial sweep for short-seller reports, regulatory actions, and known accounting controversies.

#### Narrative Analysis

##### GAAP vs. adjusted earnings reconciliation (FY25)

| Item | $M | Notes |
|---|---:|---|
| Adj. EBITDA (company-reported) | 1,084 | Per Q4 FY25 release |
| Less: D&A | (~340) | Mostly intangible amortization |
| Less: Restructuring + impairment + one-offs | (~503) | Elevated in FY25 |
| **GAAP operating income** | 241.1 | [S1] |
| Less: Interest expense | (~240) | On $4B LT debt |
| Plus / minus: Equity method (Wella + others) + FX | (~30) | Wella mark-to-market |
| Less: Tax | (~150) | Effective rate noisy due to mix and impairments |
| Plus: Discontinued operations / other | varies | |
| **GAAP net income (loss)** | (367.9) | [S1] |

The largest reconciling item between adjusted and GAAP is **impairment of intangibles and goodwill** from prior periods. The FY25 GAAP net loss of $367.9M reflects an elevated impairment year — the underlying cash earnings story is materially better than the headline net loss suggests.

##### Earnings quality flags reviewed

| Flag | Observation | Verdict |
|---|---|---|
| Aggressive revenue recognition | Standard wholesale recognition at shipment; some returns reserve volatility but no significant unusual accruals | No flag |
| Capitalization of operating costs | Capex ~$170M in FY25 (3% of sales) — modest, not aggressive | No flag |
| Inventory build vs. sales | Inventory $1.1B at FY25 end (~6.7 months of COGS) — slightly elevated but not extreme; flagged as "elevated E&O" in Q3 FY26 release | Yellow flag — inventory drag noted |
| Receivables stretch | AR $0.9B at FY25 end (~55 days) — normal | No flag |
| SBC trend | SBC normalized from FY22 $195.5M peak to FY25 $50.0M | Improving |
| Tax rate volatility | Tax rate erratic due to international mix and impairment-driven losses | Cosmetic only |
| Equity-method investment | Wella stake — historically large and variable; now monetized via Dec 2025 sale | Resolved |
| Working capital quality | DSO + DIO − DPO ~80–90 days; normal for prestige beauty | No flag |
| Off-balance-sheet | Operating leases capitalized under ASC 842; no off-BS structures of note | No flag |
| Auditor | Deloitte (long-standing) — no auditor change concerns | No flag |
| Restatement history | FY19/FY20 restatement driven by Wella deconsolidation accounting (not aggressive) | One-time |

##### Adversarial Research Sweep

This is the mandatory short-seller / litigation / investigation scan. Conducted via web search across the standard sources (Hindenburg, Muddy Waters, Citron, Spruce Point, Wolfpack, GMT Research, Kynikos, Bonitas, Hindenburg Light + general litigation databases).

| Vector | Finding | Status |
|---|---|---|
| Activist short report | **None identified** as of May 2026. Coty has not been a target of a major short report. | Clean |
| Securities-fraud class action | **None active and material** as of May 2026. | Clean |
| SEC enforcement | No active SEC enforcement actions disclosed in 10-K | Clean |
| Insider trading investigation | None | Clean |
| Talc / personal injury litigation | Industry-wide claims exist; Coty is one of many defendants but not the lead defendant (J&J / Imerys are the lead defendants industry-wide). Coty's potential exposure is well within reserves and not commented as material in 10-K | Yellow but small |
| PFAS / "forever chemicals" litigation | Industry-wide regulatory uncertainty; not a Coty-specific issue | Yellow but small |
| Patent / IP claims | Routine industry-standard claims; nothing material | Clean |
| FCPA / anti-bribery | No public investigations | Clean |
| Tax controversies | Routine ETR variability from international mix; no major IRS or OECD-level dispute disclosed | Clean |
| Board / governance | JAB's controlling stake creates structural minority-shareholder risk (related-party transactions historically clean per proxy disclosure) | Yellow structural |

**Verdict: No material adversarial findings.** Coty is structurally low-attention from short-sellers (large float, controlling shareholder, well-known industry, transparent strategic-review process).

##### Balance sheet quality (FY25 end)

| Item | $M | Comment |
|---|---:|---|
| Cash | 257.1 | Modest |
| Receivables (net) | ~870 | Normal |
| Inventory | ~1,100 | Slightly elevated; flagged by mgmt |
| PP&E (net) | ~620 | Light-asset model |
| Equity-method investment (Wella) | ~1,000 | Sold to KKR Dec 2025 for $750M cash + back-end participation |
| Goodwill | 4,062 | Mostly from P&G Beauty 2016 |
| Intangibles ex-GW | 3,215 | Designer-house licenses + acquired customer relationships |
| Other | ~785 | |
| **Total assets** | **11,908** |  |
| ST debt | ~100 | Maturity ladder is manageable |
| LT debt (noncurrent) | 3,956 | Down from $7.9B in FY20 |
| Operating lease liabilities | ~400 | |
| AP + accruals | ~1,950 | Normal |
| Other | ~1,548 | |
| **Total liabilities** | **7,952** |  |
| **Stockholders' equity** | **3,543** | Equity has been holding up despite FY25 net loss; OCI movements and SBC are the swing factors |

#### Evidence and Sources

Detail in `COTY_financials/xbrl/xbrl_summary.md` and `COTY_financials/sec_filings/10K_FY2025_summary.md`.

#### Assumption Register Updates

- A09 (Goodwill $4.06B at FY25 end) — Fact, High sensitivity to impairment risk
- A10 (Intangibles ex-GW $3.21B at FY25 end) — Fact, High sensitivity
- A11 (FY25 SBC $50M vs FY22 peak $195.5M) — Fact

#### Tables and Calculations

##### Cash flow quality (FY21–FY25)

| FY | Adj. EBITDA (approx) | CFO | Capex | FCF (CFO − Capex) | FCF / Adj. EBITDA |
|---|---:|---:|---:|---:|---:|
| 2021 | ~640 | 318.7 | (~140) | ~180 | ~28% |
| 2022 | ~900 | 726.6 | (~160) | ~567 | ~63% |
| 2023 | ~1,000 | 625.7 | (~165) | ~461 | ~46% |
| 2024 | ~1,140 | 614.6 | (~175) | ~440 | ~39% |
| 2025 | 1,084 | 492.6 | (~170) | ~323 | ~30% |

FY25 FCF conversion stepped down vs. prior years on working-capital absorption (inventory build) and lower CFO from operating profit pressure. The Q3 FY26 release flagged inventory destocking as ongoing.

##### Auditor & control environment

- Auditor: Deloitte & Touche LLP (long tenure)
- Internal control: No material weakness disclosed in FY25 10-K
- Reported restatement history: One restatement in FY19–FY20 tied to Wella deconsolidation accounting (not a quality concern)

#### Open Questions and Data Gaps

1. **Future impairment-test outcome.** Tied to discount-rate and free-cash-flow assumptions in the goodwill test. A 100-bps WACC increase could trigger a $500M+ impairment.
2. **Working capital trajectory.** If inventory normalizes, FCF conversion should recover toward 50–60%.
3. **Tax rate normalization.** Effective tax rate has been noisy due to mix and impairments; a clean run-rate is hard to anchor.

#### Next-Step Dependencies

Step 05 deepens the quarterly momentum analysis and produces the KPI sidecar. Step 06 examines the balance sheet + dilution dynamics in more depth. Step 09 will refine the ROIC framework.

#### Source Index

| Tag | Document or URL | Section / Page | Date | Notes |
|---|---|---|---|---|
| [S1] | `COTY_financials/xbrl/xbrl_summary.md` | Full P&L + balance sheet | 2026-05-28 | SEC XBRL |
| [S2] | `COTY_financials/other/consensus.md` + Coty Q3 FY26 8-K | Q3 FY26 result detail | 2026-05-05 | Accession 0001024305-26-000028 |
| [S3] | `COTY_financials/sec_filings/10K_FY2025_summary.md` | MD&A, impairment, risk factors | 2025-08 | FY25 10-K |
| [S4] | `COTY_financials/sec_filings/filing_inventory.md` | Filings list | 2026-05-28 | SEC EDGAR |
| [S5] | `COTY_financials/proxy/governance_and_compensation.md` | Audit committee + auditor disclosure | 2025-09 | DEF 14A |
| [S6] | Web search results — adversarial sweep | Short-report / litigation scan | 2026-05-28 | No material findings |

## Deeper Financial Analysis

The fundamental tier ($1.00) adds 8 dimensions not included here:

- Revenue Breakdown — segment revenue, geographic mix, product-line margins
- Financial Trends — QoQ momentum, leading indicators, inflection points
- Balance Sheet — debt structure, dilution risk, working capital dynamics
- Capital Allocation — ROIC, buyback cadence, reinvestment efficiency
- Earnings Analysis — beats/misses, guidance vs actuals, transcript highlights
- Competitive Positioning — market share, pricing power, peer benchmarks
- Industry Context — TAM, sector tailwinds/headwinds, regulatory backdrop

**API endpoint:** GET /api/v1/research/COTY/fundamental

## Navigation

- Overview: /stocks/COTY
- Financials (this page): /stocks/COTY/financials
- Thesis: /stocks/COTY/thesis
- Investment Memo: /stocks/COTY/memo
- Coverage universe: /stocks