Analysis-No Gucci, no problem? Coty learns to live without flagship brand

Coty had known the Gucci licence, which it managed to grow by 60% in revenue since 2019, was up for expiry in 2028 and had been building out new brands signed up in 2024 such as Swarovski, Etro and Marni. Under Procter & Gamble veteran Strobel, the beauty player has increased its focus on prestige fragrances, expanding its offering through relaunching Marc Jacobs makeup, while also trying to reposition its mass-market brand CoverGirl to target older and wealthier Gen X consumers. "The loss of the Gucci licence will not be as prejudicial as people imagine," said Akeel Sachak, partner and global head of consumer at Rothschild & Co. "Coty still has a strong fragrance business and has been diversifying in anticipation of the licence ending. It is less dependent on Gucci than the market is pricing in." Coty became a beauty industry giant after buying Procter & Gamble's perfume, hair care and makeup businesses for $12.5 billion in 2015. But it has since divested its hair division and is conducting a strategic review of consumer cosmetics brands including CoverGirl and Rimmel, although valuations are tight while inflation and interest rates are high. Even though its shares look cheap, Coty looks relatively shielded from the consolidation that is sweeping across the consumer goods industry while top shareholder JAB Holding owns a majority stake. The agreement should allow Coty to immediately start lowering net debt that currently stands at around $2.9 billion, amid heightened scrutiny from rating agencies wary that the Gucci licence exit will temporarily compress margins. The company could emerge healthier if it channels proceeds into accelerating licences such as BOSS, Marc Jacobs and Kylie Cosmetics, said Michael Ashley Schulman, partner at Cerity Partners. Schulman, who has previously invested in Coty while at other firms but does not hold the stock at Cerity, compared luxury beauty to Hollywood, where the studios that consistently outperform build a deep library of names, rather than betting everything on a single superhero brand. "Coty is losing its Cinderella, but even Disney knows the strongest franchise is built on a deep roster of timeless names, not a single princess," he said. Coty's $400 million deal to exit its flagship Gucci Beauty licence a year early will cost it a big chunk of near-term earnings, but could prove a turning point for the struggling beauty brand under interim CEO Markus Strobel. The decision to hand back its most prestigious licence means fiscal year 2028 will be rough for the Procter & Gamble veteran, who took over in January from former boss Sue Nabi at a group whose shares have already slid 80% since early 2024. But Coty will be able to use the proceeds to cut debt, while Strobel's focus on expanding other premium fragrances could partly cushion the blow. By agreeing to return the licence to its owner Kering in mid-2027, Coty will effectively give up about $115 million of its annual adjusted EBITDA, or 15% of total profits, according to Barclays analyst Lauren Lieberman's estimates. The deal with Kering, which last year agreed to sell the Gucci fragrance and cosmetics licence to L'Oreal along with Kering's entire beauty business, will free up $250 million upfront, with $150 million to follow before October 2027. There is potential for further cashflow through inventory sales, and Coty will also likely save on headcount and marketing costs.

Analysis-No Gucci, no problem? Coty learns to live without flagship brand

Coty is building beyond Gucci

Debt reduction and pressure from rating agencies

Analysts say a broader brand portfolio could help

Coty gains cash and time from ending Gucci licence early

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