DEFR14A: Coty Faces Headwinds, Misses FY25 Targets; Board Changes Ahead

Coty Inc. reported a challenging fiscal year 2025 with missed financial targets and anticipated near-term headwinds, despite Q4 results aligning with expectations and expanded gross margin.

Summary

• Coty Inc. is inviting stockholders to its 2025 Annual Meeting on Thursday, November 6, 2025, to be held via live audio webcast.
• The company anticipates continued near-term headwinds, including tariff impacts and a difficult US market, following a challenging fiscal year 2025.
• Fiscal year 2025 fourth quarter results were in-line with expectations and guidance, and gross margin expanded.
• A multi-pronged plan has been initiated to fuel operational and financial trend improvement in fiscal year 2026 and beyond.
• The Board of Directors has seen changes: Maria Asuncion Aramburuzabala Larregui and Johannes Huth resigned in February and July 2025, respectively. Lubomira Rochet and Oliver Goudet will step down at the Annual Meeting and are not seeking re-election.
• Frank Engelen, Co-CEO of JAB, has been nominated to stand for election as a director.
• Beatrice Ballini was appointed Lead Independent Director in July 2025 and continues to Chair the Remuneration and Nomination Committee.
• JAB Group owns approximately 52% of Coty's Class A Common Stock (54% including Peter Harf's voting interests), making Coty a controlled company, though it has chosen not to take advantage of NYSE exemptions for independent directors.
• The Annual Meeting agenda includes the election of nine directors, an advisory (non-binding) vote on named executive officer compensation, and the ratification of Deloitte & Touche LLP as the independent registered public accounting firm for fiscal year 2026.
• Named Executive Officers (NEOs) did not receive Annual Performance Plan (APP) bonus awards for fiscal year 2025 because the collective factor threshold for Adjusted EBITDA was not met.
• Fiscal year 2025 Net Revenue Growth (LFL) was -2%, Adjusted EBITDA was $1,081.7 million, and Free Cash Flow was $278 million, all below minimum targets.
• The CEO Pay Ratio for fiscal year 2025 was 412 to 1, with the CEO's total compensation at $19,691,333 and the median employee's total compensation at $47,840.
• Coty's Clawback Policy was amended in 2023 to align with SEC rules, allowing recoupment of incentive compensation in the event of an accounting restatement due to material noncompliance.
• Related party transactions include agreements with JAB Group affiliates (Stockholders Agreement, Tax Matters Agreement, Pret A Manager sublease) and ongoing relationships with Wella Company (25.84% ownership, manufacturing, consulting, sublease arrangements).
• The company maintains a license agreement with Orveda, an ultra-premium skincare brand co-founded by CEO Sue Nabi, who divested her interests in 2021.

Sentiment

Score: 4

Explanation: While management expresses confidence in ongoing transformation and highlights Q4 results in line with expectations and gross margin expansion, the overall financial performance for FY25 was poor, with negative net revenue growth, missed EBITDA and free cash flow targets, and a significant net loss. The lack of executive bonuses due to missed targets and anticipated near-term headwinds temper any optimism.

Positives

• Achieved five years of strong transformation and proven execution under CEO Sue Nabi's leadership.
• Continued progress on strategic priorities, strengthening position as a global beauty powerhouse.
• Fiscal year 2025 fourth quarter results were in-line with expectations and guidance.
• Expanded fiscal year 2025 gross margin.
• Initiated a multi-pronged plan to fuel operational and financial trend improvement in fiscal year 2026 and beyond.
• Maintains a Board with a majority of independent directors and a Remuneration and Nomination Committee composed entirely of independent directors, despite being a controlled company.
• Executive compensation program is designed to attract, retain, motivate, and reward leaders, aligning their interests with stockholders.
• Received approximately 94.3% approval for the Say-on-Pay advisory vote at the 2024 Annual Meeting of Stockholders.
• Demonstrates commitment to ESG initiatives and sustainability through its 'Beauty That Lasts' strategy and governance structures.

Negatives

• Anticipates continued near-term headwinds, including tariff impacts and a difficult US market.
• Fiscal year 2025 was a more challenging year for the company.
• Named Executive Officers (NEOs) did not receive Annual Performance Plan (APP) bonus awards for fiscal year 2025 because the collective factor threshold for Adjusted EBITDA was not met.
• Fiscal year 2025 Net Revenue Growth (LFL) was -2%, significantly below the minimum target of 6%.
• Fiscal year 2025 Adjusted EBITDA was $1,081.7 million, failing to meet the minimum target of $1,189.0 million.
• Fiscal year 2025 Free Cash Flow was $278 million, falling short of the minimum target of $410 million.
• Reported a Net Income loss of $381.1 million for fiscal year 2025, a substantial decline from a profit of $76.2 million in fiscal year 2024.
• Compensation Actually Paid to the CEO for fiscal year 2025 was -$46,397,208, and the average for non-CEO NEOs was -$1,891,172, reflecting significant negative adjustments due to stock price changes and performance.
• Several Section 16(a) reports were filed late due to administrative errors for Mr. Mercier, Ms. Srinivasan, Ms. Zafar, Mr. Harf, and Ms. Ballini.

Risks

• Continued near-term headwinds, including tariff impacts and a difficult US market, could negatively affect financial performance.
• Risks related to artificial intelligence, sustainability, and ESG topics are overseen by the Board.
• Cybersecurity and data privacy risks are monitored by a dedicated Cybersecurity Special Committee.
• Legal and regulatory risks are overseen by the Remuneration and Nomination Committee.
• Potential for accounting restatements, which could trigger the Clawback Policy for incentive compensation.
• Fluctuations in the company's stock price directly impact the value of equity-based compensation for executives and directors.

Future Outlook

Coty anticipates continued near-term headwinds, including tariff impacts and a difficult US market. However, the company has initiated a multi-pronged plan to fuel operational and financial trend improvement in fiscal year 2026 and beyond. Future Board refreshment is expected to strategically evolve the Board with fresh perspectives and independent viewpoints. The Remuneration and Nomination Committee does not currently plan to grant stock option awards to employees, including Named Executive Officers, in the future.

Management Comments

• "After five years of strong transformation and proven execution under the leadership of Sue Nabi, we continue to make progress on our strategic priorities."
• "Although we anticipate continued near-term headwinds, including tariff impacts and a difficult US market, Coty continues to strengthen its position as a global beauty powerhouse by re-establishing the baseline for consistent growth following four years of momentum and a more challenging fiscal year 2025."
• "At the end of fiscal year 2025, Coty delivered fourth quarter results in-line with expectations and guidance, expanded fiscal year 2025 gross margin, and initiated a multi-pronged plan to fuel operational and financial trend improvement in fiscal year 2026 and beyond."
• "We are confident that the Coty team will continue to strengthen our position as a global beauty powerhouse."
• "Our compensation program is competitive, stimulates business growth through long-term incentives, and further aligns the named executive officers interests with those of the Companys stockholders."
• "We also believe that our compensation program is effectively designed to attract and retain high quality talent."

Industry Context

The company operates within a global beauty industry facing a 'difficult US market' and 'tariff impacts,' indicating broader economic and trade challenges. Its strategic focus on becoming a 'global beauty powerhouse' suggests intense competition for market share and brand strength. The emphasis on digital and artificial intelligence expertise for board members, alongside a robust ESG and sustainability strategy ('Beauty That Lasts'), reflects evolving industry trends driven by technological advancements and increasing consumer and investor demand for responsible business practices. The compensation peer group, including major players like L'Oréal and Estée Lauder, underscores the competitive landscape for executive talent in this sector.

Comparison to Industry Standards

• The company benchmarks its executive compensation against a peer group including L'Oréal S.A., Inc., Estée Lauder Companies, Inc., Beiersdorf AG, Shiseido Company, Limited, Inter Parfums Inc., Colgate-Palmolive Company, The Procter and Gamble Company, Puig, Kenvue, Sephora (a subsidiary of LVMH), Kering, Ulta Beauty, Inc., LVMH Moet Hennessy Louis Vuitton SE, and Unilever PLC.
• Target total direct Named Executive Officer (NEO) compensation is set at or around the median of this Compensation Peer Group, with an opportunity to earn toward the third quartile for exceptional performance.
• For Total Shareholder Return (TSR) comparisons in the Pay Versus Performance table, the peer group includes L'Oréal S.A., Inc., Estée Lauder Companies, Inc., Beiersdorf AG, Shiseido Company, Limited, and Inter Parfums Inc.

Management Changes

Corporate Governance

Legal Proceedings

• A consolidated purported stockholder class action and derivative complaint concerning the tender offer by Cottage Holdco B.V. (now JAB Beauty B.V.) and the Schedule 14D-9 was settled and approved by the Delaware Court of Chancery on June 13, 2023. This matter is concluded.

Related Party Transactions

• **Stockholders Agreement**: The company is party to an Amended and Restated Stockholders Agreement with JAB Holdings and JAB Beauty B.V. (JAB Stockholder Parties), which governs share acquisitions, director appointments, and related party transaction approvals.
• **Consent Agreement to Tax Matters Agreement**: A consent agreement with JAB Holding Company S. r.l., JAB Holdings B.V., and P&G, where JAB Group indemnifies P&G for any taxes resulting from JAB's purchases of Coty's Class A Common Stock.
• **Lease Performance Guarantee**: The company is secondarily liable for a real estate lease assigned to JAB Partners LLP (an affiliate of JAB), with a maximum potential future payment of approximately $3.3 million as of June 30, 2025, if the assignee defaults.
• **Wella Company**: Coty retains a 25.84% ownership stake in the Wella Company (majority-owned by KKR). Coty continues to have manufacturing arrangements and provides management, consulting, and financial services to Wella, earning $1.2 million in fees in fiscal year 2025. Coty also reported $7.6 million in sublease income from Wella in fiscal year 2025.
• **Relationship with KKR**: Funds managed by Kohlberg Kravis Roberts & Co. L.P. (KKR) may hold the company's debt instruments and receive principal and interest payments on the same terms as other investors.
• **Orveda License Agreement**: The company has a license agreement with Orveda, an ultra-premium skincare brand co-founded by Coty's CEO, Sue Nabi. Ms. Nabi divested her economic interests in Orveda in December 2021. Nicolas Vu, co-founder and sole owner/CEO of Orveda, also provides consulting services to Coty. The Board determined the terms were no more favorable than to an unaffiliated third party.
• **Pret A Manager Ltd Sublease**: The company entered into a real estate sublease agreement with Pret A Manager Ltd, an affiliate of JAB, on customary market terms, receiving approximately $164,640 in fees in fiscal year 2025.
• **Delete Blood Cancer DKMS**: The company provided corporate sponsorship, including pledged charitable giving, gala sponsorship, and product donations, to Delete Blood Cancer DKMS, an organization co-founded and executive chaired by Peter Harf, Coty's Chairman.

Stakeholder Impact

• **Shareholders**: Will vote on director elections, executive compensation, and auditor ratification at the Annual Meeting. They are directly impacted by the company's poor financial performance in FY25, including missed targets and a net loss, which is reflected in the significantly negative 'Compensation Actually Paid' for executives. JAB Group's substantial ownership and related party transactions are also relevant to shareholder interests.
• **Employees**: The executive compensation program is designed to attract, retain, motivate, and reward talent. However, the lack of Annual Performance Plan bonuses for NEOs in FY25 due to missed financial targets could impact morale and retention. The CEO Pay Ratio of 412 to 1 highlights the disparity between CEO and median employee compensation.
• **Customers**: The company's strategic priorities and commitment to strengthening its position as a 'global beauty powerhouse' and its 'Beauty That Lasts' sustainability strategy could influence product innovation, brand perception, and customer loyalty.
• **Creditors**: The company's financial health, particularly its Adjusted EBITDA and Free Cash Flow performance, is critical for creditors. The missed targets in these metrics for FY25 could be a concern.
• **Management**: Executive compensation is heavily tied to performance, and the failure to meet FY25 financial targets resulted in no APP bonuses and significantly negative 'Compensation Actually Paid' figures, directly impacting their earnings from equity awards.

Next Steps

• Hold the 2025 Annual Meeting of Stockholders on November 6, 2025, to elect directors, approve the advisory resolution on Named Executive Officer compensation, and ratify Deloitte & Touche LLP as the independent registered public accounting firm.
• Implement the multi-pronged plan to fuel operational and financial trend improvement in fiscal year 2026 and beyond.
• Undertake future Board refreshment to strategically evolve the Board with fresh perspectives and independent viewpoints.
• Conduct the next Say-on-Pay advisory vote in 2026.
• Stockholders must submit proposals for the 2026 Annual Meeting by May 27, 2026 (Rule 14a-8) or between July 9, 2026, and August 8, 2026 (Bylaws).

Key Dates

Recommendation

The company's fiscal year 2025 results indicate significant underperformance against key financial targets, including negative like-for-like net revenue growth, failure to meet minimum Adjusted EBITDA and Free Cash Flow thresholds, and a substantial net loss. This directly led to no Annual Performance Plan bonuses for executives and significantly negative 'Compensation Actually Paid' figures, reflecting poor stock price performance. While management has initiated a plan for improvement in FY26 and beyond, and Q4 results were in line with expectations, the overall financial trajectory for FY25 is concerning. The anticipated near-term headwinds further add to the uncertainty. A seasoned investor would likely view the stock as a 'sell' until there is clear, sustained evidence of a turnaround and consistent achievement of financial objectives.

Keywords

Coty Inc., beauty industry, cosmetics, fragrance, SEC filing, proxy statement, annual meeting, corporate governance, executive compensation, board of directors, financial performance, risk management, ESG, sustainability, JAB Group, Wella, Orveda, Deloitte & Touche LLP, net revenue growth, Adjusted EBITDA, free cash flow, stock ownership