Good morning, and good afternoon, everyone. My name is Chloe, and I will be your conference operator today. At this time, I would like to welcome everyone to Coty's Second Quarter Fiscal 2026 Question-and-Answer Conference Call. As a reminder, this conference call is being recorded today, February 6, 2026, at 8:00 a.m. Eastern Time or 2:00 p.m. Central European Time. Please note that on February 5, at approximately 4:30 p.m. Eastern Time or 10:30 p.m. 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 Markus Strobel, Executive Chairman of the Board and Interim 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 specified in the non-GAAP Financial Measures section of the company's release. With that, we will now open the line for questions.

[Operator Instructions] We'll take our first question from Filippo Falorni with Citi.

Markus, maybe can you give us a bit more color on the Color the Future performance improvement plan for Consumer Beauty. You mentioned in the prepared remarks yesterday that there's a lot of different initiatives commercially, including streamlining the portfolio. What are you thinking those potential impacts are going to be on sales near term and then a little bit longer term? And then, Laurent, on the margin side, Consumer Beauty has been significantly below corporate average. Do you have an aspiration of what their business operating margins can get back to?

All right. Thanks, Filippo. I'll take that on. There's about 3 or 4 principles how we are addressing the consumer business priorities and focus on our business building plan. It's imperative for us to get back to sell-out growth and to market share growth. We've got to be the masters of our destiny and win in the market. That's our ambition. Now how we're going to do that? Number one, we're going to focus on our most iconic assets. These are brands like CoverGirl, where we have assets in there like Lash Blast, Simply Ageless and iconic brands like Rimmel. We started doing this in the last couple of weeks, and I'm very encouraged by the early results. We have seen declines on these franchises in the high single digits. Now they went down to the low single digit to the mid-single digits. So it's nothing to write home about, nothing that we are happy about, but we're going to see the power of focus on the key assets. Number two, you know that cosmetics is driven very much by the big innovation bundles that come in spring. In the past, we had gigantic innovation bundles with lots of SKUs that kind of -- most of them didn't work and they crowded out productive SKUs on the shelf. So you've had kind of the double whammy and you got returns from the trade. So we're avoiding this. We're going to bring our first bundle in fiscal '26, which is sharper, streamlined with better SKUs, fast rotation and will also protect our existing fast rotating SKUs on the shelf. This leads me to the question you had, when do we see sellout. Obviously, if we sell in a smaller bundle, we're going to see initially less pipeline fill, and you're going…

Yes. Maybe, Filippo, to take your second question on the profitability for Consumer Beauty. I mean you heard really from Markus that, number one, there is a clear diagnosis on where we have the gaps and the work that Gordon and the team initiated that in front of each gap, okay, there is a clear action plan. So now, of course, it takes some time really to implement these actions. Markus was giving the example of innovation. So the team really has designed really a detailed innovation plan, but this is going to pay off in fiscal '27, okay? But on top of this is, of course, reignite the sellout and then volumes will also reverse the gross margin trend because currently in the gap, there is some fixed cost under absorption. So we have really these elements. A lot of work done really on platforming across all our great brands. A&CP, detailed work, really how to optimize A&CP. And of course, there is another work on SG&A optimization. So I'm not going to give you a precise number, but I can tell you that all these initiatives really under high scrutiny, and you will start to see really some improvement in fiscal '27, which will be part of the profit recovery for the global company.

We'll take our next question from Rob Ottenstein with Evercore.

Great. Just to kind of understand things a little bit better, I want to just sort of throw out a friendly challenge, which I'm sure it will be easy for you to revuke, but it'll, I think, help understand things a little bit better. Based on the management comments from what I understood, there's a problem with focus, brand SKU proliferation. You want to get the portfolio right, so you can really focus on the key brands and all of that makes sense. But this is also happening within the context of very significant changes in where and how the consumer buys. Drug stores where you're pretty heavily exposed have been very weak. Department stores have been weak for many years. Amazon has become a huge driver. So I was wondering if you could just kind of talk about your strategy within the context of these very important route-to-market changes and how the consumer shops and why you feel it's more important to get rid of SKUs first rather than get the RTM footprint right first and how you're balancing those 2?

Yes. I don't think this is a contradiction. I mean, number one, focus is to drive sellout and market share because we have been underperforming the market in the last 18 months, and this is obviously not sustainable for us. We got to minimum grow with the market and ideally slightly ahead of the market. This is our objective. Okay. Focus on SKUs, this is one thing, and I can tell you examples about that, that this really makes a gigantic difference in the performance. But obviously, in the channel footprint, this is something we are addressing as well. We're actually in -- we're [indiscernible] doing in our Prestige portfolio pretty well on Amazon. We have grown sales by like 30% in the last 6 months. We've launched a Marc Jacobs brand in Amazon in July. This is doing very well, double-digit growth. And the fun fact is that our launch in Amazon has a halo effect actually on brick-and-mortar. The similar thing we're seeing in the TikTok Shop in the U.K., where we are being pretty active with our Rimmel brand and everything we're doing in the TikTok shop. And the volumes are still small today, but the marketing effect we're getting and the increase in the algorithm rankings has a huge halo effect on the other channels. So we are investing into the new channels. But again, it's always important to take the other channels along because our consumer also shops there. When I talk about less is more to build the core, this applies to the portfolio, but also applies to the channels because we also need to have the new channels be successful and the halo effect building our core in our existing channels. I think this is where the magic happens.

Great. And are you making any changes in terms of channel strategy?

We're going to invest, obviously, in our business, we're going to go where the consumer goes, okay? So we're investing heavily in online. We're investing heavily in e-commerce. We're investing in TikTok shops and everywhere where consumers go. But it's, for us, also important that we, especially in our cosmetics business, protect the channels where our existing consumer shops as well. As we get new consumers, that's great. But brands like CoverGirl and Sally Hansen, there's a huge Gen X population that shops for them. And actually, we have retailers asking us, everybody is going after Gen Z, who's doing something for Gen X and you can do that because you have the brands to do it, at least help us. So I think with the right joint business planning activities with the drugstores and these customers, we can do a big splash in the market on both groups.

We'll move next to Nik Modi with RBC Capital Markets.

So I guess just Markus, any views on kind of how you intend to manage the business after the Gucci license ends? And would you consider a deal with Kering to kind of terminate early just so you can kind of move on and reallocate resources? That's my first question. And then I have just a quick bigger picture strategic question.

Okay. Let me get to your first one, Nik. I mean, how we're addressing this, and I think we have mentioned this in previous calls. I mean, job #1 for us is to drive our big brand franchises. And we have many big brand franchises that are basically over $0.5 billion, like Hugo Boss, Burberry to the next level. They have still a huge growth potential. Marc Jacobs has huge growth potential. Chloe has huge growth potential. So basically, these brands that we have, where we see the potential, where we bring out new. So we are basically pretty busy cooking new initiatives and new innovation for the years '27, '28, '29 that coincide with the Gucci exit in June '28, I think it is, to really have the right pipeline to build our top line sales and compensate part of this. Second job to be done is building the new brands that we have acquired. We have new licenses with Swarovski, Armani, Etro. And we have big plans for Swarovski. We're going to come up with what we hope to be a real blockbuster in 2027. And number three, obviously, on Gucci, as we get closer to the license exit, we probably also need to look into our cost structure, how we kind of tweak this a bit to keep our profitability intact. So these are the 3 actions we're taking there. Now your question on caring. And I mean we are always open for deals for shareholders. So yes, we are open.

Got it. And then just I guess this kind of gets at Filippo's question, on the Consumer Beauty business. But newness is so important in fragrances. How does that kind of -- does that conflict with this whole notion of kind of streamlining the complexity of the portfolio?

Yes. No, not necessarily. I think newness -- let understand what newness is in fine fragrances. People love it when you -- they like to experiment, they like to layer in. So of course, you're going to come up with new propositions. But the new propositions need to be tailored in a way that drives total portfolio or the total brand. I'll give you one example. We've launched Boss Bottled Beyond in summer. That's a pretty successful initiative. It's the #2 male initiative of the year. We have already 90 basis points share in the U.S. because we wanted to crack the U.S. for Hugo Boss with this initiative, and it's working very well. Problem is our Hugo Boss franchise in total is not growing. So the innovation is great, but it has no halo effect on the core. And often what happens is you bring in a new innovation, many SKUs, it's pretty cool. Everybody sells the innovation and then we're losing shelf space on SKUs that are loved by consumers and are fast rotating, right? So that is something we need to avoid in the future and be much more surgical, how we bring our innovation to market and also how do we build in a halo effect, right? So that if you launch one, it halos on the other by joint merchandising or there's tons of other things that we can do. So yes, innovation is the lifeblood of this category, but innovation executed in a way that it has an effect on the core. So if I do a Boss Bottled Beyond, I want it to grow the total Hugo Boss franchise and not only the innovation itself. And we are applying this discipline, this logic, this idea of building in halo effects into innovation in everything that we do. And I think that should have a pretty strong effect moving forward.

We'll move next to Olivia Tong with Raymond James.

Nice to speak with you, Markus and Laurent. Markus, I was wondering if you could give some views on your assessment of the internal controls of the company and sort of prioritization, what's your starting point? Because is it the brand, the marketing, innovation, SKU management, IT, it sounds like it's all of the above. So do you think this is a company in need of significant reinvestment? Are there costs that you can take out? And I guess, most importantly, do you trust the answers that the analytics are providing?

Yes. That's -- thanks, Olivia, for that question. Number one, I mean, we have a very, very creative organization. We have amazingly creative people that come up with very awesome things where even I, with my long beauty experience, have to say, wow, this is really cool, right? What we are missing a bit is the operational discipline to bring this to market in a way that is sequenced, that is properly funded and that is well thought through in agreements return in the plans we go to market. We are often so excited about our innovation that we are focusing on the sell-in, right, which is good for a quarter or 2, but what we got to focus on is the sell-out. How does it reach the consumer? Does it meet the consumer needs? Do we have strong joint business planning plans with every single retailer to really bring it out and get the sell-out going because if you get the sell-out going, the sell-in will come. This always equals at the end of the day. But we've got to start from the sell-out from the consumption, from the market shares. That's the big switch that we're going to do. And this is not only -- it's not only words on paper. This is -- it's easy to say, right? I can put this on a PowerPoint chart. It looks great. It's very hard to do, to change the mindset of the organization on this one and put the processes in and the data and the analytics. That's where we spend a lot of time these days, how do we get to one source of truth and every aspect about our business. So when we talk about service to customers, what is the one number that tells us, are we meeting service to customers? What is the one number that tells us are we meeting offtake and market share expectations? So we spend a lot of time in, at the moment, data and AI to really build out our data lake to make sure we have the right questions, the right answers, the right hypothesis and come up, come up with the right action. So you're right, there's a lot of investment needed in this space, and we're making these investments.

We'll take our next question from Charles Scotti with Kepler.

A couple of questions from my side. The first one, could you please provide us more granularity on the expected mid-single-digit sales decline in Q3? It appears that the Consumer Beauty will remain the main drag, but Prestige Beauty comps become significantly easier in Q3 and apparently, inventories are healthier. And despite that, it seems that there will be a sequential deterioration in Q3. So what's explaining this dynamic? And more broadly, what's driving the gap between consumer and your own expected top line growth? Is it destocking or market share losses? Second question on the gross -- sorry, one by one.

Yes. Maybe I can start with that one, Charles, and then please go on. So indeed, on the Q3, mid-single digits. So as we indicated, I mean, it's -- the main headwind is from Consumer Beauty. And indeed, as we shared just before, I mean, we are really still in a phase of that we know where the gaps are. The team is really putting in place all these actions, but it takes time. And indeed, we are still in this phase where the example that too many innovations, then we had to take some returns in some cases. So it's still hurting the top line, and this is something that indeed we are managing. There is also a part that how -- it's exactly the strategy. We are focusing on the big bets. So there are also some parts where we are deprioritizing, okay? So it may -- it's weighing on the net revenue, but for good reasons, okay, it's really with this approach that it will pick up and then it will improve the gross margin and it will improve the profitability. So there is the dimension that you need to consider in Q3 for Consumer Beauty. But at the same time, we are starting to see some green shoots. Markus was referring to CoverGirl, Simply Ageless, Lash Blast, I mean, are doing good. So we need really to amplify these initiatives. But again, it takes time. Then on Prestige, I mean, first of all, you see that indeed, we have some really sequential recovery from Q1 to Q2. This is what we indicated. I can tell you that the headwinds that we faced over the last year, which was related to retailer inventory now is fading out. So we are really now sell-in and sell-out, step-by-step are really now synchronized. So that's positive. Now again, Q3, we still have some challenges. Now it's really focusing on sell-out. Sell-out will be sell-in. But sell-out indeed, and we indicated in the call that we still have some headwinds. I mean, U.S. is -- U.S. Prestige is one case. I mean we -- our Q2 was not at the level expected. Q1 sell-out was very encouraging. The beginning of Q2 was encouraging, but the end of Q2, in fact, was lower than expected. And these are exactly the reasons that Markus was sharing, okay? So that's really the big, great innovations, which are really doing great. But on the other hand, we didn't focus enough on the core. And this is currently what's putting pressure on our sellout and market share and that all the actions are in place to correct this. But indeed, it takes time and it's weighing also on our Q3 Prestige top line. So that's really the big picture. But keep in mind that these are adjustments and then step by step, there will be some sequential recovery on both divisions.

Okay. Very clear. On the 200 and 300 bps gross margin contraction, could you break down the key drivers between input cost inflation, product geographic mix, tariff and promotions? And what is your full year gross margin assumption? Given that the margin comps also become much easier in Q4, is it fair to assume the same 200 to 300 bps margin contraction in Q4 or a little bit less?

Yes. Yes. Thank you. So indeed, Q2 gross margin, I mean, came lower than our initial expectations, and this is indeed what's driving -- putting some pressure on the profit. So what are the big drivers? So on the Prestige division, the number one is that indeed, we saw in Q2 and especially end of Q2 really some very high promotionality in the market. So it really puts some pressure on trade terms on markdowns. So this is really something that we saw really from the whole category and the whole sector. So it indeed created some headwind on the gross margin, and this is mostly the case indeed in Prestige. And on top of this, of course, I mean, come the tariff, we indicated tariff is about $8 million for this Q2 and will be below $40 million for the full year. And the third element still on Prestige is also the ForEx. As we discussed last time, I mean, we are -- we have production in the U.S., and we started really to put some more production in the U.S., but we still have big production in Europe. And of course, the euro-dollar is creating really a headwind on the gross margin. Having said that, just keep in mind that the gross margin in Prestige is still higher than versus 2 years ago, okay? So despite these headwinds, we are on a good territory. So we are seeing this pattern remaining in Q3. And then indeed, there will be some recovery in Q4. Consumer Beauty is -- we discussed the number one, there are similar components, but there are 2 other elements which are important is number two, that lower volumes, especially on our color cosmetic brand is creating fixed cost under absorption, which is really hurting our gross margin. So that's why the sellout and recovery on our big brands step-by-step will mitigate this hurt. And the second one is the mix. We are doing great in Brazil. On the other hand, as you understand, our big brands in the U.S., which are very high profitable, they are under pressure. So there is also this mechanical mix effect. And again, the plan of the call of the future is really that to recover this and step by step recover. So Q3 will still be the same pattern and then some sequential recovery in Q4, which will continue in fiscal '27.

We'll move next to Oliver Chen with TD Cowen.

On the Consumer Beauty side, given the strategy edits here, should we expect it to get worse and worse before it gets better just in order to conduct that reset? And also, as you think about Consumer Beauty, what specific innovation are you most -- feeling most confident about that we should focus on? And on the fragrance side of the house in Prestige fragrance, would love your thoughts on your growth relative to the market and what innovation you're most focused on to attempt to outgrow the market trends?

Yes. The first question was again, I forget...

On Consumer Beauty.

The Consumer Beauty, yes, I was already on the innovation. On Consumer Beauty, I think I would not -- I think things will get better. This quarter for us is difficult as we are really changing the way the go-to-market, sharper bundles, better focus on the base business. It will take some time, but I would not characterize this going -- getting from worse to worse. It will not be easy. It will take some time, but it will get better. I'm pretty much convinced of this. I've seen the plans. I have seen the way the team is defining the activities of the brand to both appeal to a modern consumer, but also make sure that our heritage consumer is being protected and keeps loving our brands. So I'm very excited about that. We have good innovation coming up. We have strong innovation coming up on our core franchises, on the Simply Ageless, on the Lash Blast, but also on new items, more trend items like skin tints and all these things that are currently being requested by the market. So we're on it. So I guess the bundle that we're going to bring out the fiscal '26 bundle is going to be good, much better than before. The fiscal '27 bundle will be great. So that's the way we envision it. In Prestige, we have some pretty exciting blockbusters coming up in the next couple of months. We're going to launch a big Calvin Klein female initiative, actually now soon, very, very soon. And we are super excited about that because we're trying to already make sure that we have halo effects on the Calvin Klein franchise. And Calvin Klein is a big franchise. If you can move the needle there, we can get immediate better sellout and growth. We will have a big bet with the Marc Jacobs beauty like the makeup launch in end of the fiscal year, which we try to turn into a big blockbuster as well. Very excited when I look at that innovation. So this is our near-term focus to get these 2 things right. And obviously, we have many more things in the pipeline that we can talk when we speak again.

We'll move next to Susan Anderson with Canaccord Genuity.

I guess maybe just a follow-up on the promotional environment. I guess, as things kind of worsened in second quarter in the back half, was this driven by competitors, I guess, trying to gain more share? Or was it just consumer demand was lackluster? And then do you expect this promotional environment and markdowns to continue into the third quarter? And then just a follow-up on Oliver's question as well. Maybe if you could talk about kind of where your Prestige fragrances are growing relative to the market.

Yes. Susan, I can start. So indeed, I mean, we saw some competitors indeed being very, very aggressive on promotions. So that's why I was telling you it came more second half of Q2. Yes, we are taking the assumption that it will stay in Q3. So that's why we are including this in our equation in our gross margin. So now at the same time, this is really the segue to all the strategy and what Markus has just shared. So it's really that on our side, it's really forcing us and pushing us really to reallocate our resources and really focusing on the sellout. We have great innovation that we can amplify. So that's really the motto. And again, as you know, we are really -- across the full portfolio, we are seeing the Gen Z, I mean, entering the category being very excited. Volumes are growing. That's very important. So again, we are taking this more as conjectural effect, but we are confident that all the work we are doing will help really to manage and mitigate these headwinds. So again, to be very clear, from a consumer standpoint, there is full confidence. I mean all the KPIs, household penetration, especially in market like the U.S., new consumers entering the category, this is at stake. And as you know, I mean, new tools TikTok, again, these are new tools where really we are seeing great traction. So again, we shared -- I mean, there is -- we stay absolutely confident that the fragrance category will keep growing mid-single digit and it's really volume and mix, okay? So volume is very important and it is the case.

We'll take our last question from Andrea Teixeira with JPMorgan.

So I was hoping to see if you can comment, Markus, first of all, welcome. I was hoping to -- if you can talk to the experience you had managing these brands, especially the Consumer Beauty portfolio at P&G and some of the fragrances as well at the time of the decision to sell these brands to Coty. I mean, obviously, it's the question that most of us probably are thinking, what's different now with Coty? And obviously, the industry has transformed over the last years where Coty has been the stewards of these brands. But what gives Coty a better right to win? And a clarification on the SKU rationalization. What is the top line and gross margin impact over the years and how to think in terms of the cadence of that impact?

Okay. I cannot obviously not comment what went down 10 years ago, I was running the SK-II brand at that time in Asia, far away. I can only comment today what we are doing on the business and what gives me confidence. If you look at, for example, the history of CoverGirl in the last few years, there has been a lot of back and forth on the positioning on the equity, right, a brand for like older consumers and then suddenly try to make it a full Gen Z brand, which obviously did not work and then back again and back and forth. I think every brand that I have ever run, everything starts with the consumer, okay? Do I understand my consumer? Do I understand my target? Do I right have the propositions for my target? And do I have a strong equity that I'm going to drive and then I'm not going to walk away from. So what we have done in the past couple of weeks under Gordon's leadership is really sharpen and define our equities and basically say whom is CoverGirl for and whom it will appeal to. Who is going to be -- who's going to laugh Rimmel? And we find out there is consumers out there that do. There's consumers that potentially do, older consumers, younger consumers, these brands have broad appeal, and we need to bring it now to life. We need to bring it from a PowerPoint chart into the market. And we're doing that, and it's going to happen over the next couple of weeks and months. And I'm fairly confident that we can get better than we were before. And the gross margin, the question was...

Yes. Your question, sorry, Andrea, was really -- okay, yes, how do we see some improvement from all these actions? I mean I think you're familiar with that again. Number one, as I shared, I mean, today, we know what are the headwinds, okay, in our gross margin. So some will naturally disappear or anniversarize, okay? So of course, the tariff and the ForEx, all these headwinds are hurting this year. And next year, they will anniversarize. I think Consumer Beauty, you heard really that all these actions will deliver some gross margin. So now on the SKU rationalization, either Consumer Beauty or Prestige is, of course, that it has an impact across the full value chain. So this is -- yes, and Markus, you can comment.

Yes. I think one, Andrea, I think which is very important on that we're doing a lot in terms of becoming more productive and saving costs, improving our gross margin. But in the beauty care category, with the gross margins you have in general in Beauty, the #1 thing is to drive top line growth because I'm always saying top line health is bottom line wealth in beauty, and that's what we all geared to do.

At this time, we've reached our allotted time for questions. I'll now turn the call back over to Markus Strobel for any additional or closing remarks.

All right. Thanks for the call. We recognize that our recent financial performance has not met expectations. There's no sugar coating it. This leadership transition marks a fresh chapter grounded in realism, discipline and focus. Going forward, we will be transparent about what works and what does not. We're going to set balanced near- and long-term targets. We're going to concentrate our resources where they matter most, and we continuously review our portfolio to unlock value. Consumer demand is our North Star, and we have a clear emphasis on focused execution, sharper priorities. I'm confident that Coty will improve. It will take time, but progress is already underway. As I said in my prepared remarks, it will not happen overnight, but it will happen.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.