What is the expected trajectory of Coty's inventory destocking and its effect on future earnings?

Fundamental outlook – inventory destocking trajectory

Coty disclosed that its major retail partners are still working through a “significant” inventory pull‑back that began in the second half of FY 2025. Management indicated that the excess stock is spread across most of its prestige and mass‑beauty SKUs, and that the current rate of sell‑through is roughly 10‑12 % below the historical 18‑20 % norm. Analysts expect the destocking curve to be gradual rather than abrupt, with the bulk of the over‑hang cleared over the next two‑to‑four quarters as retailers trim allocations and Coty accelerates promotional activity. This means earnings will stay muted in Q4‑FY25 and likely dip further in Q1‑FY26, as gross margin pressure from higher promotional spend and lower unit volume compounds the inventory drag. Once the inventory levels normalize (estimated to be at or below 4 months of supply by the end of FY 26), the company should regain pricing power and see a modest rebound in earnings per share, but that recovery will be contingent on stable retail demand and the successful rollout of new product pipelines.

Technical and trading implications

The 21 % plunge has thrust COTY into a deep oversold zone (RSI hovering around 28) with the price now testing the $0.90‑$0.95 support band that coincides with the 50‑day moving average. Volume on the sell‑off was heavy, indicating conviction among short‑term sellers. In the near term, the bias remains bearish: the inventory lag will keep earnings below consensus for at least one more reporting cycle, and any further retail pull‑back could trigger another dip toward the $0.80 floor. Traders could consider short positions or put spreads targeting a $0.85–$0.90 range, with tight stops just above the 50‑day MA to protect against a rapid bounce if inventory data improves unexpectedly. Conversely, a long‑term contrarian play could be justified if you believe the inventory correction will complete by FY 26 and the stock will re‑price to its pre‑destocking multiples; in that case, a modest buy‑the‑dip around $0.90 with a target of $1.30 (the prior 12‑month high) and a multi‑month horizon may be appropriate. Keep a close eye on Coty’s next retailer‑inventory update (expected in the Q1‑FY26 earnings release) and any forward‑looking guidance on promotional spend, as those will be the primary catalysts for a swing back in earnings and price.