Shares of beauty products company Coty Inc. tumbled around 5% in pre-market trading on Tuesday after the firm reported disappointing fiscal second-quarter sales, weighed down by challenges in certain key markets like China, travel retail Asia and Australia, as well as tight retailer inventory management.

Coty's Q2 results showed a 1% decline in like-for-like sales, missing expectations as the combined impact from China, travel retail Asia, Australia, and the US consumer beauty segment worsened sequentially to negatively impact total sales by around 3%. Additionally, the mass color cosmetics category experienced continued pressure amid market deceleration and evolving channel preferences.

However, Coty's performance was supported by its prestige fragrances business, which saw high single-digit sell-out growth in the first half of fiscal 2025. Brands like Burberry, Chloe, Marc Jacobs and Davidoff drove strong momentum, reflecting the company's leadership position in the fragrance category across price points.

Despite the sales headwinds, Coty maintained a focus on driving profit growth and margin expansion through disciplined cost control and supply chain productivity initiatives. The company delivered 7% growth in Q2 adjusted EBITDA and a 220 basis point expansion in EBITDA margin, driven by significant gross margin gains. Coty also reached a key milestone by reducing its leverage ratio to below 3 times for the first time in over eight years.

Looking ahead, Coty expects the sales challenges to persist in the near term but anticipates solid profit and earnings growth for fiscal 2025. The company projected low single-digit adjusted EBITDA growth and mid-to-high single-digit adjusted EPS growth, benefiting from lower interest expenses as debt levels continue declining. Free cash flow is also expected to grow by around 10% year-over-year.