What's in store for beauty?
Beauty's latest financials paint a picture of the good, the bad, and the pretty confusing
The world’s biggest beauty companies have by now released their latest quarterly earnings reports, and the results are a mixed bag. The most painful of all has to be Estée Lauder, down 9% and expecting to close the financial year down 8-9% from 2024. Beauty, like many sectors, is sailing in rough seas at the moment, but there are key factors setting companies apart within the industry.
First, let’s summarise the key points from each (and by each, I obviously don’t mean all of the beauty companies in the world, I am covering a selection of the largest):
Sales: +4.4% (+3.5% like-for-like i.e., based on comparable structure and identical exchange rates)
Luxe (its second-largest division by revenue by a narrow margin) saw the highest level of growth at +7.3% (Luxe including Aēsop, Kiehl’s, Lancôme, a few makeup brands such as It Cosmetics and Urban Decay, but mostly fragrance-first brands like Mugler, Yves Saint Laurent, and Prada), while Consumer Products saw the lowest growth at +2.5% (think L’Oréal, Garnier, Maybelline)
Dermatological Beauty sat somewhere in between at +3.5% and this is largely driven by the obscene amount of Skinceuticals products I buy. Jokes aside, the growth engine here is LaRoche-Posay, especially its recent Mela B3 range (another area where I am a significant revenue contributor), as well as Skinceuticals’ sensational P-Tiox serum
All regions saw growth except North America (its second-largest region by sales), down 1.4%, while SAPMENA-SSA (an unhinged naming convention for South Asia Pacific, Middle East, North Africa, Sub-Saharan Africa) was the only region with double-digit growth at +12.2%, largely volume-driven
L’Oréal named its report “Solid in the Storm”, a nod to the challenging operating environment (no surprise that they refer to tariffs in the report specifically)
The company slightly outperformed the global beauty market, which the CEO expects to continue growing despite *gestures broadly at everything*
Organic net sales: -9% (ouch) and ELC expects to end the full year down 8-9%
By category, Skincare saw the greatest decline at -11%, followed by Haircare at -10%, while Fragrance suffered the least at -2%
ELC blames skincare’s performance on a decrease in its Asia travel retail business, hair care on the softness in the salon channel (something L’Oréal also mentioned), and fragrance on retail softness in Asia/Pacific, specifically pointing to declines in Clinique and Estée Lauder
All regions declined, APAC least (-1%) and declining overall despite growth in Mainland China, and EMENA most (-16%) due to a large decline in travel retail and ‘ongoing challenges’ in the UK (read: retail softness for ELC brands)
Interestingly, little to no mention of Bobbi Brown and The Ordinary, two brands that have often helped carry ELC in 2022-2023’s disappointing earnings reports
Net revenues: -3% like-for-like
Prestige segment declined by 3%, while Consumer declined by 5%
EMEA is Coty’s largest region and declined the least at only -1%, while the Americas, its second largest, dropped by a painful 6%
Similar to L’Oréal, Coty refers to ‘an uncertain market backdrop’, ‘FX headwinds’, and ‘challenging landscape’ - beauty execs are making a point of highlighting the macro environment which may not offer much respite anytime soon, balancing that with medium- to long-term optimism
Beauty has always been a resilient category across economic cycles, precisely
because of its aspirational nature and its affordability for consumers looking
for a personal indulgence during more difficult times.
- Sue Nabi, Coty CEO
Net revenues: +7.5% (like for like), expected to end the year up 6-8% even factoring in the impact of US tariffs
A mixed bag of results when broken down by division: Fragrance & Fashion was up +10.4%, Skincare +7.2%, but Makeup at -6.0% which Puig attributes to ‘continued softness in premium makeup’ (note that Charlotte Tilbury, a brand mostly associated with makeup, is credited as being a part of the reason for growth in Puig’s skincare division)
All regions saw growth, with both the Americas and APAC at double digits (+11.8% and +13.2% respectively) and EMEA at +3.8%
Quick mentions:
Amore Pacific: Reported growth of 17.1% but this includes the consolidation of COSRX which, based on annual revenue of ~€300M in 2023, would mean organic growth of around 3-4%, in line with Coty and L’Oréal;
LVMH: Perfumes & Cosmetics flat, with negative organic growth (-1%) offset by currency effect (+1%)
The picture is far from being consistent across the board, but there are key things the industry can learn from the latest batch of earnings reports:
Category:
It’s clear that makeup (especially colour cosmetics) is not a growth engine in beauty at the moment. The category saw a sharp decline during the pandemic, and current trends of a more natural look and a skincare-first approach over excessive coverage and heavy makeup mean this will likely remain the case in the short to medium term
Fragrance offers the chance for real growth, but primarily in the niche fragrance sub-category. This may be a cause for concern for Coty, which has a string of masstige perfumes in its portfolio that risk losing market share as consumer preferences continue to evolve away from these types of brands
Skincare is the least consistent category right now. Despite an uptick in multi-step routines and a general trend of taking skincare much more seriously (driven largely by beauty influencers including dermatologists and industry professionals with a strong online presence), the category is saturated. Two scenarios occurring frequently in the market are established brands (think Estée Lauder, Clinique) losing market share to newer and more innovative competitors, while at the same time some challenger brands are struggling to maintain their market share and position (The Ordinary is no longer the growth engine it was 2-3 years ago for ELC, and Glossier has lost its edge as other viral brands gained traction)
Segment:
Even in a time of economic uncertainty and the threat of a recession, mass and masstige are struggling, and are segments that rely on volume to make up for the lack of value-driven growth
That said, tariff-related price hikes in the short term may affect this, and beauty conglomerates will need to take a strategic approach in balancing investment in their brands on either end of the cost spectrum (except fragrance, as stated above)
Geography:
Honestly, who knows? This picture is the least clear, and it’s hard to say where to focus. The highest level of uncertainty and softening of consumer sentiment seems to be in North America, parts of Asia are a growth engine, and Europe swings across the spectrum between these companies. It’s clear that regional sales cannot rely on travel retail in a way they may have been able to in the past, and given the overall lack of clarity here, brands will need to adopt region-specific strategies to try claw these companies out of the current level of geographical disparity
I expect next quarter’s earnings reports will look largely similar, if not worse. Beauty’s recovery to growth and greater consistency in performance between categories, segments, and regions is far from impossible, but it will be a game of patience and strategy.
As Dorothy Parker said, beauty is only skin deep, but poor earnings go clean to the bone.
*Estée Lauder Companies figures all related to organic net sales i.e., taking into account impact of foreign currency translation, unless specified otherwise