Despite record-high inflation, recession fears and interest rates, the beauty sector is rising optimism about a successful holiday season in the US
As has been seen in previous downturns, such as the 2008 financial crisis, while there has been trade down, generally no one leaves beauty — and so far major beauty companies have not yet reported evidence of trade down, with the prestige sector booming.
“Looking ahead, we see some but not much downside risk to the beauty segment; Indeed, we think the category will be one of the winners over the lucrative holiday period,” Neil Saunders, managing director of GlobalData, said.
He noted that while the “lipstick effect” — the theory coined by beauty mogul Leonard A. Lauder that beauty sales increase during tough economic times — seems like a cliché, it is based on a truth that is still relevant. “Namely that consumers are very reluctant to give up little beauty treats and indulgences and, indeed, feel like these are deserved rewards for living through a more difficult time. Outside of indulgences, it is also the case that many beauty and skin care routines are very much embedded into people’s lives so there is great reluctance to cut back on any of the products associated with them.”
Olivia Tong, an analyst at Raymond James, added that retailers generally appeared to be optimism about the holiday season, but are being prudent in some of their guidance as “it is not the easiest of times right now.”
As for the companies themselves, the Estée Lauder Cos. Inc.’s executive vice president and chief financial officer Tracey Travis told WWD, “We feel really good going into the holiday season,” adding that it will have some great holiday promotions and holiday gift sets.
Its recent full-year sales forecast came in below analysts’ estimates, but much of that was down to COVID-19 lockdowns in China.
Ulta Beauty, meanwhile, raised its outlook for fiscal 2022, now expecting net sales in the region of $9.65 billion to $9.75 billion, up from $9.35 billion to $9.55 billion. Diluted earnings per share are expected to be $20.70 to $21.20, up from $19.20 to $20.10.
The company noted, however, that it expects the environment to be more competitive and more promotional this holiday season than it was a year earlier.
During a call with analysts, chief executive officer Dave Kimbell said: “As we look to the future, we know there will be challenges, particularly with the wide-ranging impact of rising inflation, both on our business and our guests. But we remain confident in the resilience of the beauty category and our ability to lead the beauty category and drive long-term profitable growth.”