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Aug 17 (Reuters) – Americans are turning to cosmetics and fragrances to beat the inflation slump in a trend called “the lipstick effect” that could keep the post-pandemic beauty market rebound alive and help quarterly beauty sales. Estee Lauder (EL.N) and Coty (COTY.N).
The phenomenon, in which consumers buy more beauty products instead of expensive items during an economic downturn, should cushion the blow of lockdowns in China’s top beauty market, according to analysts.
“The broader idea is that consumers will invest in little luxuries that boost their confidence and perceived attractiveness during periods of uncertainty,” said Jennie Liu, a professor and executive director of the Yale Center for Customer Insights.
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THE CONTEXT
With the United States teetering on the brink of a recession, soaring prices for food and other everyday essentials have made consumers aware of where they are spending their dollars. But beauty companies are likely to get away relatively unscathed.
During the 2008 recession, beauty almost became recession-proof as “it was kind of a joy factor” for customers, said Ashleigh Barker, director of the consumer group at global investment bank Lincoln International.
Estee Lauder is expected to post a 15% rise in the Americas, according to IBES data from Refinitiv.
Maybelline owner L’Oreal (OREP.PA) reported strong second-quarter comparable sales last month, pointing to demand for “lots of color” as lipsticks and fragrances rolled off shelves. with the resumption of socialization after two years. read more
Morningstar Research analyst Rebecca Scheuneman said she expects high-end makeup and fragrances to be particularly resilient as higher-income customers remain mostly immune to inflation.
Lipstick fits the bill for those looking for a confidence boost without breaking the budget, compared to expensive luxury products like handbags, said Kunal Sawhney, chief executive of equity research firm Kalkine Group.
Estee Lauder’s Tom Ford lipstick is priced at approximately $58 in the United States, while Gucci Rouge à Lèvres lipstick made by Coty is $42.
THE BASICS
* CoverGirl cosmetics maker Coty is expected to post fourth-quarter sales of $1.14 billion, up 7.4% from a year earlier, according to analysts surveyed by Refinitiv.
* Estee is expected to report fourth quarter sales of $3.44 billion, a decrease of 12.7% from a year earlier.
WALL STREET FEELING
* The current average rating of 26 analysts on Estee’s stock is “buy”, with 18 analysts rated “buy” or higher.
* Median target price is $306, approximately 11% above Estee’s last closing price.
* The current average rating of 14 analysts at Coty is “buy”, with six analysts rated “buy” or higher.
* Median price target is $10.13, approximately 29% above Coty’s last close.
Estee shares vs. Coty
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Reporting from Ananya Mariam Rajesh in Bengaluru and Mimosa Spencer in Paris; Edited by Devika Syamnath
Our standards: the Thomson Reuters Trust Principles.
Source: www.reuters.com