Ulta Beauty, Sally Beauty, and Estée Lauder are experiencing a decline in their stocks despite the recent market rally. This comes as the cosmetics industry faces challenges due to changing consumer preferences, shifts in spending patterns, a slow recovery in demand from China, and an increase in theft.
Over the past three months, Ulta Beauty shares have fallen by 19%, while Sally Beauty Holdings and Estée Lauder have dropped by 16% and 27% respectively. This is in contrast to the broader stock market, which has seen a 20% rally in the S&P 500, including a 10% advance in the past three months.
Executives from these companies have indicated that consumers are becoming more selective in their spending, opting for less expensive mass-market brands. The upcoming earnings reports will provide insights into whether the pressures on these companies are easing.
Ulta Beauty, known for its diverse range of products, operates around 1,300 retail stores across the U.S. and offers various price points for makeup, skincare, fragrance, bath, and hair products. Despite its relatively strong position in the beauty industry, Ulta Beauty’s stock has been affected by the current downturn.
Sally Beauty, primarily a distributor of professional beauty products such as hair color, has also seen a shift in consumer behavior. CEO Denise Paulonis noted a softening in purchasing behavior from stylists, who are now buying products closer to their immediate needs.
Estée Lauder, a notable player in the beauty industry with brands like Clinique, M.A.C., and Bobbi Brown, has its own set of challenges, particularly in China. The company, reliant on China sales, has experienced a slower-than-expected recovery in demand due to the country’s economic growth falling short of expectations.
Analysts attribute the downturn in beauty stocks to a consumer shift towards self-care and skincare products over aesthetic beauty. The pandemic has played a role in this trend, as fewer people have been wearing makeup. Additionally, the beauty industry is expanding into new categories that focus on wellness and overall personal care.
Despite the recent decline in beauty stocks, the valuations of these companies are relatively favorable compared to their longer-term averages. Ulta Beauty, Estée Lauder, and Sally Beauty have lower price-to-earnings ratios compared to their five-year averages.
Another factor impacting beauty stocks is theft, commonly referred to as shrink in the industry. Retailers, including those in the beauty sector, have been grappling with increased shoplifting since the start of the pandemic. The losses incurred from theft affect retailers’ profit margins, as they need to invest in additional staff or adjust product packaging to prevent theft.
Ulta Beauty highlighted the impact of inventory losses when it revised its outlook for the year in May. The rise in theft, along with increased violence and aggression during these incidents, has become a growing concern for retailers.
In conclusion, despite a market rally, Ulta Beauty, Sally Beauty, and Estée Lauder have experienced a decline in their stocks. Challenges such as changes in consumer preferences, shifts in spending patterns, slow demand recovery in China, and increased theft have contributed to this downturn. The upcoming earnings reports will provide further insights into whether these beauty companies can navigate these challenges effectively.
