The Allure of Beauty Stocks Is Fading

livemint.com:

Beauty stocks are losing their glow. The cosmetics industry historically has been more resilient than other discretionary categories during inflationary periods because consumers are reluctant to alter their grooming habits. Yet companies are now grappling with challenges including changes in consumer tastes and spending patterns, a slower-than-expected rebound in demand from China and a rise in theft.

The stocks have tumbled, even in the midst of a revival in the broader stock market. Ulta Beauty shares have declined 19% over the past three months, while Sally Beauty Holdings has fallen 16% and Estée Lauder has dropped 27%. All three stocks are down in a year in which the S&P 500 has rallied 20%, including its 10% advance over the past three months.

Company executives have suggested in recent months that consumers are spending more selectively and leaning toward less expensive mass-market brands. Investors will be closely watching the companies’ earnings reports later this month to see if the pressures are abating. “Consumers are exploring how best to navigate the economic uncertainty," Ulta Chief Executive Dave Kimbell said on the company’s earnings call in May.

“Inflation concerns remain high." Kimbell added that it is difficult to gauge if the growth in mass products is due to interest in brands such as E.l.f. Beauty that are known for selling low-cost-but-trendy makeup, or increased consumer price sensitivity. Makeup sales across the industry have generally been declining since before the start of the pandemic.

Ulta operates about 1,300 retail stores across the U.S. and sells makeup, skin care, fragrance, bath and hair products at various price points. The company has long been a highflier in the sector based on its