Global concerns dampen Wall Street’s warmth to beauty

Despite the ebullience surrounding the resurgence of beauty across categories in recent earnings calls, the larger market volatility has cast a pall of nervousness on Wall Street.

Macro-economic volatility surrounding inflation, supply chain constraints, and Covid-19 lockdowns in parts of China have led to slumping stock prices even with individual companies reporting strong growth or record sales.

On May 9, Coty Inc. held its third-quarter earnings call and reported revenue of $1.2 billion, an increase of 15.4%. Net income was $50.3 million for the quarter, compared to a loss of $18.5 million in the same period in 2021. Coty’s quarterly results showed that cosmetics sales remain strong even in light of economic inflation and its subsequent impact on discretionary spending. Its consumer beauty revenue increased 7.8% to $459.8 million in the quarter. However, the stock has fallen 36% so far this year, while the S&P 500 has fallen 16%.

“There is quite some resilience, and consumers continue to spend when it comes to prestige category, specifically on the fragrance category,” said Sue Nabi, Coty Inc. CEO, on the earnings call. “It’s important to keep in mind that, for a lot of consumers, despite what is happening today in terms of inflation… this is the first summer post-lockdown [without restrictions] except in China. Consumers are going to be in a very positive mood. They are going to come back to life.”

Consumer demand is not limited only to products, but also includes beauty services. The Beauty Health Company, owner of the Hydrafacial spa service, reported on May 10 record-breaking first-quarter results ending March 31, with net sales increasing 58.6% year-over-year to $75.4 million. The company raised its net sales guidance for the year to a range of $330 million to $340 million, up from $320 million to $330 million in 2021. But The Beauty Health Company’s stock fell by 9.4% from May 10 to just above $10 per share as of this reporting.

That is possibly due to the fact that total operating expenses more than doubled year-over-year to $62.7 million. The majority of that was driven by selling, general and administrative expenses which rose due to increased investment in global personnel, and stock-based compensation and advertising expenses. The company also said in its earnings report that it expects continued headwinds from global supply chain challenges and inflationary pressures to weigh on gross margin through 2022, specifically higher shipping costs.

The Estée Lauder Companies said on its company’s earnings call for the third quarter ending March 31 that a “makeup renaissance” led to continued double-digit global growth in makeup sales, especially from MAC Cosmetics, Estée Lauder and Clinique. Net sales increased by 10% to $4.25 billion year-over-year for its fiscal third-quarter reported on May 3. But global sales growth was slightly lower than last quarter. As a result of the China slowdown, as well as the invasion of Ukraine, the company slashed its final-year net sales growth outlook from 13-16% to 7-9%. Share prices hit a 52-week low following the announcement.

On Wednesday, Olaplex reported its first-quarter earnings of 2022, noting a total revenue increase of 57.6% year-over-year to over $186 million. Net sales increased 65.1% in the U.S. and 45.7% globally. All three of the company’s sales channels — direct-to-consumer, specialty retail and professional salons — saw double or triple growth year-over-year. Direct-to-consumer sales rose 15.1% to $44.9 million, specialty retail increased 102.5% to $64.3 million, and the professional channel grew 62.6% to $77.0 million.

“Like everyone else, we are not immune to the macro situation, especially with all of the inflationary pressures,” said JuE Wong, CEO of Olaplex. “But what differentiates us is our ability to control the relationships without 3PL and with our third-party manufacturers. When I say control, it means that we have a good network and can pull [different] levers [as needed].”

Wong pointed to cost-saving examples like rejiggering shipping containers to fit more Olaplex units, finding a new third-party freight forwarder for international shipping to defray costs, and bringing consulting work on selling, general and administration expenses back in-house. These have all been implemented at different times since Wong joined Olaplex as CEO in Jan. 2020. The day after the earnings call, Olaplex’s stock increased by 5%.

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