The beauty sector has faced significant losses this week, with beauty stocks like E.l.f. Beauty, Estee Lauder, and others posting steep declines after reporting disappointing earnings and slashing their full-year guidance.
In this blog, we’ll dive into the performance of some of the biggest beauty brands and explore the factors driving these losses. We’ll also take a look at the broader implications for the beauty industry as a whole, including the impact of economic pressures, shifting consumer behaviour, and potential tariff impacts.
E.l.f. Beauty: A Stunning Decline
E.l.f. Beauty ended the week with its worst performance since August 2018, with shares falling nearly 29% over the course of the five-day period. Despite reporting a revenue beat for its fiscal third quarter, the cosmetics company fell short on adjusted earnings per share and significantly lowered its sales outlook for the full year.
-
Full-Year Guidance Cut: E.l.f. now expects full-year sales to fall between $1.3 billion and $1.31 billion, down from the prior forecast of $1.32 billion to $1.34 billion. This guidance revision shocked investors and led to a series of downgrades from top analysts.
-
Market Trends: CEO Tarang Amin attributed the poor performance to broader challenges in the cosmetics sector, noting that beauty sales declined by 5% in January. He suggested this was due to a hangover effect from the holiday discounting season and a reduction in online engagement with beauty products.
Following the announcement, Morgan Stanley, D.A. Davidson, and UBS all downgraded the stock, citing the lowered forecast as a major concern for the company’s outlook.
Estee Lauder Faces Major Challenges
Estee Lauder also saw significant stock declines, with shares dropping 22% for the week – the biggest weekly drop since November.
-
Job Cuts and Slowdown: Despite reporting second-quarter revenue and earnings that beat expectations, Estee Lauder’s announcement that it would cut between 5,800 to 7,000 jobs by the end of fiscal 2026 sent shockwaves through the market.
-
Weakened Asia Demand: The company also acknowledged that softening travel retail demand in Asia would negatively affect net sales in the third quarter. This combination of workforce reductions and declining demand was enough to send shares tumbling, even though the company had beaten expectations on the top and bottom lines.
CEO Stéphane de La Faverie, who took over as head of the company in January, admitted that Estee Lauder had lost its “agility” and failed to capitalise on higher-growth opportunities, which contributed to the company’s struggles.
Ulta Beauty and Coty Join the Decline
Shares of Ulta Beauty and Coty also came under pressure this week. Ulta’s stock saw a 9% drop, marking its worst week since April, while Coty’s shares fell nearly 8%, the biggest loss for the brand since October.
Both companies were affected by the same market conditions that have weighed heavily on the sector. According to E.l.f. Beauty’s CEO, Ulta experienced “a little bit of softness” in January, particularly in the beauty category, as demand for beauty products showed signs of slowing.
Despite this, Ulta and Coty are still major players in the beauty industry, but the broader trend suggests that even the biggest names in the sector are not immune to economic challenges and shifting consumer behaviour.
Tariffs and Other Economic Pressures
The beauty sector, much like other industries in the U.S., is grappling with the threat of tariffs impacting profitability. China recently announced tariffs on a number of U.S. imports, including beauty products, in response to President Trump’s additional 10% tariffs on Chinese goods.
- Impact on Manufacturing: E.l.f. Beauty, for example, manufactures around 80% of its products in China. Despite the news of tariffs, CEO Tarang Amin expressed relief that the tariffs were set at 10%, a far cry from the 60% levies that had been previously proposed. However, this still raises concerns for the industry’s long-term costs and margins.
The ongoing tariff war between the U.S. and China adds another layer of uncertainty for beauty companies already facing slower demand and increased competition. E.l.f. Beauty has indicated that it plans to continue monitoring the situation, but the potential for higher costs could further pressure its margins.
Broader Implications for the Beauty Industry
The recent struggles of beauty stocks like E.l.f., Estee Lauder, Ulta Beauty, and Coty highlight the challenges that are currently facing the beauty industry. Let’s break down the key trends and factors at play:
-
Slowing Demand: Consumer interest in beauty products, especially online sales, has begun to plateau. The discounting frenzy that typically drives sales during the holidays appears to have created a hangover effect in January, with lower-than-expected sales across the board.
-
Economic Uncertainty: The broader macroeconomic environment is causing concern for beauty companies. While inflation and supply chain issues continue to affect the cost of goods sold, the potential for additional tariffs and trade barriers adds further complexity to the industry’s outlook.
-
Shifting Consumer Behavior: As more consumers turn to online shopping, beauty companies may be struggling to meet demand and adapt to new shopping habits. E.l.f. Beauty’s CEO, Tarang Amin, highlighted a decline in online attention to beauty products, a trend that other beauty companies are also grappling with.
Conclusion: What’s Next for Beauty Stocks?
The beauty sector is at a crossroads. While E.l.f., Estee Lauder, Ulta, and Coty are dealing with their own set of challenges, the broader question remains: Can these companies adapt to the changing market dynamics, or will they continue to see their stocks under pressure?
Investors should be mindful of the ongoing challenges facing the industry, from slowing demand and shifting consumer behaviour to the potential impact of tariffs. However, these setbacks also present an opportunity for companies to rethink their strategies and invest in growth opportunities in a changing market.
The coming months will be crucial for the beauty sector, and how these companies respond to current challenges will determine whether they can regain their footing.
Relevant Links for Further Reading:
- E.l.f. Beauty Earnings Report
- Estee Lauder Cuts Jobs
- Impact of Tariffs on U.S. Beauty Industry
- Ulta Beauty Financial Overview
- Coty’s Struggles with Consumer Behavior
Photo credit: Beijing Times
