The pressure is building for beauty’s biggest companies and Wall Street seems to be jittery about how the year will play out.
An assessment of earnings reports from some of the biggest global beauty companies released over the past few weeks indicates that the cracks that first appeared around 18 months ago when Chinese demand weakened are beginning to deepen across geographies and categories.
Among U.S. companies, Coty’s sales declined in the second quarter amid weak demand in Asia and tight inventory management in its home market despite strong fragrance performance; E.l.f. adjusted its full-year forecast after a soft January, and the Estée Lauder Cos. announced 7,000 job cuts as its third-quarter outlook disappointed Wall Street.
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Beauty groups abroad also struggled: Shiseido’s profit tanked 73.1 percent in 2024 due to a soft Chinese market; L’Oréal’s quarterly sales continued to decelerate, and Unilever said it was expecting a “soft” start to the new year. The list goes on.
So what does this all mean?
“We’re seeing normalization [in beauty], with a consumer that’s both cash-strapped and seeking more innovation,” said Oliver Chen, a retail analyst at TD Cowen. “At the same time, we’re seeing an industry that likely needs more innovation, and part of that hopefully will happen with the spring resets.”
“It’s a deceleration of the sugar high of the post pandemic period,” added one industry source. “Part of the story is that for the past 18 months it’s been blamed on the dramatic slowdown in Asia, and the authorized, unauthorized distribution of luxury goods into China. The new part of this that is different is this is the first time you’re seeing a slowdown in general in skin care in the West. The skin care downcycle is more severe than people thought it was, and the average spend on makeup seems to be decelerating.”
Skin care, the majority of Lauder’s business, fell 12 percent in its most recent quarter, while Procter & Gamble’s skin care organic sales were down midsingle digits due to volume declines in its second quarter.
The P&G decrease would have been even deeper had it not been for Japanese skin care brand SK-II’s sales rebounding in Greater China after struggling for months amid Chinese consumers’ boycott of Japanese beauty products due to a controversial discharge of treated wastewater from the disabled Fukushima Daiichi Nuclear Power Station. Nevertheless, executives cautioned that the region in general remains challenging for its parent company.
Shiseido said Drunk Elephant kept suffering a slow sales recovery in the Americas after temporary declines in production and shipments in the first half of 2024, but that the phenomenon had stabilized in the third quarter.
But there were bright spots. While the dermatology segment’s growth is believed to have normalized, it is expected still to increase faster than the global beauty market this year.
In 2024, despite stabilizing growth in the U.S., CeraVe passed the 2 billion-euro sales level, driven by its international expansion and performances in new markets. L’Oréal, CeraVe’s owner, is so bullish on the dermocosmetics category that in August 2024 it took a 10 percent stake in Galderma, the pure-play dermatology leader that last year went public to great success.
In the first nine months of 2024, Beiersdorf noted the global derma market as primary drivers to the company’s sales growth. Its Eucerin Epigenetic Serum was expected to be the company’s largest product launch ever.
The makeup category has been seen as especially weak in North America in both the mass market and prestige, as well as in Asia. At Lauder, makeup net sales decreased 1 percent, primarily due to the declines from Tom Ford, reflecting the impacts from the overall challenging retail environment in Asia-Pacific and the company’s Asia travel retail business. Sales also decreased from MAC and Smashbox, driven by their softness in the eye and face subcategories, respectively. One bright spot was Clinique, which grew by high-single-digits, driven by the brand’s launch in Amazon’s U.S. Premium Beauty Store and the continued success of Almost Lipstick in Black Honey.
And while E.l.f.’s net sales increased 31 percent to $355.3 million for the three months ended Dec. 31, it reported softer than expected trends for mass makeup in January, although chief executive officer Tarang Amin put it down do uncertainty over a TikTok ban and brands wanting to be sensitive around posting content amid the Los Angeles fires.
Meanwhile, the fragrance segment maintained its strong performance, despite a moderation in sell-out in 2024.
LVMH Moët Hennessy Louis Vuitton, whose Perfumes and Cosmetics division’s sales in 2024 reached 8.42 billion euros, highlighted the robust performance of Christian Dior’s Sauvage, which consolidated its world-leading fragrance position. The group also touted the new Miss Dior Parfum edition “a major success.”
Interparfums SA met its 2024 objectives with sales of 880.5 million, bolstered by its top-three fragrance brands Jimmy Choo, Montblanc and Coach.
Beauty’s geographic map shape shifted last year, as well.
“What has been new in [fourth quarter] is the slowdown in the North American market and subsequent retailers’ cautiousness with inventory uptake, which may [take] longer to recover into 2025,” said Céline Pannuti, head of European staples and beverage research at JP Morgan.
“The slowdown has been more pronounced in the mass segment in North America, yet the premium market has also slowed and has been characterized by enhanced promotional activity during the holiday season,” Pannuti continued.
Puig, for instance, said overall beauty market business growth during the holiday season was moderate versus the rest of the year’s gains, which decelerated throughout the year.
Beauty’s digital flex also keeps muscling up, with more brands flocking to Amazon Beauty, which is now the largest prestige beauty retailer in the U.S., according to NIQ.
“Retail stores have been slower versus online” for beauty sales, Pannuti said.
The inventory tightening in the U.S. has been further exacerbated by CVS and Walgreens shuttering hundreds of stores.
Coty’s sell-in, for example, continued to track below sell-out driven by pressure on U.S. mass retailers due to ongoing channel shifts, tight inventory management at retailers in Australia and parts of Europe, and higher trade investments.
“As mass sales shift to online, brick-and-mortar retailers continue to tighten inventory levels, creating a couple point sell-in/out gap,” said Ashley Helgans, an analyst at Jefferies.
While there’s no crystal ball, many beauty companies, such as Unilever, foresee after a soft start to 2025 that the market will gain more traction in the second half of the year. Unilever’s own growth is expected to improve as prices increase, reflecting higher commodity costs in 2025.
“As we enter 2025, the market is characterized by a low visibility and high volatility,” Pannuti said. “The potential continuous slowdown will likely be coupled with retailers destocking — or at the very least be cautious in managing inventories — and could exacerbate the volatility in results in the coming quarters.”
“There are some brands that are big winners and big losers, but it’s not an expanding market,” added the industry source. “It’s a market-share war.”
