The beauty and the beast of inflation: the “lipstick effect” to protect Estee Lauder, Coty

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Aug 17 (Reuters) – Americans are turning to cosmetics and fragrances to beat the inflation blues in a trend called the ‘lipstick effect’ that could keep the beauty market’s post-pandemic rebound going and helping quarterly sales of Estee Lauder (EL.N) and Coty (COTY.N).

The phenomenon, where consumers buy more beauty products instead of big-ticket items during an economic downturn, is expected to cushion the blow of shutdowns in China’s main beauty market, analysts said.

“The larger idea is that consumers will invest in small luxuries that increase their confidence and perceived appeal during times of uncertainty,” said Jennie Liu, speaker and executive director at the Yale Center for Customer Insights.

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THE CONTEXT

As the United States teeters on the edge of a recession, sky-high prices for food and other basic necessities have consumers wondering where they are spending their money. But beauty companies should come out relatively unscathed.

During the 2008 recession, beauty became almost recession-proof because “it was kind of a joy factor” for customers, said Ashleigh Barker, head of Consumer Group at the global investment bank. Lincoln International.

Estée Lauder is expected to post a 15% rise in the Americas, according to IBES data from Refinitiv.

Last month, Maybelline owner L’Oréal (OREP.PA) reported strong comparable sales in the second quarter, underscoring demand for “lots of color” as lipsticks and fragrances soared from shelves and that socialization resumed after two years. Read more

Morningstar Research analyst Rebecca Scheuneman said she expects high-end makeup and fragrances to be particularly resilient as high-income customers remain mostly immune to inflation.

Lipstick is ideal for those looking for a boost of confidence without breaking the budget, compared to expensive luxuries such as handbags, said Kunal Sawhney, managing director of equity research firm Kalkine Group. .

Estee Lauder’s Tom Ford lipstick costs around $58 in the United States, while Gucci Rouge à Lèvres lipstick made by Coty costs $42.

THE FUNDAMENTALS

* Cosmetics maker CoverGirl Coty is expected to report fourth-quarter revenue of $1.14 billion, up 7.4% from a year earlier, according to analysts polled by Refinitiv.

* Estee is expected to report fourth-quarter revenue of $3.44 billion, down 12.7% from a year earlier.

WALL STREET FEELING

* The current average rating of 26 analysts on Estee’s stock is ‘buy’, with 18 analysts rated ‘buy’ or higher.

* The median price target is $306, approximately 11% above Estee’s last closing price.

* The current average rating of 14 analysts on Coty is Buy, with six analysts rated Buy or higher.

* The median price target is $10.13, around 29% above Coty’s last close.

Estee actions against Coty
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Reporting by Ananya Mariam Rajesh in Bengaluru and Mimosa Spencer in Paris; Editing by Devika Syamnath

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