Chicago, IL – January 23, 2025 – Today, Zacks Equity Research Equity are The Estee Lauder Companies Inc. EL, Helen of Troy Ltd. HELE and European Wax Center, Inc. EWCZ.
Companies in the Zacks Cosmetics industry are navigating a dynamic macroeconomic environment, facing external headwinds that are impacting consumer demand and putting pressure on the sector. The tough demand landscape is affecting sales for many cosmetic companies, while higher production costs are straining profitability and operational efficiency.
Despite these challenges, companies like The Estee Lauder Companies Inc., Helen of Troy Ltd. and European Wax Center, Inc. have seen positive results from initiatives focused on enhancing digital capabilities and driving innovation. These strategies are helping them adapt to market shifts and maintain growth against a tough economic backdrop.
About the Industry
The Zacks Cosmetics industry includes companies that provide beauty and personal care products. Players in the industry manufacture, distribute, sell and market skincare, fragrance, makeup and hair care products. Many firms in the market sell products via sales representatives, whereas some do the same through retailers, independent and chain drug stores and pharmacies, upscale perfumeries, department stores and beauty salons.
These companies also operate through retailer websites, third-party distributors and in-flight and duty-free shops. Some products offered by industry participants include moisturizers, serums, toners and cleansers under skincare; perfume sprays, candles and soaps under fragrance; lipsticks, mascaras, powders, eye shadows, foundation and nail polishes under makeup; and shampoos, conditioner and hair color products under hair care.
Trends Shaping the Future of the Cosmetics Industry
Challenging Economic Conditions: Cosmetic companies are navigating a tough macroeconomic environment marked by reduced consumer spending and fluctuating retail replenishment cycles. As a result of heightened living costs, consumers are becoming more selective, prioritizing essential goods while cutting back on non-essential items like cosmetics.
This shift in spending habits is creating a challenging demand landscape for many beauty brands. In addition, higher costs for packaging, ingredients, transportation and promotions are driving up operational expenses and squeezing profit margins, adding pressure to several cosmetic companies in this highly competitive beauty space.
International Risk Factors: Several industry players face potential risks due to their global footprint, including exposure to adverse foreign currency fluctuations. Political unrest, like turmoil related to geopolitical events, might disrupt market access and operational continuity. Trade conflicts, tariffs, sanctions and other restrictions may also affect their performance.
Innovation & Digitization Are Major Drivers: Innovation and digitization are key growth drivers in the beauty and skincare market. Consumers are increasingly seeking unique products that combine advanced technology with expert scientific formulations. In response to these evolving preferences, cosmetic companies are continuously innovating and introducing new products.
The rising consumer interest in organic and clean beauty products has fueled market growth. Enhancing e-commerce capabilities is a key priority, with advancements like virtual try-on tools, seamless digital payment systems and enhanced online marketing strategies gaining traction. In addition, many beauty brands are expanding their product portfolios through strategic acquisitions and partnerships to stay competitive in this rapidly changing industry.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Cosmetics industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #232, which places it in the bottom 7% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries leads to a negative aggregate earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of November 2024, the industry’s consensus estimate for current financial year earnings has decreased 5.8%.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.
Industry vs. Broader Market
The Zacks Cosmetics industry has underperformed the Zacks S&P 500 composite and the broader Zacks Consumer Staples sector over the past year.
The industry has declined 36.3% over this period against the S&P 500’s growth of 24.7%. The broader sector has dropped 2.1% in the said time frame.
Industry's Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 27.12X compared with the S&P 500’s 22.33X and the sector’s 16.15X.
In the past five years, the industry has traded as high as 42.58X and as low as 21.1X, with the median being 33.28X.
3 Cosmetic Stocks Worth Watching
Helen of Troy: This provider of consumer products across Beauty, Housewares and Health & Home segments carries a Zacks Rank of 2 (Buy). Helen of Troy is dedicated to making strategic investments in its Leadership Brands, a portfolio of market-leading names. The company is focused on long-term initiatives aimed at strengthening its core operations and refining its growth portfolio. By adopting a data-driven approach, Helen of Troy is enhancing brand fundamentals and driving performance. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Expansion into key international markets, along with the optimization of distribution networks, is expected to boost sales in the future. In addition, the company’s "Elevate for Growth" initiative builds on the foundation laid during the Transformation era, harnessing new ideas and capabilities to drive continued success. The Zacks Consensus Estimate for Helen of Troy’s current fiscal year earnings per share (EPS) has moved up 0.4% in the past 30 days at $7.23. The stock has risen 13% in the past six months.
The Estee Lauder Companies: This New York-based company manufactures and markets skincare, makeup, fragrance and hair care products. The Zacks Rank #3 (Hold) company is focused on executing its Profit Recovery and Growth Plan (PRGP), which centers on three key areas: accelerating margin expansion, fueling growth with targeted investments and simplifying processes to boost agility.
For the fiscal year 2025, the company’s strategic reset emphasizes five main priorities: driving growth in Skin Care, seizing opportunities in the high-end Fragrance market, expanding successful sales channels, launching impactful innovations, and modernizing marketing through AI and data-driven strategies.
A major driver of growth for The Estee Lauder Companies is its strong online presence, which continues to thrive. In addition, EL is well-positioned in emerging markets, where demand is steadily increasing. The Zacks Consensus Estimate for EL’s current fiscal year EPS has moved down by a penny in the past 30 days to $1.48. EL shares have dropped 22.9% in the past six months.
European Wax Center, Inc.: The largest and fastest-growing franchisor and operator of out-of-home waxing services in the United States carries a Zacks Rank #3. The company’s franchise partners remain highly committed to long-term development, providing a solid foundation for continued expansion. European Wax Center is on track to attract new guests, boost ticket sales by retaining and reactivating existing customers and enhance overall productivity.
Focused on implementing innovative marketing and technology solutions, the company aims to attract new guests while strengthening engagement with current ones. These strategies are designed to deepen customer relationships and drive long-term growth. The Zacks Consensus Estimate for European Wax’s current fiscal year EPS has remained unchanged in the past 30 days at 34 cents. EWCZ stock has declined 30.6% in the past six months.
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