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COVID-19 disrupted supply chains, wracked havoc on businesses and pretty much destroyed travel. But the beauty sector has held relatively strong during this unprecedented challenge. By no means has it been spared, but its brands are still going strong.
Shiseido Company Limited’s Q1 earnings
One of the world’s oldest cosmetics companies, the Japanese beauty company Shiseido Company Limited (OTC:SSDOY) withdrew its guidance for the fiscal year and found it was too early to publish amended forecasts. The pandemic had a significant impact on net sales and operating profit, which were down 16% and 83% respectively. Chinese market experienced negative growth in offline sales due to 70% store closures but they are now rebounding.
Online was an entirely different and far better story, with strong demand for beauty products and continued growth in its e-commerce business. The prestige sectors that includes Shiseido and NARS were strengthened by Women’s Day promotions and grew 160% during the month. Moreover, April’s online sales figures for China are reported to be nearing pre-virus levels.
For travel retail though, with international flights significantly curbed and 90% drop in Chinese travelers, the blow remains. And China is the brand’s long-term focus with the company ramping up its China strategy since the beginning of the year as even before the outbreak, it opened a Beauty Innovation Hub in Shanghai to make a bridge between consumers and industry. Moreover, its quick reaction to the outbreak only confirmed the loyalty to its numerous Chinese customers:
Into the pandemic, Shiseido staged an online launch event to promote an illuminating serum. Most importantly, the event was not about aggressive selling but about being product-oriented and was rewarded with more than a billion views and engagements.
But COVID-19 is resulting in a redefinition of the idea of beauty in 2020. Social media is now a leading medium when it comes to consumer beauty education, and Shiseido has been at the forefront of this new trend. Although the luxury segment will contract this year its subsegment, luxury beauty products are at least a easier purchase to justify. Moreover, an increased emphasis on defining beauty through health and feeling good that we all need these days merges nicely with the brand.
The Procter and Gamble Company
P&G (NYSE:PG) Beauty has suffered due to travel retail closures despite strong Q3 group sales triggered by home and healthcare segments. Although organic sales lifted 1%, which is the 17th consecutive quarter of increase, net revenue and earnings were largely down with sharp declines as the company never experienced complete shutdowns of its sales channels.
LVMH-owned Sephora
Cosmetics retailer also faced closures, was forced to cut down on part-time and seasonal jobs but did not miss a beat in China when it transitioned its Sephora (OTC:LVMUY, OTC:LVMHF) Day online this year presenting spring and summer beauty trends. And as EU eases lockdown measures, things will only get better.
Ulta Beauty Inc
The largest U.S. beauty retailer and the premier beauty destination for all-things-beauty Ulta Beauty Inc (NASDAQ:ULTA) is reporting its first quarter earnings on May 28th. In 1990, the Company reinvented the beauty shopping experience by as it brought all beauty related things in one place. And despite the COVID-19 hit, its possibilities are beautiful as it focused on e-commerce site, mobile app while also offering curbside pickup. The company offers a complete beauty experience and we know beauty never goes out of style.
L’Oréal SA
The question of many investors’ minds is whether L’Oréal (OTC:LRLCY) is better able to absorb all the turmoil. The company has always been at the forefront when it comes to initiatives and this is still the case. As a response to the current crisis, L’Oréal Group created ‘L’Oréal For the Future’. It is a program will invest €50 million to support women, along with €100 million to support the environment. The company is stepping in to help us overcome the social crisis that is upon us while not forgetting the progress that has to be made on the climate change front. If anyone can ride out of the COVID-19 tsunami, it’s L’Oréal.
Coty Inc
Pandemic has dulled beauty sales but Coty (NYSE:COTY) is not giving up despite missing estimates with its latest quarter. It recently announced a strategic partnership through which it provided $750 million. Coty will carve out Wella into a standalone company in which KKR will acquire a 60 percent stake. On signing of the Wella transaction, KKR will also make an incremental convertible preferred investment of $250 million in Coty. Together with the initial investment, this agreement will result in significant deleveraging of Coty’s balance sheet, which will position the company for long-term growth as it will now have what it takes to invest in its core business. Along with the 40% in Wella, it still counts on 100% ownership of its mass beauty business in Brazil.
While the first quarter earnings reports noted that the business environment is still uncertain and that our future likely fosters a recession, we’ll need to wait until Q2’s announcement for gain more clarity. But brands such as Shiseido which besides size, have a legacy in love affair with beauty, along with targeting the right market, such being China, consumers will be there even if the pandemic persists. It’s all about seeing the crisis as a transformative opportunity.
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