Latest quarterly earnings paint a cautious picture for the beauty industry

 Glossy rounded up the latest earnings, spotlighting the successes and missteps of Hydrafacial owner The Beauty Health Company, Coty Inc., The Honest Co., Sally Beauty Holdings and The Estée Lauder Companies. 

The Beauty Health Company, May 10

The Beauty Health Company, owners of Hydrafacial service devices, announced on Wednesday its financial results for the first quarter of 2023, ending March 31. For the quarter, net sales grew by 14% year-over-year to $86.3 million, continuing a trend of double-digit quarterly growth. The quarter was underpinned by continued strong consumer demand for Hydrafacial treatments. Additionally, Beauty Health raised its 2023 net sales guidance and reaffirmed its 2023 EBITDA margin and 2025 long-term targets, according to a press release.

Hydrafacial first launched in 2005 and went public as Beauty Health in 2020 as a SPAC. It has made repeated headlines lately for new, high-end partnerships with luxury skin-care brands Omorovicza and Dior Beauty. Hydrafacial’s business operates by selling $25,000 machines, and corresponding booster products to operate the machines, to dermatologists and medspas. A typical Hydrafacial service retails for about $250 per session, and the average Hydrafacial customer visits just over three treatment providers per year. Hydrafacial offers 20 boosters with a range of skin-care brand partners including Alastin, Murad, Senté, Glytone and, more recently, JLo Beauty.

“I am pleased with the growth we achieved in the first quarter and our strong momentum going into Q2. We see sustained consumer demand for Hydrafacial treatments across the globe and palpable excitement for the international launch of Syndeo,” said Andrew Stanleick, president and CEO of The Beauty Health Company. Syndeo is the latest version of Hydrafacial machines, which first began rolling out in 2022 in the U.S. Syndeo provides more data and personalization to Hydrafacial providers that will help better meet customer needs. Furthermore, in late February, Beauty Healthy made a definitive agreement to acquire SkinStylus, an FDA-cleared microneedling device, with the aim of making it a co-treatment to Hydrafacial.

Coty Inc., May 9

Coty’s earnings showed it performed well during its third quarter of fiscal year 2023. Coty’s strong third-quarter sales performance came in ahead of analyst expectations and the company’s recently raised fiscal guidance, fueled by accelerating demand for prestige fragrances, as well as retailer restocking and Coty’s latest initiatives, according to a press release. Third-quarter sales increased by 9% year-over-year to $1.2 billion.

“In a complex global environment, beauty remained an advantaged category with consumers, at the sweet spot of affordable luxury, self-care and confidence-boosting,” said Sue Nabi, CEO of Coty, Inc., on the company earnings call on Tuesday.

Coty’s third-quarter prestige beauty revenues grew 10% as reported and 16% on a like-for-like basis to just under $800 million. During the quarter, consumer demand for prestige fragrances accelerated to mid-teens growth, from the already strong high-single-digit growth of the previous quarter. This highlighted the structural changes in consumer behavior, which are fueling growth in category penetration, increasing consumer usage and resulting in premiumization. Coty’s Consumer Beauty unit revenues grew by 6% as reported and 12% on a like-for-like basis to $488 million. During the quarter, the global mass beauty category grew at a high-single-digit pace year-on-year, while Coty continued to outperform the market with double-digit sales growth. Many of the company’s leading Consumer Beauty brands delivered double-digit sales growth, including CoverGirl, Max Factor, Rimmel and Monange.

“Our focus for CoverGirl continues to be on driving penetration with Gen-Z and millennial consumers. This will help the brand close the sales growth gap with the U.S. cosmetics category,” said Nabi. “We remain confident in beauty as a structurally attractive category and in the longevity of the fragrance index. And in this attractive market, Coty is poised to further outperform, given the significant white space opportunities ahead of us within skin care and in China and travel retail.”

Geographically, EMEA sales grew by 7% as reported and 18% on a like-for-like basis during the quarter to $587 million, driven by double-digit growth across most markets. Americas sales rose 13% as reported and 15% on a like-for-like basis to $544 million, driven by North America, Brazil and Latin America. Asia Pacific sales remained the same at $158 million, but grew 4% on a like-for-like basis due to broader Asia and travel retail, and gradual improvement in Chinese sales trends.

Coty reinvested the incremental profit from the stronger sales delivery into its critical skin-care organization and initiatives. Coty owns skin-care brands Lancaster, Orveda and Philosophy. Philosophy relaunched in April. Notably, Nabi recently entered a new long-term equity program and employment agreement through 2030. And Coty is considering a dual stock listing on the Paris Stock Exchange; it is currently listed on the New York Stock Exchange. Such a move would further strengthen the French company’s presence in Europe and provide an additional vehicle to reach untapped investors in the market.

The Honest Company, May 9

According to a press release, The Honest Company’s first quarter 2023 revenue increased 21% to $83 million in the first quarter of 2023. That was driven by more purchases, growth in Honest Co.’s digital sales channel, additional retail distribution from 2022, additional sales from baby clothing and the benefit of price increases. However, the net loss for the first quarter of 2023 was $19 million, falling short of Wall Street expectations.

The company raised prices in 2022 but stated in March that it would further increase prices by “mid to high single-digit[s]” in the second half of 2023 across product categories. Revenue from the Skin and Personal Care category accounts for 27% of total first quarter 2023 revenue, an increase of 7% year-over-year due to higher purchasing rates, more marketing and retail emphasis on best-selling hero items, and new products, including its Daily Green Juice Antioxidant Super Serum which launched in the first quarter of 2023.

In late Dec. 2022, The Honest Co. announced that Amazon and General Mills executive Carla Vernón would become its CEO, effective January 9, 2023. Additionally, Honest Co. announced on Tuesday a transformation initiative that is “designed to build the Honest brand and drive growth in higher-margin areas of the portfolio, strengthen the Company’s cost structure, drive focus on the most productive areas of our business, deliver greater impact from brand-building investments and improve executional excellence across the enterprise,” according to the earnings press release. In the first quarter of 2023, Honest Co. spent $7 million related to the transformation initiative. The company expects costs for 2023 to range between $10 million and $15 million, of which $6 million to $8 million are expected to be non-cash. The transformation initiative is expected to result in $15 million to $20 million in annual revenue, starting in late 2023.

“With my first 100 days behind me, my conviction about the growth potential of the Honest brand and the opportunity to transform our business model remains strong,” said Vernón on the earnings call Tuesday. “This transformation initiative encompasses three pillars: brand maximization, margin enhancement and operating discipline. The workstreams across these pillars are expected to improve our margin structure, drive focus on the most productive areas of our business, reduce working capital, deliver greater impact of brand building investments and improve executional excellence across the enterprise.”

Sally Beauty Holdings, May 4

Sally Beauty reported consolidated net sales of $919 million for the second quarter of fiscal year 2023, an increase of just under 1% compared to the prior year. Global e-commerce sales increased 9% to $87 million, representing 9.5% of net sales, according to a press release. In the second quarter, comparable transactions at Sally Beauty Supply stores increased by low single digits, with the average purchase ticket up by mid-single digits, driven by price increases. In the second quarter, Sally Beauty had 17 million active loyalty members across Sally U.S. and Canada, comprising 78% of sales. The color and hair-care categories remained strong at Sally, increasing 6% and 2% year-over-year, respectively. Denise Paulonis, president and CEO of Sally Beauty Holdings, said on the May 4 earnings call that customer purchasing behavior held steady in January and February with some “softening in transactions and tickets” at the end of March that continued in April.

“We’re closely monitoring this trend and focused on actions around newness and value that inspire our customers to shop,” she said. “We’re continuing to bring newness to our customers, focusing on both vendor innovation and [our] owned brands. In the second half of the year, we’re excited about several new brand launches from our vendor partners across key categories like hair color, hair care and textured hair.”

There were also updates regarding Sally Beauty’s new retail concept Studio by Sally. It opened with a first pilot location in Dallas, Tex. at the end of the second fiscal quarter. Studio by Sally stores are essentially updated and modernized versions of Sally Beauty stores, with a focus on being interactive and engaging for customers. There are five additional locations slated to open during fiscal year 2023.

The Estée Lauder Companies, May 3

The Estée Lauder Companies made headlines on May 3 when it experienced its largest one-day decline on record after the cosmetics company cut its fiscal 2023 earnings outlook. Estée Lauder closed down 17% to $202.70, its largest percent decrease on record going back to 1995. For the year, shares have dropped 18%. The decline came primarily from a lower-than-expected recovery in the Asian travel retail market. Overall, The Estée Lauder Companies reported net sales of $3.75 billion for the third quarter of fiscal year 2023 ending March 31, a decline of 12% from $4.25 billion year-over-year.

Fabrizio Freda, CEO of The Estée Lauder Companies, said the company is facing serious headwinds in the key market — and they are expected to persist until the end of 2023. The challenges come as other parts of its business are doing well amid a robust recovery in consumer demand and a return to growth in China.

“As the shape of recovery for Asia travel retail comes into better focus, it is proving to be both far more volatile than we expected and more gradual relative to what we experienced in other markets,” said Freda during the earnings call.

Skin care net sales declined 17% year-over-year to $1.9 billion, primarily reflecting the slower-than-anticipated recovery of Asia travel retail from the Covid-19 pandemic. In Korea and Asia more broadly, the travel retail recovery was challenged by the slow resumption of international flights, granting of visas and organized group tours. Net sales declined from La Mer, Estée Lauder and Dr.Jart+, partially offset by growth from The Ordinary and M·A·C. Net sales from The Ordinary grew by strong double digits year-over-year, while M·A·C net sales more than doubled, fueled by the successful launch of the Hyper Real franchise line of products in the fiscal 2023 third quarter. Makeup net sales were virtually flat to the prior-year period, landing at $1.08 billion, with net sales declining for Estée Lauder. Meanwhile, M·A·C, Clinique and Tom Ford Beauty grew. Clinique net sales grew by double digits due to lip, concealer and eye subcategory sales. Tom Ford Beauty saw double-digit net sales growth also due to the lip subcategory, including its Lip Color Satin Matte and Soleil Lip Blush products. Fragrance net sales grew by 14% year-over-year to $585 million, reflecting strong growth in every region and double-digit growth from Tom Ford Beauty, Le Labo and Estée Lauder. And lastly, hair-care net sales increased 3% to $149 million, due to growth from The Ordinary’s hair-care products, although Aveda experienced an undisclosed sales decline.

Almost all major beauty conglomerates have made some kind of recent investment into more localized Chinese operations. In December, Estée Lauder opened a research lab to develop skin-care formulations and products for customers in Asia. L’Oréal Group established its own Chinese venture fund to make investments in local brands. And in March, Coty introduced products in the country from brands it owns and licenses in the region. Part of the push, aside from a difficult sales environment due to travel retail, is that Chinese beauty brands such as Perfect Diary and Proya Cosmetics are on the rise in the country, according to WSJ. Notably, Estée Lauder acquired a stake in K-beauty brand Dr. Jart+’s parent brand Have & Be Co. in 2015 before buying the remaining shares in Dec. 2019.