The beauty industry, once considered a resilient sector within the market, has faced a steep downturn this week, leading to significant losses for prominent beauty stocks like E.l.f. Beauty and Estée Lauder. The revelations from these companies about their financial performance have rattled investor confidence, resulting in considerable sell-offs. E.l.f. Beauty, which recently suffered its worst week since August 2018, saw its shares plummet nearly 29% over just five trading days. Despite reporting a revenue increase for its fiscal third quarter, a shortfall in adjusted earnings per share and a projected decrease in full-year sales guidance raised alarms among investors.
CEO Tarang Amin’s remarks on CNBC shed light on the broader issues impacting the cosmetics sector. He noted a 5% decline in the industry during January, which he attributed to the aftermath of heavy holiday discounting and a noticeable dip in online consumer engagement with beauty products. Such commentary presents a sobering picture of a sector struggling to retain its momentum. Analysts from major financial institutions, including Morgan Stanley and UBS, responded swiftly by downgrading E.l.f.’s stock, reflecting a general sentiment of caution following weak guidance cuts.
Estée Lauder also faced turbulent waters, with its shares tumbling by 22% in the same week, marking a regrettable downturn for the company. The announcement of potential layoffs ranging from 5,800 to 7,000 positions by the end of fiscal 2026 added to the negative perception among investors. Furthermore, a softening demand in the travel retail sector across Asia cast a shadow over the company’s third-quarter net sales forecast, even as it reported satisfying second-quarter numbers. CEO Stéphan de La Faverie lamented a loss of agility within the company to capitalize on growth opportunities—a critical observation that served to underline the inherent challenges faced by legacy beauty brands amidst a rapidly changing market landscape.
The unfavorable conditions extended beyond E.l.f. and Estée Lauder, affecting other major beauty brands like Ulta Beauty and Coty. Ulta saw its stock decrease by 9%, while Coty experienced an 8% decline, marking their worst performances since April and October, respectively. E.l.f. Beauty’s commentary during its earnings call indicated a “softness” at Ulta, further illustrating the interconnected struggles within the sector.
Compounding the issues facing beauty stocks are ongoing geopolitical tensions, with tariffs threatening to erode profit margins. The implementation of tariffs on select U.S. imports by China has raised concerns, particularly for E.l.f., which produces approximately 80% of its merchandise in China. CEO Amin expressed some relief over the lower-than-expected tariffs of 10%, especially when prior discussions hinted at potential tariffs as high as 60%.
The current landscape for beauty stocks indicates a period of instability, driven by disappointing earnings reports, layoffs, and external economic pressures. As the industry grapples with these challenges, the path forward calls for a recalibration of strategies to enhance agility and capitalize on emerging opportunities in a fluctuating market.
