• by Sarah Mahoney  @mahoney_sarah, May 7, 2024

From high-end fragrances to mass-market mascara, beauty and personal care have been among the best-looking stories in consumer spending for the last few years. But Circana’s latest quarterly report shows signs of shifting consumer preferences. And while Estee Lauder’s recent earnings topped expectations, it issued an unexpectedly downbeat sales forecast.

Circana reports that in the first quarter of the year, sales of U.S. prestige beauty products -- the higher-end brands typically sold in department stores -- increased 9%. Products sold in mass channels, like drugstores and supermarkets, grew just 2%.

Makeup sold in mass channels fell by 5%, and mass fragrances dropped by 2%. Skincare grew by 4%, and hair product sales rose 1%.

For higher-end brands, fragrance performed the best, gaining 13%, followed by hair products, up 11%. Skincare is up 10%, and makeup rose by 5%. Within skincare, body sprays and new serums did especially well.

“The slowdown in growth that we are seeing in the beauty industry is a reflection of an industry stabilizing after strong double-digit performance for the past two years,” writes Larissa Jensen, Circana’s global beauty industry advisor, in the report. “But we should not underestimate its strength, as sales grew by over $600 million in the first quarter. There is a lot of excitement in beauty, from trending brands and new product launches to the growing engagement from younger consumers.”

Circana’s update comes just days after Estée Lauder Cos. issued a disappointing forecast despite posting better-than-expected results for its fiscal third quarter. Sales rose 5% to $3.94 billion, up from $3.75 billion in the prior-year period. And net earnings climbed to $330 million, compared with  $156 million in the year-ago period. La Mer, Estée Lauder, Jo Malone London, Le Labo, and The Ordinary were among the best-performing brands. The company also said Clinique’s debut on the U.S. Amazon Premium Beauty store has “greatly exceeded our retail sales expectations.”

While that all sounds great, “it was not a good day for EL shareholders,” writes Steve Powers, an analyst who follows the company for Deutsche Bank and currently rates the cosmetic giant as a “hold.” He notes that the stock price fell 13% after Lauder’s announcement, “in a sign of growing investor angst” about the next quarter’s forecast and “lingering skepticism” that the cosmetics giant can deliver on future profit plans.

Morningstar analyst Dan Su views that investor reaction as “excessive” and continues to recommend the stock, which he believes is undervalued. “Encouragingly, the update showcased steady inventory management and agility in product innovation,” he writes, “and consumer-facing initiatives that combined to fuel top-line growth.”