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The economy may be recovering slowly, but women are still spending money on cosmetics and rising sales mean rising stock prices.
Even during the recession, the U.S. cosmetic business generated more than $13 billion in revenue last year according to Ibis World Reports. This is also supported by the Brand Keys "Loyalty Leaders" report that found that consumers stick with their favorite cosmetic brands even in a bad economy. As the economy continues to rebound, cosmetic shopping is expected to continue to pick up. IBIS expects the industry revenue to grow at an average rate of 4% to over $15 billion.
Plus, the recession has been harder on men than women. Two thirds of the jobs lost belonged to men, with women becoming the breadwinners of the family. Call it the "man-cession." Economists also predict that by 2024, the average woman will make more money than the average man. But even as men have lost jobs, male cosmetic products have tripled in sales over the last decade. This demand for male beauty products has become a new area of growth for manufacturers and retailers.
Based on government retail sales data, sales for health and personal care stores were up 5% year-over-year in October. Several of the cosmetic stocks have already rebounded from financial-crisis lows, but are poised to continue moving higher. Commodity costs have not affected the companies dramatically and international sales continue to deliver huge growth. Other than Avon (AVP), the premier cosmetic stocks have amazing performance returns for the past six months and that should continue as the recovery gains traction.
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Ulta Salon (ULTA) is a retailer providing beauty products and salon services at the same location. The company has fewer than 400 stores and the potential to expand to 1,000.
Raymond James analyst Samantha Panella rates the stock at outperform with a $78 target price. She believes the company is less sensitive to a promotional environment or seasonal affects. To her it's a square footage story -- growing 16% year over year. The company also has no debt and is cash flow positive.
Panella is planning for 24% year-over-year net income growth even though the company's own target is 25-30%. The company just reported its third-quarter net sales which were up 21.8%, with store sales up 9.6% and gross profit up 36%. Ulta has forecast store sales in the fourth quarter to grow 6-8%. The stock is up 110% for the past year.
Elizabeth Arden (RDEN) just reported its quarter in November and also reported increased sales. The company delivered earnings of 31 cents per share versus last year's earnings of 17 cents per share. Sales are forecast to grow 4.5% to 7% in the next quarter.
Big hits are fragrances by Brittany Spears, Taylor Swift and even Elizabeth Taylor. New initiatives are coming for international markets, which could lead to more growth. CEO Scott Beattie said recently, "Looking forward, despite the uncertain economic environment globally, we remain confident that our identified initiatives to drive sales increases across our brand portfolio and improve margins will result in strong cash flow and earnings growth for fiscal 2012." The stock is up 59% for the past year.
Estee Lauder (EL) had beautiful results for the last quarter seeing net profits rising to $1.40 a share versus last year's 95 cents per share. The European consumer hasn't slowed down at all with a sales growth of 26% in the region. It's a similar story in the United States, where department store sales of prestige products are up 11%. Macy's is Estee Lauder's largest customer and it racked up a 4% increase in same-store sales in its latest quarter.
Estee Lauder is reducing costs and working to turn its underperforming brands around. The stock is up 44% for the past year and pays a dividend of $1.05 per year.
Revlon (REV) reported a slump in third-quarter income, but it was mostly due to setting aside money for taxes. Nonetheless, the stock sold off as a result, but now Revlon has the lowest price-to-sales ratio in the group.
Revlon is beginning to see the results of a new marketing chief it brought on in September as well as a focus on international markets to offset any U.S. weakness. However, it was the U.S. sales that rose 11% this past quarter, while international sales fell. Revlon is still up 45% for the past year, but it may not perform as well as its competitors.
Avon (AVP) has been soundly beaten by its cosmetic peers, giving it the most opportunity to return value. Mark Astrachen of Stifel Nicolaus calls it a show-me story. Avon's story is a Brazilian story. Growth in consultants in Brazil is the key to Avon's share price.
The company said the reason Brazil had slowed in growth recently was because of promotion timing and service disruptions. Astrachen believes Avon can "right the ship" and that bearish sentiment regarding Avon is unfounded. Only one third of the analysts covering Avon believe it's a buy, although the average target price is $21 and the stock is only trading at approximately $16 a share. It has dropped 42% for the past year.
--Debra Borchardt, markets analyst at TheStreet
