A “Post-Quarantine Glow Up” is Coming for Shares of Ulta and Estée Lauder: Analyst
New consumer behavior trends are emerging amid COVID-19, creating opportunities for companies with exposure to skincare and other self-care products, according to Piper Sandler analyst Erinn Murphy. While the recovery of makeup remains murky, the gravitation towards skincare is shaping up to be a habit that will live on after the pandemic.
The "Lipstick Index": Alcohol and groceries are often cited as recession-proof goods, but makeup is another product category that has been resilient in uncertain economic times. The willingness of consumers to purchase beauty products in periods of economic decline has been described using a term called the “Lipstick Index.”
Makeup vs. Skincare: The skincare category has provided relief for companies suffering from downward trending makeup sales. In Q1, prestige U.S. beauty sales were down 14%, according to NPD, but skincare, within the natural segment, grew 11%. Murphy says stress has led to more health and wellness routines including skincare.
The best stock for skincare: In a note Monday, Piper Sandler said Estée Lauder is the best way to play skincare. EL generates 48% of sales and more than 60% of profits from the category. Piper Sandler upgraded Estée Lauder to OVERWEIGHT from NEUTRAL and raised its price target to $238 from $158.
Gravitating to online: EL is seeing global new consumers up 3x to 4x online, according to Murphy. Murphy believes these new digital consumers in the U.S. will be retained by the company when COVID-19 settles.
More than just makeup: Piper Sandler upgraded Ulta to OVERWEIGHT from NEUTRAL, citing the opportunity in skincare and healthcare, as well as in carry-over potential of digital growth once COVID-19 ends. The firm also raised its price target to $275 from $202.
Reopening: Ulta opened its first 180 stores on May 11. Since then, “omnichannel comps are flat Y/Y in aggregate with some regions positive and some regions negative,” said Murphy.
GLAMlab: Engagement for Ulta’s virtual live try-on app is up about 5x since COVID-19, Murphy notes. Ulta’s virtual tool lets users experiment virtually with thousands of different products without going into stores.
Teen favorite: In Piper Sandler’s recent survey of teens, 39% said Ulta was their beauty destination of choice, up from 33% the year earlier.
