The trend: While consumers have pulled back in many discretionary categories, they’ve continued to spend on cosmetic and beauty products.

• Beauty is an “advantaged category with consumers, at the sweet spot of affordable luxury, self-care, and confidence-boosting,” said Coty CEO Sue Nabi, during her company’s earnings call.
• Ulta Beauty’s net sales grew 12.3%, comparable sales rose 9.3%, and net income increased 4.7%.
• E.l.f. Beauty’s net sales soared 78.2% in its fiscal Q4, and it had a nearly tenfold increase in its net income.
• Kohl’s reported that its Sephora at Kohl's stores-within-a-store concept helped the retailer’s total beauty sales jump roughly 150% year-over-year. The retailer’s beauty sales in the 204 stores that opened in 2021 delivered “mid-teens” comparable beauty growth, and the 400 shops that opened last year are outpacing projections.

The category’s resiliency helps explain why our forecast expects US cosmetic and beauty sales to grow 7.6% this year, far outpacing the broader retail market’s 3.3% growth rate.

Zooming in: Despite those strong results, there are signs that the overall macroeconomic environment is beginning to impact consumer behavior.

• “Inflation concerns remain high and consumers are spending more selectively while also showing a continued willingness to splurge and treat themselves,” said Ulta Beauty CEO Dave Kimbell, during the company’s earnings call.
• Kimball noted that sales for the chain’s mass-market products were growing faster than its prestige brands. But he unclear whether that was due to growing demand for products from brands like e.l.f. Beauty and La Roche-Posay or consumers’ growing price sensitivity.
• From e.l.f. CEO Tarang Amin's perspective, the company’s impressive growth can be attributed, in part, to its ability to demonstrate its value proposition to consumers. For instance, when a high-end brand introduced a $42 primer that quickly gained popularity, e.l.f. responded by launching its own version, the Halo Glow setting powder, priced at $8. This release went viral and rapidly became one of e.l.f.'s top-selling products.

Looking ahead: Ulta noted that category growth has begun to normalize—it expects comparable sales to grow 4% to 5% this year—which will lead it to increase its use of promotions.

• Promotions and category mix shift contributed to a slight (0.1 percentage point) dip in the company’s gross profit in Q1.

The big takeaway: Value is at the forefront of many consumers’ minds, even in categories that they prioritize, such as cosmetics and beauty.