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Beauty bucks public market blues

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Dec 21, 2022
Illustration of a mirror with a dollar sign reflected in it.

Illustration: Brendan Lynch/Axios

Beauty emerged relatively victorious from the roiling public markets this year, per a recent report from investment bank D.A. Davidson.

Why it matters: The consumer segment is the most immediately vulnerable to macro-pressures like inflation and a recession, so it's notable to see beauty and wellness thrive in an uncertain market.

Details: The report highlights six well-performing public companies: Coty, e.l.f. Beauty, Inter Parfums, Medifast, Ulta and Waldencast

Zoom in: Take Waldencast, parent of Obagi Skincare, a physician-dispensed line, and Milk Makeup, a clean makeup brand.

  • The product of a SPAC deal (remember those?), the company is highly acquisitive and told Axios in August it plans at least one buy per year.
  • Waldencast is trading at around $9.11 per share, and D.A. Davidson notes its trading liquidity will likely improve when lock-ups expire (the first expiration comes in January 2023 and the second in July 2023).

Meanwhile, beauty behemoth Ulta is cashing in on brick-and-mortar bets.

  • The company's Herald Square location in New York is 20% bigger than a typical store and volumes far exceed the chain average.
  • In-store services have returned to pre-COVID levels at this location and mass and prestige product sales grew in the double-digit range in Q3.
  • Ulta is trading at around $447 per share.

Context: Beauty and wellness is buoyed by a handful of tailwinds and consumer demand continues to be strong, the report says.

  • Consumers show no sign of a trade-down from prestige to mass-market items, and continue to buy "cocktails."
  • The market is bullish on travel retail's continued recovery, the report says, though notes continued uncertainty around China's reopening.

Yes, but: Supply chain pressures like the glass bottle and component shortages in prestige fragrances continue to irk the sector.

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