Beauty stocks are set for a whole new look with industry revenues expected to surpass 2019 numbers this year. For much of 2020, companies in the sector were overshadowed by pandemic headwinds. Limited social events and lower foot traffic in stores meant poor sales and earnings. On the flip side, skincare and personal care products spiked as consumers prioritized wellness.
As the pandemic eases and social calendars fill up once again, beauty stocks are poised for a strong recovery. Research by McKinsey shows the beauty industry, which generates about $500 million in sales a year, will surpass its 2019 numbers. This optimism stems from the strong digital presence brands created during the pandemic. Companies that operated with a direct-to-customer mindset and focused on creating a personal (virtual) relationship with the consumer will thrive in the new normal.
Adding to that is the return to the workplace and fewer mask mandates. Both will provide major tailwinds for the beauty industry. Needless to say, companies in the sector also will be a major beneficiary of the upcoming economic recovery. As the industry gears up for a strong post-pandemic look, here’s are three stocks primed for greater gains:
Beauty Stocks: Estee Lauder (EL)
The global beauty brand Estee Lauder will be one of the biggest beneficiaries of the recovery economy. After depressed cosmetic sales during the pandemic, EL stock is now at a new high of $297 from a low of $150 in 2020. This surge is the result of a resurgence in cosmetic sales as people start socializing once again. This factor was evident in Estee Lauder’s recent earnings report.
In its most recent quarter, revenue was up 16% from $3.86 billion to $3.35 billion a year ago. Earnings per share (EPS) also saw a significant hike from -$0.02 to $1.25. As for segment sales, skincare and fragrance sales were up by 28% and 27% while makeup sales fell 13%. But, this decrease was a smaller dip in a year-over-year comparison. While the results did not meet analyst expectations, the guidance provided by EL has investors and analysts optimistic about the beauty giant’s future.
According to the company’s CEO, makeup sales are likely to pick up as travel resumes and economies reopen. This recovery will be bolstered by the company’s strong digital presence, which is a key driver of future revenue. Estee Lauder is also investing and innovating in numerous Asian markets to expand its global reach.
All these tailwinds make EL stock one of the top beauty stocks to bet on this year.
e.l.f. Beauty (ELF)
Another company worth watching as the economy reopens is e.l.f. Beauty. The company is known for its affordable makeup, including tools like sponges, brushes, and essential cosmetics like primers and concealers. However, the company expanded its core offering to cater to the luxury beauty market with the acquisition of Keys Soulcare and W3LL People. The diverse portfolio of brands has made e.l.f. beauty one of the top names in the industry.
Although the pandemic gutted cosmetic sales, e.l.f.’s strong social media presence served as a lifeboat. Digital sales were largely driven by the company’s loyalty program, which boasts 2.4 million members as of Q4, a 40% spike YoY. Also, e.l.f. reported better than expected results with net sales up 24% at $92.7 million. Sales were largely driven by e-commerce (up triple digits) and its presence in international markets.
Looking ahead, the beauty giant expects to keep this momentum going as the economy recovers. While skincare was the big winner this quarter, with sales up 22%, the company stated that there is a slow but steady resurgence in cosmetic sales as well.
With this optimistic growth outlook, the company set revenue guidance between $343 million and $350 million for the full fiscal year. As online sales are amplified by the retail recovery in the coming months, e.l.f. is one of the top beauty stocks to add to your portfolio.
Beauty Stocks: Ulta Beauty (ULTA)
Ulta isn’t your typical beauty brand but a store chain that houses approximately 500 cosmetic brands at all price ranges. The sheer versatility of its business model gives the company lots of exposure to the upcoming economic recovery. Ulta has a presence in all 50 states with 1,200 stores nationwide. Investors and analysts believe it is poised for a strong recovery after shares plunged during the pandemic.
This optimistic outlook comes after Ulta’s most recent earnings report. Net sales were up 65.2% at $1.9 billion in a YoY comparison. EPS also came in at $4.10 compared to a loss per share of $1.39 in Q1 of 2020. Same-store sales also spiked by 66%, hinting at the imminent resurgence of cosmetic sales as we return to normal life. Keeping with the optimistic results, Ulta increased full-year sales guidance from $7.7 billion to $7.8 billion.
The beauty company’s blowout results is the result of a YoY increase in e-commerce sales. Sales were up in almost every segment but show signs of greater gains as retail traffic picks up in the second half of the year. Ulta is also actively working on growing its e-commerce business and develop its partnership with Target (NYSE:TGT).
With rosy FY21 predictions and numerous tailwinds in its future ULTA is one of the top beauty stocks right now.
On the date of publication, the author held had no position in any of the stocks mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.