Beauty Slowdown Reflects Cracks in Consumer Spending

Makers of consumer goods have been bracing for a slowdown in consumer spending after ebullient pandemic times. Ulta Beauty is now saying that the decline is happening faster than it expected.

The entire beauty category is experiencing weaker spending across price points and product segments, said Dave Kimbell , Ulta’s chief executive, at an investor conference Wednesday. The retail chain is among beauty companies that reported strong growth in revenue and profits over the past three years as consumers stepped up purchases of makeup, perfumes and skin-care items.

“Things that are going on in our consumers’ lives has led to a bit slower growth than we had anticipated in the category,” Kimbell said.

Ulta also isn’t expecting much growth in comparable sales in the current quarter from the first quarter last year. Comparable sales reflect sales at Ulta stores open at least 14 months and from e-commerce.

The comments helped send Ulta shares down 15% in Wednesday trading. Other beauty companies, including e.l.f. Beauty , Coty and Estée Lauder , also fell.

Ulta’s shares have lost about a fifth of their value after closing at a record of $567.18 on March 13, the day before the company released its fourth-quarter earnings.

“We do expect a normalisation to occur this year in the category,” said Jessica Ramirez , senior research analyst at Jane Hali & Associates. “However, we believe the consumer will continue to prioritise the beauty category as products across skin care and wellness are replenishable.”

The competitive landscape is also shifting in beauty. Sephora, the LVMH Moët Hennessy Louis Vuitton -owned rival to Ulta, is expanding its bricks-and-mortar presence in Kohl’s stores. Other retailers are also increasing their presence in the beauty business, Ulta executives said. New products are expected to help drive traffic to Ulta, including those from tennis star Serena Williams ’s new line Wyn Beauty, executives said.

U.S. retail sales are expected to rise this year from 2023, but at a slower pace than during the Covid-19 pandemic period, according to the National Retail Federation. The trade group forecast that retail sales would increase between 2.5% and 3.5% this year, just below the 10-year average of 3.6% before the health crisis.

“The foundation of the economy is relatively sturdy and still on a sustainable path,” NRF Chief Economist Jack Kleinhenz said Wednesday. “Barring unexpected shocks, it should continue growing in 2024, although not spectacularly” as a result of slower job and wage gains.

Other consumer-goods companies are bracing for a slowdown. PVH , the company behind brands Calvin Klein and Tommy Hilfiger, said on Tuesday that it has taken a cautious approach to planning in 2024 as a result of softer consumer spending in January and February. It forecast overall revenue this year would fall between 6% and 7% from 2023.

China’s securities regulator is ramping up support for the country’s embattled equities markets, announcing measures to funnel capital into Chinese stocks.

The aim: to draw in more medium to long-term investment from major funds and insurers and steady the equities market.

The latest round of policy boosts comes as Chinese stocks start the year on a soft note, with investors reluctant to add exposure to the market amid lingering economic woes at home and worries about potential tariffs by U.S. President Trump. Sharply higher tariffs on Chinese exports would threaten what has been one of the sole bright spots for the economy over the past year.

Thursday’s announcement builds on a raft of support from regulators and the central bank, as officials vow to get the economy back on track and markets humming again.

State-owned insurers and mutual funds are expected to play a pivotal role in the process of stabilizing the stock market, financial regulators led by the China Securities Regulatory Commission and the Ministry of Finance said at a press briefing.

Insurers will be encouraged to invest 30% of their annual premiums earning from new policies into China’s A-shares market, said Xiao Yuanqi, vice minister at the National Financial Regulatory Administration.

At least 100 billion yuan, equivalent to $13.75 billion, of insurance funds will be invested in stocks in a pilot program in the first six months of the year, the regulators said. Half of that amount is due to be approved before the Lunar New Year holiday starting next week.

China’s central bank chimed in with some support for the stock market too, saying at the press conference that it will continue to lower requirements for companies to get loans for stock buybacks. It will also increase the scale of liquidity tools to support stock buyback “at the proper time.”

That comes after People’s Bank of China in October announced a program aiming to inject around 800 billion yuan into the stock market, including a relending program for financial firms to borrow from the PBOC to acquire shares.

Thursday’s news helped buoy benchmark indexes in mainland China, with insurance stocks leading the gains. The Shanghai Composite Index was up 1.0% at the midday break, extending opening gains. Among insurers, Ping An Insurance advanced 3.1% and China Pacific Insurance added 3.0%.

Kai Wang, Asia equity market strategist at Morningstar, thinks the latest moves could encourage investment in some of China’s bigger listed companies.

“Funds could end up increasing positions towards less volatile, larger domestic companies. This could end up benefiting some of the large-cap names we cover such as [Kweichow] Moutai or high-dividend stocks,” Wang said.

Shares in Moutai, China’s most valuable liquor brand, were last trading flat.

The moves build on past efforts to inject more liquidity into the market and encourage investment flows.

Earlier this month, the country’s securities regulator said it will work with PBOC to enhance the effectiveness of monetary policy tools and strengthen market-stabilization mechanisms. That followed a slew of other measures introduced last year, including the relaxation of investment restrictions to draw in more foreign participation in the A-share market.

So far, the measures have had some positive effects on equities, but analysts say more stimulus is needed to revive investor confidence in the economy.

Prior enthusiasm for support measures has hardly been enduring, with confidence easily shaken by weak economic data or disappointment over a lack of details on stimulus pledges. It remains to be seen how long the latest market cheer will last.

Mainland markets will be closed for the Lunar New Year holiday from Jan. 28 to Feb. 4.

Beauty Slowdown Reflects Cracks in Consumer Spending

After years of pandemic splurging, Ulta Beauty CEO says pullback is evident across price points and product types

The latest round of policy boosts comes as stocks start the year on a soft note