A recent Jefferies report provided several beauty highlights resulting from luxury goods company, LVMH, recent Q1 call, including growth in Asia; short term sales lifts from new product launches; continued momentum of skin care; and U.S. retail slowing.
Beauty overall is showing a gradual deceleration (+9 vs +13%) but Asia/China performance is strong and driven by Christian Dior, Guerlain and Givenchy, stated the report.
Retail gains were driven by Sephora, specifically in Asia, with skin care and online sales driving growth.
Management reiterated growth concentration in Asia and Travel Retail, with European legacy beauty brands outperforming U.S.-based brands.
LVMH noted Chinese consumers have been making more local purchases, rather than in Japan and Korea. The Jefferies report stated, “China geographic results were a bit stronger while APAC regional results were in line.”
LVMH noted negative traffic in Q1 at Sephora U.S., as positive comps were driven by higher conversion, not traffic.
“Traffic is still in very low growth or slightly negative and conversion rate is going up, which is usually what happens. We have probably more relevant customers in our stores and therefore we have less traffic and higher conversion rate. It doesn’t mean that we cannot grow the business, the business is just done slightly differently,” said LVMH.
Cosmetics remain under pressure in the U.S., with competitiveness and share fragmentation occurring in skin care.
“As far as categories is concerned, the makeup category is a little bit under pressure in the U.S., it’s been the case for the last 12 months. The skin care business is really growing fast and gaining an importance at Sephora, not only from a share of total business, but also from a shelf space viewpoint. In the coming months and years, skin care will be a very important component of Sephora’s growth in the U.S. and probably elsewhere as well,” said LVMH.
The Jefferies report noted that Ulta Beauty’s mass and prestige skin care assortment has brand diversified extensively in recent quarters, and platforms such as T-Mall have committed to adding upwards of 1,000 new beauty brands in 2019, with an emphasis on skin care.