More recent earnings by large retail companies were not all that great, indicating that consumers might have difficulties coping with inflation. However, the most recent developments in consumer spending are considerably greater than was previously believed.
The recent conference on the “Future of the Consumer” hosted by Cowen & Co. shed light on a few important areas where consumer demand is still relatively high. As a result, Oliver Chan, a market analyst, highlighted a number of encouraging tendencies within consumer demographics.
“With customers returning to work and group events, beauty and wellness adjacent categories are seeing an acceleration. Customers are sticking with their skin care routines developed during the pandemic while also looking to refresh their color cosmetics for events.”
Meanwhile, Finbold has researched two companies that could be set to benefit from the strong consumer demand for beauty and cosmetics products.
E.l.f. Beauty Inc. (NYSE: ELF)
ELF is a beauty-centric company focusing primarily on lower-priced cosmetics for the eyes, lips, and face, having a unique selling point of ‘cruelty-free’ products. Over the years, the management has done a solid job of growing earnings, while profits and cash flow have been volatile.
Yet, in the most recent earnings release, the company increased its revenue year-on-year (YoY) by 13.5%, to $105.12 million, which beat expectations by $13.92 million.
Similarly, earnings per share (EPS) were $0.13, which beat expectations by $0.07. Besides, management gave upbeat guidance on 2022 and 2023 earnings expectations.
In essence, year-to-date (YTD) shares are down over 17%, but the shares have surged in more recent sessions on increased trading volumes. Currently, they are trading above the 20-day and 50-day Simple Moving Averages (SMAs), closing in on the 200-day SMA. If shares break above, more upside could be had.
At the same time, analysts on Wall Street deem the shares a strong buy. The average next 12 months’ share price is seen at $32.50, which represents a potential increase of 19% from the current trading price of $27.31.
Ulta Beauty (NASDAQ: ULTA)
Ulta is the largest beauty retailer in the U.S., with a growing store count and seemingly loyal customer base. On May 27, after the earnings report, the company received a bullish re-rating from Jeffries.
For Q1 earnings, the company posted revenue of $2.34 billion, a YoY increase of 20.6%, beating estimates by $220 million. Also, the company had EPS of $6.30, beating estimates by $1.82. Finally, ULTA offered improved guidance for the rest of the year.
Over the past six months, the shares have gained almost 10%, while more recent sessions have seen increased trading volumes after a double-bottom was noted on the daily chart. A bounce off of the $340 low propelled the shares by over 23%, where they now trade above all SMAs.
Meanwhile, analysts rate the shares a moderate buy, seeing the average price in the next 12 months reaching $467.44, a potential increase of 12.22%, from the current trading price of $416.54.
It seems that consumers are in a solid position to keep buying beauty products after the Covid lockdowns seemingly doomed us to a home-based existence.
Consumer surveys also show that companies with an online presence stand to potentially benefit more from the shifting consumer sentiment and increased spending.
The above two companies have shown steady earnings growth, as evidenced by the latest reports and could possibly offer solid returns for investors looking to play the consumer spending trend.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.