Bank of America (NYSE:BAC) (BofA) reported indications of a slowdown in the beauty industry, with a particular softness observed in the first quarter of 2025. Despite a growth of 3% year-over-year and a slight acceleration compared to the third quarter of 2024, data from nineteen beauty companies revealed a more subdued outlook for the sector.
L’Oréal (EPA:OREP), a leading player in the market, anticipates a growth rate of 4.0-4.5% for the beauty market in 2025, a slight deceleration from the 4.5% growth observed in 2024. This forecast is supported by an expected surge in industry innovation.
However, growth is projected to be stronger in the second half of the year, as suggested by the recent trend of softer year-over-year growth in the first quarter compared to the fourth quarter of 2024, although the situation in China appears less severe.
In the United States, the beauty sector is experiencing a broad-based deceleration. BofA’s analysis of North American beauty trends, based on fourteen data points, shows that twelve have exhibited a slowdown in the first quarter to date compared to the fourth quarter. This is further corroborated by BofA’s aggregated credit and debit card data, which shows a 1% decline in beauty store spending after adjusting for one less trading day, down from a 3% increase in the previous quarter.
Specialty retailers Sephora and Ulta have also seen a 6-9 percentage point slowdown in store sales. The mass market segment remains the weakest, with Nielsen data across all six beauty categories showing a deterioration from the fourth quarter, particularly in the fragrance category.
Europe, which had been a strong contributor to beauty growth throughout 2024, is now experiencing less tailwind. The initial data for the first quarter suggests a continued normalization of growth, with ten out of thirteen data points indicating a slowdown compared to the previous quarter.
The UK beauty market has seen a significant drop in pharmacy sales year-over-year, with cosmetic sales also declining. However, there are some positive signs, such as improved sales growth in pharmacy stores in France and Italy.
In contrast, the beauty market in China has shown signs of improvement in January, with a notable increase in beauty revenues on e-commerce platforms and a significant jump in growth on Douyin, a popular social media platform.
Beauty counter sales have also improved, moving from a decline in the fourth quarter to flat sales in January. Despite these positive trends, travel retail in Hainan and Korea continues to face double-digit declines.
As a result of these mixed signals, BofA has revised its forecast for L’Oréal, lowering the company’s 2025 revenue projection by 2% and earnings per share (EPS) estimate by 3%. This adjustment reflects the lower than expected like-for-like sales in the first quarter and the impact of foreign exchange rates.
BofA also predicts that travel retail for cosmetics will decline by 20% in 2025.
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