8/9/2012
By David Urani, Research Analyst

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The so-called "lipstick effect" states that in hard economic times sales for beauty products actually do better. And certainly for me, amid the recessionary times in 2008 and 2009 stocks of cosmetics companies were notable outperformers. Researchers say it may be a function of psychology based on women feeling pressured to find a "quality" mate as men's incomes dwindle. They always say a good man is hard to find, and apparently it's even harder in a recession. Today, the lipstick effect is on display through quarterly reports from a couple of cosmetics companies.

One of the high flyers of the day today is Elizabeth Arden (RDEN +14%) after posting a quarterly result that beat by $0.08 on the bottom line. The figures weren't necessarily blowout but revenue up 4.6% year over year (+8% in constant currency) was enough to beat expectations.  Revenue guidance for next quarter was more impressive, with a mid-point of $335 million versus the $317 million consensus.

Here's where it gets interesting; North American sales were up 2.9% while international sales were up 9.8%, driven by Europe of all places. Yep, in the same place where a raging recession is clobbering most companies' top lines, Arden is pointing it out as the highlight of their quarter. Some of it may come down to expansion, but nonetheless it's an impressive figure given the circumstances, and may reaffirm the idea that women feel less secure with their dating life across the pond.

The second report came from Inter Parfums (IPAR +4%), who posted a 20% revenue increase, including an 18% gain in Europe. Note U.S. sales outperformed at +37%, but with much of the gain from new products. IPAR CEO Jean Madar noted, "The growth in European-based sales was all the more gratifying given the absence of major new product launches."

We'll be keeping an eye out for further evidence of this apparent recessionary dating stress from Estee Lauder (EL, reporting Aug 14)(EL chairman Leonard Lauder actually coined the lipstick effect theory) and Ulta Salon (ULTA, reporting Sep 6).

David Urani
Wall Street Strategies