As Wall Street worries about dying department stores and falling foot traffic in malls, Estee Lauder says its makeup business is growing steadily.
The cosmetic maker, which owns brands like MAC, Origins and Clinique, reported third-quarter earnings and sales on Wednesday that topped analysts' expectations and were boosted by an increasing demand for makeup.
Shares of Estee Lauder closed up about 4 percent Wednesday, on the heels of the company's upbeat earnings report and optimistic outlook on the makeup industry.
Performance in the latest quarter suggests that investors who fretted that a slump in mall traffic would hurt Estee Lauder's business were underestimating steps the company has taken to sell its products at specialty retailers like ULTA Beauty and LVMH's Sephora, which are often located in off-mall locations. Estee Lauder also has acquired brands that speak to current trends.
A slight jump in makeup sales for the quarter was fueled by double-digit increases from brands Tom Ford and Smashbox, along with solid growth from Estee Lauder's namesake label and Clinique, the company said.
"The overall increase in makeup... resulted from new product offerings, as well as the broadening of the brands' presence in a number of channels ... to reach new consumers," Estee Lauder said, referring to its latest efforts to draw in more millennials.
The company's recent acquisitions of Too Faced and BECCA Cosmetics also helped its performance. These products as well as Smashbox may be in the sweet spot of a growing trend.
Back in April, The NPD Group reported that shoppers — many of them younger — were spending less on athleisure — trendy yet comfortable athletic apparel — and were instead beginning to move more dollars into the makeup industry.
"Active wear today is no longer exclusive to athletic apparel; recent growth in key makeup categories coincides with the rising popularity of makeup as the latest workout essential," the research firm wrote.
Total prestige makeup sales, those of higher-priced products sold in department stores, climbed by 11 percent, to $7.6 billion, in the 12 months ended Feb. 2017, NPD data show. Growth in long-lasting and waterproof products are playing into this trend, the group added.
Sales of waterproof mascara, for example, was up 16 percent across the industry, and sales of waterproof eyeliner have risen 7 percent. Long-wear foundation sales increased by 13 percent, while basic foundation saw a decline, NPD's survey found.
Now, in comes Estee Lauder.
Smashbox's cosmetics line up — which Estee Lauder has said it's particularly proud of and played a key component in boosting profit this quarter — is marketed as being able to withstand "hot lights, long days, and your busy life," something younger consumers are seemingly prioritizing today.
Playing into to this trend, Estee Lauder acquired Too Faced, a makeup brand popular among millennials, for $1.45 billion last year. The company also bought BECCA Cosmetics in 2016 for an undisclosed sum.
On Estee Lauder's earnings call Wednesday, Chief Financial Officer Tracey Travis said the growth of these two brands — Too Faced and BECCA — "is very, very strong," coupled with "exceptional" consumer demand.
The company initially rolled these brands out with limited distribution, Travis said, but their recent launches "are among the most successful ... in the entire marketplace."
Too Faced in particular has attracted more younger consumers to Estee Lauder's portfolio of brands, making "great extra business for the company overall," the CFO added.
On Wednesday, Estee Lauder reported profit excluding items of 91 cents per share on sales of $2.86 billion, compared to analysts' expectations of earnings of 73 cents a share on revenues of $2.811 billion, according to Thomson Reuters.
Estee Lauder's Americas' sales, which account for a little more than 40 percent of total revenue, rose 5.3 percent, to $1.17 billion, during the period. Specifically, sales in the company's online and specialty-multi channels grew strong double digits, Estee Lauder said.
EL year-to-date performance
Source: FactSet