AVP Avon Products Inc

By Jessica Menton 

Investors are still betting on cosmetic companies despite the retail sector's tariff woes.

Shares of Estée Lauder Cos. rallied more than 12% on Monday -- on pace for a new high -- after the beauty company delivered strong second-quarter earnings, driven by robust demand for its high-end skin-care products. The stock has surged 50% in 2019.

Other cosmetic companies followed suit, with shares of e.l.f. Beauty Inc., Avon Products Inc. and Ulta Beauty Inc. gaining 8.3%, 1% and 1.6%, respectively. Shares of each company have jumped at least 34% apiece so far this year.

A number of bricks-and-mortar retailers have struggled over the past year as companies contend with increased tariffs on goods from China. Some cosmetic companies were able to mitigate the costs of earlier tariffs last year, though another round of levies, or retaliatory moves, could be harder to absorb.

The SPDR S&P Retail exchange-traded fund, which includes companies such as L Brands Inc., Best Buy Co. and Guess Inc., has slumped 23% over the past 12 months, compared with the S&P 500's 2.6% rise in that span.

But companies such as Estée Lauder, which includes brands like MAC Cosmetics, have continued to thrive. Estée Lauder saw modest improvement in the U.S. despite a tough retail environment while China and emerging markets in Southeast Asia continued to deliver strong sales growth, the company said it its latest earnings release.

"Cosmetic companies aren't completely immune to tariff threats, but people are more willing to spend money on personal-care products in times of economic uncertainty, and they're typically one of the last things that people will cut back on," said Brian Yacktman, president and chief investment officer at YCG Investments, which has roughly $750 million in assets under management.

To be sure, some cosmetic companies still face challenges in the face of changing consumer tastes. Coty Inc. announced a $600 million turnaround plan in July that fell short of analysts expectations. The stock has slumped 16% over the past month.

Meanwhile, Revlon Inc. hired Goldman Sachs Group Inc. to help review strategic alternatives, including the sale of all or parts of its business, The Wall Street Journal reported last week. The stock has lost 36% of its value this year.

Write to Jessica Menton at Jessica.Menton@wsj.com

(END) Dow Jones Newswires

August 19, 2019 14:20 ET (18:20 GMT)

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