As consumers splurged on upscale skin care and fragrances without being deterred by inflation-induced higher prices, Coty Inc. on Thursday exceeded Wall Street expectations for fourth-quarter revenue.

After falling 30% this year, the company’s shares were up about 4% in premarket trading.

The “lipstick effect,” where higher-income consumers indulge in smaller luxuries because their plans for larger purchases are out of reach due to decades-high inflation, is causing lipstick and foundation to fly off the shelves. 

Luxury beauty businesses that have struggled with sales as a result of pandemic lockdowns that kept people at home and reduced their need for cosmetics now have a chance to capitalise on this.

The Hugo Boss perfume manufacturer anticipates full-year adjusted profit per share in 2023 to rise from a year to the mid-teens.

Due to a greater exposure to China, where recent COVID-19 lockdowns have hurt traffic at retailers, Estee Lauder, a larger rival, forecast full-year sales and profit below estimates last week despite beating fourth-quarter results. View More

Although Coty is better positioned due to its lower China exposure, chief executive officer Sue Nabi told Reuters in an interview that the company would implement additional price increases this year after a first round in fiscal 2022 in order to increase profit margins.

“We are offsetting quite strongly the effect of the inflation on cost of goods,” Nabi said, adding that supply chain costs have been easing from pandemic-highs.

Additionally, Coty has increased its marketing expenditures, such as livestreaming and promotions on social media platforms like TikTok, which have a significant impact on the purchasing behaviour of young consumers.

According to IBES data from Refinitiv, net revenue in the fourth quarter that ended on June 30 increased 10 per cent to $1.17 billion, exceeding analysts’ average estimate of $1.14 billion.

(Adapted from FinancialPost.com)