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The thing about idiosyncratic economic indicators is that they don’t always hold up.
Case in point: Decades after former Estée Lauder chairman Leonard Lauder first recognized the infamous “lipstick index”—the idea that cosmetics sales hold steady and sometimes spike during economic downturns—the same company posted a relatively downbeat earnings report.
Right now, the economy’s not great, but not abysmal, which makes for two possible interpretations of Estée Lauder’s latest report: Either the economy’s better than it seems, or the lipstick index was always a bit flaky. Whatever else you want to take away from the report, because a big part of the story this time is China.
The cosmetics giant reported declining sales figures, while weakening its full-year forecast. “For full-year fiscal 2023, we delivered organic sales growth and prestige beauty share gains in many developed and emerging markets, but Asia travel retail pressured results, particularly in Skin Care, and we continued to experience softness in North America,” the report said.
Estée Lauder anticipates a slow recovery in Asia, adding that it’s “taking actions to capture demand from the returning individual travelers and continuing to reduce inventories in the trade as we navigate the current market headwinds.”
In particular, China’s economy, which was dampened by three years of “zero-Covid” lockdowns, has been mounting a slower recovery than analysts expected. Luxury companies like Estée Lauder, which typically earns a large share of its annual revenue from the Asia Pacific region, were expected to take a hit.
“Everyone had expected China to come back a little bit more strongly in terms of the rebound post Covid than it has so far,” Raymond James analyst Olivia Tong told Reuters. “This has clearly led to some need to reset expectations for companies that have a lot of exposure there.”
So, much for the lipstick index. For now.