Cosmetics Sales Are Looking Good for Some

With an aging baby boomer population ready to buy anything to look younger, from wrinkle cream to hair color, and with teenagers heavily into black lipstick and puce nail polish, these are good times for some companies in the cosmetics industry.

Revlon Inc., Avon Products Inc. and Estee Lauder Cos. are three very different publicly traded cosmetics companies that illustrate where the market for cosmetics is going, analysts said.

Revlon was the fastest-growing cosmetics company in 1996 and has continued to outperform even the analysts’ expectations in the second quarter this year, when its sales were predicted to go up 7% but actually rose 11%.

“Revlon’s growth is huge,” said Carol Warner, a research analyst at Montgomery Securities. “It has knocked [Procter & Gamble’s] Cover Girl out of the No. 1 spot.”

Investors in Revlon stock have a lot to be happy about, with their shares up 80% since the beginning of the year.

Revlon has used two strategies to speed its growth, according to analysts. One is its introduction of innovative products, from its Almay Revitalizer to its no-smudge ColorStay lipstick. (Revlon has 32% of the lip color market.)

New products coming this fall include what some analysts believe will be even bigger sellers--from a new Age-Defying moisture lotion to Street Lights, an instant hair highlighting product that washes out.

Of particular interest to customers and analysts alike is its new entrant into the $853-million facial skin-care market. It will take Revlon beyond its traditional color cosmetics line and into “cosmeceuticals,” a combination of cosmetics and pharmaceutical products.

While Unilever Group’s Ponds products and L’Oreal’s Plenitude have scooped up market share with new cosmeceuticals containing alpha-hydroxy acids, Revlon has been sitting on the sidelines. Now it is ready to enter the market with a product containing beta-hydroxy acids, a milder plant form of the acid that speeds up the skin’s exfoliation process.

Revlon’s second big push has been to expand its market share in self-service markets such as Wal-Mart stores and drugstores.

While the company’s biggest gains in sales have been in the United States, nearly 50% of its sales now come from outside the country, analysts said.

Avon has been making huge changes over the last five years, updating its image and improving its products. Its stock is up about 27% since the beginning of the year.

“Avon is a very powerful worldwide brand,” said Connie Maneaty, a consumer products analyst at Bear Stearns & Co. About 70% of its sales and earnings come from outside the United States. With 2 million women as its sales agents around the world, the company is using home and catalog sales to target busy professional women who don’t have time to shop in stores.

Estee Lauder is not sharing in the surge in cosmetics stocks; its shares have declined 9% since Jan. 1. The company focuses on an entirely different market--the prestige market, with sales consultants working in high-end department stores.

“While Estee Lauder commands more than 50% of this market, they’re suffering from thinning foot traffic at many high-end department stores,” Warner said.

One factor may be that women have to wait for a sales consultant to help them. So the company is focusing more on displays where customers can pick up the products.

“Estee Lauder has new products for the fall, but if the prestige area doesn’t pick up, they’ll have problems,” Warner said.

Many giants in the market have so many other consumer products that it is hard to break out their overall cosmetics results. Procter & Gamble, for example, controls more than 26% of the market for facial-care products with its Oil of Olay and Noxema brands, according to A.C. Nielsen Corp.

But with shifting company loyalties among women and a hot new market for men’s skin-care products, these companies--and their investors--are being watchful.