EL Estee Lauder Companies Inc

By Sharon Terlep 

The latest results from Estée Lauder Cos. and Coty Inc. exposed a shift in the beauty business: Millennials aren't willing to invest in expensive skin creams that have been big profit drivers. Instead, younger consumers want products that provide more immediate results.

"Millennials are much more about immediate results than saving for the future," Estée Lauder CEO Fabrizio Freda said in an interview. "The 30-year-old today gets more photographs of themselves in a day than their mother did in a year, so they care about what their skin looks like now, not when they are 40."

The shift threatens revenues of companies that have long depended on anti-aging products with names like "Hope in a Jar" and "Repairwear Laser Focus" to drive sales. "There is nothing in the industry more profitable than skin care," said Deutsche Bank analyst William Schmitz.

Shares of Estée Lauder fell 4% to $93.29, while Coty tumbled 8.7% to $28.35 at the end of trading on Tuesday in New York.

Millennials, people born in the 1980s and 1990s, are an important demographic that consumer-products companies are trying to figure out. The group comprises about one-quarter of the U.S. population and last year eclipsed baby boomers as the largest generation.

In the U.S., sales of anti-aging products such as serums and face creams rose just 2% last year to $3.6 billion, according to Euromonitor. Meanwhile, makeup sales climbed 8% to $5.1 billion.

The trend weighed on Estée Lauder's financial results for its fiscal third quarter, the company said Tuesday. Sales of skin-care products, particularly its Estée Lauder and Clinique brands, fell 2.5%, while the rest of the business notched gains. Makeup sales rose 7.3%, driven by growth in MAC, Smashbox and Tom Ford. Currency fluctuations offset gains throughout the company.

Overall, revenue at Estée Lauder fell 9% in the three months ended March 31 to $4.9 billion. Earnings dropped 62% to $369 million because the results didn't includes gains from divestitures.

Coty, whose brands include OPI and Philosophy, on Tuesday reported that sales fell 9% for its skin and body-care unit, while cosmetic sales rose 11%. The company posted a $26.8 million quarterly loss as acquisition-related expenses offset a 1.8% increase in sales to $950.7 million.

The company spent $1 billion to buy a Brazilian beauty products business in February. It also has agreed to pay $13 billion for CoverGirl and dozens of beauty brands from Procter & Gamble Co.

Coty interim Chief Executive Bart Becht said younger buyers also have different shopping patterns preferring to buy beauty products online, as well as being more drawn to less mainstream brands. "Generally they are looking for more natural products and more authentic brands," he said.

Procter & Gamble has struggled to revitalize its sagging Olay skin-care brand. The company recently eliminated a sixth of its Olay products, discontinuing items such as acne washes, facial scrubs and skin treatments that didn't fit with the brand's antiaging message or weren't selling well.

Despite the tweaks, Olay sales fell again in the March quarter, the company said last week.

"Instead of trying to fix it, they are saying, 'I'll just cover it up,'" Deutsche Bank's Mr. Schmitz said of younger shoppers.

He said millennials favor makeup, such as concealers and flesh-toned powders and creams, which give the appearance of sculpted cheekbones, nose and chin.

(END) Dow Jones Newswires

May 03, 2016 19:30 ET (23:30 GMT)

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