The earnings cycle is in full swing, and cosmetic players look well-placed. While supply-chain disruptions and cost inflation remain hurdles, favorable demand and a constant focus on innovation and product upgrades to keep pace with consumers’ evolving tastes and preferences are likely to have aided companies’ performances.

Cosmetic companies have been benefiting from the growing demand for skin care and other personal care products. Consumers’ increased focus on self-care and maintaining healthy skin care routines works well for this category.

Increased consumer awareness has stimulated the demand for organic skincare and “clean beauty” products. Thus, players have been gaining from their efforts to resonate with consumers’ evolving preferences through innovation and product launches. Further, players have been fueling brand portfolios through prudent buyouts and strategic alliances.

The makeup category is also on track to full recovery. This can be attributed to the rising demand for beauty products amid increased socialization, with things getting back to normal. Additionally, players in the space have been witnessing strength in the fragrance and haircare category, with product newness being a solid driver.

Moreover, cosmetic companies have been registering solid online sales due to their initiatives to solidify digital operations. Companies have made significant progress on this front, evident from tools like virtual try, new digital payment solutions and digital marketing efforts.

That being said, escalated costs remain a concern. Companies are encountering inflationary pressure on operating costs like labor, supplies and travel.

Several players are battling supply-chain disruptions stemming from prolonged pandemic-associated factors, congestion at ports and reduced airfreight capacity, resulting in increased freight costs. Also, elevated marketing expenses and increased investments in enhancing store and digital operations, especially during the holiday season, are likely to have pushed SG&A costs upward.

However, the abovementioned upsides are likely to have supported the top line of cosmetic companies. In addition, increased consumer spending on cosmetic products during the holiday season is likely to have been a driver. On that note, let’s take a look at a few companies from the cosmetic space, which are likely to post an earnings beat this season.

How to Make the Right Choice?

Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of an earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Per the latest Zacks Earnings Outlook, the Consumer Staple sector (which houses cosmetic stocks) is likely to witness a top-line decline of 4.4%, whereas the bottom line is expected to increase 4.8% this earnings season.

3 Prominent Picks

Inter Parfums, Inc. (IPAR Quick QuoteIPAR - Free Report) is worth a shot. The stock has an Earnings ESP of +17.24% and a Zacks Rank #2. The Zacks Consensus Estimate for Inter Parfums’ fourth-quarter 2022 earnings has jumped from 14 cents per share to 29 cents over the past 30 days. This manufacturer, distributor and marketer of fragrances and related products has a trailing four-quarter earnings surprise of 27.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inter Parfums recently posted robust sales results for the fourth quarter and full-year 2022. Results gained from sales growth across its European and U.S.-based operations. In the fourth quarter, IPAR witnessed solid sales increases from its largest brands, including Montblanc, Jimmy Choo, Coach and GUESS?. The company, which has been benefiting from its brand strength, is scheduled to release results on Feb 28.

The Estee Lauder Companies Inc. (EL Quick QuoteEL - Free Report) , with an Earnings ESP of +0.32% and a Zacks Rank #3, is also worth a look. The Zacks Consensus Estimate for its second-quarter fiscal 2023 earnings is pegged at $1.29.

The consensus mark for The Estee Lauder Companies’ bottom line has remained unchanged in the past 30 days. This cosmetic giant has a trailing four-quarter earnings surprise of 16.6%, on average.

The Estee Lauder Companies has been benefiting from its strong online business. The company has been implementing new technology and digital experiences, including online booking for each store appointment, omnichannel loyalty programs and high-touch mobile services.

EL’s strong presence in emerging markets and a focus on innovation have also been drivers. The company is scheduled to release results on Feb 2.

Coty Inc. (COTY Quick QuoteCOTY - Free Report) has an Earnings ESP of +0.92% and a Zacks Rank #3. The Zacks Consensus Estimate for Coty’s second-quarter fiscal 2023 bottom line has remained unchanged in the past 30 days at 15 cents. This manufacturer, marketer and distributor of beauty products has a trailing four-quarter earnings surprise of almost 23%, on average.

Coty’s strategic partnerships have been enhancing its brand portfolio. The company’s focus on six strategic growth pillars, including expanding makeup brands and mass fragrances and establishing a strong skincare portfolio, bodes well.

The company has also been gaining from its efforts to strengthen its e-commerce and direct-to-consumer capabilities. COTY is slated to release results on Feb 8.