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Coronavirus Steals Glitter Off These 3 Cosmetic Stocks

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The outbreak of coronavirus or COVID-19 is not just affecting lives but also largely impacting businesses of companies with exposure to China. Companies operating or sourcing goods from China remain majorly affected. The outbreak has wreaked havoc on the global market, adversely impacting industries like technology, restaurants, apparel and cosmetics, to name a few. 

With regard to the cosmetics space, we note that companies are bearing the brunt of soft traffic stemming from Chinese consumers in many big cities staying indoors. Also, the pandemic has led to store closures and limited hours of operation. Apart from this, some cosmetic companies are also delaying product launches, given the current situation and its chances to persist in the near term at least. To top it, coronavirus and its deadly spread beyond China have reduced global travel. Certainly, this is a blow to the travel retail network, which plays a vital role in the sales of cosmetic players. 

We note that coronavirus-led worries weighed on the guidance of The Estee Lauder Companies Inc. EL, Nu Skin Enterprises, Inc. NUS and Inter Parfums, Inc. IPAR, when they reported quarterly results recently.

Inter Parfums hosted its fourth-quarter fiscal 2019 conference call a couple of days ago, where it stated that the company has been witnessing significant declines in air travel along with reduced customer traffic in major shopping and tourist destinations. Management stated that if the coronavirus impact is limited to the initial few months of 2020, net sales and net income are expected to be in line with the 2019 numbers. In 2019, Inter Parfums generated net sales of $713.5 million, whereas net income was $1.90 per share. This Zacks Rank #3 (Hold) company had earlier envisioned net sales to be roughly $742 million for 2020 and net income to be nearly $2.00 per share.

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Cosmetics giant, Estee Lauder, reported robust second-quarter fiscal 2020 results last month. However, this Zacks Rank #3 company then stated that it expects coronavirus to impact the global prestige beauty industry over the next few months. It expects a maximum impact on sales in the third quarter. In fact, the company lowered its view for fiscal 2020. Net sales are expected to rise 6-8% compared with the previous view of 7-8% in fiscal 2020. Adjusted earnings are projected in a band of $5.60-$5.70 per share compared with the prior view of $5.85-$5.93.

On the flip side, Nu Skin continued to struggle with soft sales in Mainland China during the fourth quarter of 2019. Revenues and sales leader count have been soft in Mainland China for a while now. This can be accountable to strong negative media coverage of several industries in the region, including food, health and direct-selling industries, and government restrictions on meetings. Further, due to the recent outbreak of coronavirus, the company decided to put its meetings with sales force and customers on hold in Mainland China.

Notably, management expects the outbreak to have a considerable impact on the business in the near term. For now, this Zacks Rank #5 (Strong Sell) company anticipates sales in Mainland China to fall 20-25% in 2020, with the majority of the decline anticipated in the first half. Management expects overall 2020 revenues of $2.17-$2.30 billion, whereas it recorded $2.42 billion in 2019. Further, 2020 earnings are projected to be $2.00-$2.40 per share, indicating a decline from $3.10 in the prior year.

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