Beware of Luxury Stocks

Investors who paid a premium on e.l.f. Beauty (ELF) is now in a losing position. The supplier of affordable makeup and skincare products issued a weak outlook for fiscal 2025.e.l.f. cut its net sales, adjusted EBITDA, adjusted net income, and diluted EPS estimates. Investors will likely sell ELF stock to offset gains from AI-related semiconductor stocks.China’s ailing economy is one of several issues for the luxury market. Estee Lauder (EL) already issued a warning several quarters ago. It experienced a drop in Chinese consumer demand.e.l.f. is mitigating the tariff risks. In 2019, it had a successful playbook in countering U.S. tariffs moving to the 25% level. This time, it increased its supplier list outside of China. To support sales growth, the company expects that marketing and digital investments will be 24% to 26% of net sales this year. This is comparable to last year’s level.Investors do not need to avoid the entire luxury stock market. LVMH managed to limit revenue declines to 2% Y/Y. In FY 2024, it posted revenue of EUR84.7 billion. Q4 revenue was flat Y/Y at EUR23.9 billion. LVMH acknowledged a challenging economic and geopolitical environment. Fortunately, it did not hike prices last year. This hurt gross margin but would prevent a loss in customers.