The insight: The lipstick effect is back as consumers seek comfort amid uncertainty, Ulta Beauty CEO Kecia Steelman said on the company’s Q1 earnings call—a positive sign for the specialty retailer and its many competitors vying for a share of the category.

By the numbers: Ulta continues to see healthy engagement in beauty and wellness, even as economic volatility dents demand for other discretionary goods.

• Sales rose 4.5% YoY in the first quarter to $2.85 billion, beating expectations for $2.79 billion. Same-store sales jumped 2.9% YoY, well ahead of the expected 0.2%.
• Profitability was better than expected, with earnings per share (EPS) of $6.70 handily outpacing the $5.80 consensus estimate.
• As a result of the strong quarter, Ulta became one of the select few retailers to raise both its sales and profit guidance for the year—a testament to both the resilience of the category, and the early success of its turnaround plan.
• The retailer now expects same-store growth to be flat to up 1.5%, up from its prior forecast of flat to 1%.

Beauty essentials: In some cases, consumers are cutting back in other categories to fund their beauty routines, Steelman said—underscoring that for many, beauty and cosmetics products are essential purchases. That’s especially true for younger shoppers, who are more likely to view beauty as a necessary purchase, regardless of their financial circumstances.

• 27% of Gen Zers and 26% of millennials consider beauty and skincare products to be essential, per a survey by Intuit Credit Karma. That’s more than the proportion who believe that dining out, therapy, and travel are necessities.
• Likewise, 1 in 5 Gen Z and millennial consumers think that skincare and beauty treatments such as manicures and hair appointments are indispensable.

Money matters: While consumers remain as interested in beauty as ever, they are becoming more mindful of how those purchases affect their wallets. In Q1, the mass market grew faster than prestige beauty sales for the first time in several years, per Circana, an indication that shoppers are seeking more affordable ways to manage their beauty habits.

• Prestige dollar sales were flat YoY in Q1, compared with a 3% YoY increase in mass market dollar sales.
• The mass channel was boosted by dollar and unit sales growth for skincare products, the most challenged category in the prestige space—a sign of possible trade-down behavior.
• While those shifts haven’t filtered their way to Ulta’s sales, the company did note that consumers are “cautious and value-focused” in a way that could influence future spending.

Our take: Ulta’s strong Q1 shows that the beauty boom is not quite over. While the retailer is cautiously optimistic as shoppers turn to beauty as an escape from uncertainty, those behaviors could change quickly due to the volatility of the economic landscape.