The global beauty recovery was highly uneven in 2Q26: China premium and dermatological beauty led, while Hainan duty-free improved but growth slowed

Overview

The report summarizes the 2QCY26 results of major multinational consumer and beauty companies and uses them to assess demand conditions in China’s beauty market, Asian travel retail, and the US market. The central conclusion is that the recovery is not broad-based: growth in China is concentrated in premium and dermatological beauty, Hainan is the clearest area of improvement within travel retail, and US consumer demand is broadly stable. Meanwhile, channel execution, inventory discipline, competitive investment, and cost control are becoming key determinants of corporate performance.

Core views

China’s beauty market experienced a selective rather than broad-based recovery in 2Q26. L’Oréal estimates that the Chinese market grew approximately 2% year over year, with both luxury beauty and dermatological beauty growing approximately 7%, while the mass market declined slightly. Industry sales during the 618 shopping festival are estimated to have increased approximately 10% year over year. L’Oréal slightly outpaced the industry, premium brands again became a growth driver, and many domestic brands declined markedly. Operating data from multinational companies corroborate this structure: L’Oréal’s Luxe shipments in China grew 10%, while Dermatological Beauty and Professional Products both achieved low-teens year-over-year growth; Estée Lauder’s FY2026 organic sales in China grew 9%, with Mainland China up 7% in FY4Q26 and market-share gains for six consecutive quarters; P&G’s Greater China sales grew 4%, while SK-II grew 8% excluding travel retail; KOSÉ’s Mainland China sales grew 23.6%, POLA’s BA sales grew approximately 30%, Beiersdorf’s Dermatological Beauty sales grew 62%, and La Prairie’s China sales grew 12%. Shiseido recovered more slowly, with consumer purchases growing only in the low single digits, although Clé de Peau Beauté and NARS performed strongly during the 618 shopping festival. The report attributes this divergence to premiumization, product value, and execution capability rather than sales driven by deeper discounts. Estée Lauder partly attributed its improvement to reduced promotions, earlier entry into new channels, and an emphasis on value creation. Online sales now account for more than 50% of its total China sales, it operates 11 brands on Douyin, and approximately 30% of its global innovations originate from its Shanghai R&D center; however, its China operating margin in 2Q26 was still 3.2 percentage points below Goldman Sachs’ estimate. Shiseido is addressing ANESSA’s structural issues through product value, strict distribution, and restrained discounting. POLA is closing loss-making stores while maintaining a brand-led strategy and is willing to forgo lower-quality sales. L’Oréal’s portfolio of Luxe and Dermatological Beauty products, together with the growth of Beiersdorf’s Dermatological Beauty business and La Prairie, was viewed by the respective management teams as supporting product mix and margin resilience. The outlook for China in the second half remains constructive, but the primary foundations for growth are premiumization and market-share gains. L’Oréal expects CY2H26 growth to remain broadly at 2Q26’s moderate level. It does not anticipate a broad acceleration in the overall market, instead relying on premium consumption, market share, product mix, and initiatives such as the relaunch of Dr.G. Its China business grew at nearly three times the overall market rate in 2Q26. Estée Lauder expects China and Asia to continue leading FY2027 growth, based on high-single-digit growth in the premium beauty market in 2Q26, faster innovation, and channel diversification. P&G believes its China business is reaching an inflection point, having achieved its first market-share gain in 15 quarters, and expects SK-II, premium baby care, and innovation-driven hair care to deliver further improvement. Shiseido, KOSÉ, and POLA have similarly observed improving demand but continue to emphasize pricing discipline, distribution control, and execution around hero products. Travel retail remains the most volatile segment, while Hainan is its clearest area of recovery. Industry data indicate that Hainan duty-free sales growth slowed from 26% year over year in 1Q26 to 5% in 2Q26, suggesting that the recovery continued but momentum was weakening. Estée Lauder achieved double-digit growth in Hainan in FY4Q26, while global travel retail sales turned positive in June and July for the first time in three years. KOSÉ’s China travel retail sales grew 32.8%, or 24.2% excluding foreign-exchange effects, benefiting from Hainan’s recovery and the resumption of operations by duty-free operators. Shiseido also confirmed improvement in Hainan, but its overall travel retail consumer purchases still declined by the high single digits. L’Oréal stated that travel retail continued to weigh on North Asia, where FY1H26 sales grew 4.6% year over year, or 6.1% excluding travel retail, and viewed FY4Q26 as a more meaningful normalization window. The next phase for travel retail depends not only on recovering traffic but also on inventory and channel economics. Estée Lauder stated that inventory was at healthy levels, shipments were aligned with underlying demand, and travel retail was expected to make a disproportionate contribution to organic growth in FY1H27. Shiseido plans to focus on serving traveler demand, maintain pricing discipline, control inventory, and reduce reliance on discounting and daigou sales. It expects trends to turn positive in FY2H26 but warns that traffic remains below the prior-year level. Companies generally expect Asian travel retail to improve gradually in CY2H26, driven by Hainan, healthier inventory, easier comparison bases, and improving retail demand in South Korea, Hong Kong, China, and Southeast Asia. Estée Lauder and KOSÉ are the most positive, L’Oréal expects normalization later in 2026, particularly in the fourth quarter, while Shiseido is more cautious due to traffic, concession adjustments, and uneven demand. Underlying US beauty demand was broadly stable, but reported growth was heavily affected by inventory, retailer behavior, and execution timing. L’Oréal estimates that the US market grew approximately 5%, while its own sell-out grew approximately 7%, with market-share gains across all four divisions. Its e-commerce sales grew 18%, approximately twice the market rate. In contrast, P&G’s North America organic sales declined 1%, despite consumption growth of 2%, with the divergence caused by inventory pulled forward in the previous quarter, retailer destocking, and the timing of Amazon Prime Day. Shiseido’s Americas sales declined 8% on a comparable basis, although consumer purchases returned to growth in June. Dermatological beauty remained the clearest growth area: Beiersdorf’s US Eucerin dermatological facial care achieved 40% organic growth, while Aquaphor recorded double-digit growth. L’Oréal is seeking to sustain outperformance through dermatological beauty, hair care, e-commerce, and initiatives such as Dr.G and Medik8. Estée Lauder expects North America to become an important source of growth in FY27, supported by new skin care and fragrance products, MAC channel expansion, social commerce, and direct-to-consumer investment. Costs are a common source of margin pressure beyond the recovery. P&G expects commodity, energy, and transportation costs to produce an adverse after-tax impact of approximately US$1 billion, in addition to an adverse after-tax foreign-exchange impact of approximately US$50 million. Cost pressure is concentrated primarily in FY1H27 and could cause FY1Q27 earnings per share to decline by more than 5% year over year. The estimate uses an effective Brent oil price assumption of US$90 per barrel, but higher freight, trucking, supplier inflation, and force majeure premiums offset the benefit of the lower oil-price assumption. Beiersdorf’s Consumer business gross margin declined 100 basis points due to raw material inflation and lower factory utilization. KOSÉ expects approximately ¥1.3 billion of additional Middle East-related costs. POLA believes existing inventory can limit the current-year impact, but uncertainty is higher for the following year. Companies are mainly mitigating costs through productivity, supply-chain and overhead efficiency, product mix, and selective price increases tied to innovation, while Shiseido is relatively more optimistic due to improved procurement terms, higher factory productivity, and the normalization of prior-year factory costs. For Chinese domestic brands, the recovery of multinational companies in premiumization, dermatological beauty, R&D, and channel execution means that competition may intensify further in 2H26. The report notes that Giant Biogene, Shanghai Jahwa, and Chicmax have already increased brand investment. With consumer sentiment still weak and global peers planning to sustain growth momentum, domestic companies may need to make more difficult trade-offs among growth, investment, and margins. Goldman Sachs believes that Mao Geping, Giant Biogene, and Forest Cabin are relatively better positioned to outperform due to their premium positioning, strong brand equity, pricing resilience, preference for differentiated premium products, and more balanced channel strategies.

Analysis framework

The report first summarizes the quarterly results and management outlooks of companies including L’Oréal, Estée Lauder, P&G, Shiseido, KOSÉ, POLA, and Beiersdorf, and then compares them across four main themes: Mainland China, travel retail, the US market, and raw material costs. The analysis distinguishes market demand and consumer purchases or sell-out from corporate shipment revenue, and incorporates market share, category mix, channel inventory, promotional discipline, margins, and guidance revisions. It then maps common trends among multinational companies onto the competitive environment facing Chinese domestic cosmetics companies.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Compare demand and supply performance by region, category, and channel

  The report separates Mainland China, Asian travel retail, and the US market, and compares categories such as premium, mass, and dermatological beauty to determine which demand segments are genuinely recovering and how inventory and shipments affect headline growth.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Distinguish the contributions of volume, price, product mix, and promotions to growth

  The report uses information such as P&G’s flat quarterly volume, pricing, and product mix, together with premiumization, reduced promotions, and innovation-led pricing, to explain the quality of revenue growth and its margin impact.

• Corporate Fundamentals and Financial FrameworkEarnings Quality Analysis

  Assess growth quality using promotional discipline, inventory alignment, store rationalization, and margins

  The report does not focus solely on sales growth; it also considers Estée Lauder’s margin shortfall, POLA’s closure of loss-making stores, Shiseido’s discount controls, and whether travel retail shipments are aligned with actual demand.

• Event-Based Strategy and Behavioral FinanceEvent-driven analysis

  Cross-company read-across from quarterly results and the 618 shopping festival

  The report uses 2Q26 earnings, 618 sales performance, and management guidance as observation windows to identify premiumization, market-share changes, channel inventory, and the pace of second-half growth.

• Event-Based Strategy and Behavioral FinanceExpectation Gap/Expectation Management

  Compare actual results with Goldman Sachs estimates, market consensus, and previous guidance

  The report notes that Estée Lauder’s China operating margin was 3.2 percentage points below Goldman Sachs’ estimate, while also focusing on its above-consensus FY27 earnings-per-share guidance and the upward revision to its adjusted margin range.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• L’Oréal (OREP.PA)

  A major beneficiary of premiumization and dermatological beauty in China and digital-channel growth in the United States, and a core reference point for assessing industry demand.

  Strengths

  China growth was nearly three times the market rate, Luxe shipments grew 10%, US sell-out grew approximately 7%, and e-commerce sales grew 18%.

  Weaknesses

  Asian travel retail continued to weigh on North Asia growth, while overall Chinese market growth remained moderate.

  Comparison

  It outpaced the company’s estimated market growth rates in both China and the United States.

  Risks

  Travel retail normalization may be slower than expected, or China premium consumption and market-share gains may not be sustained.

• Estée Lauder (EL)

  An important beneficiary of improvements in China, Hainan travel retail, and North American channels.

  Strengths

  It gained market share in China for six consecutive quarters, online sales accounted for more than 50%, Hainan achieved double-digit growth, and travel retail inventory was well aligned with demand.

  Weaknesses

  Its China operating margin in CY2Q26 was 3.2 percentage points below Goldman Sachs’ estimate.

  Comparison

  The report views it and KOSÉ as the most positive companies on travel retail.

  Risks

  Travel retail improvement depends on recovering shipments, an easy comparison base, and sustained retail trends, while margin delivery still requires execution.

• P&G (PG)

  Participates in China’s structural recovery through SK-II, premium baby care, and hair care, while facing US inventory volatility and cost pressure.

  Strengths

  Greater China grew 4% and achieved its first market-share gain in 15 quarters; SK-II grew 8% excluding travel retail.

  Weaknesses

  North America organic sales declined 1%, while lower-end Rejoice, oral care toothpaste, and mass skin care still need improvement.

  Comparison

  US consumption grew 2% while reported sales declined, indicating that shipment performance was weaker than underlying demand.

  Risks

  Approximately US$1 billion of after-tax cost pressure is concentrated mainly in FY1H27, and FY1Q27 EPS is expected to decline by more than 5%.

• Shiseido (4911.T)

  China consumption is recovering slowly and Hainan is improving, but overall travel retail remains under pressure.

  Strengths

  Clé de Peau Beauté and NARS performed strongly during the 618 shopping festival, while procurement terms and factory productivity improved.

  Weaknesses

  China consumer purchases grew only in the low single digits, travel retail consumer purchases declined by the high single digits, and Americas sales fell 8% on a comparable basis.

  Comparison

  Compared with Estée Lauder and KOSÉ, Shiseido is more cautious about the travel retail outlook.

  Risks

  Traffic below the prior-year level, concession adjustments, uneven demand, and ANESSA’s structural issues.

• KOSÉ (4922.T)

  A direct beneficiary of the recovery in Hainan and China travel retail.

  Strengths

  Mainland China sales grew 23.6%, China travel retail sales grew 32.8%, or 24.2% excluding foreign-exchange effects, and the company raised its Asia outlook.

  Weaknesses

  Growth partly depends on Hainan’s recovery and the resumption of operations by duty-free operators.

  Comparison

  Together with Estée Lauder, it is among the companies in the report most positive on Asian travel retail.

  Risks

  It expects approximately ¥1.3 billion of additional Middle East-related costs, while travel retail demand may remain volatile.

• POLA ORBIS (4927.T)

  A beneficiary of improving demand for premium brands in China.

  Strengths

  BA sales grew approximately 30%, while the company maintained a brand-led strategy and pricing discipline.

  Weaknesses

  It is closing loss-making stores and deliberately forgoing lower-quality sales.

  Comparison

  Like other Japanese peers, it emphasizes distribution control and execution around hero products.

  Risks

  Existing inventory can mitigate the current-year cost impact, but uncertainty over raw material costs is higher for the following year.

• Beiersdorf (BEIG.DE)

  A clear beneficiary of dermatological beauty growth in China and the United States.

  Strengths

  China Dermatological Beauty grew 62% and La Prairie China grew 12%; US Eucerin facial care grew 40%, while Aquaphor achieved double-digit growth.

  Weaknesses

  Consumer business gross margin declined 100 basis points.

  Comparison

  Its dermatological beauty growth stands out among the peers covered in the report.

  Risks

  Raw material inflation and low factory utilization may continue to pressure gross margin.

• Giant Biogene (2367.HK)

  The report believes its premium positioning and brand equity make it relatively better positioned to outperform in China’s increasingly competitive market.

  Strengths

  The report recognizes its premium positioning, brand equity, pricing resilience, and differentiated products.

  Weaknesses

  Front-loaded brand investment has increased selling expenses and pressured operating profit.

  Comparison

  It is listed alongside Mao Geping and Forest Cabin as a domestic brand relatively better positioned to outperform.

  Risks

  Intensifying competition and higher brand investment may continue to affect margins.

• Mao Geping (1318.HK)

  As a premium-positioned Chinese domestic brand, it is viewed by the report as a relative beneficiary of the structural recovery.

  Strengths

  Strong brand equity, pricing resilience, and differentiated premium product positioning.

  Comparison

  Like Giant Biogene and Forest Cabin, it benefits from premium positioning or a more balanced channel strategy.

  Risks

  Weak consumer sentiment and sustained growth by multinational brands may intensify competition.

• Forest Cabin (2657.HK)

  The report believes it is relatively better positioned to outperform due to its premium positioning and more balanced channel strategy.

  Strengths

  Differentiated premium products, brand equity, pricing resilience, and channel balance.

  Comparison

  Together with Mao Geping and Giant Biogene, it forms the report’s preferred group of domestic brands.

  Risks

  Increased investment by domestic and multinational brands may raise customer-acquisition and brand-building costs.

• Shanghai Jahwa (600315.SS)

  Used to illustrate how Chinese domestic brands are increasing brand investment in response to competition.

  Weaknesses

  Higher brand investment may increase near-term expense pressure.

  Comparison

  The report groups it with Giant Biogene and Chicmax as companies increasing brand investment.

  Risks

  Intensifying competition in 2H26, weak consumer sentiment, and uncertain returns on investment.

• Chicmax (2145.HK)

  Used to illustrate how domestic cosmetics companies are increasing competitive investment amid the recovery of multinational brands.

  Weaknesses

  Higher brand investment may compress profit margins.

  Comparison

  Like Giant Biogene and Shanghai Jahwa, it faces the challenge of balancing brand investment and profitability.

  Risks

  Intensifying competition and weak consumer sentiment may affect returns on investment.

Key data

• 2Q26 China beauty market growthApproximately 2% year over yearEstimated by L’Oréal management; the recovery was concentrated mainly in premium and dermatological beauty.
• Growth in China luxury beauty and dermatological beautyApproximately 7% eachYear over year in 2Q26; the mass market declined slightly.
• 618 industry sales growthApproximately 10% year over yearL’Oréal estimated that it slightly outpaced the market, with premium brands recovering while many domestic brands declined.
• L’Oréal 2Q26 organic sales growth6.3% LFLDown from 7.6% in 1Q26; Dermatological Beauty and Professional Products grew 11.1% and 10.1%, respectively.
• Estée Lauder China FY2026 organic sales growth9%Across skin care, makeup, and fragrance; Mainland China grew 7% in FY4Q26.
• Estée Lauder China online sales mixMore than 50%The company operates 11 brands on Douyin, and approximately 30% of global innovations originate from China.
• Estée Lauder China margin shortfall3.2 percentage points below GSeChina operating margin performance in CY2Q26.
• P&G Greater China growth4%Organic sales growth in FY2026 and FY4Q26; the first market-share gain in 15 quarters.
• SK-II growth8% year over yearFY4Q26 excluding travel retail; organic sales maintained a cumulative double-digit growth trend over the past six quarters.
• China growth of other Asian peersKOSÉ 23.6%; POLA BA approximately 30%; Beiersdorf Dermatological Beauty 62%; La Prairie 12%All reflect strong momentum in China’s premium or dermatological beauty segments.
• Hainan duty-free sales growth5% year over year in 2Q26A marked slowdown from 26% in 1Q26.
• KOSÉ China travel retail growth32.8%, or 24.2% excluding foreign-exchange effectsSupported by Hainan’s recovery and the resumption of operations by duty-free operators.
• US beauty market and L’Oréal sell-out growthMarket approximately 5%; L’Oréal approximately 7%L’Oréal gained market share in the United States, with e-commerce sales growing 18% year over year.
• P&G North America sales and consumption performanceOrganic sales -1%; consumption +2%The divergence mainly reflected inventory pulled forward, retailer destocking, and the timing of Amazon Prime Day.
• US Eucerin dermatological facial care growth40% organic growthBeiersdorf data; Aquaphor also achieved double-digit growth.
• Estée Lauder FY27 organic sales guidance+3% to +5%Adjusted EBIT margin guidance was raised to 12.7% to 13.0%, from 12.5% to 13.0% previously.
• P&G FY27 organic sales and core EPS guidanceSales +1% to +3%; core EPS flat to +3%, or US$6.89 to US$7.11Sales guidance includes a 30- to 50-basis-point adverse impact from exits of brands and products related to non-core restructuring.
• P&G adverse cost impactApproximately US$1 billion in after-tax costs and a US$50 million adverse after-tax foreign-exchange impactCommodity, energy, and transportation pressures are concentrated mainly in FY1H27; FY1Q27 EPS is expected to decline by more than 5% year over year.
• Change in Beiersdorf Consumer business gross marginDown 100 basis pointsDue to raw material inflation and lower factory utilization.
• KOSÉ additional costsApproximately ¥1.3 billionAdditional Middle East-related costs expected by the company.

Impact & implications

The report believes that the beauty industry’s growth focus is shifting from broad promotion-driven demand toward premiumization, dermatological beauty, innovation, and refined channel management. Companies with premium product portfolios, R&D capabilities, brand equity, digital-channel execution, and healthy inventory are better positioned to gain market share, while those reliant on the mass market, discounts, or volatile travel retail traffic face greater fluctuations. For Chinese domestic brands, the return to growth and increased investment by multinational brands may intensify competition further in 2H26, making the balance between brand investment and margins more important.

Risks

• Chinese consumer sentiment remains weak, and the market recovery may remain confined to premium and dermatological beauty rather than broadening across the market.
• Multinational brands seeking to sustain growth and domestic brands increasing brand investment may further intensify competition in 2H26 and reduce returns on investment.
• Asian travel retail remains affected by low traffic, channel volatility, concession changes, inventory, and uneven demand.
• Hainan duty-free sales growth has already slowed from 26% year over year in 1Q26 to 5% in 2Q26, and recovery momentum may weaken further.
• Commodity, energy, transportation, supplier inflation, and related premiums may continue to pressure corporate gross margins and earnings.
• Inventory adjustments, retailer destocking, and changes in promotional timing may cause reported corporate sales to continue diverging from actual consumer demand.
• Business models reliant on discounts, daigou, or low-quality store sales face risks from channel restructuring and declining profitability.

What to watch

• Monitor whether China premium and dermatological beauty can sustain growth in CY2H26 and whether multinational brands can continue gaining market share.
• Watch the sustainability of demand after the 618 shopping festival, as well as changes in domestic brands’ brand investment and margins amid intensifying competition.
• Track monthly Hainan duty-free sales, tourist traffic, and the operating recovery of duty-free operators.
• Monitor whether the FY4Q26 normalization window for Asian travel retail identified by L’Oréal materializes.
• Track the alignment between Estée Lauder’s travel retail shipments and actual demand, as well as its contribution to FY1H27 growth.
• Monitor whether the divergence among US sell-out, corporate shipments, and retail inventory narrows.
• Watch the US launch of Dr.G, Medik8 expansion, MAC channel expansion, and related digital-channel execution.
• Track raw material, energy, and transportation cost pressures in FY1H27 and whether productivity, product mix, and innovation-led pricing can provide effective offsets.
• Monitor market-share improvement in P&G’s remaining China categories and the progress of a more meaningful recovery in its US business in FY2H27.