Thibaut Mongon, CEO of Kenvue Inc., Johnson & Johnson’s consumer health company, speaks during an IPO interview on the Latest York Stock Exchange (NYSE), May 4, 2023.
Brendan McDermid | Reuters
Most consumers have pulled back on spending as inflation squeezes their wallets, but they have not stopped paying for the brand health and private hygiene products, said Kenvue CEO Thibaut Mongon.
Mongon told CNBC on Thursday that customers are still willing to spend on the corporate’s branded products – at the same time as they reduce discretionary spending in retail stores and trade in some essentials by changing their usual shopping size or switching brands at lower prices.
The Johnson & Johnson consumer spin-off Kenvue beat second-quarter revenue and revised its earnings guidance on Thursday, driven by buoyant demand for the corporate’s wealth of high-profile brands including Band-Aid, Tylenol, Listerine, Neutrogena and Aveeno.
Still, the corporate’s share price fell after J&J announced it could post an exchange offer to cut back its stake in Kenvue much before expected.
Kenvue noticed it too “own brand” market penetration of consumer health products was stable within the quarter. Private label refers to products manufactured and sold under the name of a specific retailer, that are sold at a lower cost and are intended to compete with branded products comparable to Kenvue.
These spending trends could bode well not just for Kenvue, but in addition for other health, beauty and beverage firms where consumers may not buy cheaper products as often despite persistently high prices.
“Now we live in a volatile environment with constant consumer uncertainty and constant inflationary pressure,” Mongon told CNBC. “But I believe individuals are very focused on their health and well-being at once.”
“They need to be sure that they do whatever is vital to enhance their health,” he said. “They’re on the lookout for trusted, science-backed and effective solutions to higher maintain their health, and that is what we and our brands are dedicated to. That is what we have been doing for a very long time.”
Kenvue expects strong demand to proceed in the approaching quarters. The corporate forecasts that sales in 2023 will increase from 4.5% to five.5% in comparison with last 12 months.
RBC Capital analyst Nik Modi expressed confidence that Kenvue is in a position to “maintain momentum”, highlighting the general consumer confidence in the corporate’s brands and health and private care products.
He noted that downward pressure on prices has increased for some firms, based on changes in market share over the past few months. He noted that Kenvue has gained market share within the meantime and will potentially proceed to achieve this despite its wider environment.
“If we were to see a trade with them, we’d have noticed it already,” Modi said.
Who else may gain advantage
In keeping with Modi, like Kenvue, some beauty and beverage firms may not see the identical declines as some core consumer segments in the course of the current period of macroeconomic uncertainty.
He said beauty products comparable to makeup are increasingly seen as “inexpensive luxury” at the same time as inflation reduces consumer budgets.
“They don’t need to feel bad about their situation and buy cheaper makeup,” Modi said.
Corporations like Ultawhich sells makeup, skin and hair care products and other beauty products, benefited from the resilience of the sweetness category.
Earlier this 12 months, Ulta reported that its 2022 revenue exceeded $10 billion and its annual net income exceeded $1 billion – each records for the corporate. Ulta also reported first-quarter earnings that beat Wall Street expectations in May, driven largely by demand for its beauty products.
Oddity Tech, a beauty and wellness company that uses artificial intelligence to develop cosmetics, also benefited from the strength of the cosmetics category when it went public on Wednesday. Shares of the direct-to-consumer platform rose 35%.
Beverage firms are also well positioned, Modi said, noting that big brands comparable to Coca-Cola aren’t very vulnerable to personal label penetration.
Coca-Cola’s first-quarter earnings beat expectations for prime demand for its beverages. But price hikes on its products, which were introduced to cushion the impact of inflation, also helped drive up the outcomes.
Consumer confidence
Mongon said consumers are turning to brands and products they “know and trust” in tough economic times.
He said the behavior – and the greater emphasis on health and wellness – is driving demand for Kenvue products which have been “in households for years, for a long time, sometimes for generations.”
Modi agrees, adding that the Covid-19 pandemic has significantly increased consumer attachment to brands, especially those who have helped people maintain their health.
Demand for Tylenol, e.g. soared and overtook other painkillers early within the pandemic as people scrambled to refill on essential health products.
“Through the Covid period, you wanted to save lots of your loved ones or help your kids get through a tough time with certain medications and products, and I believe that sort of emotional connection and commitment helped with the stickiness of the brand,” Modi told CNBC.
“Consumers are likely to trust these brands at very traumatic times of their lives, so I believe that is why brands like Kenvue remain so resilient despite macroeconomic pressures,” he said.
BNP Paribas Exane analyst Navann Ty added that the pandemic has made consumers more empowered to “take their health into their very own hands at home”.
She said the change is prone to profit Kenvue and other consumer health professionals and is “additional differentiation from other categories of consumers.”
Ty noted that Kenvue just isn’t “fully immune” to trade declines and personal label competition. Nevertheless, she said product recommendations by healthcare professionals offered “some protection”.
Third-party surveys of some U.S. healthcare professionals from 2020 to 2022 found Tylenol was essentially the most physician-recommended pain medication for adults nationwide, in response to Kenvue’s IPO filing in April.
These surveys also showed that Neutrogena was the leading brand of over-the-counter sunscreen and pimples products within the US, while Listerine was the nation’s hottest dentist-recommended mouthwash.
Mongon noted in the course of the company’s earnings call that these recommendations “ultimately support lifetime loyalty to our brands, a loyalty that’s passed down from generation to generation.”