Bank of America: China beauty growth accelerates, but online sales weaken in the third quarter and brand profits diverge

Why did online sales weaken in the third quarter as market growth accelerated?

In the first three quarters of 2026, beauty retail sales at Chinese enterprises above the designated size rose 6.1% year on year, faster than the 5.1% recorded for all of 2025 and above the 1.1% growth in overall retail sales over the same period.
Quarterly momentum slowed, however: year-on-year beauty retail sales growth fell from 6.9% in the second quarter to 5.5% in the third. Combined online transaction value for skincare and makeup on Tmall, Douyin and JD.com each fell 1% year on year in the third quarter, after rising 6% and 7%, respectively, in the second quarter.
Spending is increasingly concentrated around shopping festivals such as 618 and Singles’ Day. Platforms shortened this year’s Singles’ Day promotional period; Tmall Taobao and Douyin have set targets for year-on-year beauty transaction value growth of 14% and 12%, respectively.

BofA believes international brands benefit from the expansion of Tmall Taobao’s high-value 88VIP user base to more than 65 million, from 43 million to 50 million in previous years. They also participate more in influencer livestreams and concentrate discounts around festivals while keeping prices stable at other times.
Platform subsidies remain substantial: BofA expects Tmall Taobao’s Singles’ Day subsidies to exceed 45 billion yuan this year, compared with 35 billion yuan last year, and Douyin’s to be around 30 billion yuan, similar to last year. BofA expects the overall refund rate to remain at 22%–24% in 2026, but to be structurally higher on Douyin, particularly for domestic brands.
Facing profit pressure, mature listed Chinese beauty brands are paying more attention to returns on investment and cost control, especially on Douyin; smaller and unlisted brands are more willing to spend to expand their scale.

Proya’s revenue rose 29.8% year on year in the third quarter of 2026, including a contribution from the consolidation of Flower Knows, in which it holds a 51% stake. Core net profit, however, fell 65.2% over the same period.
The consolidation of lower-margin Flower Knows and a higher share of offline channels reduced third-quarter gross margin by about 4.7 percentage points year on year. Faster-growing smaller brands devote a higher share of spending to advertising, returns on the Douyin channel are lower, and pre-launch marketing for Proya Ruby Essence 4.0 added further pressure to selling expenses.
Sales declines at the core Proya and Timage brands narrowed to single digits from the previous quarter, while emerging brands continued to grow strongly. BofA believes new brands can help offset weakness in the core brands and could drive earnings growth once operating leverage from scale emerges.
BofA cut its core earnings per share forecasts for 2026 and 2027 by 27% and 11% respectively, and lowered its target price to 55.5 yuan. The bank believes the share price already reflects the related pressures to a considerable extent.

Shanghai Jahwa’s revenue rose 5.9% year on year in the third quarter of 2026, with core net profit of 25 million yuan, compared with a loss of 35 million yuan a year earlier. Cosmetics revenue grew 37%, while personal care and overseas businesses fell 3% and 4%, respectively.
A higher share of cosmetics and other factors lifted gross margin by about 1.4 percentage points year on year. A rising contribution from Douyin pushed up the online marketing expense ratio, but headquarters streamlining reduced the administrative expense ratio by about 2.5 percentage points, offsetting some selling expense pressure.
BofA cut its recurring earnings per share forecasts for the company for 2026 and 2027 by 10% and 5%, respectively, lowered its target price to 16.7 yuan and maintained its underperform rating. The bank believes the valuation already fairly fully reflects the first phase of recovery from channel inventory clearance, restructuring and a focus on key products.