Coty Inc raised full-year profit forecast on Wednesday, betting on price hikes and resilient demand for its fragrances and cosmetics even as inflation pinches consumer wallets.

The company’s shares rose about 4 percent to $10.80 in premarket trading after also beating expectations for second-quarter revenue and profit.

Even with the United States on the edge of a potential recession, the beauty market’s post-pandemic rebound thrives as wealthy consumers indulge in smaller luxuries like lipsticks and fragrances while delaying big-ticket purchases.

To offset higher freight and labor expenses along with rising commodity costs, Coty was also implementing new price increases in a very granular manner on consumer beauty and prestige segments, chief finance officer Laurent Mercier told Reuters.

Coty’s prestige division, home to cosmetics and fragrances from the Hugo Boss and Gucci brands, reported a 5 percent decline in its second-quarter revenue as a strong dollar impacted companies that are stretched out internationally and convert foreign currencies into dollars.

Meanwhile, smaller exposure to the Chinese market helped Coty shield itself from China’s zero-Covid policy that hit major luxury companies including peer Estée Lauder that last week forecast a bigger drop in annual profit due to uncertainty around the region’s recovery.

But Mercier said China posed a big opportunity in the coming quarters combined with great performance of its other regions, adding that Chinese travelers’ eventual return to Europe would create an even bigger momentum for the European business.

Analysts expect China’s move in early December to relax its toughest Covid curbs and lift some travel restrictions to benefit luxury and beauty companies that had flagged a hit to sales in the country.

The CoverGirl parent now expects 2023 adjusted profit of between 35 cents and 36 cents per share, against a prior forecast of 32 cents to 33 cents per share.

By Ananya Mariam Rajesh; Editor: Milla Nissi

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