There may be gift cards still tucked in consumers’ wallets and fragrance sets yet to be returned, but early results indicate the spoils of holiday beauty sales went to department stores.

High-end retailers seem to have fared better than their mass market counterparts, as shoppers flocked to department stores to find new beauty offerings, said William Chappell, an analyst with SunTrust Robinson Humphrey Capital Markets. He also noted that Amazon.com did well peddling beauty items. The online retailer listed products from Bare Escentuals and Philosophy as its top beauty sellers this holiday.

Regardless of their channel, retailers faced several hurdles during the season, including unfavorable weather conditions, customers’ propensity for procrastination and competition from Wal-Mart, which waged its promotional campaign earlier this year, stated Bear Stearns retail analyst Christine Augustine in a research note Monday.

Augustine wrote that December is by far the most important month for fourth-quarter sales, accounting for about 47 percent of discounters’ sales and 53 percent of department stores’. On Thursday, the bulk of mass and class retailers reported December sales gains in the low- to midsingle digits, with Federated Department Stores reporting same-store sales growth of 4.4 percent and CVS’ same-store sales up 8.5 percent.

Still, industry watchers point out, department stores stand to do better in beauty. Department stores, unencumbered by pharmacy or grocery departments, tend to be more gift orientated by design, said retail analyst Mark Husson at HSBC. “[Beauty departments in] drugstores are more about repair and maintenance,” and are less concerned with fragrance.

Husson noted inventory levels across both channels seem to indicate that retailers planned on a solid, but not stellar, holiday selling season. “Looking at sales, I would say this was probably an on-plan Christmas for retailers,” he said.

Several analysts said that, per usual, fragrance firms experienced more brisk sales in department stores than in mass, but noted that celebrity brands might have lost some steam. One industry observer said Elizabeth Arden plans to delay the launch of the Mariah Carey fragrance, which was slated for this spring, until the fall. He added that the beauty firm has told analysts it also plans to pull back expansion of the Britney Spears fragrance franchise.

This story first appeared in the January 5, 2007 issue of WWD. Subscribe Today.

According to market sources, the decision to delay the Mariah Carey launch was made last year when she was on tour and occupied. As for Britney Spears, after launching two fragrances in two years, the company decided to take a break. But with the return of Spears’ original manager, Larry Rudolph, Arden seems ready to resume. Ron Rolleston, executive vice president of global marketing of Elizabeth Arden, said the company is pleased to see him return and believes that “now he will create significant business opportunities for everybody.” Rolleston indicated that the company remains confident about both the Spears and Carey brands. But he added that “considering the wealth of competition,” it is important to be careful in executing the projects.

This holiday, the designer brand-focused beauty division of Procter & Gamble, P&G Prestige, may have benefited from an expanding fragrance portfolio, said A.G. Edwards & Sons analyst Jason M. Gere. Last year, P&G Prestige added the Gucci and Dolce & Gabbana beauty licenses to its portfolio.

Gere said he anticipates that, later this year, P&G may opt for small, tuck-in acquisitions that would fit into the firm’s core focus. “It makes sense for P&G to add scale to the P&G Prestige beauty side,” he said.

Department stores may have a barrage of gift cards to look forward to, but drugstores are looking to bolster profits by establishing themselves as the go-to venue to New Year’s resolutions. Rite Aid on Monday issued a press release about a weight-loss challenge called Rite Weigh Challenge. The following day, CVS touted the role its exclusive beauty brands — including Lumene, Skin Effects by Dr. Jeffery Dover and Cristophe Beverly Hills hair care — can play in helping shoppers improve themselves in the new year.

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