The trend: Consumers continue to spend freely on beauty, but more shoppers—particularly Gen Z and millennials—are looking for lower-cost alternatives to premium products. That’s helping brands like e.l.f. Beauty, which is leaning into “dupes” as it approaches the $1 billion sales mark.

• E.l.f.’s revenues jumped 76% year-over-year (YoY) for the second quarter in a row to $215.5 million, blowing past the $197.1 million analysts expected.
• The company raised its full-year outlook as a result. E.l.f. now expects sales to grow 55% to 57% this fiscal year to $896 million to $906 million, a significant bump from its prior forecast of 37% to 39% growth, and sales between $792 million and $802 million.

Zoom out: While dupes are gaining popularity among TikTok-savvy Gen Z and millennial consumers, shoppers as a whole are showing few, if any, signs of pulling back on beauty purchases.

• “What we’re seeing in the beauty-care industry versus other industries is that there’s a high desire to keep spending, there’s a high desire to spend against innovation,” Ulta Beauty’s CMO Michelle Crossan-Matos told The Wall Street Journal. She added that shoppers are willing to experiment with products across different price points to discover what works for them.
• At the same time, financial constraints are driving more shoppers to plump for drugstore brands like e.l.f., where products mostly retail for less than $20. Roughly one in three (31% of) adults has intentionally purchased a dupe at some point, per a Morning Consult survey; the percentage is much higher among Gen Zs (49%) and millennials (44%).

The big takeaway: The lipstick effect is still going strong. Cosmetics and beauty sales will grow by 10.7% this year, faster than any other category we track.

• But as shoppers increasingly home in on price, brands will have to lean into other qualities, such as sustainability initiatives or influencer marketing, to stay top-of-mind and prevent consumers from trading down.