South Korea’s cosmetics giant Amorepacific Corp. on Thursday posted disappointing first-quarter sales and operating profit as revenue from China, its key market, fell.
But analysts expect the company’s earnings to improve in the coming quarters on the back of its business restructuring amid hopes of relaxed pandemic-related restrictions.
The company’s first-quarter sales fell 7% from a year ago to 1.17 trillion won ($919 million), while operating profit shed 10.4% on-year to 158 billion won.
While sales from its domestic operations fell 10% in the first quarter from a year earlier, its overseas sales dropped further with a 19.5% on-year decline.
The resurgence of the COVID-19 pandemic in China particularly hit the company as it heavily relied on the world’s largest consumer market for growth.
Amorepacific's Innisfree shop Just like its crosstown rival LG Household & Health Care Ltd., Amorepacific has basked in the global boom of Korean cosmetics, collectively known as K-beauty, and reaped handsome profits, particularly from China.
SHUTTING OUTLETS IN CHINA
But Korean cosmetics companies are striving to lower their reliance on China after suffering from weak sales there, as Chinese consumers have gradually turned to favor home-grown brands.
Having already pulled its Etude House brand out of the Chinese market, Amorepacific is currently shutting sales outlets for its mid-tier Innisfree line of products there.
The number of the company’s Innisfree outlets in China fell to about 200 last year from as many as 607 in 2019.
Instead, it is strengthening its high-end Sulwhasoo brand. Amorepacific has said it aims to raise the ratio of Sulwhasoo products to 40% of its total sales in China by year-end.
Amorepacpfic's premium cosmetics brand Sulwhasoo The company is also pushing ahead with its digital transformation initiative to strengthen its online sales channels by forming partnerships with online platforms in Korea and abroad.
Despite the weak quarterly results, however, Amorepacific’s stock rose sharply on Thursday on expectations that the government’s further easing of social distancing measures will boost cosmetics shares.
The company’s stock finished up 9.2% at 178,000 won, outperforming the broader Kospi market’s 1.1% rise.
According to market tracker FnGuide, the market consensus for Amorepacific’s 2022 operating profit is 405.6 billion won, lower than its pre-pandemic profit of 427.8 billion won in 2019.
