LG H&H and Amorepacific, the two major giants in the K-beauty industry, received mixed results in the second quarter of this year.
LG H&H recorded an 'earnings shock' as its operating profit decreased due to poor performance in the cosmetics business, falling short of market expectations. In particular, the cosmetics division, the group's core business, returned to a loss for the first time in 82 quarters, causing a shock. In contrast, Amorepacific Group reported a three-digit increase in operating profit compared to the previous year, thanks to growth in its overseas business.
Industry sources indicate that while LG H&H remains highly dependent on duty-free and China, Amorepacific has improved its performance by actively responding to Western markets such as North America based on a global rebalancing strategy.
◇◇LG H&H: 'Duty-free and China hold back' vs. Amorepacific: 'Growth in Western markets'
According to the Financial Supervisory Service, LG H&H's second-quarter consolidated sales totaled 1.6049 trillion won, with operating profit at 54.8 billion won. Compared to the same period last year, sales dropped by 8.8%, and operating profit fell by 65.4%. The major impact came from the cosmetics division, which returned to a loss for the first time in 82 quarters.
In the second quarter, the cosmetics institutional sector recorded sales of 604.6 billion won and an operating loss of 16.3 billion won. Compared to the same period last year, sales decreased by 19.4%, and operating profit turned negative. Specifically, sales dropped by double digits in the duty-free (-36%), China (-12%), and Korean (domestic) traditional channels (-19%). Although Korean (domestic) online and specialty store (MBS) sales increased by 29%, their contribution to overall sales was minimal.
The institutional sectors for daily necessities and beverages also saw operating profits decrease by 7% and 18%, respectively. An official from LG H&H noted, "As market competition intensified, the burden of costs increased due to ongoing promotions," and "The restructuring of traditional channels, such as duty-free and door-to-door sales, has led to a decline in performance."
Amorepacific Group (Amorepacific Holdings) reported consolidated sales of 1.095 trillion won in the second quarter of this year, an 8.9% increase from the previous year, while operating profit surged to 80.1 billion won, marking a 555.5% rise. This was driven by strong performance from its key subsidiary, Amorepacific, which saw second-quarter operating profit rise to 73.6 billion won, more than 17 times (1673.4%) the previous year's figure.
Both domestic and international businesses delivered stable results, with overseas sales growing by 8.2% and operating profit increasing by 611%, driving the group's growth. The high growth in Western markets and improvements in transaction structures in the China market had significant effects. Regionally, the Americas showed a 10% increase, EMEA (Europe and the Middle East) reported an 18% rise, while sales in Greater China grew by 23%, and other Asian markets also recorded a 9% increase.
◇Amorepacific, steady growth overseas... LG H&H begins business restructuring
Industry analysts suggest that Amorepacific Group's global rebalancing strategy, initiated in 2023, is showing results. It is said that the company diversified its business portfolio by moving away from a China-centric approach and exploring and expanding into new markets such as North America and Japan.
However, the underperformance of the core brand 'COSRX,' which has driven U.S. performance, has been a significant setback. COSRX, acquired by Amorepacific in 2023, accounted for over 40% of profits, but reports indicate that sales in the second quarter fell by 20% compared to the previous year due to adjustments in distribution channels and price stabilization strategies.
In contrast, LG H&H still has 35% of its cosmetics sales concentrated in traditional channels such as duty-free and door-to-door sales, with 80% of its sales to China focused on 'The Whoo' brand, leading to criticism that it has not adapted flexibly to market changes. Previously, LG H&H aimed to enter North America by acquiring local cosmetic brands 'The Abon' and 'The Creme Shop,' but this has been evaluated as a misstep far from the global demand expansion trend for K-beauty brands.
A cosmetics industry official stated, "Considering that Amorepacific's second-quarter performance in China has improved, LG H&H's aging flagship brand and lack of a diverse brand portfolio appear to be greater issues."
LG H&H is seen to be belatedly restructuring its business. According to industry sources, LG H&H will begin a rigorous restructuring of its cosmetics business starting in the third quarter, beginning with a reduction in duty-free volumes. Additionally, it will acquire the beauty device 'LG Pra.L,' previously operated by LG Electronics, to create synergy with its cosmetics business. Reports in the investment banking (IB) sector also indicate that LG H&H is pushing for the sale of The Abon.
An official from LG H&H remarked, "Improving the fundamental corporate value by securing growth of our current operations and new growth engines through mergers and acquisitions (M&A) is our top priority."
Market perspectives indicate that LG H&H's poor performance is likely to continue until the end of this year. Kim Hye-mi, an analyst at Sangsangin Investment & Securities, commented on LG H&H, "The company is thoroughly sidelined during this second boom period of the K-beauty industry, which comes once every decade, due to its inability to respond agilely to changing trends." She added that "accelerated restructuring based on bold decisions is expected, with short-term performance deterioration being unavoidable."
The cosmetics industry is projected to continue focusing on 'developing new overseas markets,' particularly K-beauty. Amorepacific is seeking to invest in logistics and module manufacturing facilities in the U.S. to respond to increasing demand and tariff policies. This month, tariffs on Korean cosmetics exported to the U.S. will be adjusted from 10% to 15%.
In this context, Kim Seung-hwan, the CEO of Amorepacific, revealed in an event last month, "We plan to secure local production facilities within 5 to 10 years. Initially, we will pursue an expansion and enhancement plan for the California logistics center."
Oh Rin-ah, an analyst at LS Securities, stated about Amorepacific, "In the second half of this year, we expect noticeable performance growth due to a rebound in duty-free sales, a turnaround in China, and sustained demand in Western markets." She noted that "the duty-free and China businesses will continue to have a favorable operating environment due to the influx of inbound tourists and domestic stimulus policies in China, and the Western market is likely to maintain a double-digit growth rate in the second half as major channel entries accelerate."