Recently, APR's stock price surged, causing Amorepacific Corporation and LG H&H to drop to 2nd and 3rd place, respectively, in the beauty industry market capitalization rankings, and it is projected that they will show diverging performance trends in the latter half of this year.
Amorepacific Corporation is expected to see improvements in sales and operating profit, bolstered by its diverse brand portfolio. On the other hand, LG H&H is anticipated to face continued losses in its cosmetics institutional sector due to sluggishness in the highly dependent Chinese market.
According to reports from the securities and retail industries on the 7th, Amorepacific Corporation recorded sales of 1.05 trillion won and an operating profit of 73.7 billion won in the second quarter of this year. Compared to the same period last year, sales increased by 11.1% and operating profit surged by 1,673.3%. Overseas sales, amounting to 436.4 billion won, increased by 14.4% year-on-year, driving the strong performance.
Sales from the Greater China region (China, Hong Kong, Taiwan) reached 132.7 billion won, an increase of 23% compared to the same period last year. The related operating profit also recorded profits for the second consecutive quarter following the first quarter, thanks to improvements made by the Chinese subsidiary in business structure and cost reduction. Amorepacific Corporation renewed and launched the 'Ja-Eum 2 types' skincare products under the Sulwhasoo brand this year and also strengthened its growth momentum by introducing new products for the 'Laneige' and 'Ryo' brands. The company has also focused on expanding new customer touchpoints by opening pop-up stores.
Sales in the Americas amounted to 134.4 billion won, representing a 10% increase year-on-year. This growth was attributed to the successful sales of core products alongside the launch of new brands. The 'Hanyul' brand entered offline stores and online platforms across the United States through Sephora starting from mid-May. The Estee brand's hydrating cream 'Atobarrier' ranked first in sales among new brands at Sephora in April.
Market analysts believe that Amorepacific Corporation will continue its growth trend in the second half of the year. According to FnGuide, Amorepacific's sales in the latter half of the year are estimated to reach 2.2368 trillion won, with an operating profit of 212.7 billion won, reflecting increases of 8.1% and 48%, respectively, compared to the same period last year.
Jung Han-sol, a researcher at Daishin Securities, noted, "Amorepacific Corporation is recording double-digit sales growth in Western markets, with ongoing enhancements in brand competitiveness." He added, "Sales are expected to gradually recover in the latter half of the year, driven by new product launches and growth in Europe and other regions."
LG H&H recorded sales of 1.6049 trillion won and an operating profit of 54.8 billion won in the second quarter of this year, down 8.8% and 65.4%, respectively, from the same period last year. The beauty institutional sector, which is the largest in size, saw sales of 604.6 billion won and an operating loss of 16.3 billion won. Sales decreased by 19.4% compared to the same period last year, resulting in a shift to a loss. It marks the first loss incurred by the beauty sector in 20 years and 6 months since the fourth quarter of 2004.
The background of the declining performance is attributed to sluggish sales in the Chinese market, where dependency on revenue is high. In the second quarter, sales in China were 185.6 billion won, an 8% decrease from the same period last year. LG H&H is targeting the Chinese market with the 'The History of Whoo' brand, but demand has been declining as preferences for luxury beauty products have dropped since COVID-19.
Chinese consumers often purchase The History of Whoo products at duty-free shops and resell them in their home country. However, a recent decline in the prices of Whoo products in the resale market has been detected. Consequently, LG H&H has reduced the volume of sales at duty-free shops to maintain its brand image, but this has resulted in adverse effects on sales and profitability. LG H&H mentioned during the second-quarter earnings announcement that "the beauty business is not expected to be profitable in the third quarter as well. We anticipate a return to profitability in the Chinese market in the first half of next year."
Meanwhile, Kiwoom Securities estimated that LG H&H's beauty institutional sector would incur losses of 35.4 billion won and 38.0 billion won in the upcoming 3rd and 4th quarters, respectively. Jo So-jeong, a researcher at Kiwoom Securities, stated, "While growth in North America and Japan is positive, significant marketing investments are still necessary, making the contribution to profits limited. Therefore, it will be challenging to achieve profit growth in the second half due to the domestic business reorganization and adjustments in Chinese volumes."
On the other hand, APR has recorded a market capitalization of 7.9322 trillion won as of the closing price on the previous day (6th), surpassing Amorepacific Corporation (7.5339 trillion won) to become the number one beauty stock in the industry. LG H&H had previously dropped to third place behind APR in June.
Having recorded the largest quarterly performance in history in the second quarter, APR is expected to complete its entry into over 1,400 offline stores and online platforms of ULTAs in the third quarter. It is also expanding its offline store presence in Japan and other regions. Han Yoo-jeong, a researcher at Hanwha Investment & Securities, stated, "APR is expected to again set a new record for the largest quarterly performance in the third quarter of this year."