Korea's cosmetics industry is expected to have posted generally solid results in the first quarter, buoyed by strong exports. With demand for K-beauty continuing mainly in the United States, Japan and Europe, brand companies and ODM (original design manufacturing) firms are also seen to have sustained top-line growth. However, there are concerns that if disruptions in raw material procurement and logistics due to the war in the Middle East persist, uncertainty across the cosmetics industry could grow.
On the 14th, according to the Ministery of Food and Drug Safety, Korea's first-quarter cosmetics exports came to $3.1 billion (about 4.56 trillion won), up 19% from a year earlier and hitting a record high. By country, the United States accounted for the most at $620 million (about 920 billion won), or 19.8% of the total, followed by China at $470 million (about 700 billion won) and Japan at $290 million (about 430 billion won).
As exports to the United States jumped, dependence on China decreased and export destinations diversified more visibly. Accordingly, expectations have grown that major cosmetics companies' first-quarter results also improved from a year earlier.
According to FnGuide, Amorepacific's estimated first-quarter results are sales of 1.1268 trillion won and operating profit of 124 billion won. That would be up 5.6% and 5.3%, respectively, from a year earlier. d'Alba Global was also projected to post sales of 164.9 billion won and operating profit of 38.7 billion won, up 44.9% and 28.7%, respectively.
APR is expected to show the most notable improvement. APR's first-quarter outlook is sales of 557.8 billion won and operating profit of 136 billion won, surging 109.7% and 149.2%, respectively, from a year earlier. The gains are attributed to the rapid rise in European online sales centered on the United Kingdom, along with continued benefits from expanding offline distribution in the United States.
APR last year signed an exclusive offline supply contract with Ulta Beauty. As that contract ends in the second quarter, the company can begin full-scale entry into major offline channels such as Walmart, Target and Costco, expanding its potential to grow in the U.S. market.
In contrast to most cosmetics companies that continued to grow, LG H&H, which is undergoing a sweeping restructuring of its beauty business, is likely to see declines in both sales and operating profit. LG H&H's first-quarter estimates are sales of 1.5903 trillion won and operating profit of 51.2 billion won, down 6.3% and 64.1%, respectively, from a year earlier.
LG H&H previously focused on exporting high-end cosmetics to China, and its domestic sales channels were concentrated in duty-free, door-to-door sales and department stores. Since last year, to change this structure, the company has reduced the share of traditional channels while expanding H&B and online channels, and overseas it has been accelerating growth in non-China markets such as the United States and Japan.
The ODM sector is also expected to have posted solid results on the back of clients' export growth. Kolmar Korea is estimated to have recorded first-quarter sales of 712.3 billion won and operating profit of 65.9 billion won, up 9.1% and 9.9%, respectively, from a year earlier. COSMAX is also expected to have continued its growth, with sales of 661.6 billion won and operating profit of 55.3 billion won, up 12.4% and 7.6%, respectively.
Still, the industry sees the Middle East war as a variable that could determine future conditions, even if first-quarter results were unremarkable. Although the Middle East accounts for only 3% to 4% of Korea's total cosmetics exports, limiting short-term sales impact, uncertainty is growing in raw materials and logistics.
In particular, rising prices of PP (polypropylene) and PE (polyethylene), the main raw materials for cosmetic containers, are cited as burdens. Major container suppliers have been sending successive notices to clients to raise supply unit prices. If the situation persists, pressure to increase product prices could also grow.
Delivery delays due to reduced supply of cosmetic containers are also a concern. While demand for K-beauty products is rising rapidly overseas, disruptions in container procurement could tangle production schedules and hinder smooth sales.
Park Jong-dae, an analyst at Meritz Securities, said, "In the short term, the Middle East war may have limited impact on large cosmetics companies, but if it drags on, uncertainty will grow across the industry."