While K-beauty is enjoying worldwide popularity, there is a company that has not fully ridden the wave. It is LG H&H, once called an "emperor stock" when its share price climbed as high as 1.7 million won per share.
LG H&H posted a quarterly loss in the fourth quarter of last year for the first time since its founding. At the time, LG H&H's operating loss on a consolidation basis was 72.7 billion won. But looking at this year's first-quarter results, the cosmetics industry recently said there are signs of possible improvement.
According to the retail industry on the 12th, LG H&H swung to a profit in the first quarter of this year from a loss in the fourth quarter of last year. In the first quarter, LG H&H recorded 1.5766 trillion won in revenue and 107.8 billion won in operating profit. Of course, compared with the first quarter of last year, those figures fell 7.1% and 24.3%, respectively, but the market is focusing on the return to profitability.
Putting together accounts from the cosmetics industry, there are considerable internal changes at LG H&H. The industry interprets this as changes under CEO Lee Sun-ju, who took office in September last year. Lee Sun-ju is an external hire from L'Oréal. At first, many expected it would be difficult to demonstrate capabilities in LG's distinctive big-corporation culture, but the company has since reorganized its brands and global strategy.
The strategy to increase North American sales while reducing sales in China appears to be paying off for now. According to LG H&H, first-quarter sales in China fell 14% from a year earlier. In contrast, North American sales rose 35% in the same period. In absolute size, there is still a long way to go, but the direction itself is being evaluated as positive.
The premium scalp-care brand "Dr. Groot" is also delivering results. Dr. Groot has seen success with marketing on online channels such as TikTok and is now putting weight behind its push into offline stores. In August, Dr. Groot is set to enter Sephora in the United States.
There are said to be changes in the internal reporting culture as well. The company once centered on top-down decision-making, but recently there has been more bottom-up decision-making, with working-level staff proposing on-the-ground feedback and ideas.
An LG H&H official said, "Because there was a high dependence on the successful experiences from the time of former Vice Chairman Cha Suk-yong that created LG H&H's heyday, the organizational culture became conservative and passive," adding, "Former CEO Lee Jung-ae also failed to break this atmosphere, but CEO Lee Sun-ju is making changes little by little."
The securities market also recognizes changes at LG H&H, but sentiment has yet to turn fully optimistic. Hanwha Investment & Securities raised its target price to 280,000 won from 230,000 won but maintained a Neutral rating. Han Yoo-jung, an analyst at Hanwha Investment & Securities, said, "The increase in North American sales is positive, but it still comes with losses, and the decline in sales in Japan raises questions about the sustainability of the overseas business," adding, "Several brands are attempting to expand into new countries and channels, but until actual consumer sell-through is confirmed to be stable, it will be hard to rate the quality of growth highly."
Geopolitical risks stemming from the Middle East war are also cited as a variable. If oil prices rise due to tensions between the United States and Israel and Iran, the cost burden for naphtha-based packaging materials and logistics could increase. The industry notes that these cost increases could be reflected in earnings in earnest starting in the second quarter. Son Min-young, a researcher at KB Securities, said, "The impact of rising naphtha-based packaging material and logistics costs is expected to be reflected in earnings," adding, "From a profitability standpoint, we should take a conservative approach."
Cosmetics stocks led by K-beauty are showing renewed strength in the stock market. Attention is on whether LG H&H, which stepped down from its emperor-stock status, can once again meet market expectations. As of the 11th, LG H&H's share price was 268,500 won, with a market capitalization in the 4 trillion won range.