[Click eStock] "AmorePacific's Structural Improvement, Increased Strength Despite Sales Decline"

4Q Sales Declined but Structural Improvement Underway Centered on Sulwhasoo in China
Overseas Operating Profit Up Over 1500% YoY

[Asia Economy Reporter Minwoo Lee] Amorepacific still recorded a loss in the fourth quarter of last year. Although sales declined, the company’s overall operating profit margin excluding one-time costs rose to 7% through an increase in the proportion of high-end and e-commerce sales. This is interpreted as a smooth progress in structural improvement following the recession caused by COVID-19.

On the 4th, Yuanta Securities analyzed that Amorepacific is achieving results from its strategic changes. Amorepacific recorded consolidated sales of 1.1569 trillion KRW and an operating loss of 9.2 billion KRW last year. Sales decreased by 13.26% compared to the same period last year, and operating profit turned to a loss. This was generally in line with market expectations (consensus).

Domestic cosmetics sales amounted to 526 billion KRW, down 20% from the same period last year. Operating loss turned to 30.5 billion KRW. Due to seasonality, sales decreased by 8.3 billion KRW compared to the previous quarter, but sales of Sulwhasoo and Laneige increased by 24 billion KRW and 29 billion KRW respectively. Eunjeong Park, a researcher at Yuanta Securities, explained, "Excluding one-time costs, domestic profitability rose to 8%, and despite the sales decline, profit resilience improved."

Duty-free sales decreased by 31% compared to the same period last year, while non-duty-free channels saw only a 3% decrease due to high growth in e-commerce. Researcher Park diagnosed, "Due to increased demand targeting China, the market share of domestic and overseas duty-free stores is expanding, and in non-duty-free channels, e-commerce sales have surpassed offline sales."

Overseas combined sales were 542.8 billion KRW, down 3% year-on-year. Operating profit was 51.6 billion KRW, up 1,536% during the same period. This far exceeded the market’s expected profit of around 20 billion KRW. Researcher Park explained, "As with domestic sales, product portfolio improvement was key, and the effect of channel restructuring also contributed, resulting in an overseas combined operating profit margin of 10%."

China finally turned to a growth trend. This achievement was made despite a decrease in Innisfree stores, thanks to strong growth of Sulwhasoo. Through active e-commerce response, the e-commerce proportion exceeded 60%. Although sales in Hong Kong, Europe, and the United States were somewhat sluggish due to channel restructuring, the channel was reorganized focusing on e-commerce and multi-brand shops (MBS), establishing a framework for improving the profit structure.

Future changes are expected to accelerate further. Amorepacific had previously announced changes through a strategic briefing on December 9 last year. Researcher Park interpreted, "The fourth quarter results are important in terms of content, including 60% growth rate of Sulwhasoo in China, surpassing 60% e-commerce share in China, and reaching 8% domestic profitability despite the off-season. This suggests that the company’s pace of change is fast and that performance remains solid despite difficult market conditions."

Against this background, Yuanta Securities maintained a 'Buy' investment rating on Amorepacific and raised the target price by 25% to 300,000 KRW. The closing price the previous day was 227,500 KRW.