3Q Operating Profit Expected at 76 Billion Won Due to Weak China Business... Below Market Expectations
Innisfree to Sulwhasoo: Growing Pains Amid Core Business Shift in China
[Asia Economy Reporter Minwoo Lee] An analysis has emerged that Amorepacific's third-quarter performance this year will fall significantly short of expectations. While stable results are expected domestically, the sluggish performance of the Chinese subsidiary is seen as a painful setback. The shift in business structure centered on high-end cosmetics and online channels is expected to be a key factor.
On the 9th, Hana Financial Investment forecasted that Amorepacific would record consolidated sales of 1.134 trillion KRW and operating profit of 76 billion KRW in the third quarter of this year. This represents increases of 4.2% and 35.9%, respectively, compared to the same period last year. Although these figures appear solid, they fall significantly short of market consensus. Operating profit is expected to miss the consensus by about 10.5%.
Domestic duty-free and online channel sales are estimated to grow by 20% and 30%, respectively, compared to the same period last year, leading to an overall 15% increase in domestic cosmetics sales. However, the Chinese subsidiary's sales have been a drag. Innisfree's sales are expected to drop to half of last year's third-quarter level, resulting in an overall 5% decline in the Chinese subsidiary's sales compared to the previous year.
Although Sulwhasoo sales in China are expected to grow by 30% compared to the same period last year, this is insufficient to offset the poor performance of Innisfree, which accounted for 35% of sales in the third quarter of last year. Sulwhasoo's sales share is estimated to be around 23%. Additionally, shutdowns in Japan and Southeast Asia have also had an impact.
Nevertheless, Sulwhasoo is seen as a source of hope. Jongdae Park, a researcher at Hana Financial Investment, explained, "Amorepacific is in the process of shifting its business structure toward luxury and online channels, so the decline in Innisfree sales is a matter of timing and an unavoidable situation. If Sulwhasoo, the core brand for China, is increasing its brand power and market share there, there is no need to view the company's mid- to long-term outlook negatively."
In fact, Sulwhasoo has successfully increased its average selling price (ASP) by shifting its core line from 'Yoonjo' to 'Jaumsaeng' and is expanding its share in the luxury market. Although performance in China and Southeast Asia is sluggish, the U.S. business, estimated to account for about 20% of total sales, is expected to compensate, preventing overseas operations from turning into a loss.
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