Repayment of Group Company Deposit-Backed Loans Earlier This Month
Operating Profit Grew 196% Year-on-Year Last Year
Etude has shown confidence in its performance improvement by repaying part of the loan secured by the group's time deposits, following triple-digit profit growth last year.
According to the distribution and securities industries on the 15th, Etude repaid 10 billion KRW borrowed from Woori Bank on a one-year term on the 2nd of this month. The loan was secured by time deposits worth 11 billion KRW (with a collateral limit of 10.5 billion KRW) held by Amorepacific Group, and the funds were originally planned to be borrowed until August 18. However, Etude repaid the money earlier than scheduled. As a result, the total collateral provided by Amorepacific Group for Etude's borrowing decreased from 20.1 billion KRW to 9.6 billion KRW.
This is the first time Etude has repaid the loan before maturity. Since 2019, Etude has continued to borrow from Woori Bank and the Korea Development Bank using Amorepacific Group's time deposits as collateral to secure operating funds. This was to slightly reduce the interest rates on loans from banks through group support. Due to prolonged poor performance, the group considered Etude a subsidiary in need of support. In fact, Etude turned to a deficit in 2018 and continued to incur losses for four years until 2021. As of 2021, its total equity was -23.7 billion KRW, effectively in a state of capital erosion, and in the following year, it received capital funding through a paid-in capital increase of 30 billion KRW from the holding company.
However, Etude's financial situation has dramatically changed in just over two years. Persistent restructuring and store efficiency improvements have transformed it into a profitable company. Etude earned an operating profit of 5 billion KRW in 2022 and grew by 196% to 14.8 billion KRW in profit last year. This is the most outstanding performance among Amorepacific's major affiliates. In terms of operating profit last year, Innisfree recorded 10.3 billion KRW, a 68% decline from the previous year, and Espoir earned 2.2 billion KRW, down 16%.
Instead of operating specialty stores and duty-free shops, Etude chose to enter multi-brand shops (MBS) such as Olive Young. It also began supplying products to e-commerce channels like Coupang. Specialty stores were concentrated in locations where product sales could be maximized. To capture demand from Chinese tourists, Etude opened two additional offline stores in Myeongdong in February last year. As of the end of last year, Etude had a total of 37 domestic stores, a 40% decrease compared to the previous year. An Etude representative said, "Sales of core makeup products such as 'Curl Fix Mascara' and 'Fixing Tint' increased in the MBS channel, improving performance," adding, "We also released various collaborative products to raise brand awareness among the Millennial and Z generations (MZ generation)."
While last year focused on profitability improvement, this year the emphasis is on global market expansion and scaling up. For global market penetration, the plan is to expand sales channels mainly through MBS and online rather than opening offline stores directly. To expand scale, Etude plans to operate exclusive products for each channel such as MBS and online and diversify its product portfolio.
The market says that if Etude's growth continues, it could improve Amorepacific Group's performance and investor sentiment. This is because the contribution of other subsidiaries' performance has increased as the improvement in Amorepacific's results, which accounted for most of the group's sales, has been delayed. Based on operating profit, Amorepacific's contribution dropped from the 90% range to the 70% range last year. If Etude's sales and operating profit growth are balanced this year, it could boost not only Amorepacific Group's performance but also its stock price. Shin-ae Park, a researcher at KB Securities, analyzed, "Although the stock price trend will be linked to Amorepacific, the parent company, which has a high proportion of performance, if Etude's sales grow by 5% until 2025, it could be a sufficient factor for stock price appreciation."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
