Restructuring Duty-Free Channels, "Restoring Price Order in China"
Shareholder Returns Through Treasury Stock Cancellation and Interim Dividend
LG Household & Health Care reported an operating profit of 54.8 billion KRW in the second quarter, marking a 66% decrease compared to the same period last year. The overall performance was dragged down as the cosmetics division turned to a loss. This was due to the company reducing large-scale discount policies for duty-free channels as part of a business restructuring effort.
According to the Financial Supervisory Service's electronic disclosure system on July 31, LG Household & Health Care posted sales of 1.6049 trillion KRW and operating profit of 54.8 billion KRW, representing decreases of 8.8% and 65.4%, respectively, compared to the same period last year. Securities analysts had forecasted sales of 1.7419 trillion KRW and operating profit of 133.2 billion KRW, meaning the second quarter results fell significantly short of expectations.
By region, sales in the North American and Japanese markets grew by 12.9% and 6.4%, respectively. However, sales in the domestic and Chinese markets declined by 12.5% and 8%, respectively. By business segment, the cosmetics division recorded sales of 604.6 billion KRW and an operating loss of 16.3 billion KRW. Sales plunged by 20%, and operating profit turned to a loss. Although the North American market, centered on Amazon, and the Japanese market showed strong growth, both sales and operating profit declined due to a decrease in volume in traditional channels such as duty-free and door-to-door sales.
In the duty-free channel, bulk purchases by Chinese daigou shoppers are common, but sales volume decreased as the company reduced the discount rates previously offered. An LG Household & Health Care representative explained, "This is to enhance competitiveness in the Chinese local market," and added, "The intention is to restore the disrupted price order within China."
Increased investment in the North American market also contributed to the decline in operating profit. The luxury brand 'The History of Whoo' entered the North American market by showcasing its high-end anti-aging cosmetic 'Hwanyu' at the world-renowned art fair 'Frieze Art Fair' held in New York, USA, in May.
In the Home Care & Daily Beauty (HDB) segment, second quarter sales reached 542 billion KRW, up 2% from the same period last year, but operating profit fell by 7.1% to 28.6 billion KRW. Premium brands such as 'Yusimol' and 'Dr.Groot' boosted sales with strong performance in overseas markets, but operating profit declined due to increased marketing and labor costs associated with entry into the North American market. In the case of Dr.Groot, sales in the first half of this year surged by 800% compared to the previous year.
The Refreshment business unit saw both sales and operating profit decline due to sluggish domestic consumption and unfavorable weather conditions. Sales and operating profit were 458.3 billion KRW and 42.5 billion KRW, down 4.2% and 18.1%, respectively.
An LG Household & Health Care representative stated, "Our top priority is to fundamentally improve corporate value by growing existing businesses and securing new growth engines through mergers and acquisitions (M&A)," adding, "We are maintaining an active stance on M&A for future growth, just as we have in the past."
Meanwhile, LG Household & Health Care has resolved to implement a 'mid-term dividend and treasury stock cancellation plan' to enhance shareholder value. This was announced in November last year as part of the company's value-up plan. The interim dividend has been set at 1,000 KRW per common and preferred share, and will be paid by July 29 to shareholders of record as of July 18 next month.
Of its treasury shares, 315,738 common shares will also be cancelled on August 14. LG Household & Health Care currently holds 958,412 common shares and 3,438 preferred shares as treasury stock. All remaining treasury shares will be cancelled by 2027 in accordance with the value-up plan.
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