Will Cosmetics Take Off Next Year?

COVID-19 Setback Eased... Expecting Performance Recovery with Growth in China's Luxury Market

[Asia Economy Reporter Oh Ju-yeon] The cosmetics industry, which was hit hard by the novel coronavirus infection (COVID-19), may find it difficult to improve its performance until the fourth quarter of this year. However, starting next year, the Chinese luxury market is expected to grow explosively, leading to increased performance centered on companies with strong brand power.

According to FnGuide, a financial information company, among nine cosmetics companies whose fourth-quarter earnings were estimated by three or more securities firms, six are expected to see a decrease in operating profit compared to the same period last year.

As the time spent wearing masks in daily life has increased due to COVID-19, demand for color cosmetics has significantly decreased, making it inevitable for companies focused on color lines to see a decline in operating profit in the fourth quarter as well. Clio's operating profit for the fourth quarter is expected to be 3.4 billion KRW, down 19.7% from the same period last year, and Aekyung Industrial is projected to post an operating profit of 8.6 billion KRW, a 48.2% decrease year-on-year. With the global cosmetics market being hit, AmoreG's operating profit decline in the fourth quarter is expected to reach the 60% range.

Han Yoo-jung, a researcher at Daishin Securities, diagnosed, "Due to the impact of COVID-19 causing disruptions in international travel, cumulative sales at Korean duty-free shops from January to October this year recorded 10.8 billion USD, down 38% compared to the same period last year."

However, with the increase in Korean entries by large 'ttaigong (Chinese smugglers)', duty-free sales are showing signs of recovery, and the growth of the Chinese duty-free market is expected to lead to explosive growth in the luxury market through the additional expansion of major distribution channels for luxury brands. The researcher analyzed, "Looking at the top 10 rankings in the cosmetics category of China's largest online shopping mall 'Tmall,' Sulwhasoo by AmorePacific did not rank from 2016 to 2019 but rose to 7th place this year, and LG Household & Health Care's Hoo climbed four places from 8th in 2019 to 4th this year," adding, "Amid the sluggishness of Chinese brands, Korean and global brands have shown remarkable progress."

Domestic companies with brand power are expected to see increased performance starting next year as the negative impact of COVID-19 is resolved. LG Household & Health Care's operating profit for the first quarter of next year is expected to continue growing, increasing by 11.7% year-on-year to 372.8 billion KRW, and AmorePacific, which was hit this year, is estimated to record an operating profit of 123.9 billion KRW in the first quarter of next year, up 103.3% year-on-year. This is attributed to the growth of luxury brands owned by each company, with LG Household & Health Care's 'Hoo' brand expected to recover its duty-free sales to last year's level next year.

Meanwhile, AmorePacific's stock price, which was 158,000 KRW earlier this month, rose nearly 14% to 180,000 KRW on the day, and LG Household & Health Care reached an intraday high of 1,648,000 KRW on the 12th, setting a new 52-week high.

This content was produced with the assistance of AI translation services.