[Click eStock] "Slow Rebound for Amorepacific... 3Q Earnings 'Stumble'"

Poor Neutral Performance... Concerns Over Innisfree's Sharp Sales Decline

[Asia Economy Reporter Minwoo Lee] Amorepacific is expected to post somewhat lackluster results in the third quarter of this year. While the domestic cosmetics business is growing smoothly, Innisfree's sales in China have plummeted, dragging down the overall performance, analysts say.

On the 24th, KB Securities downgraded Amorepacific's investment rating to 'Neutral (HOLD)' and lowered the target price by about 23% to 215,000 KRW, citing these reasons. The closing price the previous day was 189,500 KRW. Although the stock price has already sharply declined recently due to concerns over poor earnings, it is difficult to expect a rebound in the stock price because of uncertainties regarding brand competitiveness.

Accordingly, Amorepacific is expected to record consolidated sales of 1.146 trillion KRW and operating profit of 70.5 billion KRW in the third quarter of this year. These figures represent increases of 5% and 26%, respectively, compared to the same period last year. The operating profit is expected to fall 33% below market consensus. It is also 28% lower than KB Securities' previous operating profit estimate of 98.1 billion KRW.

This is interpreted as a result of weak overseas performance. In particular, the sluggish growth of the Chinese subsidiary was a burden as it fell short of expectations. The pace of earnings recovery appears to be slow. This year, the Chinese subsidiary's sales are expected to grow only 6% in local currency terms, significantly underperforming the estimated 17% growth rate of the Chinese cosmetics market. Operating profit is expected to decrease by 79% year-on-year to 2.9 billion KRW. Sulwhasoo's sales are estimated to increase by 35% compared to the same period last year, but the sharp decline in Innisfree's sales is problematic. After a 30% drop in sales last year, an additional decline of about 28% is expected this year. Shin-ae Park, a researcher at KB Securities, explained, "While restructuring (store closures) of Innisfree's offline stores was carried out and sales were expected to shift to e-commerce, brand preference has lagged, causing e-commerce sales to also decline."

Other Asian sales are also expected to fall by 15%, with an operating loss of 1 billion KRW projected. On the other hand, domestic cosmetics sales are forecast to increase by 17.8% year-on-year, with operating profit rising by 159.2%. Duty-free and e-commerce sales are expected to grow by 27% and 35%, respectively, but sales through traditional channels are predicted to continue declining.

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