[Click eStock] "Silicon Two Finally Returns to Growth in the US"

Defending Margins by Passing on Tariff Costs
Solid Growth in Europe... Full-Scale Expansion into the Middle East Next Year

Silicon Two reported strong results in the third quarter of this year, surpassing market expectations (consensus). The company managed to return to growth in the US market by raising prices in response to tariff hikes, and it continues to see success in Europe as well.

On November 14, Samsung Securities maintained its "Buy" rating on Silicon Two and kept its target price at 63,000 won. The previous day's closing price was 42,650 won.

In the third quarter of this year, Silicon Two recorded sales of 299.4 billion won and an operating profit of 63.1 billion won. These figures represent increases of 12.9% and 20.9%, respectively, compared to the same period last year. Sales in the US and Canada reached a record-high 72.6 billion won for the quarter, marking a return to year-on-year growth for the first time in three quarters. Even after excluding the effects of exchange rates, sales increased by 11% year-on-year and 57% quarter-on-quarter.

The turnaround in growth is attributed to the ramp-up of sales to major retailers such as Ulta Beauty. In the third quarter, Round Lab entered 1,400 Ulta Beauty stores simultaneously, and Dr. Althea was introduced on a trial basis in 100 stores. The company plans to expand the number of stores next year.

It is estimated that 4% of US sales in the third quarter came from Ulta Beauty. Including this, sales through major retailers accounted for over 20%, and 5% is estimated to have come from TikTok. Sales through iHerb, which had averaged 20 billion won per quarter in the first to third quarters of last year, are also recovering. With continued quarterly growth, current quarterly sales are estimated at over 12 billion won.

Europe is also maintaining solid growth. Third-quarter sales in Europe reached 101.9 billion won, up 138% from the same period last year. The company is increasing the number of brands and product categories supplied to major retailers such as Boots. Although the growth rate appears to have slowed compared to the previous quarter, this is due to a decrease in direct exports from headquarters. To manage profitability and operational efficiency, the company is increasing corporate sales, and strengthened regulations have also led client companies to prefer corporate volume. This is considered a simple administrative issue, and demand is still said to be growing explosively.

Lee Gayoung, a researcher at Samsung Securities, stated, "Silicon Two responded to tariff increases by raising US prices by 7% year-on-year and sharing the additional tariff burden with brand partners, which allowed the gross profit margin (GPM) to be maintained at 31.6%, proving that the tariff hike had no impact." She added, "Sales growth in the Middle East is also expected to accelerate from the first quarter of next year."