Amorepacific profits slump
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Amorepacific Group announced lower-than-expected results for the third quarter on Monday with operating profits dropping 36 percent year on year. The fall comes as a stark contrast to rival LG Household & Health Care, which saw operating profits in its beauty business soar 30 percent during the same period.
Amorepacific Group’s operating profit between July and September was 84.7 billion won ($74.2 million), down 36 percent compared to the same period last year. Its revenue rose 3.1 percent year on year to 1.46 trillion won. This was lower than the three-month analyst consensus of 1.56 trillion won in quarterly revenue and 166.9 billion won in operating profits, compiled by stock information provider FnGuide.
The company explained in a statement that the main reason for the low profitability was the increase of costs in human resources and marketing expenditure.
“Despite growing competition in the beauty market in and outside the country, Amorepacific continued investments to enforce brand competence and secure future growth engines,” the company said in a statement.
The group’s main affiliate, also called Amorepacific, saw sales increase 6 percent year on year to 1.28 trillion won in the third quarter. Amorepacific’s sales success was thanks to the popularity of its brands, including Sulwhasoo, Hera, Iope and Laneige, with tourists and duty-free shoppers. However, the sales increase was nullified by a rise in costs, resulting in a sharp 24 percent fall in operating profit to 76.5 billion won.
“With its high brand loyalty, The History of Whoo hit a quarterly sales record once again,”
The results were grim for the smaller single-brand stores under the group as well: Etude House remained in the red while revenue dropped 23 percent year on year. Innisfree sales slightly increased by 3 percent, but operating profit steeply dropped 29 percent year on year. Espoir saw operating losses once again while revenue slightly rose by 1 percent.
The good news for Amorepacific was the 36 percent year-on-year rise in revenue in the United States, thanks to strong performances from Laneige and Innisfree. Although its foothold there is still small compared to Asia, the company has been making efforts to diversify its global business, which used to heavily rely on China.
LG Household & Health Care, on the other hand, recorded its highest-ever profit for the 54th quarter in a row. Between July and September, revenue generated from its three business sectors – beauty, daily necessities and beverages – was 1.73 trillion won, up 10.6 percent from the same period last year, while operating profit was up 9.8 percent to 277.5 billion won.
The year-on-year jump was even higher in its beauty business: operating profit soared 30.6 percent to 184 billion won while revenue increased 23.5 percent to 954.2 billion won in the year’s third quarter. Its high-priced luxury brands, which were relatively unaffected by the Thaad row, were once again huge contributors.
“With its high brand loyalty, The History of Whoo hit a quarterly sales record once again,” the company said.
Questions & Answers
Q.What caused the lower-than-expected operating profits for Amorepacific Group this quarter?
What caused the lower-than-expected operating profits for Amorepacific Group this quarter?
The company stated that increased costs in human resources and marketing expenditure were the main reasons for the low profitability, despite continued investments to strengthen brand competence and secure future growth.
Q.How did Amorepacific's main affiliate perform compared to the overall group results?
How did Amorepacific's main affiliate perform compared to the overall group results?
The main affiliate, also called Amorepacific, saw sales increase by 6 percent year on year. However, this was nullified by rising costs, leading to a 24 percent fall in operating profit.
Q.Which of Amorepacific's smaller single-brand stores performed worst in the third quarter?
Which of Amorepacific's smaller single-brand stores performed worst in the third quarter?
Etude House remained in the red, with revenue dropping 23 percent year on year. Espoir also experienced operating losses once again, despite a slight rise in revenue.
Q.What strategy is Amorepacific using to diversify its global business operations?
What strategy is Amorepacific using to diversify its global business operations?
The company is making efforts to diversify its global business, which previously relied heavily on China. This includes focusing on markets like the United States, where revenue rose by 36 percent.
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