Will AmorePacific, LG H&H see sales rebound in 2nd quarter?
People stroll along Deoksugung Stonewall Walkway in Seoul during lunch time on April 18. Korea Times photo by Bae Woo-han
By Kim Jae-heun
Expectations are growing for AmorePacific and LG Household & Health Care (LG H&H) to achieve higher sales in the second quarter as Korea's two largest cosmetics makers benefit from the easing of COVID-19 restrictions after two years, according to industry analysts Wednesday.
“As the government eases social distancing rules gradually, the country's cosmetics consumption will show improvement. It is true that the market contracted during the last two years due to the pandemic. However, as the government decided to implement a 'living with COVID-19' policy and as more pharmaceutical companies prepare to launch treatments for the virus, I expect the domestic cosmetics market will normalize in the second half of this year,” Yuanta Securities analyst Park Eun-jung said.
The government on Monday allowed restaurants and bars to stay open 24 hours a day. It is also considering lifting the mandate on wearing masks outside in two weeks.
Still, AmorePacific and LG H&H have to closely watch the pandemic situation in China where a heavy amount of their sales are made. China accounts for 35 percent of AmorePacific's overall sales and 16 percent of LG H&H's total revenues. If duty-free sales in China are included, the figures increase to 58 percent and 38 percent, respectively.
AmorePacific operates its biggest Chinese production facility in Shanghai, but the city is under lockdown currently. LG H&H runs a manufacturing factory in Guangzhou and the Chinese government is also considering shutting down the city if COVID-19 infections continue to spread quickly in the region.
Park said the situation in China must get better in order for the two local companies to recover fully.
“When the pandemic situation improves in China, we will see marked improvements for local firms' cosmetics businesses starting in May. It is time for China to start preparing for one of its largest shopping festivals,” Park said.
Another researcher, Cho So-jung at Kiwoom Securities, shared a similar outlook.
“AmorePacific is expected to achieve a turnaround based on its online channels in and outside of the country starting in the second quarter. Its strategy to expand online operations and the upcoming mega-shopping festival in China on June 18 will boost the company's business performance,” Cho said. “There lies a short-term risk of volatility due to the ongoing lockdowns in China, but considering the brand value of AmorePacific and its marketing capacity, the competitiveness of the company's cosmetics industry is still valid in the long term.”
The business performances of AmorePacific and LG H&H in the first quarter of 2022 have yet to be revealed. But securities firms predict AmorePacific's operating profit to reach 145.7 billion won ($117.8 million), down 17.3 percent from a year earlier. They also expect LG H&H's operating profit to decline 3.49 percent to 357.6 billion won.
AmorePacific said it welcomes the government's decision to scrap pandemic restrictions and the company expects a sharp rebound in sales of its color makeup products after the lifting of restrictions.
“People did not wear makeup that much during the pandemic because they caused skin trouble when wearing face masks. However, we are seeing more women visiting our stores and buying our products to prepare for the post-pandemic era. We have definitely witnessed sales improvements for cosmetics goods recently,” an AmorePacific official said.