Sales increases 10% to KRW 1.5537 trillion, OP increases 30.6% to KRW 170.3 billion
Amorepacific Group announced on July 26th in its earnings report that it recorded a 30.6% increase in operating profit to KRW 170.3 billion in the second quarter of 2018 on a year-on-year basis, with sales growing 10% YoY to KRW 1.5537 trillion. Primary contributors to the improved financial performance included strong reports from its main affiliate, Amorepacific, which saw a 44% increase in operating profit, and from Innisfree, which recorded 21% growth in operating profit.
Despite fast changing market conditions globally, overseas business profitability was greatly improved due to the group’s ongoing efforts to reinforce brand competitiveness and enter new markets. In Asia, store expansion focused on luxury brands and exclusive products for local customers, helping the company to maintain a double-digit growth rate. In North America, both Innisfree and Laneige expanded their customer base.
Luxury brands such as Sulwhasoo saw increased sales of skin care products in the domestic market. Digital channels also showed strong results after new marketing campaigns targeting millennials were initiated. The group also focused on R&D and marketing activities to provide differentiated value to customers through a diversified product portfolio and by expanding its brand experience zones.
The group plans to continue its growth momentum by expanding its overseas business, unveiling innovative products and improving customer experience in the second half of 2018.
Specifically, the group plans a major revamp of Aritaum, Amorepacific’s multi-brand retail shop. Starting with “Aritaum’s Gangnam Mega Shop” , which is tentatively scheduled to open in the second half, all Aritaum stores will be upgraded to a multi-brand beauty shop platform that is differentiated from existing retail shops and health & beauty stores. The new stores will offer deeper, more meaningful customer experiences with sophisticated beauty solutions and services. The retail environment will also introduce new purchasing options and various product lineups.
The company will continue its effort to make inroads into new overseas markets. In the second half, Laneige will enter the Indian market for the first time, while Mise-en-Scène and Ryo will enter China and Hong Kong, respectively, providing support to the business in Asia.
In addition, Amorepacific group will continue to seek new growth engines by nurturing beauty startups both inside and outside the company. Lean Startup is an in-house startup incubation program adopted in 2016 which the company hopes to leverage to develop unique and creative brands that are compelling to consumers. Four brands were selected in the last two years (Outrun, Gaondodam, Bro & Tips, and Steady) and all four are now actively developing their respective businesses. They will be joined in the second half by additional startups.
Two other organizations helping this effort include AP TechUP+, which cultivates beauty tech startups, and Amorepacific Ventures, the group’s corporate venture capital arm that makes investment in innovative beauty startups. Both are currently looking for and nurturing promising beauty startups capable of giving a boost to the market.
Amorepacific Group Q2 and H1 2018 earnings (K-IFRS Consolidated Basis) Unit: KRW 100 million
| Q2 2017 | Q2 2018 | 1H 2017 | 1H 2018 | |||
|---|---|---|---|---|---|---|
| Amount | Amount | Increase/decrease | Amount | Amount | Increase/decrease | |
| Sales | 14,130 | 15,537 | 10.0% | 32,683 | 32,179 | -1.5% |
| Operating Profit | 1,304 | 1,703 | 30.6% | 5,089 | 4,484 | -11.9% |
Sales and operating profits of major beauty affiliates in 2Q 2018 unit: KRW 100 million
| Affiliate | Amorepacific | Growth* | Innisfree | Growth | Etude House | Growth |
|---|---|---|---|---|---|---|
| Sales | 13,437 | 12% | 1,596 | 4% | 572 | -2% |
| Operating Profit | 1,458 | 44% | 269 | 21% | -61 | Deficit |
| Affiliate | Espoir | Growth | Aestura | Growth | Amos Professional | Growth |
| Sales | 107 | 9% | 295 | -15% | 216 | 4% |
| Operating Profit | -5 | Deficit reduced | 24 | -16% | 43 | -2% |
Business performance of major beauty affiliates in Q2 2018
Amorepacific : Sales at KRW 1.3437 trillion (12%); operating profit at KRW 145.8 billion (44%)
The main affiliate, Amorepacific, recorded a 11.5% growth in sales to KRW 1.3437 trillion and a 43.5% growth in operating profit to KRW 145.8 billion YoY thanks to increased sales of skincare products, diversification of product portfolio, and solid business growth outside of Korea. Domestic sales in Korea increased by 9% YoY to KRW 877.7 billion, while operating profit grew by 12.1% YoY to KRW 92.6 billion. Overseas business sales increased 16.7% to KRW 476.7 billion and operating profit 129.3% to KRW 45.4 billion
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Domestic business: Sales at KRW 877.7 billion (9%); operating profit at KRW 92.6 billion (12.1%)
Luxury brands (Sulwhasoo, Hera, Primera, Vitalbeautie, etc.) saw improved performance this year largely due to robust sales in the skincare category, including the Sulwhasoo Bloomstay line and Hera Rosy-Satin Cream, and due to strong sales growth in duty free channels with an increased influx of foreign tourists. Moreover, various new products including Sulwhasoo Sheer Lasting makeup products, Hera Sensual Tint, Primera Repair Bean Cica line, and Vitalbeautie Jaeumboaek, were launched to diversify the product portfolio. This acted as a catalyst for the outstanding performance.
Sales of Premium brands (Iope, Laneige, Mamonde, etc.) slightly decreased after Iope withdrew from home shopping channels. Still, a number of new makeup products such as Laneige Stained Glasstick, Mamonde All Stay Foundation, Iope Perfect Cover Cushion were introduced to the market to expand customer reach. New concept stores providing distinctive brand experiences, such as Laneige’s new flagship store “L-Playground” in front of Ewha Woman’s University in Seoul Korea, were opened to reaffirm its position as a beauty trend leader.
The Daily Beauty Brands (Ryo, Mise-en-Scène, Happy Bath, etc.) showed growth thanks to strong sales of haircare products such as Ryo Hambitmo Shampoo and Mise-en-Scène Perfect Serum. Specialized online contents and optimized marketing activities targeted at various platforms expanded digital sales, further increasing expectations of future growth.
Osulloc reported high growth as a result of increased sales at Tea Museum and individual Tea Houses, as well as with the expansion of premium products. The brand plans to raise brand awareness and attract digital customers by reinforcing digital marketing activities.
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Overseas business: Sales at KRW 476.7 billion (16.7%); operating profit at KRW 45.4 billion (129.3%)
Amorepacific achieved impressive growth, reporting improved overseas sales and a whopping 129.3% growth rate in operating sales. The results come from continuous efforts to reinforce competitiveness by focusing on its five global champion brands and by tapping into new markets. (Innisfree entered Australia and Hera launched in Singapore for the first time).
In Asia, Amorepacific’s sales increased by 16.4% to KRW 456.2 billion YoY by reinforcing existing brand competitiveness and introducing new brands to the market. Sulwhasoo continued steady growth with strong sales of key products lines such as First Care Activating Serum and Concentrated Ginseng Renewing Cream, and with the expansion of online/offline stores in China and ASEAN. Laneige also saw increased sales of new products, such as Layering Cover Cushion, and of key existing products such as Sleeping Beauty. A Laneige Water Bar Pop-up Store was opened to improve its brand image. Mamonde set the stage for qualitative growth by restructuring its distribution system in China and will pursue growth by focusing on multi-brand shops such as Sephora and Eveandboy in ASEAN markets.
Innisfree carried out a global campaign for its renewed Green Tea line, augmenting its natural brand image while witnessing increased digital sales through reinforced online marketing. Etude House introduced localized products for Chinese customers, such as Slim Lips-talk, and opened the Color Factory in Singapore as part of an effort to gain ground in the market through optimized communications with local customers. It also maintained strong growth in Japan and Thailand.In North America, sales increased by 25.7% YoY to KRW 14.2 billion due to the launch of sales of Laneige in Sephora and robust sales in the Innisfree flagship store. Meanwhile, European sales increased by 17.3% YoY to KRW 6.3 billion with the renewal of the Annick Goutal brand to “Goutal Paris.”
Innisfree : Sales at KRW 159.6 billion (4%); operating profit at 26.9 billion (21%)
Innisfree saw improved profitability thanks to elevated sales at duty free stores and in online channels. Product competitiveness was bolstered with new products such as AA Band and My Makeup Cleanser, and differentiated events such as their Limited Edition Product of the Month and Eco Handkerchief. The company also worked to expand the customer experience with diversified brand experience programs such as My Foundation To Go Bar.
Etude House : Sales at KRW 57.2 billion (-2%); operating loss deepened
Etude House’s sales slightly decreased with a reduction in the number of Etude House stores. Still, the brand led new makeup trends by showing its exclusive makeup looks at Pink Play Concert, a makeup runway show. It plans to secure channel competitiveness by renewing its retail shops and expanding customer experience zones such as Personal Color Diagnosis.
Espoir : Sales at KRW 10.7 billion (9%); operating loss reduced
Espoir saw rapid growth in online sales by reinforcing marketing targeted at millennials. It created a sensation by opening popup stores in main commercial districts in Korea. The brand also launched sales in Aritaum, providing better accessibility to customers.
Aestura : Sales at KRW 29.5 billion (-15%); operating profit at 2.4 billion (-16%)
Aestura saw both its sales and operating profit decline as a result of the sale of filler brand Cleviel in the first quarter despite the increased sales of inner beauty products. It will move forward with the launch of White 736, a hypoallergenic brightening cosmetics product, and plans to find new growth engines by upgrading its medical beauty product lines.
Amos Professional : Sales at KRW 21.6 billion (4%); operating profit at 4.3 billion (-2%)
Amos Professional introduced new products such as Perfect Renew Green Tea Active and Play Summer Play Color to improve its competitiveness as a professional hair brand. It will expand marketing communications with millennials on social media to boost continuous brand growth.