China's lockdown slams Korean beauty giants' Q2 earnings

South Korea’s two major cosmetics firms, Amorepacific Corp. and LG H&H Co., posted their second-quarter earnings heavily impacted by China’s lockdown due to COVID-19.   

Amorepacific posted on Thursday a 19.5 billion won ($15 million) operating loss from the April-June quarter, against analyst consensus of 48.9 billion won in operating profit.

The skincare giant has faced quarterly operating losses for six quarters since the fourth quarter of 2020. Its second-quarter revenue stood at 945.7 billion won, a 19.6% decline on-year.  

During the first half of this year, Amorepacific achieved 2.11 trillion won in revenue, 13.1% down on-year, and 138.5 billion won in operating profit, nosediving 48.2% from a year ago. China’s COVID-19 lockdown severely impacted logistics and customs, taking a heavy toll on online and physical stores, an Amorepacific official said.

Affected by the worsening performance in China, Amorepacific’s second-quarter overseas revenue reached 297.2 billion won, down 33.2% on-year. However, it posted a 66% on-year surge in second-quarter revenue, boosted by its premium skincare brand Sulwhasoo and masstige Laneige lineup sales that entered Amazon stores early this year. 

The K-beauty firm’s stock plunged, affected by the report. Amorepacific's share price closed at 127,500 won on Thursday, down 9.89%.

RUSSIA-UKRAINE WAR LED TO COST RISE

LG H&H’s April-June quarter earnings were also impacted by China’s lockdown and the Russia-Ukraine war.    

LG reported on Thursday it achieved a 1.86 trillion won revenue and 216.6 billion won operating profit during the second quarter, respectively down 7.9% and 35.5% on-year. The quarterly earnings of this year are similar to analyst consensus, estimated at 1.74 trillion won in revenue and 201.4 billion won in operating profit.

Although the second-quarter operating profit almost reached the market estimates, the company is struggling with global inflation and aftermath of COVID-19, LG stated.

“The COVID-19 lockdown, suspension of store operations and restrictions on product shipments in China since March had a great impact on our Chinese business during the second quarter. The Russia-Ukraine war led to raw materials cost rises, which resulted in price increases,” an LG official said.

LOOKING BEYOND CHINA TO US MARKET

Korean cosmetics firms’ disappointing earnings overseas, especially in China, came as no surprise. The K-beauty giants failed to win over Chinese consumers at the 618 Shopping Festival, one of the largest online annual shopping events in China, held last month.  

The top 40 skincare sales didn’t include Korean brands during the 20-day festival, according to e-commerce giant Alibaba Group’s Tmall data. The combined sales of Korean cosmetics firms during the festival are estimated to have declined 40-50%.

Korean cosmetics firms are trying to expand their business in the US, reducing reliance on the Chinese market.

While Amorepacific showcased Sulwhasoo and Laneige online and offline stores in the US early this year, LG bought a 65% stake in The Crème Shop Inc., a Los Angeles-based beauty brand with South Korean heritage for $120 million in the past April. The Crème Shop specializes in basic and color cosmetics for young consumers. 

LG also acquired a 56% stake in haircare company Boinca Inc. which owns the US vegan hair care brand Arctic Fox for $100 million last year.

Write to Kyeong-je Han at hankyung@hankyung.com
Jihyun Kim edited this article.