Korean cosmetics giants see profits plunge

Korean cosmetics giants Amorepacific Group and LG Household & Health Care reported a double-digit drop in Q3 operating profits due to challenges in the Chinese market and the duty-free sector.

Customers shop Korean beauty products at a cosmetic store in downtown Seoul. [YONHAP]

Korea's two cosmetics giants, Amorepacific Group and LG Household & Health Care (LG H&H), saw their operating profits plunge by double digits on-year in the third quarter as they continue to face headwinds in the Chinese market and the duty-free sector.

Amorepacific Group reported third-quarter revenue of 963.3 billion won ($714.7 million), a 5.7 percent decrease compared to the same period last year, accompanied by an operating profit of 28.8 billion won, a 12.7 percent year-over-year drop. Both figures fell short of market expectations; consensus, as compiled by market tracker FnGuide, had forecast revenue of 1.01 trillion won and an operating profit of 45.8 billion won.

In a somewhat positive turn, Amorepacific Group's net profit for the third quarter reached 41.7 billion won, marking a 29.1 percent increase year-over-year.

LG H&H's total revenue from the third quarter of this year amounted to 1.75 trillion won, reflecting a 6.6 percent decrease compared to the same period last year. Operating profit suffered a 32.4 percent decline to 128.5 billion won. Although LG H&H's sales fell slightly short of market expectations, operating profit exceeded the market consensus of 71.8 billion won. Net profit dropped by 28.3 percent on-year at 91.3 billion won.

Both companies are heavily reliant on the Chinese market — where interest in Korean cosmetics has waned, and consumer recovery has been sluggish.

But their approaches to these market challenges differ. Amorepacific has diversified its sources of income by expanding into the Japanese and North American markets, hoping to dispersing any one nation's impact on its performance. LG H&H, in contrast, appears committed to its presence in China, having recently renewed products and held a large-scale brand event in the country.

Both companies have also sought to broaden their customer bases by purchasing stock in related beauty firms.

On Tuesday, Amorepacific Group acquired enough additional shares of Cosrx to bring the Seoul-based skin care company in as a subsidiary. Amorepacific acquired 38.4 percent of Cosrx's shares in 2021, and is set to acquire the remaining 28,800 shares for 755.1 billion won, bringing their ownership to 93.2 percent.

LG H&H acquired hince, a Korea-based makeup brand, last month.

Despite their challenging third-quarter performance, both Amorepacific Group and LG H&H closed higher than the previous trading day on Tuesday, appearing to be driven by investor optimism sparked by the news of Amorepacific's acquisition of Cosrx as well as the impact of increased cosmetic prices.

Amorepacific Group closed at 28,600 won, an increase of 9.37 percent from the previous day, while LG H&H closed at 315,500 won, up 1.45 percent from the previous day.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]