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In Search of Healing: The Journey to Recovery


AmorePacific, a South Korean cosmetics company, reported lower-than-expected operating profits in the second quarter of 2023. The company attributed this to inventory adjustments in China and increased global marketing expenses. However, analysts predict a recovery in the Chinese market for the brand Sulwhasoo in the second half of the year, as well as improved earnings in North America. Despite the setback, the overall outlook remains positive, and the company's stock is still recommended as a "Buy."

Analysts have revised down the target price for AmorePacific by 7% to W130,000. This adjustment reflects a decrease in the projected operating profit for 2023, as well as a reduction in the target price-to-earnings ratio. The lower target price is also influenced by recent corrections in the share prices of other global cosmetics companies. However, the analysts maintain their "Buy" rating for AmorePacific due to strong profitability trends in North America and the EMEA region, as well as positive results from the company's growth-market reorganization efforts.

In the second quarter of 2023, AmorePacific reported consolidated sales of W945.4bn, which remained flat year-on-year. Operating profit was W5.9bn, significantly below market expectations. The company's domestic cosmetics sales decreased by 12% compared to the previous year, primarily due to weak sales in the duty-free shop (DFS) channel and reduced foreign buying on Korean online shopping malls. However, household goods sales remained stable, and overseas sales grew by 28%, with notable growth in China, Japan, North America, and the EMEA region.

Despite the challenges faced in the second quarter, AmorePacific is optimistic about its future prospects. The company expects a recovery in the Chinese market, particularly for the Sulwhasoo brand. Additionally, the brand's presence in North America is expected to strengthen, resulting in improved margins in the coming quarters. AmorePacific is also expanding its reach in the EMEA region through partnerships with Sephora stores in the Middle East. Overall, the company remains committed to its growth strategies and is well-positioned for future success.

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