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Japanese Cosmetic Group Kao Recovers from Poor Performance

Kao Corporation, a chemical and cosmetics company headquartered in Japan, disclosed its financial results for Q1 of 2022 ended March 31. It reported a sales growth of 8.2% YOY of $2.65 billion, which achieved a turnaround against the same period of last year.

On May 11, Kao announced its results for the first quarter of 2022 ended on March 31. The report showed that Kao’s first quarter sales were $2.65 billion, up 8.2% year-on-year, while operating profit was $176 million, down 25.8% year-on-year.

The report said the business environment remains uncertain due to the continued rise in raw material prices since 2021 and sharp fluctuations in exchange rates, as well as the impact of the Ukraine issue and the COVID-19.

The Kao Group comprises two business segments, Consumer Products and H&PC, with the Consumer Products business comprising the Hygiene & Health Care business, Health & Beauty Care business, Lifestyle Care business, and Cosmetics business. Kao’s consumer products business reported total sales of $2.012 billion in the first quarter, up 2.4% year-over-year. Its operating profit was $101 million, down 91% year-over-year. The decline in profits was mainly affected by factors such as high raw material prices.

Specifically, sales of the cosmetics business unit rose 10.5% to $431 million, and operating profit turned around to a profit, up 33% to $1.472 million. The market recovered later than expected due to the impact of the epidemic and the re-imposition of restrictions in Japan, but sales increased compared to the same period of the previous year due to the launch of new products, while the Group promoted structural reforms in the cosmetics business and reduced fixed costs.

Sales of the Hygiene and Lifestyle Care segment rose 1.5% to $871 million and operating profit was $52 million, down 64% from a year earlier. For laundry care products, sales of laundry detergents increased compared with the same period last year due to enhanced marketing activities in Japan. In addition, sales of home care products were slightly lower than a year ago due to a contraction in the market caused by a rebound from high demand last year, but in this case, Cucut, a dishwashing detergent, still launched improved products and expanded its market share.

The Health & Beauty Care segment posted sales of $615 million, down 1.4% year on year, and operating profit of $48.3 million, down 50% year on year. Sales of skin care products were all lower than the same period, and sales of seasonal products such as UV care products were lower due to the expansion of COVID-19. Sales of hair care products were also lower than in the same period due to fierce competition in Japan. However, in Europe and the U.S., sales of the U.S. hair care brand ORIBE were strong. In Europe, sales remained stable as economic activity normalized.

By region, the cosmetic business continued sales growth far outpacing the market outside Japan with China growing by 17% and its prestige brands generated many successful products. Freeplus and Curel continued their strong growth in China, while high-end skincare brands SENSAI and Morton Brown saw big increases in sales in Europe.

Kao also launched initiatives of Reborn Kao aiming to improve profitability by continued decisive investment in Q2 onwards. It plans to maximize local sales in China to launch a locally produced and locally consumed model of Curel. It also will strengthen prestige brands.

For the skincare segment, it is contributed to revitalizing the market by offering products with distinctive functions and increasing countries where Kao sells UV care and hygiene-related products.

Kao also tends to improve its products for hair salons by promoting the enhancement of damage-free color with Goldwell and starting the Asian business strengthening strategy.

Kao forecasts its performance after Q2 that although the external environment is expected to remain challenging due to such factors as hikes in raw material prices and the impact of the lockdowns on its business in China, it will improve profitability by implementing strategic price increases and increasing the ratio of high value-added and high-profit products.

In its financial report for 2021, it released a Kao Group Mid-term Plan from FY2021-2025 called K25. It stated that it will take its promotion of ESG-driven management a step further, striving to both make a positive contribution to society and achieve financial growth. While also bolstering its existing businesses through well-focused investments, it will collaborate with diverse partners based on its unique technology assets built up through its Essential Fundamental Technology Research to develop its business. It will also make intensive efforts to implement distinctive DX that innovates both our existing and new business. It will be creating a working environment that enables all employees to challenge themselves, and which will enhance the productivity of its business activities.

 

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