A.S. Watson FY2019: Health and beauty grows 7% in Asia despite HK turmoil

The retail division of Hong Kong-based conglomerate C.K. Hutchison operates over 15,000 stores across 25 markets globally.

Its portfolio includes chains of supermarkets and wine shops, but the bulk of the business is in health and beauty (H&B).

Dominic Lai, group managing director of A.S. Watson Group noted during C.K. Hutchison’s 2019 annual result conference call that the retail business was ‘very healthy’ and showed a lot of resilience in the challenging landscape.

Overall, retail reported EBITA growth of 8% in local currencies while the health and beauty segment increased by 5%.

Sales from retail chains such as Watsons and Superdrug represent about 84% of the division’s total revenue in 2019.

It reported total sales growth in local currencies of 6% and a 5% increase in store numbers and a 2.4% growth in comparable stores sales.

Health and beauty performed strongly across all regions driven by the firm’s store expansions. Its total store number increased 5% to 15,794, with store openings primarily in China and Asia.

Additionally, the segment benefited from investments into digital retail experiences, the improvement of margins through own brand and exclusives offerings and increasing customer connectivity with its 137 million members.

Silver linings

Most notably, Asia saw a growth of 7% despite experiencing a challenging second half due to the political issues in Hong Kong, which affected Watsons Hong Kong.

However, the firm noted that Watsons Hong Kong only represented 2.6% of the retail division’s EBITA in 2019.

Lai highlighted that excluding the Hong Kong business, Asia would reflect a growth of 14%.

“What's worth mentioning is the growth of health and beauty in Asia which was significantly impacted by the social unrest [in Hong Kong] in the second half of 2019. If you take it out, the rest of Asia was growing at 14% which is very healthy,” ​he elaborated.

Excluding the poor performance of Watsons Hong Kong, Asia’s EBITDA increased by 14% in local currencies.

This was driven by an 8% increase in store numbers and a comparable stores sales uplift of 8.8%, primarily in Malaysia, Philippines and Thailand.

The firm said it expected operations in Hong Kong to continue to face some pressure in the first half of 2020.

Health and Beauty China maintained a healthy EBITDA margin and recorded a 3% growth in local currency.

Comparable store sales growth improved by 2.0% with higher online sales participation in 2019.

Additionally, the firm increased store numbers in China by 9%, expanding its reach over 480 cities with over 3,900 stores. According to Lai, 76% of stores were opened in China’s tier-two cities.

Moving forward, the firm said it expected its China’s business to be affected by the novel coronavirus (COVID-19) outbreak.

It added that it believes it will be able to achieve sustainable profitability as long as it maintains geographical diversity, strong partner relationships and a loyal member base.