P&G beauty suffers amid travel retail closures despite strong Q3 group sales

P&G reported net sales of €15.82bn ($17.2bn) for the third quarter of fiscal 2020, up 5% on the previous year, driven by a net sales rise of 8% in fabric and homecare; a 7% rise in healthcare; and a 6% rise in baby, feminine and family care. Net sales in beauty and grooming, however, which includes brands like Head & Shoulders, Olay, SK-II and Gillette, dropped 1% and 3%, respectively.

Total net earnings for Q3 were €2.71bn ($2.95bn), up 7% on the previous year but net earnings for beauty were down 21% at €401m ($436m) and down 26% at €233m ($254m) for grooming. Net earnings for baby, feminine and family care products were up 32% at €790m ($859m).

Travel retail disruption hits beauty, SK-II plummets more than 20%​

P&G said whilst organic sales had lifted 1% in beauty for Q3, net sales and earnings were down largely because of the impact felt from travel retail closures – a segment that represented around $1bn in business for P&G, according to Jon Moeller, company vice chairman, COO and CFO.

In particular, the company’s super-premium Japanese SK-II cosmetics brand had seen a sharp decline in sales of more than 20% for the quarter because of travel retail disruption and store closures across Asia.

“The travel retail business specifically (…) that’s gone. It’s gone because there is no travel,”​ Moeller told investors on the earnings call last week.

“…We have never faced a complete shutdown of very important channels of commerce, whether that’s travel retail, whether that’s the electric channel in Europe, whether that’s a specialty beauty channel. So, there’s a huge amount of volatility that we’re likely to experience and we’ll learn more every day,”​ he said.

Despite this, Moeller maintained that beauty had continued to perform “very, very well” ​with organic sales up for a 17^th​ consecutive quarter, despite what was “arguably the most difficult quarter” ​in a long time.

“…To get organic sales growth on beauty with a minus 20% plus number on SK-II, you have to assume very healthy purchase and consumption levels across the portfolio, which we’re seeing. And I don’t see a reason that that wanes,” ​Moeller said. SK-II had already started to see a “significant uptick” ​in mainland China, he said, though the impact of such a significant sales drop would continue to be felt in Q4.

Grooming woes as consumer lockdown priorities shift​

Grooming had also felt the impact of changes due to the ongoing coronavirus crisis, Moeller said, with lower shaving frequencies seen as consumers worked from home.

He said P&G was “currently working through”​ this challenge and planned to work closely with its retail partners, many of whom had deprioritised grooming to deal with empty food shelves and other areas of the store in the short-term.

“If we can do that effectively, [there’s] no reason we can’t continue to hold and build share,”​ he said.

Responding to an analyst’s question around changing consumer trends during social distancing and lockdowns, Moeller added: “We need to stay very close to consumers and their habits, needs and desires, more now than ever just because we’re at change points in their habits and their consumption levels and we need to understand those and be responsive to those.”​