‘No signs of subsiding’: Kao 1H operating profit dips 13.8% as cosmetics sales tumble due to COVID-19

On July 29, the personal care major announced that its operating income decreased by JYP11.9bn (US$113.3m) to JPY74.5bn (USD710m) in the six months ending June 30, 2020.

The firm saw the biggest losses for its cosmetics division which plummeted by 20.7% like-for-like to JYP109.9bn (US$1.04bn).

The losses were attributed to the impact of the COVID-19 health crisis. “The COVID-19 pandemic continues to have a major impact of people’s lives and corporate activities, with no signs of subsiding.”​

Cosmetics business vital to recovery

The cosmetics business, which comprises of brands such as Kanebo, Freeplus, Curél and Molton Brown suffered due to a significant decline in inbound demand and the impact of COVID-19 restrictions.

In Japan, sales suffered as consumers isolated indoors and retail stores closed temporarily.

Additionally, as wearing masks have become a common practice, the sales of colour cosmetics also decreased.

In the Americas and Europe, the company was affected by temporary store closures.

On the other hand, in Asia, sales of Freeplus and Curél remained steady due to the company’s e-commerce efforts in China.

Overall, the weak sales performances caused operating income to decrease by JPY19.5bn (US$186m).

The company noted that the recovery of its cosmetics business would be crucial to the company’s overall recovery.

“COVID-19 had a major impact on the cosmetics business, which has the highest gross profit margin. The state of its recovery will have a substantial effect on the overall performance of the Kao Group.”​

Hygiene potential

Kao’s skin and hair care business, which includes brands such as Bioré, John Frieda, Liese and Jergens saw net sales fall by 0.3% like-for-like to JYP151.1bn (US$1.44bn).

Sales of sun protection products and other seasonal product decreased in Japan and Asia.
Hair care sales were also affected by the temporary closures of hair salons in the Americas and Europe, which affected its professional portfolio.

According to Kao, the market for hand soap has doubled while the market for hand sanitiser expanded by 15 times due to COVID-19.

“Going forward, habits such as washing and disinfecting of hands are expected to become more common outside Japan, expanding the areas where the Kao Group can contribute. A positive effect is also expected on the business side,”​ said the firm.

As sales of hand soap and hand sanitiser continued to exceed supply, the company said it is working to ramp up production of these products.

“The Kao Group will leverage its comprehensive strengths throughout the supply chain to increase production capacity and contribute to society by promptly provide a large quantity of products and information that protect healthy, hygienic lifestyles with the ultimate aim of increasing sales and income.”​

The company said the uncertain business environment will persist in the third quarter and expected to see a gradual recovery in the fourth quarter.