‘Recovery lacks vigour’: COVID-19 resurgence in Japan hits Kao’s cosmetics performance

By Amanda Lim contact

- Last updated on GMT

Kao saw the biggest losses in its cosmetics division due to resurgence of COVID-19. [Kao Corp]
Kao saw the biggest losses in its cosmetics division due to resurgence of COVID-19. [Kao Corp]

Related tags: financial results, Kao, COVID-19, Japan

Kao Corporation has reported that the resurgence novel coronavirus (COVID-19) crisis has resulted in a JPY7.2bn (USD69m) drop operating profit in its cosmetics division.

On October 28, the Japanese personal care company announced that overall its operating profit declined by 20.5%, falling from JPY151bn (USD1.45bn) to JPY120.1bn (USD1.15bn) in the nine months ending September 30, 2020.

Net profit decreased by JPY7.7bn (USD73.6m) to JPY87.4bn (USD836m).

The firm saw the biggest losses in its cosmetics division which saw net sales decreased by 24.6% on a like-for-like basis to JPY160.6bn (USD1.54bn).

The company consists of six divisions, including human health care, fabric and home care as well as its chemicals business.

The company attributed these losses to the impact of the ongoing COVID-19 health crisis, noting that the resurgence of the pandemic in Japan affected its recovery despite efforts.

“In the second half of the year, global efforts were implemented to cope with both infection prevention measures and economic recovery. While markets gradually recovered in the Americas and Europe, the number of newly infected people in Japan began to rise again, delaying economic recovery.”

Additionally, the firm faced a challenging year-on-year hurdle due to the last-minute demand rush in last September ahead of the October 2019 consumption tax rate increase.

Cosmetics takes another hit

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

Furthermore, sales of make-up products, in particular, decreased as the practice of wearing protective masks became a common practice.

In Europe, the company is seeing signs of recovery from the temporary store closures.

On the other hand, Kao China’s e-commerce initiative led to steady sales for Freeplus, a hypoallergenic skin care brand, as well as derma beauty brand Curél.

Kao’s skin and hair care business, which includes brands such as Bioré, John Frieda, Liese and Jergens saw sales dip by 9.6% to JPY233bn (USD2.2bn) due to change in method for recognising sales, said the firm.

On a like-for-like basis, net sales increased by 0.8% while operating profit increased 3bn to JPY41.2bn (USD395m).

The group credited the stability of this division to the demand for hygiene-related products.

“In an expanding market, sales and operating income increased substantially compared with the same period a year earlier. The Kao Group stepped up production and supply capacity for hand soap and hand sanitiser in Japan, and market share grew.”

The firm said the recovery of the cosmetics business is expected to continue to significantly influence its overall performance.

“In the Cosmetics Business, the Kao Group will conduct structural reforms as it proactively launches new products and resumes marketing activities at stores while implementing measures to prevent infection,”​ said Kao.

Additionally, it hopes to capitalise on shopping festivals in China to boost sales.

“Kao China is aiming for record-high growth in sales and operating income, using Singles' Day on November 11 as a business opportunity.”

It stressed that it expected recovery to be slow. “Amid a resurgence of the COVID-19 pandemic, efforts are underway in each country and region to normalise economic activity premised on the new normal, but the recovery lacks vigour and progress is expected to be slow.”

Forecast 2020

In its forecast for the full year, Kao announced that it expects net sales to fall 4.8% and operating income to decline 10.3% from the previous fiscal year.

“In a business environment that is expected to be uncertain and severe, the Kao Group will make the utmost effort globally in working to achieve its announced forecast.”

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