Macro themes gripping beauty sector finances include COVID-19 knock-on effects

08 Feb 2023 --- The impacts of COVID-19 continued leaving their marks across fiscal 2022 in the personal care sector, prolonging a challenging business environment. Other factors include rising energy costs, the Russia-Ukraine war, changes in consumption triggered by global inflation and the Chinese market’s slowdown.

The effects these macroeconomic dynamics have had on the industry are apparent in the financials of industry giants Kao, Moët Hennessy Louis Vuitton (LVMH), Estée Lauder Companies (ELC), Givaudan, Symrise and e.l.f Beauty.

Kao flags “severe business environment”
COVID-19 continued into fiscal 2022 for another year and prolonged a “extremely severe” business environment. Despite this, the Japanese chemicals and cosmetics supplier observed year-on-year growth across its key markets for household, personal care and cosmetics products.

However, the company states that the cosmetics market has not recovered to the pre-pandemic level of 2019.

Net sales increased 9.3% compared to the previous fiscal year to ¥1,55 trillion (US$11.82 billion).

Kao’s growth in 2022 was primarily driven by its Chemical Business segment, which grew 28.1% year-on-year. Sales of oleo chemicals increased due to the efforts to adjust selling prices in line with the rising costs of natural fats and oils.Kao’s net sales increased 9.3% compared to the previous fiscal year to ¥1,55 trillion.

Notably, Kao’s Hygiene and Living Care Business had the highest sales. However, the company’s Cosmetic and Life Care Business recorded the highest growth at 5.1%.

Kao notes that the market environment was “extremely severe” during fiscal 2022, The lockdowns and cooling markets in China, disruptions in logistics in the US, and a global shift in markets to low-priced products related to inflation posed challenges.

In response, Kao invested in core brands and promoted digital transformation while strategically increasing the prices. Sales of skincare products increased, especially the sales of UV care and seasonal products were strong due to the heat wave. However, sales in the US decreased due to an inflation-triggered decline in consumption.

LVMH: Strong momentum in perfume and Sephora
LVMH delivered a “new record year” in 2022 with €79 billion (US$84.7 billion) in revenue, up 23%. All business groups are reported to achieve significant organic revenue growth over the year. Perfumes & Cosmetics earned €7.7 billion (US$8.3 billion) in revenue, a 17% growth between 2022 and 2021.

The group share of net profit was €14.1 billion (US$15.1 billion), up 17% compared to 2021.

Christian Dior experienced a boost and Sauvage confirmed its position as LVMH’s leading perfume. Meanwhile, Miss Dior and J’adore advanced with its latest creation Parfum d’Eau, seeing growth. Dior Addict in makeup and Prestige in skincare contributed to the “rapid growth” of the Maison, outlines LVMH.

“Guerlain sustained its growth, driven notably by the vitality of its Abeille Royale skincare, its Aqua Allegoria collection and its exceptional perfumes L’Art et la Matière. Parfums Givenchy benefited from the continued success of its fragrances. Fenty Beauty doubled its revenue thanks to the expansion of its distribution network and the success of its launches,” shares the company.

Sephora revealed a record performance in both revenue and earnings. “The network continued to expand notably due to the partnership with Kohl’s in the US.”

“Sephora’s Russian business was divested. DFS was still affected by the health situation in China. The flagship destinations of Hong Kong and Macau particularly suffered as a result of the suspension of domestic travel and the complete absence of tourists but just reopened in January,” continues LVMH.

Europe, the US and Japan showed sharp growth due to strong customer demand and the reopening of international travel. Asia was “stable” due to the ‘Zero-COVID’ policy in China, which was only abandoned at the end of the year.”LVMH delivered €79 billion in revenue.

“Our performance in 2022 illustrates the appeal of our Maisons and their ability to create desire during a year affected by economic and geopolitical challenges. The Group once again recorded significant growth in revenue and earnings.”

In October, the company saw revenue growth of 19% (12% organic) over the first nine months of 2022 for the Perfumes & Cosmetics business group.

ELC hit by economic headwinds in China
ELC experienced a 17% decrease in net sales from the prior-year period. Net sales amount to US$4.62 billion compared to US$5.54 billion last year.

The company blames the evolution of the COVID-19 environment, including restrictions in mainland China and the rising number of COVID-19 cases, as accelerators of economic headwinds. Tourism and product shipments to Hainan, China, remained restricted, resulting in the limitation of traffic in brick-and-mortar areas throughout China.

“We delivered on our expectations for the second quarter of fiscal 2023, despite the incremental pressure of COVID-19 in China in December. Many developed and emerging markets worldwide outperformed to realize our organic sales growth outlook,” comments Fabrizio Freda, president and CEO at ELC.

“Fragrance excelled globally, while Makeup prospered in many markets, as our brands are realizing the promise of the category’s renaissance as usage occasions resume.”

Givaudan fragrances boost growth amid high costs
Givudan is showing “good growth” with the full-year sales at CHF 7,12 billion (US$7.7 billion), an increase of 5.3% on a like-for-like (LFL) basis compared to 2021. “Fragrance & Beauty sales were up 5.5% LFL” shares the company. Givaudan Fragrance & Beauty sales were up 5.5% LFL.

The company faced higher input costs and inbound supply chain disruptions. Despite this, Givaudan says it sustained good business growth across product segments and geographies, with the mature markets growing at 1.9% and the high-growth markets at 9.9% on an LFL basis.

Givaudan continues to increase prices to compensate for the increased costs of raw materials, energy and freight, which are probably caused by global inflation. This contributed to a decrease in gross profit CHF 2.86 billion (US$3.1 billion) in 2021 to CHF 2.76 billion (US$3 billion) in 2022.

“The good growth was driven by the sustained strong performance of Fine Fragrances and Fragrance Ingredients combined with the return to good growth momentum in the Consumer Products business in the second half of 2022. In Active Beauty, the single-digit growth was achieved against a high double-digit comparable growth in 2021.”

Fine Fragrance sales increased by 14.3% LFL and sales of Fragrance Ingredients and Active Beauty delivered growth of 10.2% LFL.

South Asia, Africa and the Middle East, saw the highest sales increase by 17.6% LFL. Meanwhile, sales in Asia Pacific increased by 5.3%, Europe increased by 11.1%, and Latin America increased by 16.7%.

However, sales in North America decreased by 6.4% LFL.

Symrise expects lower figures
Symrise’s preliminary financials anticipates lower consolidated key figures than expected for the past 2022 fiscal year. The cause is flagged as impairment losses of €126 million (US$135 million), related to the interest in Swedencare, a pet product manufacturer.

Nonetheless, the company’s core business is reported to develop “dynamically.”

“In the reporting period, the company generated organic growth of 11.4 % and Group sales of €4,618.5 million (US$5 billion) with good profitability (EBITDA of 20%).

“2022 was a very successful year for Symrise once again. We put our strengths to use to continue our growth course despite a volatile market environment. We also carried out acquisitions and interests that will pave the path for the future by expanding our know-how and diversifying our portfolio,” says Dr. Heinz-Jürgen Bertram, CEO at Symrise.

E.l.f Beauty cosmetics shine
E.l.f. Beauty reports net sales growth of 49%, to US$146.5 million. The brand shares that the growth is caused by strengthening its retailer and e-commerce channels.

“This quarter marked our 16th consecutive quarter of net sales growth, reflecting the continued strong execution by the e.l.f. Beauty team. As we look ahead, we’re excited about the potential we see as we continue to make the best of beauty accessible to every eye, lip, face and skin concern,” says Tarang Amin, chairman and CEO at e.l.f. Beauty.

Gross margin increased to 67% from 65% in 2021, driven by price increases, cost savings and product mix, partially offset by inventory adjustments and costs related to space gains and Spring shelf resets, shares the brand.

By Venya Patel

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