P&G’s SK-II sales drop amid China boycott of Japanese brands due to Fukushima wastewater

25 Jan 2024 --- Procter & Gamble (P&G) blames anti-Japan sentiment and a slow economic recovery in China for a 34% drop in quarterly sales for its Japan-based skin care brand SK-II.

Despite that, the consumer goods giant beat analyst estimates for earnings in its latest quarter.

Another Japanese company, Shiseido, recently reported weak results as well, with stock plummeting by as much as 14%, hitting a 16 year low last November due to weak Chinese consumer demand.

Chinese consumer concerns
Many Chinese consumers have been concerned about the discharge of treated radioactive wastewater at Fukushima into the Pacific Ocean in August, prompting the cosmetics giant to revise its full-year profit forecast.

During the release of wastewater, Chinese users on social media platforms championed a viral boycott campaign against Japanese personal care brands.

Chinese citizens compiled blacklists of Japanese brands to no longer purchase them out of fear that the products contained radioactive materials. These allegations remain unproven, with some experts blaming the boycott on Chinese nationalism, despite the UN’s International Atomic Energy Agency concluding that Japan’s release of treated water from the Beauty Segment: Organic sales up 1%.Fukushima nuclear power plant into the sea is safe.

P&G remains optimistic
Previously, P&G told the National Business Daily, “SK-II products manufactured in Japan or exported to other countries are safe for use. To ensure the safety of SK-II products, we take the initiative to conduct targeted radiation testing on SK-II products imported into China. These products have successfully passed the radiation-related tests.”

On the earnings call, Jon Moeller, P&G’s CEO, said: “Now is not the time to be pulling back on investments and marketing.”

P&G’s CFO Andre Schulten agrees, pointing out that the decline will be temporary, without improvement until the year’s second half:

“Our consumer research indicates SK-II brand sentiment is improving, and we expect to see sequential improvement in the back half.”

Meanwhile, the US-based company reported a 3% increase in net sales to US$21.4 billion compared to the previous year in its Q2 FY2024 results, with a 4% rise in organic sales.

SK-II performance
Baby, Feminine and Family Care Segment: Organic sales up 3%.The Skin and Personal Care segment of Procter & Gamble, encompassing brands like SK-II, witnessed a decline in organic sales during the second quarter of FY2024.

P&G attributes the decline to volume decreases and an unfavorable product mix, notably lower sales of SK-II.

“We delivered strong results in the second quarter, enabling us to raise our core EPS growth guidance and maintain our top-line outlook for the fiscal year,” says Moeller.

“We remain committed to our integrated strategy of a focused product portfolio of daily use categories where performance drives brand choice, superiority — across product performance, packaging, brand communication, retail execution and consumer and customer value — productivity, constructive disruption, and an agile and accountable organization. The P&G team’s strategy execution has enabled us to build and sustain strong momentum. We have confidence this remains the right strategy to deliver balanced growth and value creation.”

Quarterly overview
The consumer goods provider’s segment performance versus one year ago reveals:

• Beauty Segment: Organic sales up 1%.
• Grooming Segment: Organic sales up 9%.
• Health Care Segment: Organic sales up 2%.
• Fabric and Home Care Segment: Organic sales up 6%.
• Baby, Feminine and Family Care Segment: Organic sales up 3%.

Diluted net earnings per share fell primarily due to the non-cash impairment of the Gillette intangible asset. Core net earnings per share rose due to higher net sales and core operating margins. Productivity savings, lower commodity costs and higher pricing contributed to an increase in gross margin.

FY2024 guidance
P&G maintainsits guidance for its full fiscal year despite the restructuring program and Gillette impairment costs.

P&G also anticipates continued challenges from foreign exchange rates and interest expenses while expecting some tailwinds from favorable commodity costs.

By Venya Patel

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