An Earnings Bottom Point Already Confirmed
The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.
Clio posted 4Q20 operating losses of W1.3bn, missing consensus. But, we believe that an earnings bottom point is already confirmed, expecting an earnings recovery in 2021 on further channel restructuring, higher overseas sales (led by China), and expansion of Olive Young’s online channels.
Forecast quarterly earnings uptrend in 2021
We maintain a Buy rating and a TP of W30,000 on Clio. In 2020, the firm’s earnings were significantly hampered by mask wearing and restrictions on outdoor activities amid Covid-19, but earnings should improve this year in response to restructuring and efforts to improve margins at individual channels.
With Clio continuing to trim down its number of Club Clio stores (current: 49 → end-1H21E: 30), fixed cost burden should notably decrease. Sales at the H&B channel have been showing a rapid recovery since the start of the year on Olive Young’s online sales and product portfolio expansions (including the offering of new brand Healing Bird at 400 Olive Young’s stores). Also clearly being evidenced are higher sales at the company’s US online (Amazon) channel. Chinese market sales also appear to be picking up via strengthened collaboration with marketing agencies. Thus, with an earnings bottom point already confirmed, we believe that Clio will stand alongside the firms to enjoy the swiftest earnings improvement and stronger investor sentiment once the Covid-19 crisis eases.
4Q20 review: Books operating losses on tepid sales and higher costs
Clio announced 4Q20 consolidated sales of W50.2bn (-27.8% y-y), operating losses of W1.3bn (TTL y-y), net losses of W1bn (RR y-y). On top of a decline in sales, OP turned to loss due to increased advertising expenses, Club Clio store closings, and the booking of inventory disposal losses (W1.2bn) for loss-making offline stores.
Despite a re-proliferation of Covid-19 in Korea in 4Q20, the pace of sales decline at H&B stores (-12% y-y, +6% q-q) slowed q-q on an expansion of Olive Young’s online channels and brisk Clio and Dermatory sales. But, sales at Club Clio (-62% y-y) were heavily hit by the closing of loss-making stores (-18 stores q-q, -41 y-y) and a decrease in foot traffic. Online channel sales (-9% y-y) also turned to fall on a temporary decline in deliveries following Coupang’s change in sales method (sell in → sell out). Global sales fell 20% y-y—although the top line doubled y-y at the firm’s Shanghai (China) subsidiary, sales proved lackluster at Japanese offline stores.