Earnings Growth Uptrend to Sustain
The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.
Clio’s OP increased 1% y-y in 2Q21. Sales growth is set to sustain in 2H21 thanks to both new product launches and major promotions at high-margin H&B channels. With efforts being made to strengthen profitability at individual channels, earnings are primed to improve sharply upon a recovery in demand.
Despite difficult external environment, quarterly earnings growth uptrend to sustain
We maintain a Buy rating and a TP of W32,000 on Clio. Although the firm’s share price has corrected as of late amid concerns towards a lingering contraction in demand for makeup cosmetics due to the spread of the Covid-19 Delta mutation, we view expectations towards a continued quarterly uptrend as remaining valid thanks to the company’s restructuring and product diversification efforts.
Sales are set to increase in 3Q21 on both new product launches targeting the Fall/Winter season and major promotions at high-margin H&B channels. Efforts are being made to diversify platforms to further improve profitability at domestic and overseas online channels. Even though Clio is positioned in the competitive low/mid-priced color cosmetics market, it is the only road shop player still standing, evidencing its strong brand and product planning power. The company’s share price should rise sharply once expectations for re-openings kick in response to increased vaccination rates.
2Q21 review: Took five quarters, but finally on OP growth track
On a consolidated basis, Clio posted 2Q21 sales of W56.1bn (+12.9% y-y), OP of W3.2bn (+1.2% y-y), and NP of W100mn (-66.9% y-y). NP declined on losses (approximately W2bn) on valuations of derivatives stemming from a share price climb in 1Q21.
Affected by Covid-19 re-spreading effects, H&B store sales fell q-q to W11.6bn (+11% y-y, -21% q-q), but the figure upped y-y on the expanded sales of Healing Bird brand products (sold in 400 stores in 1Q21 → 1,250 stores in 2Q21). Online sales recorded W21.1bn (+30% y-y, -1% q-q). Domestically, sales declined due to a strategic reduction of Coupang transactions, but global digital (W15bn, +114% y-y) sales growth sustained. DFS sales totaled W7.1bn (+61% y-y, -12% q-q), showing y-y growth due to a diversification in wholesale customers despite the continued impact of Covid-19. Global sales reached W10.8bn (+32% y-y, +16% q-q), continuing a growth trend thanks to the both expansion of Taobao stores in China and the launch of Goodal brand in Japan. Club Clio’s sales amounted to W2.1bn (-69% y-y, -3% q-q) in the wake of the closing of loss-making stores (-11 stores q-q, -52 stores y-y).