SK-II Sales Slide on Back of Chinese Boycott
Updated at 1:25 p.m.
Chinese consumers’ boycott of Japanese beauty products is starting to show up in Procter & Gamble’s earnings reports.
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While eight out of 10 of the consumer giant’s product categories enjoyed organic sales growth in the second quarter, including grooming and hair care, skin care and personal care sales declined.
According to the company, the categories were hit by Japanese skin care brand SK-II’s sales sliding by more than a third in Greater China, including in the domestic travel retail channel.
“In digesting the second-quarter numbers, the P&G numbers in China, you have to think about a couple things. One is SK-II, which just for clarity for everybody is really driven by an anti-Japanese brand sentiment that’s related to the release of wastewater from the Fukushima nuclear facility,” said Jon Moeller, chairman of the board, president and chief executive officer at P&G, during a call with analysts.
During the summer, Japan began a controversial discharge of treated wastewater from the disabled Fukushima Daiichi Nuclear Power Station. Japan has maintained the treated water is safe, and the United Nation’s nuclear watchdog, the International Atomic Energy Agency, confirmed the plan.
“We’ve had not identical but similar consumer sentiment dynamics in the past as relates to this brand and as relates to the relationship between those two countries. And it has always resolved itself with SK-II moving to higher heights,” Moeller added.
The company appeared confident that the trend would begin to improve in the back half of the 2024 fiscal year.
“The SK-II sentiment is improving based on our consumer research in China,” said chief financial officer Andre Schulten during a call with analysts. “We are continuing to drive innovation, equity investment and really relying on our most loyal and passionate user base to help amplify that messaging, which is working well, so we expect the effects to improve.”
P&G is not the only company to be impacted. In November, Shiseido, whose brands include Drunk Elephant and Nars, reported consumer pullback on Japanese products in China and travel retail because of Japan’s release of treated water into the Pacific Ocean. At the time, Shiseido’s stock fell to a 16-year low.
P&G’s overall net sales came in at $21.44 billion, up 3 percent versus the prior year. Analysts had been expecting $21.48 billion.
Organic sales, excluding the impacts of foreign exchange and acquisitions and divestitures, increased 4 percent. This included grooming, which increased 9 percent versus a year ago, driven by higher pricing, premium product mix and volume growth. Hair care increased high-single digits driven by increased pricing, premium product mix and volume growth, primarily in North America.
Net earnings per share were $1.84 in the second quarter of its fiscal year 2024, an increase of 16 percent compared with a year earlier and beating Wall Street predictions for $1.70.
P&G raised its fiscal 2024 core net earnings per share growth from a range of 6 to 9 percent to a range of 8 to 9 percent versus fiscal 2023 EPS. This outlook equates to a range of $6.37 to $6.43 per share.
P&G maintained its guidance range for sales growth to be in the range of 2 to 4 percent.
“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,” Moeller said.
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