K-beauty shines globally, but big players face growing pains

Korea’s beauty exports remained strong, but the biggest companies delivered mixed third-quarter results. APR led growth with record sales of 773.1 billion won and operating profit of 160.6 billion won. However, its profit missed expectations and its operating margin narrowed.

Amorepacific also grew, posting a 25% increase in operating profit to 115.2 billion won and an 11% sales rise. Domestic operations performed better than overseas markets. Its net profit fell 14.3% after non-operating results turned into a 44.2 billion won loss, mainly because of currency losses.

LG H&H increased companywide operating profit 52% to 70.4 billion won, although sales slipped slightly. Its beauty division reduced its operating loss to 10.9 billion won but remained unprofitable. Contract manufacturer Kolmar Korea performed better, reporting record sales and a 40.5% profit increase.

Overseas markets are crucial to Korea’s leading beauty companies, especially APR. International sales supplied 94% of APR’s revenue in the third quarter. That dependence creates strong growth opportunities, but it also exposes the company to exchange-rate movements and conditions in foreign retail markets.

APR’s international business helped drive record quarterly sales of 773.1 billion won, double the figure from a year earlier. The company’s operating profit reached 160.6 billion won, and its overall market value was roughly 10 trillion won. Amorepacific was less dependent on overseas growth during the quarter because domestic operations outperformed foreign markets.

The international push is continuing. APR entered Costco in October and plans to reach about 3,000 CVS Pharmacy stores by year-end. Its overseas share supports growth, but the stronger won reduced the value of dollar-linked sales and receivables, showing the financial risk of rapid global expansion.

Operating margin is operating profit divided by sales, expressed as a percentage. It shows how much profit a company keeps from its core business before non-operating items such as some financial gains or losses. A higher margin usually means the business is converting sales into operating earnings more efficiently.

APR’s sales doubled and operating profit rose 69% in the third quarter. Yet its margin dropped to 20.8% from 24.8% in the second quarter. In simple terms, APR earned less operating profit per won of sales than it did previously. The stronger won also reduced operating profit by an estimated 27.8 billion won.

The decline matters because fast sales growth can conceal rising costs, currency pressure, or less profitable sales. APR’s margin still exceeded those of larger rivals, so the business remained strong. However, its profit missed market expectations, showing why investors examine profitability, not just revenue growth.

When the won strengthens against the dollar, one dollar converts into fewer won. Korean companies reporting in won therefore record a lower home-currency value for dollar sales, receivables, and other dollar-linked amounts. The products may sell for the same dollar price, but their reported value in Korea declines.

APR estimated that the won’s 12.6% rise against the dollar during the quarter reduced operating profit by 27.8 billion won. The company said both outstanding receivables and the won-denominated value of overseas sales became smaller. Amorepacific also reported currency losses that helped turn non-operating results negative.

The effect can squeeze both revenue value and profit, especially when overseas markets supply most sales. APR received 94% of revenue from abroad, increasing its exposure. Companies can still grow volumes and launch products internationally, but exchange rates may reduce the amount that growth contributes to reported Korean earnings.

APR is expanding through major retailers because overseas growth depends not only on demand, but also on access to sales channels. Adding Costco and CVS gives its products more distribution points in the United States. It also broadens the company’s channel mix while its overseas share remains very high.

The company entered Costco in October and planned to reach some 3,000 CVS Pharmacy stores by the end of the year. These moves follow a quarter in which overseas markets supplied 94% of APR’s revenue. The same international focus that fuels growth also exposes APR to currency risk, so a broader retail presence supports its long-term expansion plan.

The article does not say that existing channels are being abandoned. Instead, APR is adding recognizable retail partners as it pursues US growth. IBK Investment & Securities said diversified global channels and cosmetics-led growth keep the long-term outlook intact despite short-term currency risk.

Contract manufacturers make products for beauty brands rather than relying entirely on their own overseas sales. During this period, that model reduced exchange-rate exposure. The article says they largely bill Korean brands in won, so a stronger won has less direct effect on the manufacturers’ reported sales and profits.

Kolmar Korea illustrates the difference. Its third-quarter sales reached a record 828.2 billion won, up 21.3%, while operating profit rose 40.5% to 81.9 billion won. The company said sun care and skincare grew evenly, and global clients continued launching new products. These product launches helped produce its best third quarter on record.

Kolmar is not completely protected. Its overseas units still weighed on results, although the US unit narrowed its loss modestly. Even so, its billing structure and manufacturing role gave it less currency exposure than Korean brands converting substantial overseas sales back into won.

An exchange rate is the price of one currency measured in another currency. For a Korean company, the dollar-to-won rate determines how many won its dollar revenue becomes when results are reported at home. The rate changes as the won strengthens or weakens against the dollar.

Suppose a product earns one dollar overseas. If that dollar previously converted into more won but later converts into fewer, the company records less Korean revenue from the same dollar sale. The article gives APR’s case: the won rose 12.6% against the dollar, reducing the won value of overseas sales and outstanding receivables. APR estimated a 27.8 billion won profit impact.

This matters most for companies with large foreign operations. APR received 94% of revenue from overseas markets, while Amorepacific also recorded currency losses. A weaker won could increase the won value of dollar sales, but the article focuses on the stronger won’s negative effect during the quarter.