This company, primarily a manufacturer, marketer, and distributor of color cosmetics, fragrance, skin& body care and hair solon, has been grouped into cosmetics& perfumes sector in personal care industry.
It seems that demand, from retail distribution channels, for cosmetic, perfume, or skin& hair care products of companies in this sector in US market has been weak since 2015. This has been reflected by the decreasing sales volumes among most of those companies (-3-1% of annual growth rate) during this period. International market seems to have had a better performance than US market.
The downward trend in US market seems also related to the slowing down shopping mall traffics. And this may be the reason why higher price products performed better. And it seems that it may be helpful in improving sales performance of companies as they give more focus on e-commerce sales. Unfavourable industrial retail environment may probably be behind the increasingly consolidation activities in this sector.
Sales pressure resulted in increasing pressure on price and the intensive promotions obviously hurt margin of companies in this sector. We have seen a slight declining in typical companies ‘gross margin (about 59% in 2017) and the larger spending in SG&A including promotion (typical SG&A as percentage of sales is about 53% in 2017). Therefore, the typical operating margin went down to about 7% from about 12% since 2014.
The typical average stock price/sales ratio is about 1.5.
It seems that the demand for color cosmetic products of this company has been declining in the past three years as indicated by continuingly decreased sales probably as a result of slowing down traffic in shopping mall.
The 2017 compared with the 2016
Organic sales (excluding currency and acquisition) decreased about 6% primarily due to decrease in color cosmetic products based on mall retailers.
The 2016 compared with 2015
Organic sales (excluding currency and acquisition) increased about 1% primarily due to increase in color cosmetic products and hair solon products.
The 2015 compared with 2014
Organic sales (excluding currency and acquisition) increased about 3.4% primarily due to increase in color cosmetic products.
Its gross margin has decreased from around 65% in 2014 down to about 57% of 2017 due to lower margin of acquired business and as well to increased promotion. Its operating margin thus decreased to about 3% in 2017 from 13% of 2014 after an increase of about 250 basis points in SG&A as percentage of sales.
Stock performance
This stock currently has a stock price/sales ratio of 0.4. We think that its stock is being relatively overvalued compared with its peers considering the declining sales and margins.
