Shenxianshui SK-II was named again due to a decline in sales. Recently, Procter&Gamble (PG) released Q2 2024 results (October 2023 December 2023), with organic sales in Greater China falling by 15%. Its high-end skincare brand SK-II's organic sales in Greater China decreased by 34%. Procter&Gamble explained that this was due to "market weakness and the temporary headwind of Japanese brands.". Subsequently, the topic of # SK-II Greater China sales plummeting due to the impact of Japanese pollution # surged on hot searches.
In response to this matter, on January 25th, the relevant person in charge of Procter&Gamble told a reporter from Nandouwan Finance News that SK-II will continue to use PITERA as the innovation driving force, deeply understand consumer needs, and provide high-quality products for all loved ones, including Chinese consumers.
However, in addition to SK-II being named continuously due to declining sales, Procter&Gamble has also attracted attention in recent years due to its price increase strategy. During the earnings conference call, Procter&Gamble stated that the impact of price increases on sales is usually temporary, but if there are more stable foreign exchange and commodity costs, the demand for further significant price increases will decrease.
Procter&Gamble's Q2 2024 revenue increase without profit increase
4% price increase, 3% year-on-year increase in net sales
On January 23, Eastern Time, Procter&Gamble released its Q2 financial report for the fiscal year 2024. According to the financial report, from October 2023 to December 2023, Procter&Gamble's net sales increased by 3% year-on-year to $21.4 billion, while its net profit decreased by 12% year-on-year to $3.493 billion.
After excluding the impact of foreign exchange and acquisitions and divestitures, organic sales increased by 4%. Procter&Gamble stated that the growth in organic sales was driven by a 4% increase in pricing, but a 1% decrease in organic shipments partially offset the growth in organic sales.
In its financial report, Procter&Gamble reiterated its expectation of a 2% to 4% increase in sales for the fiscal year 2024.
The beauty sector has become Procter&Gamble's only business with a decrease in net profit
SK-II has been repeatedly criticized for declining sales
In recent years, Procter&Gamble has continued to raise prices for its products. In Q2 of the 2024 fiscal year, the average price of all products under Procter&Gamble increased by 4%, with the highest increase being in the Grooming segment, which had a 7% increase. It also had brands such as Gillette, but this segment was the only one among all Procter&Gamble segments where sales continued to rise, with a 1% increase in sales.
According to business segments, Fabric&Home Care remains Procter&Gamble's largest business segment, with brands such as Blue Wave and Tide. During the reporting period, the net sales of this segment were $7.415 billion, a year-on-year increase of 5%; Next is the Baby, Feminine&Family Care sector, with brands such as Pampers and HuShu Bao, accounting for $5.146 billion, a year-on-year increase of 2%.
As the third largest revenue generating business of Procter&Gamble, the beauty sector, which has products such as SK-II, Olay Olay, and Shufujia, has not performed as well as other sectors. During the reporting period, the net sales of this sector increased by 1% year-on-year to $3.849 billion, while the net profit decreased by 5% year-on-year to $868 million, making it the only P&G business with a year-on-year decline in net profit.
Specifically, the organic sales of the skin and personal care categories in the beauty sector have decreased by a median single digit, due to the decline in sales and unfavorable product combinations caused by the decline in SK-II sales. The organic sales of another category of hair care products in this sector increased by a high single digit due to price increases, high-quality product combinations, and sales growth (mainly in North America). Previously, SK-II was repeatedly cited by Procter&Gamble in its financial reports for a decline in sales.
SK-II official website
In addition, Procter&Gamble's organic sales in the healthcare sector increased by 2% year-on-year. Among them, the organic sales of oral categories such as Crest and Oral-B (electric toothbrush) have increased in the middle single digit, due to the advantages of pricing and high-quality product portfolio. However, sales in this category have declined in Latin America and Asia; In addition, the organic sales revenue of the personal health care category in this sector decreased by a single digit due to the decline in the respiratory product market.
Organic sales in Greater China decreased by 15% year-on-year
Procter&Gamble claims that the decline in SK-II sales is due to market weakness and the impact of Japan's pollution discharge
During the Q2 2024 financial report conference call, Procter&Gamble CFO Andre Schulten stated that shipments to Greater China, Eastern Europe and the Middle East, and Africa were weak, with organic sales in Greater China decreasing by 15% year-on-year. Due to further weakening consumer confidence, potential market growth has declined to mid to high single digits.
Andre Schulten further stated that the decline in organic sales in the skin and personal care categories in the beauty sector was due to a decline in SK-II's sales in China. The brand's organic sales in Greater China decreased by 34%, "due to market weakness and the temporary headwind of Japanese brands.". However, he also stated that Procter&Gamble's consumer research indicates that SK-II's brand favorability is improving, and "we are also optimistic about the growth of the Chinese market.".
Procter&Gamble Chairman, President, and CEO Jon Moeller also pointed out that the decline in SK-II's sales in Greater China is related to Japan's nuclear contaminated water discharge. He estimated that this factor accounts for about 50%, and the other 50% is due to market dynamics.
As a star product of P&G, SK-II's official official account once said that the factory and production line of SK-II fairy water are located on the shore of Biwa Lake, the largest lake in Japan, and it is also the only source of water quality for SK-II. There is no other production channel in the world. Therefore, after Japan discharged nuclear contaminated water, brands such as SK-II and Shiseido were once embroiled in public controversy.
Andre Schulten stated that in Q1 of fiscal year 2024, Procter&Gamble had a very high social media coverage, leading to a gradual fading of negative emotions towards the brand. "Most consumers have returned to a neutral position and are open to SK-II," he said.
Regarding how SK-II will do well in its business in Greater China, on January 25th, the relevant person in charge of Procter&Gamble responded to a reporter from Nandouwan Finance News that for over 40 years, SK-II has been serving consumers around the world and in China. He said that SK-II® Skin Care essence has always been loved by millions of women from all over the world. SK-II is committed to continuous innovation and provides consumers with high-quality products and service experience. SK-II will continue to use PITERA as the driving force for innovation, deeply understand consumer needs, and provide high-quality products for all loved ones, including Chinese consumers.
Two years after the official announcement of price increase for all categories
Procter&Gamble plans to slow down its price increase strategy?
In addition to responding to the decline in sales of SK-II in Greater China, P&G executives also responded to the price increase policy. Nandu previously reported that during the Q2 financial report for the 2022 fiscal year, Procter&Gamble stated that its top ten product categories would gradually increase prices starting from the end of February 2022. At that time, Andre Schulten stated that consumers were not only willing to bear higher prices, but there was also a trend towards consumer upgrading, which meant that Procter&Gamble would have more opportunities to focus on high-end product lines.
During the earnings conference call, Jon Moeller pointed out that the impact of price increases on sales is usually temporary. "Although we cannot discuss any details of future market pricing, more stable foreign exchange and commodity costs will ideally reduce the need for further significant price increases.".
Andre Schulten stated that in the second two quarters of the 2024 financial report, it is expected that the contribution of pricing to revenue growth will decrease by another 1 to 2 percentage points. He stated that he will closely monitor areas with significant fluctuations, including the health of the Chinese market, and will closely monitor competitive dynamics to ensure that the Procter&Gamble brand maintains outstanding value to consumers and retailers.