Adore Beauty said the ‘Korean beauty’ category has grown 90 per cent in the last six months
Despite strong sales growth, Adore Beauty’s interim profit dropped 22 per cent amid rising staff and marketing costs.
Consumers are still cocooning at home, resisting heading back into the office and wearing masks when they venture outdoors, pushing back the return to pre-pandemic demand for colourful cosmetics and make-up.
However, that is being countered by growth in other categories like haircare and fragrances while new categories such as ‘Korean beauty’, which has a strong focus on natural ingredients and looks like the latest chapter in Korean pop culture to engulf the west, captures the hearts and purses of Australian shoppers.
Adore Beauty chief executive Tennealle O’Shannessy said on Monday as the online beauty retailer awaited the rebound in key cosmetics, which was occurring overseas as economies reopened and normal life returned, it was forging strong revenue streams in new areas such as ‘Korean beauty’ - up 90 per cent over the last six months of 2021 - and was exploring the launch of its own Adore private label offer.
“Australia is just early on the journey of coming out of lockdown to the US and the UK and so it has been spoken about where they’ve been out of lockdown for several months that there was a renaissance of colour cosmetics and makeup which makes sense,” Ms O’Shannessy said.
“You know when you’re not wearing masks anymore … we just witnessed we are a few months behind, so here in Victoria at least, masks are still mandatory, we are still advised to work from home if we can, and so we would expect that to continue to improve.
“But I think that whilst there are things like masks in place and work from home recommendations, we just saw a natural subduing of makeup during those conditions,” Ms O’Shannessy said as Adore Beauty posted record revenue for the first half which rose 18 per cent to $113.1m.
Other make-up and cosmetics categories were growing as consumers remained close to home, with Adore Beauty also moving into other personal care products and categories to capture growth opportunities in those adjacent markets.
“So I think skincare and haircare continue to perform really well. And I think that that’s really consistent with some of the global beauty trends that you see. Also, fragrances for us grew 43 per cent on the period, Korean beauty for us grew 90 per cent on the period.
“And we’ve been very fortunate to bring on some of the most well known Korean beauty brands that are resonating with our entire customer audience. And so it is your typical Australian beauty consumer is very interested in the trends that come out of Korea that is very much seen as a leader in terms of innovation in the skincare space.”
Unveiling its latest financial performance, the online retailer’s net profit for the December half had gone in the opposite direction of rising sales however, falling 22 per cent to $1.967m, as it ramped up its investment in attracting new customers to the site by expanding its content, improving its social media presence and buying better placement on google searches.
Ms O’Shannessy declined to pinpoint when Adore Beauty would return to profit growth but said the investment, or cost, of acquiring new shoppers to its online platform would be more than paid back as those new customers become loyal Adore Beauty shoppers.
“The investments we’re making now we are managing those very closely for the ratio of (customer) lifetime value and we’re investing now because the unit economics are very strong.
“And so what we see is that investment in customer acquisition costs, if we look over the last three years, that investment pays back for us in under one year. And then if we take a look at four years by the time our customer hits year four they’ve paid back over five times that initial investment. So these are investments that deliver strong unit economics, and a profitable within the first year.”
The decision to reinvest in its own growth saw profitability shaved away with operating costs as a percentage of revenue up 2.7 percentage points while marketing as a percentage of sales increased 1.6 percentage points to 14 per cent.
The accounts lodged with the ASX show that Adore Beauty’s spend on staffing rose to $10.7m from $8.5m last year while its marketing and advertising expenditure for the first half was $15.9m against $11.9m in the first half of 2021.
The retailer said overall positive trading momentum seen in the first half had continued into the second half with revenue growth over the first six weeks of the June half increasing 14 per cent. Adore Beauty reaffirmed its target to achieve an EBITDA margin of 2-4 per cent in the short to medium term while reinvesting to drive above market growth
The company did not declare a dividend.
Shares in Adore Beauty were down 7.4 percent in afternoon trade at $2.50.
House price growth here will slow, says REA Group
Digital property powerhouse REA Group says it will never overpay, after its aborted takeover of Rightmove in the UK, and will now capitalise on its Athena investment and the India market.
Cut risk rules on young home borrowers, says Barrenjoey
Barrenjoey says first-home buyers could borrow 1-3 per cent more and slash mortgage repayments under its suggestion to help more of them get into the market.