Kolmar Korea, Cosmax and Cosmecca Korea reported strong first-quarter earnings this month as global demand for K-beauty skin care, sun care and indie brands drove a surge in orders for the manufacturers behind many fast-growing beauty labels.
But the results also highlighted a widening gap in profitability among the three companies, reflecting a broader question surrounding Korea’s original design manufacturers (ODMs): whether rising orders can translate into sustained margin expansion.
For years, cosmetics ODMs have been valued differently from beauty brands because their profit upside was viewed as more limited. While booming K-beauty demand often lifted sales, the gains did not always translate into the kind of margin improvement investors reward.
Kolmar Korea offered the clearest counterexample, at least for one quarter.
Kolmar Korea turns K-beauty orders into record margins
Kolmar Korea led on profit, helped by strong skin care and sun care orders. (Credit: Kolmar Korea)
The company posted revenue of 728 billion won ($487 million), up 12 percent from a year earlier, and operating profit of 78.9 billion won, up 32 percent. Both figures beat market expectations and marked a record quarter.
The gains came mainly from Korea, where revenue rose 25 percent to 343 billion won and operating profit climbed 51 percent to 51.2 billion won. The domestic business posted a record operating margin of 14.9 percent.
The margin gave Kolmar something more than a record quarter. It offered evidence that rising K-beauty orders could translate into stronger profits, not just higher sales.
“Historically, the ODM sector has seen limited operating leverage, constraining valuation re-rating potential relative to branded cosmetics peers,” Bae Song-yi, an analyst at Mirae Asset Securities, wrote in a Monday report.
Kolmar’s first-quarter results, she added, “should help alleviate this issue to some extent.”
The lift came mainly from large orders in Korea, especially for flagship skin care products. Major customers kept orders strong, while Kolmar’s largest customer, not named in the report, appeared to have sharply increased non-U.S. orders, mainly for skin care and sun care products, according to Bae.
The U.S. remained the weak spot. Kolmar’s U.S. business posted revenue of 13.4 billion won, down 38 percent from a year earlier, and an operating loss of 3.7 billion won.
Even there, the quarter was less damaging than expected. The loss narrowed from the previous quarter, and Bae said the risk of further deterioration appeared limited as orders from a "key customer" recovered and the company’s second U.S. plant began to contribute more.
Cosmax showed a different version of the same boom.
Cosmax sales hit record, but profit growth lags
Cosmax posted record sales as its Korea, China and U.S. businesses grew. (Credit: Cosmax)
The company posted record quarterly revenue of 682 billion won, up 16 percent from a year earlier, helped by growth in Korea, China and the U.S. But operating profit rose only 3 percent to 53 billion won, leaving a clear gap between sales growth and profit growth.
Sales in Korea rose 17 percent to 423.2 billion won, supported by demand for sun care, gel masks and mists. China revenue rose 20 percent to 194.7 billion won, while U.S. revenue jumped 46 percent to 42 billion won.
Direct exports to overseas customers also rose more than 30 percent.
The numbers showed a company gaining ground in more markets, but not yet turning that growth into a stronger profit lift. In Korea, the issue was not only slower growth from large customers. Newer clients were widening the base.
“What is positive is that Korea is seeing an expanding base of new customers rather than just a slowdown in growth from large customers,” Han Yu-jung, an analyst at Hanwha Investment & Securities, wrote in a report ahead of the results. “In that process, the company is defending profitability while building a pool of potential next core customers.”
That shift comes with a cost. New customers can become future growth drivers, but they often start with smaller, more frequent orders, which can be less efficient for manufacturers, Han wrote. Then continue:
Still, Han said the U.S. business was improving faster than expected after years of weakness.
“Order growth at the U.S. subsidiary is stronger than expected,” she wrote, citing more inquiries for K-beauty-style skin care products and broader growth in lip and eye makeup.
She estimated that the U.S. business had already passed monthly break-even and could turn profitable on a quarterly basis from the second quarter.
Cosmecca Korea grows fastest on skin care demand
Cosmecca Korea delivered the fastest growth, driven by skin care and U.S. demand. (Credit: Cosmecca Korea)
Cosmecca Korea, the smallest of the three, had the fastest growth.
Revenue jumped 56.4 percent from a year earlier to 185.1 billion won, while operating profit rose 78 percent to 21.9 billion won.
Its Korean business led the quarter, with revenue up 91.3 percent. Skin care sales more than doubled, and sun care revenue rose 173.6 percent.
Englewood Lab, its U.S. subsidiary, posted revenue of 49.7 billion won, up 16.9 percent. The company said the U.S. business benefited from demand from K-beauty brands seeking production in both Korea and the U.S., as well as production transfers from legacy brands.
But Cosmecca’s China business fell 27.1 percent, after delays in raw materials and supplier changes pushed back sales.
Kim Ji-hye
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