Henkel AG & Co. KGaA has signaled the imminent culmination of its destocking efforts in China that have hampered growth in its beauty care segment for more than two years.
The German consumer goods company is looking to complete the destocking by the end of the year, executives said Nov. 14, 2019, during the company's third-quarter earnings call.
Henkel's ongoing inventory shake-up in China led to a 5.7% decline in organic sales in Asia-Pacific during the third quarter. Overall, the beauty care division saw a 2.2% drop in organic sales during the reporting quarter to €970 million.
"Beauty care was still impacted by a slow recovery in a highly competitive market environment in Western Europe, and as expected, the continued destocking measures in the Chinese retail business," Henkel Chairman and CEO Hans Van Bylen said.
"Excluding China retail, the beauty care [segment] would have been flat in terms of organic sales performance," CFO Carsten Knobel said.
Henkel, which manufactures beauty products under brands including Schwarzkopf, Syoss and Dial, first disclosed its inventory destocking measures in China in 2017 as it began shifting from its traditional brick-and-mortar business model toward e-commerce. "China was strongly impacted by the channel shift from brick-and-mortar to the online business," Knobel told analysts following its second-quarter results that year.
The reduction in the company's inventory in China has affected Henkel's sales in the market since then. In August 2019, Henkel said the destocking contributed to the 7.9% year-over-year slump in organic sales in Asia-Pacific during the second quarter of 2019. At the time, Van Bylen said Henkel would adjust its local go-to-market model and conduct a wider review of its beauty care portfolio.
Knobel told analysts Nov. 14 that Henkel plans "to largely complete the necessary stock level adjustments at the end of 2019," hinting that it could continue "a little bit also in 2020."
Henkel also confirmed that it is continuing its review of the group's beauty care division.
"We're looking at brands, categories, country positions in the portfolio to identify it, and we will also address potential weak points. ... We're in a full process and ... at this stage, I mean, we're not sharing details, but this activity is taking place," Van Bylen told analysts.
Henkel recently announced the acquisition of New York-based Deva Parent Holdings Inc., which owns professional haircare brand DevaCurl. In July 2019, the group bought a 51% stake in eSalon.com LLC, a business dealing with customized hair color.
Van Bylen said Henkel has been expanding its professional haircare business from one valued at less than €500 million to a business worth more than €1 billion.