'K-Beauty Boom' Drives Record Results for Cosmetics Makers, but Profitability Diverges

COSMAX operating profit surges 95%; Kolmar Korea up 40.5%
Cosmecca Korea's growth limited to 0.1%
Capacity, outsourcing costs and overseas subsidiary performance key variables
Competition shifts from growth to earnings quality

Fueled by K-beauty's global popularity, all three major South Korean cosmetics original design manufacturers (ODMs) posted double-digit revenue growth. However, profitability diverged as they faced different levels of pressure from outsourcing costs caused by capacity constraints and from the performance of their overseas subsidiaries.

According to the cosmetics industry on November 12, among the country's three major ODMs—COSMAX, Kolmar Korea and Cosmecca Korea—COSMAX posted the strongest results. In the third quarter, COSMAX reported consolidated revenue of KRW 875.7 billion and operating profit of KRW 83.3 billion. These figures were up 49.6% and 95%, respectively, from a year earlier, with revenue reaching a record high for a single quarter.

Its operating margin also rose 2.2 percentage points, from 7.3% in the third quarter last year to 9.5% this year. Revenue at its domestic operations increased 61% to KRW 616.1 billion, while operating profit surged 97% to KRW 67.7 billion. COSMAX said, "As orders increased for relatively high-margin products such as essences and mists, revenue growth translated into improved profits."

Kolmar Korea also saw profits grow faster than revenue. Its consolidated revenue for the third quarter increased 21.3% to KRW 828.2 billion, while operating profit rose 40.5% to KRW 81.9 billion. Its operating margin improved by 1.4 percentage points, from 8.5% to 9.9%. Revenue from its domestic cosmetics business grew 34.7% to KRW 433.7 billion, and operating profit increased 42% to KRW 62.9 billion. Kolmar Korea said, "Growing demand for sun-care and skin-care products, along with the return to profitability of Yonwoo, our cosmetics packaging affiliate, supported the improvement in results."

By contrast, Cosmecca Korea saw a wide gap between revenue and profit growth. Its consolidated revenue for the third quarter rose 35.7% to KRW 247.5 billion, but operating profit edged up just 0.1% to KRW 27.2 billion. Its operating margin fell 3.9 percentage points, from 14.9% in the third quarter last year to 11.0% this year. Revenue at its domestic operations rose 54.9%, surpassing KRW 200 billion for the first time in a quarter. But costs increased as it expanded outsourcing for filling and packaging to handle the surge in orders.

All three companies continued to grow their businesses, but production efficiency and the performance of overseas subsidiaries determined the quality of their earnings. At COSMAX, a higher share of high-margin products meant that revenue growth led to improved profits. At Cosmecca Korea, however, increased outsourcing to handle the surge in orders weighed on profitability. Kolmar Korea offset losses at its overseas subsidiaries with the high profitability of its domestic cosmetics business.

Differences in overseas performance were particularly pronounced. COSMAX's U.S. subsidiary posted third-quarter revenue of KRW 69.5 billion, up 88% from a year earlier, and recorded its second consecutive quarterly profit after turning a profit for the first time in the second quarter. By contrast, Cosmecca Korea's U.S. subsidiary, Englewood Lab, reported revenue of KRW 45.7 billion, down 26.1%, and operating profit of KRW 5.2 billion, down 61.0%. Kolmar Korea also continued to post losses at its overseas cosmetics subsidiaries in China and North America, highlighting the contrast with its domestic business.

Nevertheless, Cosmecca Korea's operating margin itself was 11.0%, higher than COSMAX's 9.5% and Kolmar Korea's 9.9%. Operating profit at its domestic operations rose 61.3% from a year earlier, but a decline in profit at its U.S. subsidiary offset much of the increase.

Ha Heeji, an analyst at Hyundai Motor Securities, said, "Cosmecca Korea posted quarterly revenue above KRW 200 billion for the first time, but profitability fell short of market expectations as it increased outsourcing to meet delivery deadlines amid a surge in orders." She added, "Expanding production capacity through the operation of its Ochang plant and a recovery in results at its U.S. subsidiary, Englewood Lab, will be key to profit growth."

As a result, expanding production capacity is emerging as a key challenge that will determine the future performance of ODM companies. COSMAX is expanding domestic and overseas production facilities, including an extension of its Pyeongtaek plant in Gyeonggi Province. Cosmecca Korea is investing in facilities with the goal of opening a new plant in Ochang, North Chungcheong Province, in the second half of 2027. Kolmar Korea is also scheduled to complete an expansion of production capacity at its Sejong plant in the second half of 2027. The companies see securing their own capacity to meet rising orders and reducing outsourcing costs as crucial to improving profitability.

Industry observers expect performance differences among ODM companies to become even more pronounced, even as K-beauty's global growth continues. Lee Gyoseok, an analyst at Shinyoung Securities, said, "With K-beauty's global popularity, ODM companies will continue to grow their businesses next year. However, as production capacity is expected to lag behind demand and push up fixed costs in the process, we are cautious about improvements in operating margins."

This content was produced with the assistance of AI translation services.