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P&G’s beauty segment experiences decline in Q3, sees strength in some premium offerings

5/1/2009

CINCINNATI Procter & Gamble’s beauty segment experienced a decline during the third quarter due in part to the current economic conditions and retailer destocking; however, its Olay Pro-X skin care line and Nice ‘n Easy Perfect 10 hair color proved to be bright spots.

 Net sales in beauty declined 9% during the quarter to $4.3 billion. Organic sales were in line with prior year as the benefits from higher pricing were largely offset by a 5% decline in shipment volume.

“There are a couple key factors driving these results. First, there are elements of this segment that are more discretionary compared to the balance of our portfolio,” stated Teri List, treasurer for P&G, told analysts during Thursday’s conference call. “The global economic slowdown causes significant market contraction in the prestige fragrance category. While we continue to build share in prestige, shipments were down more than 20% due mainly to significant market contraction and trade inventory de-stocking.”

In the United States, retail hair care value share was up about half a point, while value shares for Pantene, Head & Shoulders, Herbal Essences and Aussie remained essentially inline with the prior year. In U.S. hair color, the premium price Perfect 10 initiative behind Nice ‘n Easy helped offset declines in minor hair care brands and drove value share up nearly two share points, List said.

In skin care, the launch of its premium-priced Olay Pro-X line, which retails for about $40 to $50 per item, helped fuel Olay’s value share in the United States. The Olay all outlet value share facial moisturizers in the United States increased by a half a point during the quarter to more than 43%. Olay Pro-X achieved about 5% value share after only three months in the market.

Meanwhile, in U.S. color cosmetics, its CoverGirl brand built all outlet value share on both the unit and value basis. However, CoverGirl shipments were down high single digits during the quarter due to sharp retailer de-stocking.

“To summarize beauty, we continue to be pleased with the fundamental health of our beauty brands and their grown prospects over time. We do expect some continued pressure from retailer and distributor de-stocking,” List said. “It’s also likely that the markets for prestige fragrances will remain soft given its discretionary nature.”

During the call, A.G. Lafley, chairman and CEO, also fielded questions from analysts about a recent Wall Street Journal article discussing the restructuring of P&G’s beauty and grooming business and its plan to place a greater emphasis on men.

“This is something we’ve wanted to do for awhile. We think it’s the next logical phase in how you organize a beauty and personal business for even more success,” said Lafley. “Here’s the simple way to think about it: We’re going to organize more by consumer and customer or channel than by product category. It?s the first one of our major sectors that we?re going to do this with.”

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