Thursday, October 31, 2013
Dogged By Recall, Kao Downgrades FY13 Guidance
TOKYO (Nikkei)--Kao Corp. (4452) on Wednesday lowered its consolidated net profit forecast for the year ending Dec. 31 by 3 billion yen to 64 billion yen, amid mounting costs from a skincare product recall.
Subsidiary Kanebo Cosmetics Inc. in July launched a voluntary recall of its skin-whitening products after customers developed skin blotches. Over 15,500 people had reported the symptoms as of Oct. 20.
Kao originally planned to recall 450,000 units, but upped that number to 650,000 in late September, prompting an upward revision of the extraordinary loss for the recall by 2.9 billion yen to 8.5 billion yen. The company has also calculated 2.8 billion yen into its cost of sales to cover expenses related to retrieving products from retail inventories, bringing the total for expected recall-related losses in 2013 to 11.3 billion yen. The cost of compensation payments may be folded into next year's results, as it is too soon to assess them now.
Kao has maintained its forecast of 116 billion yen in operating profit for 2013, up 4% from a year earlier.
A major department store reported that October sales of Kanebo products declined 20% on the year, a larger drop than in September. The amount of operating profit lost due to customers' reluctance to buy company products may grow beyond the anticipated 6 billion yen. While Kao's household and personal care products business is healthy, stanching Kanebo's sales decline by launching new products and resuming advertising hold the key to reaching the target.
With Kao's Asia business in good form, January-September sales rose 7% to 950.5 billion yen, according to results for the period Kao also released Wednesday. Net profit came in slightly lower owing to the extraordinary loss at 39.5 billion yen.
(The Nikkei, 31 morning edition)