P&G Won’t Trim Grooming Segment, Despite Continued Declines
Despite declines — and increasing competition from lower-priced brands — Procter & Gamble isn’t planning on getting out of grooming anytime soon.
The owner of Gillette, Braun, Venus and the Art of Shaving said on its third-quarter earnings call Tuesday that despite struggles in its grooming business — particularly in the U.S. — it has no plans to divest the segment.
David Taylor, P&G chief executive officer, said P&G intends to keep its grooming operations and invest behind them, especially in trial. He was asked the question by Citi analyst Wendy Nicholson, who noted that P&G has sold business units before, like its fragrance operation and Duracell.
“We have more work to do in the U.S.,” Taylor acknowledged on the company's earnings call. “And probably do need to invest more to get to sufficient awareness and trial, which we’re fully prepared to do.”
He called out the launch of Gillette SkinGuard, a razor for men with sensitive skin who frequently experience irritation during shaving, as one place P&G is investing.
“To the extent that we can address that issue, which we feel SkinGuard does in a delightful way, we have the potential to increase usage, bring back men into the category who have left or increase the shave frequency because it’s no longer uncomfortable, and that’s exactly what we’re seeing right now in Europe,” Taylor said.
Right now, P&G’s grooming segment is doing better in Europe — where SkinGuard was recently launched — and in developing markets, than it is in the U.S. In the U.S. market, P&G’s grooming brands face heightened competition from moderately priced newcomers like Harry’s, which started a direct-to-consumer brand but is now sold at retailers like Target and Walmart, and Dollar Shave Club, which is owned by Unilever. New entrants continue to flood the space.
P&G executives historically have talked about “superior quality” offerings, often sold at higher prices. But Tuesday, the company said that mid-priced grooming products sold well, and higher-priced appliances did not, during the quarter. The company has experimented with lowering razor prices through an initiative unveiled in 2017.
P&G’s grooming segment posted an 8 percent dip in net sales for the quarter, to $1.4 billion in sales.
In beauty, things looked brighter.
SK-II, a $2 billion skin-care brand, was called out for its “disproportionate growth.”
In total, the beauty portfolio posted a 4 percent net sales gain in the quarter, to $3.1 billion. P&G said that the increase was driven by high-end innovation, increased pricing and SK-II. Hair was up mid-single digits, with organic growth in developing and developed countries, plus increased pricing, P&G said.
P&G sold most of its sluggish beauty portfolio to Coty Inc. in 2016, and in the past year has started to build out that segment again via acquisition. This time, the business has focused on capabilities, buying direct-selling natural personal-care brand Native, adding specialty beauty expert First Aid Beauty, natural skin-care brand Snowberry, and multicultural brands Bevel and Form.
Overall, P&G posted $16.5 billion in net sales for the third fiscal quarter, up 1 percent versus the prior year. Organic sales were up 5 percent, driven by an increase in shipment volume and pricing. Net earnings were $2.78 billion, and diluted net earnings per share were $1.04, a 9 percent increase from the prior-year period. E-commerce organic sales grew more than 20 percent in the quarter.
P&G is forecasting 1 percent sales growth for fiscal 2019, which includes the negative impact of foreign exchange and positive impact from acquisitions and divestitures.
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