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PETALING JAYA: Innature Bhd’s sales momentum could face headwinds in the second half of the year, in light of sluggish consumer spending and intensified competition.
CGS-CIMB Research, in a report, noted that the company’s sales momentum likely improved quarter-on-quarter in the second quarter of 2022, mainly driven by the lifting of movement restrictions and “revenge spending” activity.
“However, we believe the sales volume could be weaker than expected due to a slower recovery in footfall at its stores in non-prime locations in Malaysia.
“While we have seen increased tourist arrivals post border reopening, we also gather that high-spending foreign tourists, especially from China and the Middle East, remain scarce at this juncture.”
In lieu of weaker sales expected in the second half of 2022 due to sluggish consumer spending ability, intensified competition and demand normalisation, CGS-CIMB Research is lowering its revenue forecast for InNature for 2022 to 2024 by between 1.4% and 4.1%.
InNature retails and distributes The Body Shop brand of cosmetics and personal care products.
CGS-CIMB Research noted that InNature raised average selling prices of its products as of end-June 2022 by around 7% to offset rising input costs via new product launches and packaging.,
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“Nonetheless, we are concerned that price hikes could lead to lower demand, given the weaker consumer purchasing power in the second half of 2022.
“InNature has been raising selling prices since the fourth quarter of 2021. Hence, we think this could also lead to margin compression as it may be unable to fully pass on the costs to protect sales volume.”
As of June 2022, InNature had 118 stores: 76 in Malaysia; 40 in Vietnam and two in Cambodia, said CGS-CIMB Research.
Going forward, the research house said InNature aimed to continue rolling out more “workshop” concept stores, which typically have a faster breakeven period of within a year.
“These will have better customer in-store experience. The company also plans to upgrade existing outlets (in prime locations with higher footfall) to compete with peers in terms of store attractiveness.
“It also intends to break-even its Vietnam outlet within 12 to 15 months. InNature may also reopen its The Body Shop outlets in airports in Malaysia after closing six during the Covid-19 pandemic.”
Last month, InNature announced that it was disposing of its entire shareholding in wholly-owned subsidiary Ola Beleza Sdn Bhd to Natura Cosmetics Asia Pacific Pte Ltd (Natura AP) for RM2.04mil.