P&G's beauty sales hurt by an unlikely headwind: A wastewater release in Japan

Procter & Gamble on Tuesday said sales of its high-end SK-II skin-care brand fell 34% in the greater China region during its latest quarter — and it blamed an unlikely culprit.

With its high prices and reliance on travel retail, Japan-based SK-II has struggled as China’s economic recovery lags. But P&G executives also pointed to another factor that contributed to the brand’s cratering sales during the fiscal second quarter: anti-Japanese sentiment.

In August, Japan started releasing a huge amount of treated radioactive water from its Fukushima nuclear power plant, which was hit by an earthquake and tsunami more than a decade ago. The wastewater was dumped into the Pacific Ocean, leading to strong backlash from Japan’s neighbors — including China.

While Japan and the United Nations’ nuclear watchdog said the move was safe, China retaliated by banning all seafood imported from Japan. Chinese consumers followed with boycotts of Japanese brands, including P&G’s SK-II, fearing that their products would be tainted by radiation. P&G was among the companies that issued statements saying its products were safely produced as they tried to assuage consumer fears.

While the brand took a hit in the previous quarter, P&G executives said SK-II is already seeing sales turn around.

“Our consumer research indicates SK-II brand sentiment is improving, and we expect to see sequential improvement in the back half,” CFO Andre Schulten said on the company’s earnings conference call.

CEO Jon Moeller also reminded investors that previous tensions between Japan and China have hurt SK-II’s sales, but the brand always bounced back.

P&G’s overall beauty business reported flat volume for the quarter.

Shares of P&G closed up 4% on Tuesday after the company reported earnings that topped Wall Street’s estimates. Its quarterly sales, however, fell short of expectations.

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