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Sales Drop for Shiseido

Shiseido released its financial results for first two quarter of the fiscal year ending March 31, 2013, with net sales coming in at ¥333.6 billion, a decline of 0.8% from the same time period the previous year. Japanese sales declined 3.2% to ¥186.6 billion, and on a local currency basis, sales outside of Japan increased 7.1% year-on-year. After translation into yen, sales outside of Japan grew 2.6% to ¥147 billion.

In the two-quarter period under review (the six-month period from April 1 to September 30, 2012), economic sentiment in Japan, despite signs of moderate turnaround, was generally weak, characterized by such factors as concerns about worldwide economic slowdown and prolongation of the strong yen. The domestic cosmetics market in Japan remained at mostly unchanged year-on-year, but failed to reach the level of before the Great East Japan earthquake. Outside Japan, despite the impact of economic recession stemming from the European financial crisis, the cosmetics markets in Europe, the Americas, and Asia reported positive year-on-year growth. In China, the pace of economic expansion slowed, but the growth rate of the cosmetics market remained high.

Sales for the company’s domestic cosmetics business segment declined 3.9%, to ¥173.4 billion. During the period, Shiseido strove to boost its over-the-counter sales in a number of ways. For example, its strongly emphasized fundamental initiatives, such as direct skin contact activities and activities using beauty equipment. The company also launched carefully selected new products in order to expand over-the-counter sales. In April 2012, Shiseido unveiled a new business model linking the Web to retail stores, and pursued various measures aimed at creating opportunities to interact with new customers, especially among young people.

As a result, the company maintained positive year-on-year over-the-counter sales growth in department stores, thanks to the contribution of the global brand Shiseido. In drugstores, over-the-counter sales increased year-on-year, owing to favorable performances of such products as Elixir Day Care Revolution beauty essence and AquaLabel Special Gel Cream. However, sales were down for the period, due to a significant year-on-year decline in the first quarter stemming from the Japanese earthquake and other factors. In addition, demand for body care products, such as sunscreens and deodorants, was affected by unfavorable weather in June and July, while the Tsubaki line, which underwent a renewal in the previous year, and cosmetics for men also struggled. Accordingly, overall segment sales in the two-quarter period were down year-on-year. Consequently operating income in the company’s domestic cosmetics business fell 36.7%, to ¥13.6 billion. This was due mainly to a decline in the marginal gain stemming from lower segment sales.

For its global business segment, Shiseido posted a 7% sales increase on a local currency basis. After translation into yen, segment sales rose 2.7%, to ¥155.7 billion. In the Americas, the global brand Shiseido and the Nars makeup artist brand maintained good performances, and the BareMinerals brand also did well. Sales in Europe were sluggish, affected by overall economic stagnation, although the fragrance business performed well in that region. In Asia, sales in the top-priority market of China were driven by the Aupres premium line, a dedicated brand for department stores, introduced in February 2012, as well as Pure & Mild, a dedicated brand for cosmetics specialty stores. Sales also increased in Thailand. Accordingly, sales growth in Asia remained high. The global business segment reported an operating loss of ¥6.1 billion, largely due to an aggressive increase in marketing expenditures made in various regions, as well as a rise in personnel expenses, reflecting increases in staff in growth markets and regions.

Sales in the company’s others segment climbed 10.8%, to ¥4.5 billion, owing mainly to sales growth in the frontier sciences business and the restaurant business. Operating income in this segment jumped 25.2%, to ¥0.9 billion, thanks to an increased marginal gain stemming from higher segment sales.

In light of its performance in the two-quarter period under review and expected changes in domestic and overseas market conditions in the second half of the fiscal year, the Shiseido Group revised its consolidated forecasts for the fiscal year ending March 31, 2013. The new forecast is ¥700 billion, a 1.4% decrease from the previously forecasted ¥710 billion. Net income forecasts remain the same at ¥22 billion.

The outlook for the domestic economy remains unclear amid further worldwide economic slowdown and other factors, and the Japanese cosmetics market is also expected to remain mostly unchanged from the previous fiscal year’s level. Facing these challenges, in the second half of the fiscal year the Shiseido Group will continue working to expand over-the-counter sales. Specifically, it will develop carefully selected, highly competitive products, foster current mainstay products, and advance measures using its new business model. In department stores, the company will continue entrenching fundamental initiatives. In drugstores, it will continue rejuvenating over-the-counter sales by introducing new sales display cases, while stepping up collaborative efforts to match the needs of each retailer. In cosmetics specialty stores, it will deploy watashi+ as part of measures to expand its base of loyal customers, while working to expand sales through introduction of new products among dedicated brands for such stores. In addition, Shiseido will strive to reinforce its skin foundation category, which has been struggling, while advancing strategies aimed at tapping the seniors market, which is expected to become more and more important in the future.

Reflecting the aforementioned initiatives, Shiseido expects year-on-year increases in segment sales in the both the second half and the entire year. With respect to operating income, the company looks forward to an increase in the second half, boosted by a marginal gain stemming from higher net sales, as well as rigorous cost-cutting activities, although full-year operating income is expected to remain mostly unchanged.

In Europe, where the economy is languishing due to the financial crisis, the company expects growth in the cosmetics market to remain weak. In the Americas, there are various risks, including the possibility of delayed improvement in the employment environment. Nevertheless, Shiseido anticipates a moderate recovery trend and look forward to continued steady growth in the cosmetics market. In China, the growth rate for the cosmetics market is on a downtrend for the time being, amid a slowdown in economic growth. In addition, the outlook is very unclear due to uncertainty about customer purchasing attitudes towards Japanese products. Elsewhere in Asia, the company anticipates continued growth in the cosmetics market, thanks to moderate economic expansion.

Under these circumstances, in the second half of the year the Shiseido Group will continue fostering the six brands covered in its global mega brand strategy. At the same time, it will target further sales growth in various ways. These include stepped-up promotion of its designer fragrances and makeup artist brands, as well as reinforcement of masstige brands in ASEAN nations, where future market expansion is predicted. Despite unclear business conditions in the short term, Shiseido looks forward to significant market expansion in China in the medium and long terms, reflecting the rising population of cosmetics users. Moreover, Shiseido has promoted its business in China for more than 30 years while maintaining close local ties. This policy will remain unchanged as it continues prioritizing managerial resources as a corporation that is well-liked by Chinese customers. Thanks to these efforts, the company looks forward to continued overall sales growth its global business segment, with year-on-year increases in both the second half and the entire year. Regarding earnings, it expects operating income to increase in the second half but remain mostly unchanged for the entire year.

More on this financial report from Shiseido can be found here.

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