Shiseido Marks Fiscal Year End with 12.4% Increase in Net Sales

Shiseido announced its consolidated settlement of accounts for the fiscal year ended March 31, 2014 (April 1, 2013–March 31, 2014). For the fiscal year ended March 31, 2014, net sales were ¥762 billion, a 12.4% increase; operating income was ¥49.6 billion, an increase of 90.6%; ordinary income was ¥51.4 billion, an increase of 81%; and net income was ¥26.14 billion.

In the fiscal period under review, the Japanese economy enjoyed moderate recovery underpinned by government economic measures. The domestic cosmetics market also showed indications of a turnaround. Moreover, there were signs of temporary growth in demand ahead of the consumption tax hike in April 2014. Overseas, however, cosmetics markets are closely linked with economic conditions in their respective countries. In the United States, the cosmetics market maintained firm growth thanks to ongoing expansion of the local economy. In Europe, where economic growth was weakened by the debt crisis and high unemployment rates, the cosmetics market saw only minimal growth. In Asia, where some nations are impacted by political conditions, the cosmetics market posted moderate overall growth.

In this environment, Shiseido continued implementing its three-year business plan (covering the three-year period from April 2011 to March 2014), designed to help get back on a growth trajectory. Impacted by the prolonged debt crisis in Europe, a worsening business environment in China sparked by the Senkaku Islands issue, and other factors, during fiscal 2012 the company changed the course of the plan with an emphasis on “building a high earnings structure capable of delivering steady profit growth even if revenue growth and market growth are on the same level.” It positioned the year under review, the final period of the plan, as a “year of paving the way to sustained growth backed by a rigorous distinction and concentration strategy aimed at removing obstacles to lay the groundwork for growth.” During the year, Shiseido continued implementing cost structural reforms and business structural reforms and began efforts to optimize store-level inventories, while taking actions to enhance the soundness of unprofitable and low-profit businesses. At the same time, it allocated resources to strong, big and highly profitable fields, both in Japan and overseas. To this end, we focused on reinforcing our strengths in three areas: Japan, China, and Bare Escentuals, Inc. As a result, the company posted consolidated net sales of ¥762 billion, up 12.4% from the previous year.

Domestic sales rose 1.1% year on year, and overseas sales jumped 26.4%. Operating income surged 90.6%, to ¥49.6 billion. This was due to a marginal gain stemming from higher net sales, as well as foreign exchange factors. Other factors included ongoing groupwide efforts to implement cost structural reforms and enhance the efficiency of expenditures, together with declines in Japan of personnel expenses, such as bonuses and pension costs. In the previous fiscal year, the company reported a net loss due to extraordinary losses that included an impairment loss on goodwill in Bare Escentuals. In the year under review, the company returned to profitability, with net income of ¥26.1 billion, owing to the significant increase in operating income, as well as a gain on sales of some real estate such as building owned by a sales subsidiary.

Sales in the domestic cosmetics business increased 1.1%, to ¥349.7 billion. In the cosmetics business category, Shiseido maintained a focused effort to expand over-the-counter sales, with particular emphasis on reinforcing its prestige business. Despite efforts to recover inventories with a view to optimizing store-level inventories, the cosmetics business posted a year-on-year rise in sales, bolstered somewhat by a greater-than-expected surge in demand ahead of the consumption tax hike.

In the cosmetics business, Shiseido continued efforts from the previous year reflecting a policy of meticulously selecting only products that can earn a high level of customer support. It also continued nurturing existing mainstay products. As a result, two core lines in the mid-priced range performed well: the Elixir skin care and base makeup line and the MAQuillAGE comprehensive makeup line. The company also stepped up communications activities designed to strengthen our position in the prestige domain. These included airing television commercials for the global brand Shiseido and the top-end brand Clé de Peau Beaute. The company reported sales growth as a result, especially in department stores.

One challenge from the previous year is addressing the needs of seniors. To this end, Shiseido set up a dedicated site for seniors within the Shiseido watashi+ website, which is a next-generation beauty solutions and services website that brings together the web and existing retail stores. In addition, its set up a dedicated free-dial line for seniors and launched a dedicated tabloid, called Kirameki Ms. Tsushin. It also hosted Kirameki Master Salon seminars to help seniors rediscover their unique qualities and master beauty care techniques.

In the health care business, Shiseido focused on The Collagen, a mainstay health and beauty food line. Accordingly, its maintained a high share despite continued contraction of the retail sales market for collagen. Moreover, we sought to increase recognition of Chomeiso, a health and beauty food containing button parsnip—grown on a contracted farm in Yonaguni Island that does not use agrochemicals—and expand the number of stores handling this product. During the year, the company also launched and began sales in convenience stores, complementing existing sales channels, of Tsuyatsuya Purun Jelly as part of the Kirei No Susume line of beauty drinks designed to enhance beauty.

The domestic cosmetics business segment posted a 43.5% jump in operating income, to ¥39.5 billion. This was mainly due to a marginal gain stemming from the increase in revenue, as well as cost structural reforms and efforts to improve efficiency of expenditures.

Sales in the global business segment rose 24.8%, to ¥402.2 billion, and grew 1.4% on a local-currency basis. Both the cosmetics business and professional business categories posted year-on-year sales increases.

At the prestige end of the cosmetics business, the global brand Shiseido and makeup artist brand Nars again performed well, especially in the United States. The designer fragrances business also enjoyed solid growth as the company began handling the Ferragamo and Burberry brands, which complemented firm demand for Narciso Rodriguez and other brands. In the meantime, Bare Escentuals, Inc., which sells Bare Minerals and other brands, laid the groundwork for growth in fiscal 2015 and beyond, having positioned fiscal 2013 and 2014 as a period for rebuilding its business foundation.

Conditions are gradually improving in the top-priority Chinese market, where Shiseido faced a difficult challenges, including purchasing restraint for its products sparked by the Senkaku Islands issue. However, there was a slight year-on-year sales decline due to adjustments in shipments aimed at optimizing store-level inventories. Thanks to foreign exchange factors, however, sales in yen terms increased.

In the Asian masstige market, the company reinforced Za and other masstige brands. It also sought to strengthen its Asia-wide masstige marketing activities by translating existing successes—notably amassed self-marketing know-how in Taiwan and sales promotional activities in Thailand—laterally across other Asian nations. The company achieved sales growth in this market as a result.

Shiseido did not enter new countries or regions among emerging nations in the year under review. In the previous fiscal year, however, it opened a representative office in India to establish a foundation for full-scale entry into that market, where the company has advanced its business via sales agencies since 2001. In the year under review, it also established a wholly owned subsidiary.

In the professional business, Shiseido has focused on tapping Asian markets since 2010. In the year under review, this business was driven by growth in South Korea and China. Together with sales in the Americas and Europe, which were mostly unchanged, overall overseas sales in the professional business increased year on year. In Japan, where the company’s priority focus was on the hair care and hair color domains, two products performed well: Adenovital Scalp Essence V, a new product in The Hair Care line; and Salon Solutions, a system-based product exclusively for salons.

During the year, Shiseido also began negotiations to sell the Decleor and Carita esthetic skin care brands, sold mainly in Europe, to L’Oréal S.A., a French cosmetics company. The companies subsequently reached an agreement and concluded the contract for sale in February 2014.

The global business segment posted operating income of ¥7.7 billion, up ¥10.9 billion from the previous year, when it posted an operating loss. This was due mainly to the marginal gain stemming from increased sales, as well as foreign exchange factors. In fiscal 2014, ending March 2015, the company expects revenue to be impacted by several factors. In Japan, for example, Shiseido predicts a recoil from the rush in demand at the end of fiscal 2013 ahead of the consumption tax hike. The sale of the Carita and Decleor brands to French cosmetics company L’Oréal will also have a downward effect on revenue. Nevertheless, the company looks forward to a year-on-year increase in net sales, driven by revenue growth in the Americas, China, emerging nations, and elsewhere, as well as foreign exchange factors. Despite the marginal gains stemming from higher revenue, however, the company expects both operating income and ordinary income to decline. This will stem mainly from an increase in marketing expenditures aimed at maximizing its growth potential and higher personnel expenses due to increased bonuses.

For the year, Shiseido forecasts consolidated net sales of ¥780 billion (up 2.4% year on year), operating income of ¥42 billion (down 15.4%), ordinary income of ¥42 billion (down 18.3%), and net income of ¥38 billion (up 45.3%).

Additional information on this financial report from Shiseido is available by clicking here.

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