Shiseido's stock price plunges by 16%! Chinese market drags down performance | Financial Report Insights
Due to weak demand in China and production issues in the United States, Shiseido incurred a loss in the first half of the year, with an operating loss of 2.728 billion yen (18.4 million U.S. dollars) from January to June, compared to a profit of 13.6 billion yen in the same period last year. The aftermath of the nuclear wastewater incident continues to linger as Chinese consumers reduce their purchases of Japanese products
Beauty giant Shiseido suffered a significant decline in performance in the Chinese market, leading to a sharp drop in stock price.
The company's financial report on the 7th revealed an operating loss of 2.728 billion yen (18.4 million USD) from January to June, compared to a profit of 13.6 billion yen in the same period last year.
On Thursday, Shiseido plummeted by 16% in early trading, marking the largest decline since 1987 and prompting a trading halt. The company's current market value is 1.52 trillion yen.
Shiseido's CFO Ayako Hirofuji stated that persistent concerns over the discharge of contaminated water from the Fukushima nuclear power plant have deterred Chinese consumers from purchasing Japanese products. The water discharge incident in late 2023 led to a boycott by Chinese consumers, forcing Shiseido to revise its profit forecast.
Shiseido's Performance Report for the First Half of 2024
On August 7th, Shiseido Group released the performance report for the first half of 2024.
1) Key Financial Data
Revenue: Shiseido Group's sales in the first half of 2024 amounted to 508.536 billion yen (approximately 24.908 billion RMB), a 2.9% year-on-year increase.
Profit: In the first half of 2024, the core operating profit was 19.372 billion yen (approximately 9.48 billion RMB), a 31.3% year-on-year decrease; operating profit incurred a loss of 2.728 billion yen (approximately 1.33 billion RMB).
Specifically, the sales in Q2 of 2024 were 259.1 billion yen (approximately 12.688 billion RMB), with a core profit of 7.9 billion yen (approximately 3.87 billion RMB), showing a decline compared to the same period last year.
2) Key Business Performance
Due to weak tourism retail and markets in China and the Americas, some major brands under Shiseido Group experienced stagnant or negative growth. Sales of SHISEIDO, NARS, IPSA, among others, declined by 6%, 7%, and 23% respectively; Drunk Elephant saw an 11% year-on-year growth, while ELIXIR grew by 5%.
Chinese Market: Sales in the first half of 2024 in China amounted to 131.671 billion yen (approximately 64.49 billion RMB), a slight 0.8% increase year-on-year; core operating profit in China was 4.9 billion yen (approximately 2.4 billion RMB), a 10% decrease year-on-year. Mainland China store sales dropped by 10% to 15%.
The aftermath of the nuclear water pollution incident continues to impact consumer purchases of Japanese products in China
Chinese Market Sales Slump, Lingering "Negative Impression"
China has always been Shiseido's most important market outside of Japan, but now it has become a drag on its performance. The aftermath of reduced consumer purchases of Japanese products after the nuclear wastewater incident continues to linger. Due to weak consumer demand, coupled with sluggish travel retail, the company's overall profit declined in the first half of the year, and the company also incurred restructuring costs of 22 billion yen.
Analyst Shima Yamanaka from SMBC Nikko Securities Inc. wrote in a report that the operating profit loss left a "negative impression," and Shiseido needs to revise its growth strategy.
Shiseido announced on the 7th that it will unveil a new business strategy at the end of November this year, including fundamental measures. President Kenji Fujihara stated in a media interview that in order to achieve sustainable growth, "we will adjust the positioning of duty-free sales at airports and tourism retail business and the China business. We hope to further grow the European and American business in the future."
Younger than 40 Seen as Key to Future Sales Growth
Shiseido is undergoing a painful transformation. In order to achieve sustainable growth and improve profitability, the company is on one hand downsizing and offering early retirement to 1,500 employees to reduce costs, and on the other hand actively exploring growth opportunities in new businesses.
Shiseido sees those under 40 as key to future sales growth. After selling off non-core businesses, the company is investing heavily in high-end cosmetics brands, especially in the popularization strategy of CPB, putting in a lot of effort.
The latest essence product, The Serum2, is the "low threshold" version of CPB products, with prices starting at 19,800 yen (about 915 yuan), which is a low-priced product in the brand that gathers products priced over 100,000 yen.
Mizuho Securities' chief analyst Mitsuko Miyasako pointed out: "(After the structural reform of selling daily necessities, etc.), attracting young consumers through CPB is crucial and key to future growth."
Shiseido's CFO Ayako Kudo stated on the 7th, "The entire market is caught in price competition." However, by lowering product prices to attract young consumers, expanding market share may also bring the risk of damaging the brand image.
Shiseido's experience in the Chinese market during the pandemic serves as a negative example. In response to the challenges of the pandemic, Shiseido offered discounts on cosmetics at that time, but the result was counterproductive, leading to a decrease in brand influence and customer loss.
Shiseido is facing a difficult balance. On one hand, it needs to regain market share in China, and on the other hand, it needs to find a balance between "popular" and "high-end." For this cosmetics giant, the road ahead may not be easy
