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Weak Demand in Japan Weighs on Shiseido’s Earnings

The company's brands include Nars, Drunk Elephant, as well as its namesake Shiseido.

Shiseido’s sales and profit fell in the first half of the fiscal year on the back of weak domestic demand.

The company, whose brands include Nars and Drunk Elephant, as well as its namesake Shiseido label, saw net sales decrease 0.4 percent year-on-year to 493.4 billion yen, or $3.72 billion, in the first six months of the fiscal year ended June 30. At the same time, core operating profit dropped 23.9 percent year-on-year to 17.5 billion yen, or $132.1 million.

While the cosmetics company enjoyed strong growth in net sales in its travel retail business, the Americas, EMEA, and Asia Pacific and a stellar performance from brands Clé de Peau Beauté and Nars, weak demand in its domestic market and COVID-19 lockdowns in China weighed on the overall numbers.

“In Japan’s domestic cosmetics market, although a gradual recovery was seen thanks to the relaxation of activity restrictions, the market environment remained challenging due to delays in the recovery of consumer appetite for cosmetics consumption and increased frugality influenced by the extensive price hikes,” the company said.

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“In terms of overseas cosmetics market, in China, the market environment was sluggish due to the restrictions in retail operations and supply chain disruptions caused by lockdowns primarily in Shanghai,” it added. “Meanwhile, in Europe and the United States, consumption continued to recover steadily as economic activities resumed, and the cosmetics market also showed strong growth across all categories.”

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As a result, Shiseido revised the forecasts for the full year for net sales to 1.07 trillion, down 5 billion yen from the previous forecast, and core operating profit to 40 billion yen, down 22 billion yen.

The earnings report came as the Shiseido Beauty Innovations Fund has unveiled its first investment — into a Chinese maker of recombinant collagen-based biomaterials. The China-focused fund, with Shiseido as its lead investor, is pouring close to 100 million renminbi, or $14.5 million, into Jiangsu Trautec Medical Technology Co. Ltd., a company that produces materials primarily for use in the medical and cosmetics industries.