TOKYO—Shiseido said Thursday that full-year net profit grew 9 percent, due largely to extraordinary gains. The Japanese beauty giant booked gains off the sale of intellectual property rights in connection with the Jean Paul Gaultier fragrance business and the sale of land at the site of a former factory.
For the 12 months ended Dec. 31, Japan’s largest cosmetics company recorded net income of 32.1 billion yen, or $296.0 million at average exchange rates for the period.
The company’s operating income fell by 17 percent to 36.8 billion yen, or $339.1 million. Shiseido said the downturn was mainly due to “one-time costs incurred following the acquisition of new brands and execution of license agreements, structural reform costs associated with Bare Escentuals, Inc. in the U.S. and the greater than expected impact of the strong yen.” In July of last year, the company acquired the prestige brands Laura Mercier and RéVive.
Shiseido saw its full-year net sales decline by 1.5 percent to 850.3 billion yen, or $7.84 billion. Like operating profit, sales were negatively impacted by the strong yen. On a local currency basis, net sales would have grown by 5.2 percent, the company said.
From 2015 Shiseido changed its fiscal year to end Dec. 31 rather than Mar. 31, so percentage changes are based on adjusted figures for the same January-to-December period.
As a part of its mid-to-long-term strategy of transforming from a leading Japanese cosmetics manufacturer to a leading global player, the company is shifting to a more consumer-oriented focus and has undertaken the concept of “think global, act local.”
“Under this matrix, the company has delegated broad authority and responsibilities to each region, and is strengthening its ability to respond to consumers’ needs that differ from market to market. To enhance brand value as the core of our strategies, we bolstered marketing as well as innovation,” Shiseido said. “We also implemented measures to utilize diverse human resources and to help employees lift their skills, while building and strengthening our global organization. Moreover, we ramped up investments in the global prestige category as a part of efforts to further accelerate the pace of growth going forward.”
In local currency terms, Shiseido’s sales increased in all but one of the geographic areas in which it conducts business. The area that suffered the most was Europe and the Middle East, where sales fell 8.1 percent in local currency terms and 18.2 percent in adjusted terms, for a total of 85.22 billion yen, or $759.7 million. Much of this decline was related to the sale of the Jean Paul Gaultier fragrance business.
Shiseido’s travel retail business saw the biggest growth, at 60.4 percent in local currency terms, or 44.2 percent after currency translation. Those sales totaled 24.79 billion yen, or $228.6 million. The company also fared well in China, where sales grew 11.4 percent in local currency terms, but dropped 4.2 percent to 120.48 billion yen, or $1.11 billion, when converted to yen.
“Thanks largely to contributions from such prestige brands as Shiseido, Clé de Peau Beauté and IPSA, successful efforts were made to overcome the competition in the department store channel and achieve especially high rates of growth,” Shiseido said of its China business. “The rate of e-commerce sales growth also outpaced the market mainly due to the positive steps taken to capture increasing demand as the market expands through such measures as marketing collaboration with a major local online site operator.”
For the fiscal year ending Dec. 31., Shiseido warned that its profit will drop on extraordinary items related to tax rates but operating profit and sales will grow at a double-digit pace.
The company said it expects net profit to contract by 19 percent to 26 billion yen, or $231.8 million at current exchange rates. A spokesman for the company said this projected decline is mainly due to a higher tax rate for the current fiscal year than for the previous one.
The company is predicting operating profit will gain 23.7 percent to 45.5 billion yen, or $405.6 million.
It forecasts yearly sales growth of 10.5 percent, for a total of 940 billion yen, or $8.38 billion. Shiseido is expecting higher sales in nearly all of its business sectors, including 31 percent growth in travel retail, 31.9 percent growth in Europe and the Middle East, 19.3 percent growth in the Americas, and 11.8 percent growth in China.
“The company will strive for high growth by adopting a selection and concentration approach toward the prestige, made in Japan brand, digital/e-commerce, and other categories that can be expected to expand in the future. In addition to strictly managing returns by brand with the aim of improving profitability, Shiseido will undertake a variety of measures including efforts to turn around underperforming brands and to conduct a bold review of businesses and the brand portfolio,” the company said.