TOKYO — Higher costs combined with flat sales to lower first-half profits at The Shiseido Group.

This story first appeared in the November 6, 2003 issue of WWD. Subscribe Today.

The firm said that net income for the six months ended Sept. 30 dropped 33.6 percent to $60.2 million. Dollar figures have been converted from the yen at current exchange as Shiseido tallied profits of 6.6 billion yen.

Net sales dropped 0.3 percent to $2.81 billion, or 309.3 billion yen, during the period, as revenues in Japan slipped 1 percent to $2.12 billion, or 232.7 billion yen, due to “weak personal consumption and the effects of a cool summer, as well as our inability to launch new, high-impact products on the market in the first quarter,” the firm said in a statement.

Overseas sales were affected by the war in Iraq and the SARS outbreak, growing only 1.4 percent in local currencies, and 1.9 percent in yen, to $703 million or 76.6 billion yen.

Overseas sales accounted for 24.8 percent of the total, versus 24.2 percent in the comparable period last year. Among other regions, the Americas generated 6.9 percent of revenue, Europe 10.5 percent and Asia/Oceania 7.4 percent.

Operating income declined 22.6 percent to $175.6 million, or 19.1 billion yen, due to sluggish revenues, increased pension costs and expenses associated with corporate restructuring. Reorganization losses mounted to $17.3 million, or 1.9 billion yen, and selling, general and administrative expenses rose 200 basis points to 60.7 percent of sales from 58.7 percent in last year’s first half. The company includes 98 subsidiaries and six affiliated companies.

Sales from cosmetics inched up 0.5 percent to $2.2 billion, or 78.1 percent of total revenues, while toiletries volume declined 2.8 percent to $314.5 million, or 11.1 percent of sales. Other categories accounted for $306.7 million, down 3.3 percent.

Domestic sales of cosmetics were off slightly, declining 0.7 percent to $1.6 billion because of “sluggish consumption of high-end products in department stores and the effects of a cool summer,” said Shiseido, noting a contrasting high level of growth for “dedicated specialty store lines.”

Outside of Japan, cosmetics sales grew 3.8 percent to $607.3 million, or 66.2 billion yen, and were up 1.8 percent in local currencies. “Sluggish economic conditions in Europe and the psychological effects of the war in Iraq” were cited as factors working to the detriment of overseas business.

Operating income from cosmetics operations declined 18.6 percent to $216 million, or 23.5 billion yen, as sluggish revenues failed to compensate for increases in domestic pension-related costs and office reorganization costs. Under similar pressures, income from toiletries fell 64.2 percent to $5.3 million, or 581 million yen.

Shiseido said that “there were clear signs of a turnaround in domestic sales” during the latter part of the first half. “In light of this, in the remainder of fiscal 2004 we will reinforce advertising and promotional activities, centering on the cosmetics business, while stepping up and accelerating the introduction of new products,” the group added.

Although it expects “continued stagnation in the U.S. and Europe,” the firm said it believes the worst is over in those regions. “We expect markets to recover from the aftermath of the war in Iraq and the SARS problem, and we will actively implement marketing strategies put on hold due to such issues. We look forward to recovery in growth, especially in Asia, as a result,” said Shiseido.

For the full year ending March 31, 2004, Shiseido projects a 6 percent decline in net income, to about $211 million, and a 12 percent decline in operating income to $394.5 million. Sales are expected to increase 2 percent to $5.8 billion, including a 1 percent increase in Japan to $4.3 billion and a 5 percent increase in other markets to $1.5 billion.

OSHA Recruit

L’Oréal USA has pledged to bring its nine U.S. manufacturing plants into the Department of Labor’s Occupational Safety & Health Administration’s worker safety and health program over the next five years. Four of L’Oréal’s U.S. plants have already achieved “star status” in OSHA’s Voluntary Protection Program and the company has reduced lost time because of workplace injuries by 44 percent over the last three years, according to Labor. OSHA launched the voluntary program, which sets performance-based criteria for a managed safety and health system, in 1982. OSHA’s verification includes an application review and a rigorous on-site evaluation by a team of officials. Companies undergo periodic on-site reevaluations to remain in the programs.

Lauder Hikes Dividend

NEW YORK — The Estée Lauder Cos. has boosted the dividend on its class A and class B common stock by 50 percent.

A dividend of 30 cents a share will be paid on Jan. 6, 2004, to shareholders of record Dec. 16. Lauder pays dividends on an annual basis and had previously paid at a rate of 20 cents a share.

“It has been a great eight years,” Leonard Lauder, chairman, said at the annual shareholders meeting at the Essex House here Wednesday, in announcing the dividend increase. “We hope you will continue to be shareholders of EL not for another eight years, but another 80 years.” The meeting was the seventh EL annual meeting since its initial public offering in November 1995.

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