Saturday, 28 Nov 2020

Shiseido Posts Nine-Month Net Loss Due to Covid-19, Lowers Guidance

TOKYO—Shiseido, hit by the global pandemic, posted a net loss for the first nine months of its fiscal year, as well as double-digit declines in sales and operating profit, the company said Tuesday. However, the company’s third quarter results were significantly stronger than those of the second quarter, signaling a possible turnaround in the future.

Japan’s largest cosmetics company posted a net loss of 13.67 billion yen, or $130.95 million, for the nine months ended Sept. 30. This was in contrast to a net profit of 72.46 billion yen in the same period a year earlier. Shiseido said it was due to lower sales, as well as extraordinary losses related to COVID-19, such as compensation of employees on leave and maintenance costs for stores and production facilities.

The company’s operating profit for the period plummeted by 91.4 percent to 8.9 billion yen, which it said was despite efforts to reduce costs in response to the rapid deterioration and market conditions.

“The key factors were a drop in margins resulting from weaker sales, deterioration in productivity of factories due to decreased production volume, and revision in inventory provision in line with enhanced management of inventory optimization,” Shiseido said. “On a quarterly basis, the third quarter generated 12.3 billion yen in operating profit, a significant recovery compared to the 9.9 billion yen operating loss in the second quarter.”

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Shiseido said its nine-month net sales dropped by 22.8 percent on the year, totaling 653.68 billion yen.

The company said global economic conditions remained challenging throughout the period, with economic activity stagnated due to the pandemic, and low consumer sentiment due to worsening corporate earnings and employment.

Nine-month net sales in all of Shiseido’s business segments fell year on year, most by double-digit percentages. The segment that performed best was China, where sales decreased by just 2.2 percent, totaling 155.03 billion yen. Without the effects of currency translation, sales in the segment grew by 0.6 percent. The company attributed this to a slowing in new coronavirus infections there from late March, leading to relaxed restrictions and the start of market recovery from April.

“Nearly all retail stores have resumed operations, marking the fastest recovery among all regions, particularly in mainland China,” Shiseido said. “Consequently, sales growth, driven mainly by prestige brands, outpaced the pre-COVID-19 level of the previous year, with online prestige sales growing over 40 percent in the third quarter.”

In the company’s home market of Japan, sales for the nine months fell by 32.3 percent to 226.82 billion yen. Consumer traffic decreased because of store closures during the state of emergency, as well as reduced operating hours following the lifting of government restrictions. Sales also suffered from a sharp drop in sales to foreign tourists to Japan, and the comparative base for September was higher than usual because of rush buying prior to a consumption tax hike last October. All of these factors led to the decline in overall sales, despite double-digit growth in e-commerce sales.

Sales from Shiseido’s Americas business fell by 28.8 percent to 65.85 billion yen, due mainly to lockdowns and stay-at-home orders put into place in order to curb the spread of COVID-19, as well as an increase in retailers filing for Chapter 11. One bright spot came from Drunk Elephant, which Shiseido acquired last year. The brand posted “solid results,” as its e-commerce sales grew by more than 70 percent, despite a drop in offline sales.

Within the EMEA business, which includes Europe and the Middle East, Shiseido’s nine-month sales were down 20.9 percent on the year, coming in at 60.24 billion yen. Performance was effected by measures such as nighttime curfews, but the cosmetics market overall saw significant growth in online sales.

“Our e-commerce business outpaced the market, with Shiseido skin care performing particularly well,” the company said of the EMEA business. “Overall, however, performance was strongly affected by the COVID-19 outbreak.”

At a live-streamed briefing Tuesday, Shiseido’s representative director, president and chief executive officer Masahiko Uotani addressed how the pandemic has led to changes in the company’s working style. He said that while most employees continue to work at home part of the time, there are certain tasks that require going into the office or interacting with other people in person.

“Personally, I think that a half-half style of working might be best for everyone,” Uotani said.

Asked how the election of Joe Biden as president of the United States might affect Shiseido and its business, Uotani responded with two points.

“First, the United States has a huge influence on the global economy and global politics, so in many ways a more open United States with definitive leadership will lead to a more stable global economy and global politics, which I think is a very good thing,” he said. “The second point has to do with the U.S. market. We operate globally, but unfortunately until now we haven’t been able to reach high earnings in the U.S. market. But while our business is growing in places such as China, we believe that we can’t be a global cosmetics company without breaking into the U.S. market. American consumers are very open to new innovations and products and value things of high quality, so we think if the U.S. economy continues to grow and strengthen, that is a very good thing for us.”

Considering the delay in market recovery, which Shiseido expects to continue to some extent into the fourth quarter, the company also updated its guidance for the fiscal year ending Dec. 31, lowering its forecasts for both profit and sales. The group now expects to post a net loss of 30 billion yen, down from a previous forecast of a 22 billion yen loss.

Shiseido is now predicting an operating loss of 10 billion yen, having previously said it would break even on operating profit.

The company forecasts a 19.1 percent decline in net sales, for a total of 915 billion yen. Its earlier guidance predicted a 15.8 percent drop in sales, totaling 953 billion yen.

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