TOKYO — “Shiseido’s wake-up call has finally come,” the company’s president and chief executive officer Shinzo Maeda laughed during recent comments to analysts about Shiseido’s strong first quarter.
After succeeding Morio Ikeda — who accelerated a restructuring plan for the Japanese beauty giant, then became chairman of Shiseido in June — as president, Maeda’s administration has shown speedy and energetic action.
For the three-month period ended June 30, the Japanese cosmetics group announced net profits of 982 million yen, or $9 million, against net losses of 6.6 billion yen, or $60.4 million, for the same period a year ago. Sales increased 9.3 percent compared with a year ago.
For the fiscal year ended March 31, the group had net losses of 8.9 billion yen, or $8.4 million. Figures are on a consolidated basis and are converted at average exchange rates.
At meetings during a recent trip to Europe, Canada and the U.S., Maeda earned positive reactions from analysts for the first quarter results. “We examined the unprofitable parts of our business and rebalanced our management resources for better profitability,” said Maeda.
Shiseido appointed Maeda in February and initiated a three-year plan aimed at maximizing growth potential and improving profitability. “This plan focuses on addressing three strategies with firm execution and speed: reforming domestic marketing activities, accelerating expansion of the Chinese business and fundamental restructuring,” said Maeda.
For the fiscal year ending next March 31, Shiseido is projecting net income of 13.5 billion yen, or $123 million at current exchange, and net sales of 660 billion yen, or $6 billion.
Under the three-year plan, Shiseido projects consolidated sales of 740 billion yen, or $6.7 billion, with an operating-profits-to-sales ratio of 8 percent for fiscal 2007. “In fiscal 2004, that ratio was 4 percent,” said Maeda. “For the 2005 fiscal year, we are aiming at a ratio of 5 percent, then 6.4 percent for the following year. We want a constant increase.”
For the first quarter, sales increased to 157.5 billion yen, or $1.49 billion at average exchange, while income from operations was 10.6 billion yen, or $97 million, compared with operating losses of 778 million yen, or $7.3 million, a year ago. This rise reflected a gross profit increase from sales growth, in addition to a decrease in domestic personnel expenses. Sales from cosmetics made up 79.3 percent of total sales, an increase of 7.1 percent from a year ago.
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For the same period, “sales in [Shiseido’s] mainstay domestic cosmetics business were in good demand, while overseas sales, centering on China, expanded greatly,” Maeda noted.
Domestic sales rose 7.4 percent to 116.9 billion yen, or $1.07 billion, and sales in the Americas were up 3.9 percent to 12.1 billion yen, or $110.7 million. Sales in Europe rose 5.8 percent to 21.8 billion yen, or $200 million, and sales from the Asia-Oceania region jumped 26.4 percent to 14 billion yen, or $128.1 million. The portion of consolidated net sales that was generated by sales overseas was 28.8 percent.
For fiscal 2004, sales overseas accounted for 27.8 percent of total sales, and that portion is expected to increase to 31.3 percent for fiscal 2007. “In the future,” said Maeda, “Shiseido will [further] expand its business globally and will generate 40 percent of total sales overseas.
“Markets in the Americas and Europe are very important for Shiseido to improve its prestige presence in the beauty field,” he continued. “In the U.S., we did structural reform and reduced inventory.”
For the Chinese market, Shiseido will invest an additional 4 billion yen, or $36 million at current exchange, compared with a year ago, although Maeda declined to comment on the total investment value.
In China, Shiseido has a history of more than 20 years of doing business. In 1992, Shiseido established an affiliate there and, in 1994, the firm started a prestige brand, called Aupres, that is produced and sold in China. Now, “the brand is sold at almost all department stores in China and, at 80 percent of those department stores, Aupres is ranked as the best-selling brand,” said Maeda.
Also in fiscal 2004, Shiseido established retail operations at selected specialty stores in China. “We planned to have 200 stores last year but eventually we had 301 stores by the end of the year. For fiscal 2005, we will have accumulated 1,000 stores. Our temporary goal is 5,000 stores by 2008,” Maeda said.
For fiscal 2007, Shiseido’s wholesale sales in China are projected to be 50 billion yen, or $455 million, a quarter of overseas sales.
In the domestic market, Shiseido recently introduced a new makeup brand, called Maquillage, and this summer revamped the men’s brand Uno. Maquillage is expected to generate retail sales of 50 billion yen, or $455 million, while Uno is projected to make another 15 billion yen, or $136 million, for the first year.
“That will be the first chapter of our strategy,” Maeda said of the product introductions. “We will announce more news on new products within this fiscal year.” As it adds new brands, Shiseido plans to retrench other brands “in order to concentrate investment on more powerful brands to build up the top brand in each category such as skin care, makeup, and men’s,” said Maeda.
He has a positive view of mergers and acquisitions if they bolster “the value of the company when we find a good company at a good time,” he added.
This fall, Maeda is planning to visit Asian countries and regions including Malaysia, Singapore, Thailand, Taiwan, China and Korea. “Explaining my own business vision with my own words to the employees is my mission,” he said.