Shiseido Company,Limited FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥693.82B
• Operating Income: ¥-33.35B
• Net Income: ¥1.43B
• EPS: ¥-110.10

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Weak quarter with an operating loss and deep net loss despite positive operating cash flow; margins compressed and ROIC turned negative. Revenue was 6,938.17 (−4.0% YoY), while operating income fell to −333.50 (−91.5% YoY) and net income to −439.83 (−96.3% YoY). Gross profit was 5,541.89 and SG&A was 5,549.06, implying that operating loss was driven by SG&A exceeding gross profit. Operating margin is approximately −4.8% (−333.50/6,938.17), while EBITDA remained positive at 233.52 (margin 3.4%). Gross margin is reported at a very high 79.9%, but the cost structure and GP vs revenue line items show inconsistencies; nonetheless, the message is that mix/price held up better than opex control. DuPont ROE was −7.5%, decomposed into net margin −6.3%, asset turnover 0.574, and financial leverage 2.07x. Cash flow from operations was +429.90, notably better than net income (−439.83), but OCF/NI is −0.98, triggering a quality flag given the loss base. Free cash flow was −286.66 using OCF + investing CF, and capex was a modest −170.12, indicating investing outflows beyond capex (e.g., intangibles or investments). The effective tax rate appears distorted (−17.6%) due to a tax expense recorded against a pre-tax loss (−325.18), likely reflecting non-recurring or jurisdictional effects. Equity stood at 5,854.07 with an equity ratio of 46.8% and D/E at 1.07x, suggesting moderate leverage but limited cushion for prolonged losses. Intangibles were sizable at 1,741.51 (plus goodwill 552.25), raising impairment sensitivity if earnings pressure persists. Dividend cash outflows were −237.59 while FCF was negative, implying dividends were not covered by free cash in the period. Equity-method income was small at 19.86 and had limited impact on overall results. Forward-looking, the company must normalize SG&A intensity and restore operating leverage to return to positive ROE/ROIC. Recovery hinges on demand stabilization (notably China and travel retail), pricing/mix resilience, and disciplined opex and working-capital management. Near term, watch for sequential margin repair, tighter SG&A, and stabilization of investing outflows to bring FCF to breakeven or better. Overall, the quarter signals execution and demand headwinds, with balance sheet adequate but not immune if losses persist.

Profitability Analysis

ROE decomposition: ROE (−7.5%) = Net Profit Margin (−6.3%) × Asset Turnover (0.574) × Financial Leverage (2.07x). The largest negative driver is net profit margin, which swung deep into loss territory, overwhelming modest asset turnover and leverage. Business reason: SG&A (5,549.06) marginally exceeded gross profit (5,541.89), reflecting elevated marketing/selling costs and fixed cost burden against softer sales (−4.0% YoY), pushing operating income negative. EBITDA stayed positive, indicating non-cash D&A (567.02) and some underlying gross profitability, but not enough to cover SG&A. The margin compression versus last year is substantial: operating margin appears to have moved from a small positive to roughly −4.8% (an estimated contraction of 500–700 bps; exact bps not disclosed), primarily from opex deleverage rather than gross margin collapse. Sustainability: the elevated SG&A-to-sales ratio looks cyclical/partly controllable (marketing, launches, China/travel retail normalization) rather than structural; however, if demand remains weak, deleverage could persist. Concerning trends include operating costs growing as a share of sales (SG&A outpacing revenue) and negative ROIC (−5.7%), both indicating poor capital efficiency in the period.

Growth Assessment

Top line contracted 4.0% YoY to 6,938.17, consistent with demand softness and/or channel normalization. Profit growth deteriorated sharply: operating income −333.50 (−91.5% YoY) and net loss −439.83 (−96.3% YoY). Revenue quality appears mixed: reported gross margin is high (79.9%), suggesting mix/price support, but cost deleverage erased operating profitability. Equity-method income (19.86) was not a major growth driver. Outlook hinges on restoring operating leverage: tighter SG&A control, calibrated A&P, and supply chain efficiencies. With EBITDA positive (233.52), a return to operating profit is plausible on modest sales recovery or cost normalization, but timing is uncertain. Near-term catalysts include potential demand stabilization in China/travel retail, FX tailwinds from a weaker yen (benefits exports but may pressure input costs), and product launch cycles. Headwinds include macro softness, competitive promotions, and potential impairment risks if profits do not recover. Overall, revenue sustainability is challenged near term; profit quality improvement depends on SG&A discipline and steady gross margin.

Financial Health

Liquidity: Current ratio not disclosed; current assets were 4,398.94, but current liabilities were unreported, preventing precise liquidity assessment. No explicit warning trigger for Current Ratio <1.0 can be made based on available data. Solvency: Equity ratio 46.8% and D/E 1.07x indicate moderate leverage; no D/E >2.0 warning. Maturity mismatch: Short-term debt and full current liabilities unreported; we cannot assess near-term refinancing risk, though accounts payable were 1,184.21 vs inventories 1,499.15 and receivables 1,481.03, suggesting working capital assets broadly cover payables. Off-balance sheet: No disclosures provided; contingent obligations, leases, and guarantees (if any) are not visible here. Asset quality: Intangibles 1,741.51 and goodwill 552.25 (total 2,293.76) comprise a meaningful share of equity (≈39%), exposing the balance sheet to impairment risk if earnings remain weak.

Cash Flow Quality

OCF was +429.90 versus net income −439.83, yielding OCF/NI −0.98 (<0.8 flag triggered due to negative NI base). Positive OCF despite losses likely reflects non-cash D&A (567.02) and working capital release; clarity on working capital components is not disclosed. Free cash flow defined as OCF + investing CF was −286.66, indicating net cash outflows from investments beyond capex (investing CF −716.56 vs capex −170.12), likely intangibles, M&A, or other investments. FCF did not cover dividends (−237.59) in the period, and total shareholder returns (dividends + buybacks −10.47) exceeded FCF capacity. Sustainability: With EBITDA positive, OCF can remain resilient if working capital is neutral and capex remains controlled; however, continued non-capex investing outflows would keep FCF negative. No clear signs of working capital manipulation can be inferred, but data granularity is limited.

Dividend Sustainability

Payout ratio is mechanically negative (−36.4%) due to net loss and is not meaningful. Cash coverage: Dividends paid (−237.59) versus FCF (−286.66) implies −1.79x coverage (not covered). On an OCF basis, dividends are covered (429.90 > 237.59), but after investing outflows, coverage fails; sustainability hinges on reducing investing cash out or improving operating profitability. Policy outlook: Given negative ROIC (−5.7%) and operating losses, management flexibility may be constrained; maintaining dividends may depend on balance sheet strength (equity ratio 46.8%) and anticipated earnings recovery. Near-term prudence would require either stronger OCF/FCF or lower non-core investments to protect distributions.

Risk Assessment

Business Risks:

• Demand softness in key markets leading to operating deleverage (revenue −4.0% YoY, operating loss).
• China and travel retail normalization risk impacting high-margin channels.
• Marketing and promotion intensity driving SG&A above gross profit.
• Brand and product cycle risks amid strong competition in prestige and mass channels.
• Potential impairment risk given high intangibles (1,741.51) and goodwill (552.25).

Financial Risks:

• Negative ROIC (−5.7%) and ROE (−7.5%) indicating poor capital efficiency.
• Dividend not covered by FCF (−1.79x), pressuring capital allocation.
• Tax volatility (apparent expense against loss; effective tax rate −17.6%).
• Liquidity assessment limited due to unreported current liabilities; maturity mismatch unknown.
• FX exposure (yen volatility) affecting both revenue translation and input costs.

Key Concerns:

• SG&A exceeding gross profit, producing operating losses despite positive EBITDA.
• Sustained investing cash outflows beyond capex (investing CF −716.56 vs capex −170.12).
• Earnings quality flag (OCF/NI −0.98) under a loss scenario.
• Potential for further margin pressure if promotional spending remains elevated.
• Data limitations on debt structure and interest expense preventing coverage analysis.

Investment Implications

Key Takeaways:

• Core issue is operating deleverage: SG&A intensity too high for current sales level.
• EBITDA positive, suggesting pathway to operating profit if opex is disciplined or revenue stabilizes.
• FCF negative due to sizable investing outflows; dividends not covered by FCF.
• Balance sheet moderate (equity ratio 46.8%, D/E 1.07x) but cannot absorb prolonged losses indefinitely.
• ROE (−7.5%) and ROIC (−5.7%) require swift margin recovery to meet cost of capital.

Metrics to Watch:

• Sequential operating margin and SG&A-to-sales ratio.
• OCF and FCF trajectory; split of investing CF (capex vs intangibles/M&A).
• China/travel retail sell-out trends and inventory levels.
• Intangible/goodwill impairment indicators and segment profitability.
• FX sensitivity and pricing/mix holding gross margin.

Relative Positioning: Within Japanese cosmetics peers, current-period profitability and ROIC underperform, with higher sensitivity to SG&A discipline and channel recovery; balance sheet is acceptable but capital efficiency and cash coverage lag peer leaders.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis