Shiseido Company,Limited FY2026 Q2 Earnings Report

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Executive Summary

For the cumulative Q2 period of FY2026, Shiseido posted a substantial increase in earnings, driven by revenue growth, the maintenance of its gross margin, and operating leverage resulting from restrained SG&A growth. Revenue was ¥498.96B (¥469.83B in the same period of the previous year, YoY +6.2%), Operating Income was ¥41.92B (¥18.08B, YoY +131.8%), and Profit Before Tax was ¥44.20B (¥19.20B, YoY +130.2%). Consolidated Net Income was ¥29.01B (¥9.08B, YoY +219.5%), while Net Income attributable to owners of the parent was ¥29.69B (¥9.53B, YoY +211.4%), resulting in EPS of ¥74.32 (¥23.87 in the previous year). The primary drivers of earnings growth were double-digit revenue growth in China & Travel Retail and EMEA & APAC, together with improved cost efficiency as the SG&A growth rate (+approximately 2.5%) remained below the revenue growth rate (+6.2%).

Factors Driving Performance Changes

【Revenue】Revenue increased 6.2% year on year to ¥498.96B. By region, China & Travel Retail was the largest and primary growth driver at ¥191.41B (38.4% of total, YoY +10.0%), followed by EMEA at ¥66.86B (13.4%, YoY +12.4%) and Asia Pacific at ¥37.06B (7.4%, YoY +10.1%). Americas remained solid at ¥54.57B (10.9%, YoY +6.0%), while Japan was essentially flat at ¥144.70B (29.0%, YoY -0.8%), confirming the relative softness of domestic demand. Geographic diversification was effective, with overseas business growth leading the increase in consolidated revenue.

【Profit and Loss】Gross profit was maintained at approximately the same level at ¥392.89B (gross margin 78.7%, compared with 77.3% in the previous year), while SG&A expenses were ¥356.29B (SG&A ratio 71.4%, compared with 74.0% in the previous year), with their growth rate below that of revenue. Consequently, the Operating Margin improved by +4.5pt to 8.4% (3.9% in the previous year). Financial income of ¥5.04B exceeded financial expenses of ¥3.04B, contributing to an increase in Profit Before Tax. The effective tax rate declined to 34.4% (52.7% in the previous year), and the lower tax burden also supported Net Income growth. The only material one-time item was an impairment loss of ¥0.15B, which was immaterial in scale. In conclusion, the company delivered higher revenue and higher earnings, with revenue growth combined with margin improvement resulting from cost discipline.

Segment Analysis

Regional segment disclosure is limited to revenue, with no Operating Income or loss data provided. The revenue mix was China & Travel Retail 38.4%, Japan 29.0%, EMEA 13.4%, Americas 10.9%, Asia Pacific 7.4%, and Other 0.9%. In terms of growth rates, EMEA (+12.4%) and Asia Pacific (+10.1%) exceeded the overall average (+6.2%) and led the growth rate, while China & Travel Retail (+10.0%), the largest segment, also maintained strong growth, achieving both scale and growth. Japan was the only region to decline year on year (-0.8%), with overseas business growth offsetting domestic softness.

Key Financial Metrics

【Profitability】The Operating Margin improved by +4.5pt to 8.4% from 3.9% in the previous year, while the consolidated Net Profit Margin expanded to 5.8% from 1.9%. The primary factor behind the margin improvement was the decline in the SG&A ratio to 71.4% from 74.0%, while the gross margin remained broadly flat at 78.7% (77.3% in the previous year). 【Cash Flow Quality】Operating Cash Flow (OCF) of ¥31.64B was 1.07 times Net Income attributable to owners of the parent of ¥29.69B, providing cash support for reported earnings. 【Investment Efficiency】ROE was 4.4%, while total assets were ¥1,273.86B and asset turnover remained broadly unchanged from the previous year, indicating room for improvement in capital efficiency. 【Financial Soundness】The Equity Ratio rose +2.6pt to 50.0% from 47.4% in the previous year, and net assets accumulated to ¥653.95B (¥621.27B in the previous year).

Cash Flow Analysis

Operating Cash Flow was ¥31.64B, down 16.5% year on year, but remained at 1.07 times Net Income attributable to owners of the parent of ¥29.69B, maintaining cash support for earnings. OCF before changes in working capital totaled ¥38.04B. The decrease in trade receivables contributed positively (+¥9.61B), while the decrease in trade payables was the largest negative factor (-¥24.32B). Investing Cash Flow was -¥9.12B, consisting primarily of capital expenditures of ¥11.73B, partially offset by movements in time deposits and other items. Financing Cash Flow was -¥12.20B, with dividend payments of ¥8.03B representing the primary outflow, while share repurchases were negligible (-¥0.003B). Free Cash Flow was ¥22.52B, exceeding the combined amount of capital expenditures and dividend payments, and cash and cash equivalents increased to ¥105.67B (¥91.84B in the previous year).

Earnings Quality

Earnings were primarily generated by recurring operating activities, with limited influence from one-time factors. Other operating income of ¥5.32B, net of other operating expenses of ¥0.004B, contributed approximately ¥5.32B to Operating Income. However, the impairment loss was only ¥0.15B, and there was no notable boost from extraordinary gains or losses. In non-operating items, financial income of ¥5.04B exceeded financial expenses of ¥3.04B, contributing to an increase in Profit Before Tax. Total comprehensive income was ¥43.33B (of which ¥43.37B was attributable to owners of the parent). The approximately ¥13.68B difference from Net Income attributable to owners of the parent of ¥29.69B was primarily attributable to the foreign currency translation adjustment included in Other Comprehensive Income, which contributed a positive ¥14.59B in the current period. Foreign currency translation in the direction of a weaker yen resulted in comprehensive income exceeding Net Income. OCF remained above Net Income, and earnings quality can therefore be assessed as generally sound from an accrual perspective as well.

Earnings Forecast and Guidance

Progress toward the full-year earnings forecasts (Revenue ¥990.0B, Operating Income ¥59.00B, EPS ¥105.12, and dividends of ¥60) was 50.4% for Revenue, 71.1% for Operating Income, and 70.7% based on Net Income attributable to owners of the parent (¥29.69B against forecast Net Income of ¥42.0B). Compared with the 50% benchmark for evenly distributed quarterly progress, both Operating Income and Net Income are progressing substantially ahead of schedule, indicating that earnings growth is weighted toward the first half. There were no revisions to the earnings forecast or dividend forecast during the quarter, and the disclosed assumptions remain unchanged. Revenue progress is broadly in line with the plan, while the early progress in earnings provides a certain cushion against the full-year plan.

Shareholder Returns

The interim dividend was ¥30 per share, representing a 50.0% increase from the ¥20 interim dividend in the previous year. The full-year dividend forecast is ¥60, implying a Payout Ratio of approximately 57.1% against forecast full-year EPS of ¥105.12. Based on interim results, the Payout Ratio calculated by dividing the interim dividend of ¥30 by interim EPS of ¥74.32 is approximately 40.4%. It should be noted that this differs from the full-year forecast basis, as it uses actual interim EPS rather than forecast full-year EPS. Share repurchases were negligible at ¥0.003B based on cash flow data, and shareholder returns are centered on dividends. Free Cash Flow of ¥22.52B substantially exceeded dividend payments of ¥8.03B, indicating that the current cash-generation capacity is sufficient to fund dividends.

Risk Factors

1. Concentration in regional demand structure: China & Travel Retail accounts for 38.4% of revenue and drives consolidated growth, while Japan continues to decline year on year at -0.8%, indicating the coexistence of increased reliance on a specific region and soft domestic demand.

2. Changes in working capital: Trade payables declined -25.9% to ¥104.84B from ¥141.57B in the previous year, reducing OCF by ¥24.32B. Inventories increased to ¥151.62B from ¥147.14B in the previous year, requiring monitoring of the impact of changes in inventories and purchasing terms on future liquidity.

3. Changes in financial structure: Current bonds and borrowings included in current liabilities amounted to ¥73.00B, a substantial increase from ¥30.00B in the previous year. This indicates a relatively higher sensitivity to changes in the composition of short-term funding and the interest-rate environment.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The Operating Margin is slightly below the industry median, while the Net Profit Margin is marginally above the median.

Growth and Capital Efficiency

The Revenue Growth Rate is below the industry median, placing the company in the relatively moderate-growth category.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin improved from 3.9% in the previous year to 8.4%, a +4.5pt improvement, as the gross margin was maintained while SG&A growth was restrained. Whether the pattern of SG&A growth (+approximately 2.5%) remaining below revenue growth (+6.2%) continues will be a key focus in assessing expense trends from the next period onward.

2. Progress toward the full-year plan was 71.1% for Operating Income and 70.7% for Net Income, substantially exceeding the standard progress benchmark of 50%, confirming that earnings growth was brought forward into the first half. The manner in which the pace of progress changes depending on investment trends in the second half will be a key point of focus.

3. While trade payables declined -25.9% year on year and pressured OCF, OCF remained at 1.07 times Net Income attributable to owners of the parent, ensuring cash support for earnings. Whether working capital fluctuations continue will be a factor affecting future cash flow levels.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,464–¥1,548 at cost of equity ±1%, and ¥1,502–¥1,507 at ω ±0.1.

Notes:

• Because Net Income progress against the full-year forecast (71%) exceeds the standard benchmark (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value Per Share.
• Net assets as of the end of the quarter are used (there is a time lag relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-07 / This value does not forecast or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor as necessary.

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