Shiseido sees 40% earnings slump amid China slowdown, yet is optimistic for 2024 recovery

(All images credit: Shiseido).

13 Feb 2024 --- Shiseido releases its 2023 financial results and predictions for 2024 after experiencing a decrease in profit following Japan’s release of wastewater from its Fukushima nuclear plant. The beauty brand’s annual revenue decreased by 8.8% to ¥973 billion (US$6.5 billion) despite achieving double-digit sales growth in Japan, the Americas, EMEA and Asia-Pacific regions.

The company’s 40% slide in annual earnings can be attributed to a slowing Chinese economy, along with fear and rhetoric surrounding Japanese companies after the wastewater discharge.

The Japanese company reports its operating profit fell to ¥28.13 billion (US$188 million) in 2023, compared to ¥46.6 billion (US$312 million) in the previous year. Its net income declined by 36.4% to ¥21.7 billion (US$145 million), which can be due to adverse effects related to the sale of two of its factories and the merger of two others in Osaka.

The company hopes 2024 will see sales growth in China and the travel retail channel — two main areas that experienced a loss last year. Despite Shiseido’s slump, it expects sales in China to grow 5% this year.

Nuclear wastewater
The Tōhoku earthquake and tsunami on March 11, 2011, destroyed the Fukushima nuclear plant. As a result, over 30,000 metric tons of treated nuclear wastewater was let into the Pacific Ocean. The process of releasing the wastewater is expected to take over 30 years.

Japanese scientists and officials report that the wastewater is safe. Testing by Tokyo Electric Power Company and government agencies has found no detectable radioactivity in seawater and fish samples taken after the release.

Shiseido expects to recover in 2024 from a revenue decrease in 2023.Fukushima fears
Despite reports of the water being unharmful, many people in China feel unsafe to consume products coming from Japan. Last year, Chinese citizens compiled blacklists of Japanese beauty brands to no longer purchase out of fear that the products contained radioactive materials.

“We recognize that the macroeconomic numbers are not good [in China],” Shiseido’s president Kentaro Fujiwara said at an earnings briefing.

“We need to look not only at the macro economy but also carefully assess where we have a chance to win and where growth is taking place.”

China accounts for about 25% of Shiseido’s sales. This number increases when considering purchases in Japan by Chinese tourists, says analyst Steve Zhou on the independent investment research platform Smartkarma.

Shiseido expects the effects of Fukushima will linger into the first and second quarters of 2024 but will eventually begin to climb. For fiscal 2024, Shiseido forecasts its net income will increase by 1.1% to ¥22 billion (US$147 million) and its revenue will grow by 2.8% to ¥1 trillion (US$6.7 billion).

Decline in J-beauty
In November, Shiseido was hit with its most significant decline in 16 years as the Japanese cosmetics company revised its full-year profit outlook due to weakened demand from Chinese consumers.

Procter & Gamble also experienced a slow economic recovery in China with a 34% drop in quarterly sales for its Japan-based skin care brand SK-II, blaming anti-Japan sentiment.

By Sabine Waldeck

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