Company Reports

Shiseido has been enduring a history of hits and misses in its brand presence, but we think that, with the issues at Drunk Elephant and excess China inventory in the rearview, a focus on its "Core 3" brands—Shiseido, Clé de Peau Beauté, and NARS—and cost cuts, the company will be able to drive 2025-30 compounded annual core earnings growth of 22%. Shiseido completed the bulk of the restructure of its China operations in 2025, and market share gains are resuming in this key market. However, industry competition is likely to remain challenging, and this could lead to fragile margin gains.

We transfer coverage of Shiseido and Kosé, Japan's two largest beauty companies, whose portfolios span premium skincare and color cosmetics.

Shiseido's first-half revenue increased 6% year on year to JPY 499 billion, while core operating profit rose 90% to JPY 44.4 billion. Management maintained its full-year guidance of JPY 990 billion in net sales and JPY 69 billion in core operating profit.

Shiseido's first-quarter 2026 revenue of JPY 232 billion is up 2% year on year, and core operating margin rose 2.4 percentage points to 5.6%. The company is leaving profit guidance unchanged, with cost controls offsetting Iran war-related headwinds.

Regaining growth momentum in Japan and China, the largest two markets, has been top of Shiseido's postpandemic agenda. The strategic shift of its focus to prestige skincare has enabled Shiseido to channel resources to its core competence. Yet, the bet on China has taken its toll after a notable slowdown in China’s consumption and thus beauty spending. Shiseido plans to beef up marketing investment through 2025, while also downsizing its China and Travel Retail sales presence, which it expects to put the group on a firmer profit trajectory from 2026. Japan’s premium (midpriced) cosmetic sales has recovered well supporting profit. Cost-cutting will be key through 2026 as China sales recovery is slow and the industry faces increased competition.

Shiseido reported 2025 revenue of JPY 970 billion, down 2% year on year, while core operating profit rose 22% to JPY 44.5 billion. While performance exceeded guidance, shares fell 2.5% with the write-off of JPY 46.8 billion in Drunk Elephant leading to a net loss of JPY 39.8 billion.

Shiseido's share price fell around 10% on Nov. 17 on concerns that a threatened ban on Chinese travel to Japan and a possible boycott of Japanese products by Chinese consumers will dent sales.

Shiseido recorded an operating loss of JPY 33.4 billion for the first nine months of 2025, weighed by a JPY 46.8 billion impairment loss on goodwill due to weak Americas profitability. The company halved its full-year operating profit guidance, with no change to core operating profit.

Shiseido's interim net profit of JPY 9.5 billion exceeds full year 2025 guidance of JPY 6.0 billion but the company is maintaining its guidance on expectations of charges to hurt second half earnings.

Shiseido's first-quarter sales fell 8.5% year over year with all regions either declining or showing little growth. The company reiterated its guidance for 2025 net profit of JPY 6 billion but did not provide estimates on direct tariff impact.

Regaining growth momentum in Japan and China, the largest two markets, has been top of Shiseido's postpandemic agenda. The strategic shift of its focus to prestige skincare has enabled Shiseido to channel resources to its core competence. Yet, the bet on China has taken its toll after a notable slowdown in China’s consumption and thus beauty spending. Shiseido plans to beef up marketing investment through 2025, while also downsizing its China and Travel Retail sales presence, which it expects to put the group on a firmer profit trajectory from 2026. Japan’s premium (midpriced) cosmetic sales has recovered well supporting profit. Cost cutting will be key through 2026 as China sales recovery is slow and the industry faces increased competition.

Shiseido's share price has risen more than 13% on news that activist investor Independent Franchise Partners has taken a 5% stake and indicates that it may make proposals to management.

Shiseido's full-year 2024 performance was as guided with a net loss of JPY 10.8 billion, reflecting a one-off restructure cost of JPY 26.6 billion. Management guides for core operating profit to be little changed in 2025 at JPY 36.5 billion as the revamp continues.

Regaining growth momentum in Japan and China, the largest two markets, has been top of Shiseido's postpandemic agenda. The strategic shift of its focus to prestige skincare has enabled Shiseido to channel resources to its core competence. Yet, the bet on China has taken its toll after a notable slowdown in China’s consumption and thus beauty spending. Shiseido plans to beef up marketing investment through 2025, while also downsizing its China and Travel Retail sales presence, which it expects to put the group on a firmer profit trajectory from 2026. Japan’s premium (midpriced) cosmetic sales has recovered well supporting profit. Cost cutting will be key through 2026 as China sales recovery is slow and the industry faces increased competition.

Shiseido lowers its 2024 net profit guidance to JPY 6 billion from JPY 22 billion on lower margins, as its China and travel segments continue to lag while restructuring charges eat into profit. Revenue guidance is reduced by 10%.

Regaining growth momentum in Japan and China, the largest two markets, is on the top of Shiseido’s agenda after covid-19. The strategic shift of its focus to prestige skincare has enabled Shiseido to channel resources to its core competence. Yet, the bet on China has taken its toll after a notable slowdown in China’s consumption and thus beauty spending. Shiseido plans to beef up marketing investment through 2025, preparing for growth acceleration and margin expansion through 2027. The recovery of Japan’s premium (midpriced) cosmetic sales and normalization of margins in China play the most critical roles in our opinion.

Narrow-moat Shiseido’s second-quarter results fell short of its internal targets due to an unexpected sales decline in the United States and persistent weakness in travel retail and China business. Given normalized US production and more measures to tackle soft China demand, we expect Shiseido will make up for the JPY 3 billion core-operating-profit shortfall in the second half. We have finetuned our foreign exchange assumptions, which leaves an immaterial impact on our fair value estimate of JPY 5,600. The pain incurred during the business normalization process in China and travel retail is inevitable but necessary for building a resilient and profitable business model in the largest beauty market. We anticipate the hardship will accelerate organization transformation and cost-cutting, enabling profits to leap once sales return to the growth trajectory. We view shares as undervalued, trading at a 20% discount to our intrinsic value. Our net profit forecast for 2024 is largely in line with the company's guidance.

Narrow-moat Shiseido is off to a good start thanks to healthy growth achieved in Japan and Western markets as well as cost savings extracted from restructuring. A 20% sales growth achieved in Japan was particularly impressive. While core operating profits are well ahead of its internal target, Chinese consumers remain the key swing factor to its profit outlook. Given nearly 1,500 job cuts on the way, we are confident that Shiseido’s attempts to rebuild domestic margins will bear fruit. Yet, we anticipate little change in Chinese consumers’ cautious spending behavior and retailers’ tight inventory control, capping China and travel retail’s growth in 2024. We have fine-tuned our Japan and China assumptions, which leave an immaterial impact on our fair value estimate of JPY 5,600. We continue to view shares, trading at a 20% discount to its intrinsic value, as undervalued.

Regaining growth momentum in Japan and China, the largest two markets, is on the top of Shiseido’s agenda post COVID-19. The strategic shift of its focus to prestige skincare has enabled Shiseido to channel resources to its core competence. Yet, the bet on China has taken its toll after a notable slowdown in China’s consumption and thus beauty spending. Shiseido plans to beef up marketing investment through 2025, preparing for growth acceleration and margin expansion through 2027. The recovery of Japan’s premium (midpriced) cosmetic sales and normalization of margins in China play the most critical roles to attaining its profit margin target of 12% by 2025, in our opinion.

Narrow-moat-rated Shiseido beat its profit guidance as we had expected. Still, the core operating profits came in 10% above our expectations thanks to solid growth in Europe and rigorous cost control, as well as improved sales in China. While we have reduced our fair value estimate to JPY 5,600 from JPY 5,800 after adjusting assumptions and rolling the model, we predict management will beat the JPY 55 billion core operating profit guidance for 2024. We continue to view shares, trading at a 24% discount to our fair value estimate, as undervalued. Apart from China and the travel retail recovery, whether management can rebuild its domestic margins by rightsizing its cost structure in 2024 will be the key to turning around the struggling luxury beauty firm.