Shiseido Co Ltd Ord

I would like to present to you the financial results for the first quarter of 2023. Please refer to page 3. This is the key headlines for Q1 of 2023, and as you can see, we started the year off with good performance. Like-for-like sales, excluding FX and business transfer impacts, was up by 7% year-on-year. Sales declined in China due to infection re-expansion in January and in travel retail due to the retailer inventory adjustments primarily in South Korea. However, we are on track with the guidance. On the other hand, Japan realized solid recovery led by strong performing high price range sales and with the enhanced new product launches that capture the recovering market demands. The market had faced difficult situations from the COVID impact for some time, but we are finally accelerating the growth momentum. Americas and India continue to perform strong from last year, contributing to the overall growth. By brand, our global brand Shiseido, Kletopo Bote, Drunk Elephant and NARS capture strong growth, leading the overall performance. E-commerce sales ratio was 34%. Although there was market stagnation for the Women's Day promotion in China, the EC sales value globally is growing year on year. Drunk Elephant, the brand with high e-commerce ratio, performed well, contributing to drive the overall EC sales. Core operating profit was an increase of 8.2 billion yen, primarily contributing to higher gross profit from increased sales and agile cost management, as well as FX impact from yen depreciation. The company started off the year on track to the annual guidance of 60 billion yen in core operating profit. However, as some of the costs such as SG&A will be carried over to Q2, the Q1 cost was lower than expected. Therefore, the annual guidance will not be changed. In regards to the transformation, we are on solid progress and completed the transfer of Kuki Factory on April 1st. Next is page 4, the P&L Executive Summary. The core operating profit was 12.5 billion yen, an increase of 8.2 billion yen year-on-year. Operating profit was 10.5 billion yen, an increase of 6.1 billion yen year-on-year. There is a 2 billion yen loss in non-recurrent items for the quarter from the impairment losses and structural reform expenses and others related to the cookie factory transfer. Profit before tax for the quarter was 10.3 billion yen, an increase of 2.2 billion yen year-on-year. Profit attributable to owners apparent for the quarter was 8.7 billion yen, an increase of 4.3 billion yen year-on-year. EBDA was 24.9 billion yen, an increase of 7.8 billion yen versus last year. EBDA margin was 10.4%. Next is page 5, the results by brand. Global Brands, Shiseido, Clé de Poboté, NARS, and Drunk Elephant significantly contributed to the overall sales growth. Shiseido and Queropo Bote captured solid sales in EMEA and Japan and also achieved double-digit growth in China. The brand's strategies, appealing the effects and efficacies of the brand and products, were successful. Along with a robust, high-prestige market, these brands captured outstanding growth. Last year, NARS grew significantly with their new product, Light Reflecting Foundation, creating a high hurdle for the year, but the brand continues to perform strongly. As for Drunk Elephant, the brand experienced negative performance last year compared to the previous year, but this quarter achieved outstanding growth, which is more than double than last year. Consumer purchase had been showing very strong growth momentum from second half of last year, and for this year, the shipment is also accelerating its growth. On the other hand, the brands Elixir, Anessa, and Ipsa that cover a big sales portion in China and travel retail faced difficult situations. A fragrance business continues to perform strong. Next is page 6, the net sales trend. The like-for-like net sales for the quarter was plus 7%. The decline in China in travel retail was covered by the steady recovery in Japan and the significant growth in Americas, EMEA, and Asia Pacific. China has been experiencing a continued decline, but the minus range that was 10% last year has shrank to 3% for this quarter. With January hitting bottom, it has been showing a recovering trend since February. Now if you could take a look at the second column from the right, the total net sales was equivalent to 2019. The good news is Asia Pacific and EMEA that was underperforming against 2019 as of last year turned into positive. However, even though Japan is on its recovering trend, it is still over minus 30% versus 2019, so we will continue to work on its growth acceleration from Q2 and onwards. Next is page 7 on Japan business. First of all, in terms of the Japan market, it showed solid recovery every month over Q1. We see that the mask regulation being lifted on March 13th has had its impact on market recovery. For Q1 total, the local market growth was mid-single digit. To highlight, January was low single digit, February and March was high single digit in growth expansion, and April is continuing this high single digit market growth, seeming to prove its momentum improvement. In terms of price range, high and low price ranges drove the market, while mid-price range remained flat year-on-year. On the other hand, inbound market showed recovery trend from increasing travelers from Asia, excluding China, Europe, and the U.S. We will start various initiatives as we eye on the timing of Chinese tourists to visit again, fully preparing ourselves to seize the opportunity when inbound market fully resumes. Japan Business and Q1 realized share acquisition in mid to high price range, which is our core competitive market. We concentrated the investments on innovation and marketing to our core brands, primarily in mid to high price range, which allowed us to expand our loyal users. The growth of consumer purchase was high single digit for the total, mid single digit for local, and high teen percentage for inbound. In terms of local market, which is the core area of business, the brand Cletopo Bote had a growth of mid teen percentage, far exceeding the market growth. This contributed significantly to the profitability improvement as well. Brand Shiseido also expanded the loyal users with the launch of Eudermine Essence Water. This product is the next core item of the brand after Altimmune, realizing a growth of high single-digit. Furthermore, Elixir, which had turned into a growth trend after the renewal of lotion and emulsion last September, it continued its growth in mid-single-digit this quarter with the renewal of the brightening line in February. It received many beauty awards and solidly creating the number one share position in skincare market. One of the important initiatives of the company for the year is strengthening the position in the brightening market across all brands. and we are making good progress to achieve the target. Haku, the number one in brightening market share, had a good start with a new innovation that was launched on March 21st. Followed by that, products such as Clé de Peau Beauté's brightening serum, Elixir's brightening line, are establishing Shiseido's strong presence in the brightening market. So overall, we are capturing follow-up progress in our core area of mid-to-high price range by strengthening loyal user base and share expansion, and we will continue to make this one of the strongest areas of focus. In terms of the low price range, we are actually seeing stronger growth more than expected, so we will strengthen initiatives to accelerate the sales in brands such as Aqua Label and eHuda. Next is page 8, about the China business. After the end of zero COVID policy last December, the number of COVID cases surged again in January, creating a difficult market environment. But February and March turned into a recovering trend. e-commerce underperformed last year's numbers for Q1 and for prestige market overall with the low-performing Women's Day promotion. Shiseido consumer purchase was minus low single digit. This ended being a minus from the sluggish performance of Women's Day and our strategic conversion to not being too reliant on discount promotions. On the other hand, we have some positive news with the offline sales, which have been underperforming year on year due to the COVID impact. Offline sales turned into a positive after six quarters of negative results. The company continues to work on sustainable sales growth through strengthening of brand equity this year as well. So even though the market momentum for the Women's Day was weaker than expected, we evaluate that the overall progress is on track to our strategy. Buy brand, Shiseido and Guadalupo both day trended well, supported by the strong high prestige market and successful marketing activities capturing the recovery in foot traffic. There is no change in strategy for Q2 and onwards, along with the strong investment to offline as traffic recovers. Although there is the 6-18 shopping day online, we will continue to turn away from heavy reliance on extreme promotion and execute appropriate allocation of resource for sustainable and profitable growth. At the moment in April, with the impact from last year's lockdown, we are achieving significant recovery. Hong Kong experienced strong growth along with the recovery of foot traffic from East COVID restrictions.

Next on page 9, I would like to discuss other regional businesses. In the Americas, the market continued to grow across all categories, and we saw particularly strong sales growth for Drunk Elephant, which more than doubled, as well as for NARS, which continued to perform well. In Europe, too, the market continued to grow in all categories, and we maintained strong momentum, especially for brands such as NARS and Drunk Elephant. In Turbo Retail, while the Korean market was weak, global traffic continued to recover and we achieved strong growth in Europe and in Japan. We will continue to expand and enhance our in-store brand and customer experience to capture the market recovery. In Asia Pacific, markets recovered in all countries and regions except Taiwan in the first quarter. We also continue to achieve strong growth led by NARS and Anessa by strengthening our strategic promotions. Next on page 10 is the cost of goods sold ratio. The COGS for the first quarter was 29.4%, worsened by slightly less than two points from 27.5% in the fourth quarter of 2022. This is due to impairment and restructuring costs associated with the transfer of cookie plant, which were recorded in the current period. The real cost ratio shown by the dotted line was 21.6%, showing a steady improvement in real terms. In the second quarter, the impact of products supplied at the cookie factory will be eliminated, and the cost ratio shown by the solid line will improve by about 4 percentage points from the first quarter. Next, page 11. a square operating profit by reportable segments. Japan saw an increase in profit mainly due to higher margin from higher sales and the promotion of cost-efficiency measures. China increased profit as cost management and other measures offset the margin decrease due to lower sales. Americas and Europe recorded an increase in profit due to an increase in margin increase and higher sales. Results that previously allocated to the brands to be transferred were redeployed to the ongoing businesses to accelerate growth. The increase in profit was achieved despite the absence of large scale of D&G and other products that existed in the previous year. This is a very encouraging result. Travel retail reported a decrease in income due to margin decrease from normal sales. The increase in other businesses was mainly due to the impact of exchange rate fluctuations and cost management in line with the weaker yen, while expenses increased due to strength in DX-related investments. Next, on page 12, we will discuss initiatives in Japan business for the second quarter and beyond. In the second quarter, we will continue our efforts to expand market share in skincare and strengthen activities in base makeup, point makeup, and sun care. We will aim to increase the number of loyal customers and achieve strong sales growth by strategically launching innovative products and strengthening the communication of their values. We regret that we are unable to show you today, but each of our brands will launch groundbreaking innovative products in the second half of the year. We will also strengthen our activities to capture the customer trend of de-masking. Since March 13th, we have seen an increase in demand for skincare products to address skin concerns such as lines and wrinkles around the mouth, as well as an increase in customers seeking base makeup and point makeup, especially lipstick. Seizing this opportunity, the launch of Crédit Pour Beauté cushion foundation in March and Nourish Crime in 24 colors in April have been extremely successful. Branch Isedo also got off to a good start with their launch of 20 colors of Techno Satin gel lip on May 1st. In the mid-price maquillage brand, we are strengthening eye color and mascara products to meet their demand for eye makeup. And in May, we introduced loose poreless powder to the growing market for face powder to capture makeup demand. In the Suncare business, which is entering the period of full-fledged demand, the company aims to expand market share by linking in in-store sales and mass promotions for Anasa. Along with such innovation and aggressive marketing, we will simultaneously improve productivity and infrastructure and cost structure. In terms of cost, we will ensure cost reduction by improving mix, thoroughly reducing uneven distribution and returns, and improving factory productivity by way of increasing the promotion of Skin Beauty brand and core SKUs in particular. The reduction of returns is an important initiative, not only in terms of profitability, but also in terms of environmental friendliness. And we have been accelerating the timing for order suspension prior to renewal and maximizing, minimizing the over-the-counter inventory, which had a certain effect in the first quarter. In addition, we are formally advancing actions to achieve the laws 60% level SG&A expenses. We are working to establish an appropriate personal structure and improve productivity per employee, which has resulted in a significant year-on-year decrease in SG&A expenses in the period under review, mainly due to natural tension. In addition, the office reorganization has been underway and has been proceeded as planned. A number of offices to be reorganized from from 58 to 23 in July. We will continue our efforts and further improve operation efficiency in conjunction with the acceleration of the hybrid works. In addition, we withdraw from convenience stores as part of our selection and the concentration of customer contact points in line with the strategy for sustainable growth. We will provide a more specific roadmap for achieving SG&A ratio in the low 60% range in August or later. Next, on page 13, I will explain our future initiatives in China. In our China business, we will accelerate offline growth and strengthen our responses to the diversification of online platforms with an emphasis on sustainable profitability improvement the brands such as Clé de Peau Beauté, Brand Tecedo, and NARS. In Clé de Peau Beauté, we will capture the momentum of luxury users and the higher prestige market. In addition to continuing to strengthen the Supreme series, our top-end line, we will implement the Height of Radiance campaign, a measure to increase awareness of the brand's unique value of radiance. The campaign aims to attract new users with La Crème, La Fondant, the face of the brand, and we will also work to promote demand by rolling out set boxes to Kansai with a gift-giving season such as Mother's Day and 520, known as the Day of Love in China. As for Brand Shiseido, to rebuild its brand value and prestige image, we will strengthen the brand experience and top-end future solutions, through the offline events focused on the high-function products and launch of the Wrinkle Cream Vital Perfection Wrinkle Relief as one way to expand the appeal on its efficacy and stimulate demand for 618 products. In addition to the light-reflecting foundation, which performed extremely well last year, NARS plans to further strengthen and expand the foundation category to launch a new lip product in May to cultivate new product categories. In addition, we will work to promote demand-launching limited-edition packages to capture the trouble season. We will steadily implement these initiatives to accelerate growth from the second quarter and onwards. My presentation in the first quarter results in future initiatives. Lastly, I would like to introduce the Looking Good corporate message campaign on page 14. Starting with a newspaper ad on April 3rd and a commercial on May 7th, we rolled out the Looking Good corporate message on 8th. The status of our new coronavirus infection was moved to category 5 and we are developing this campaign with the hope that the power of cosmetics and beauty will encourage people all over Japan to have good faces. expressive and unique. We have received many comments from consumers about this message, such as it's heartwarming, very motivating, and it's nice to be able to see faces. In speciality stores, drugstores, GMF, and department stores, the campaign message is being used in conjunction with activities that utilize the power of people, such as skin diagnostics, skin care, and makeup application, and training while addressing the needs of each customer. We will continue to support each customer looking good by meeting their individual needs. In this way, we will accelerate our growth potential by simultaneously expanding our market and market share that will energize the industry as a whole in response to the consumer awareness and inbound demand and will help greatly impacted by COVID.

Now we would like to go into the Q&A session from JP Morgan. Ms. Kuwahara from JP Morgan. Hello, this is Kuwahara from JP Morgan. Can you hear me? Yes, we hear you. Thank you. So one question per person, I understand. So I want to hear about the comparison versus guide look. The Japanese market is recovering well, and EMEA, And it's all doing good. It's overall doing well. And so compared to the guidance or the outlook, I think overall you mentioned that we are on track to the outlook. But are there any discrepancies or some gaps between regions? And now for profit, some of the costs will be carried over is what you mentioned. So how much are some of the costs or expenses being carried over? So anything related to the profit, So along with some of the discrepancies you may expect to the outlook and guidance, can you share along with the profit as well? On the consolidated basis, like Q1, it was positive 7%. So I think that's pretty much in line with what we had expected. Overall, in line with what was expected. EMEA. In terms of EMEA, we had the... rushed to buy before the price increase, so that probably gave us a little bit of a hike or push in sales. And to the yellow 11% on the consolidated basis, it may seem a bit weaker, but originally China and the inbound sales in Japan, we are forecasting that we will have a better recovery from Q2 onwards. So that included, I think we are on track. For profits, There are some gaps of about 4 billion yen of when the cost will be booked. But so excluding that is what you're seeing on your basis. But that too is within what we have expected. And that would be it with my answer. Thank you very much. So the gap of when the timing of the booking is 4 billion, that's going to be carried over to Q2 from Q1. So 4 billion will be carried over to Q2. Okay. What I'm concerned about is So what I'm worried about is the investments being delayed, too, especially for Japan. The mid-price range overall isn't really coming back, but your company is investing and talking about innovation and bringing back your brand power. And that is one of the contributors for the profits. improvement for the japan business and i think that's the key to making the japan business but the investments to those areas are not behind right that is correct so we're not behind on the investment but there's other some expenses that will be carried over to the next quarter and there's some ship shipments of the samples as well but that's different from the timing that's actually going to be used so we don't think of that as a problem so we don't think of this expense In terms of the marketing activities, the expenses being carried over to Q2, there's no impact. It has no impact to the marketing activities.

I would like to move on to the next question. Hirotami-san from Daiwa Shoken, please. Hirotami from Daiwa, can you hear me? Yes, we can hear you. Thank you. I'm sorry, I haven't looked into all the materials, but there's the profit from other segments, quite significant. And there seems to be some adjustments making a lot of changes or the differences, but the profit from the other segment seems to be quite significant. So why is it, what is the background of this large profit from the other segments? So, year-on-year plus $5.3 billion, half of it is forex associated with the export. This is the brand held by the headquarter. cells associated with it is we make cells from the headquarters and shipment is associated with the margin increase, which is about ¥3 billion. In addition to that, there is the ¥3 billion in forex impact. I think the brand holder, IPSA, is it a brand holder of the headquarters, a brand holder? So IPSA sales didn't do so well as in the case of PH5. Yes, having said that, but then the shipment of other brands was much more significant. And so what brand was doing well in terms of the shipment in the other segment? Brands Shiseido, GPD were the main brands from the headquarters. Okay, so on the left. page 5 on the left on the brand shiseido and the credit pool and so these did quite well then yes understand now so then going forward how to interpret the other segments so the brand shiseido and credit pool will do well and then there's the forex with the yen depreciation so how are we to make an assumption so I think this is going to shift as planned so we you know have in accurately assessing how the forks will move. But as long as the cells will shift as expected, then I think the result will be as expected, as planned. And some of the shipment may not happen, but then this will be... within our assumption so that the branch is there though the credit board have the higher margin and when they ship more than it drives a profit higher yes so the brand holder related profit will be recognized there in the other segment okay understand thank you thank you now we're going to the next question from Morgan Stanley Morgan Stanley USJ

Securities, Miyake-san. Thank you. I have a question around sales of Indias and Americas. On page 6, it's growing 20-30% and it's performing well. I wanted more detail or clarity on that. Drunk elephant doubled, NARS grew. I know these are the drivers, but of these increase in sales, it was this brand, it was this, that. If I can have more clarity around that, that would be great. And also, so I understand, is it doing well because the market's doing well, or are there other reasons, or is it linked to the storefront sales? So some details around that as well, thank you. So your question is about Americas. Both Americas and EMEA. The sales are both 22% in America, 30% EMEA, 22%. So that's very strong. It looks very strong. So more the detail or breakdown of this. India is 22% and America is 30%. So if you could maybe from what impacted the numbers significantly, have more clarity. And going forward, in order for me to know kind of or to predict what could happen in the future, if you could give us what were the drivers behind these strong numbers. In America, the biggest driver was drunk elephants. If you may remember, last July to August, we started doing paid media to increase the drunk elephant awareness, which had gone up. And along with that, the sellout, the actual sellout was growing by about 30%, but the sell-in there were still retailer inventory, so the sell-in wasn't catching up to the pace. So therefore, from about December onwards, the sell-in started to catch up too. So finally, the sell-out and sell-in gap has kind of come together and gave us the strong numbers in Q1, which has given us over double performance or sales performance for Drunk Elephant.

And another, the bronzy serum. That was a big hit.

Last December alone, I heard that December sales was about the last four-year sales. So there was halo effect. So the man's protein and other products, there was halo effect from the deep bronzer and sustaining the drunk elephant's strong sales. And to accelerate this strong sales, we are strengthening our investment. And I think these were all the contributors and drivers to the strong sales of drunk elephant. For NARDS, We have the light reflecting foundation, the reflection foundation that was successful last year, not just in America, but it's a huge hit globally. And so that high performance of NARS, they're sustaining the strong performance as a brand. And so versus last year, it's over 20% and continuing to grow. So these two brands in terms of America, Strong Elephant and NARS were the strong drivers. And for EMEA, one more. In terms of the market, for Americas, the market is experiencing double-digit growth. And for makeup, it's in the mid-20% growth. So the growth of the market overall is very strong. And of that, where we're strong at, the core, the skin care, Drunk Elephant, we are capturing the market share. So I think in America, these are the high contributors to our sales. For EMEA, similarly, the market itself is very strong.

It's facing or experiencing double-digit growth.

The strong drivers to the EMEA performance is also the fragrance. The market itself of fragrance is doing well, and our fragrance is a bit lower in terms of growth rate to the market growth of fragrance, but we do have plans for big launches ahead of us. So we're preparing for that. So in the second half, we should be able to make a comeback in the fragrance market as well. But outside of that, Branch Isedo, NARS, Drunk Elephant, similarly are performing well. Last year, we launched the BioPerformance Skin Filler and that's been a huge hit. These are part of the contributors. Okay, thank you. So the market's strong and you're very competitive in that too. Okay. And is the market still growing strong with double-digit growth in April timing? We don't have the exact market data of April, but we do believe that the strong market growth is continuing. Understood. Okay. So looking at the economy and going forward, your balance? Yes. Well, as for the market outlook and economy, it's what you hear on the news, similar to all of us. In America, we'll be focusing on what will happen in the second half of the U.S., for example, but as for our outlook, if there is a recession, we think of it to be a mild recession. And to that mild recession, the beauty market is quite resilient, so we are planning and outlooking ourselves to plan to that kind of outlook. Thank you very much.

Now, we'd like to take a next question from SMBC, Nikon Securities. Yamanaka-san, yes, please. Hello. Yamanaka from SMBC. Earlier in your explanation, there was a mention on the cost, page 10, I'm looking at. And so from the second quarter and onwards, did you say that there's going to improve by fourth bite? So about the cost of goods sold and its assumption from next quarter or the next year and onwards. Also, I would like to know, So are you looking at patients? Yes. The upper line, the solid red line, is the cost. ratio on our p l and the reason why well as you see here the is this uh the the cost on the real terms um is the um 21.6 with the remaining business existing remaining business and there's a gap between the COGS and COGS LFL. And for this particular quarter, there's an impact of impairment losses from the cookie factory transfer, which is 1.8 points associated with the transfer. This is a one-time phenomenon, so this will be eliminated going forward. And also, in association with the business transfer, there's the... there's the from cookie factory there's a contract manufacturing as in the case of the normal business so unlike the normal business it doesn't earn much as much margin and therefore the there will be about four point improvement in the cost of goods sold and going forward In relation to the business transfer, the main impacts will be eliminated. Therefore, by and by, we're going to get closer to the numbers described with the dotted line in real time, real life. And between now and 2025, we would like to lower this to about 20%. And so a number of actions are taken by different departments. Thank you. Then in regards to the second quarter, this 1.8 point from, deriving from Cookie Factory will be eliminated. Therefore, there will be four points improvement year on year. Am I correct in my understanding? Well, this is not the case of year on year comparison, but the transfer of Cookie Factory will happen in the 1st of April, and so there may be some costs associated with it, but then the full point will be eliminated for the provision and the supply.

Going on to the next question from Nomura Securities, Ohana-san. Hi, my name is Ohana from Nomura Securities. I have a question regarding travel retail. Your travel retail sales. Compared to other competitors' travel retail, you performed well. You were competitive. In your material, it says South Korea did not perform well, but what about Asia? The Hainan Islands, South Korea, Hong Kong, and the Ginza? What kind of, you know, plus and minus were there to result in these numbers? And for China? there's been some topics about inventory adjustments so what is happening around that could you share with us so your question is about travel retail china please wait so as for the South Korea ratio of our company sales, it's about 40% is usually the portion. But with the South Korea different policy change, there's been adjustments in inventory. So for Q1 versus last year, it's impacted us by 50%. So that is the biggest impact.

reason, impacted reason.

I mean, in China mainland and west of travel retail Japan and travel retail west is covering for this loss. As a result, though, we could not offset all of it, so therefore it ended at minus 4%. For Hainan Island, Our sellout is in the mid 20% in terms of the sellout sales. If you are aware or if you remember from last year, last year there was the China lockdown. So as a result of that, our sell-in went out first. So we had the advanced sell-in. So at the timing of the planning, Hainan, was about five points lower than what was expected. So as a result of that, that was at the timing of the marketing planning. So then this year's Q1 sellout was mid-20%. Then our sell-in was pretty much flat. So I think that shows us that the restocking had been quite good for this Q1. Thank you. So looking at the travel retail China market, the distribution inventory or suppression of inventory, is that something we should be worried about? Is there something to be concerned about in terms of this inventory control? Looking at the current Hainan Islands momentum,

We only have the data from the air flight travelers.

So looking at just the flights, so not excluding ships and others, but by flight January to February, it's about plus 20% in terms of the flight travelers. Compared to Q4, which had the lockdown last year, it's about double the number of passengers So I think we're overall seeing the recovery in traffic to these travel retail areas. So Q2 onwards, along with that, you think that you will be recovering along with these foot traffic recovery in travel retail? In terms of travel retail, the impact of South Korea was the biggest in Q1 with this inventory adjustment. So South Korea recovery is probably only from about Q3. For Hainan Island, we are doing inventory adjustments. So rather than sell out, sell in will be slightly lower, and we are trying to continue that to optimize, but that's all been planned.

Okay, thank you very much. Going to the next question. Hi. from Jeffrey's Securities Fund. speaking. So I would like to ask a question about inbound, and it is recovering, but the high 10% and you have a plan for 70% plus 70% and the Chinese inbound are not recovering so much and so what is your assumption on the shopping patterns or the behavior? So the Japanese inbound at the time of planning was to consider that the recovery happened from the second quarter and onwards. And also when we look at the current situation, indeed we see some recovery in the first quarter, but not so much. But as far as the April situation is concerned, there is a clear recovery. There's a visible recovery. However, this is the recovery from inbounds except Chinese travelers. So the more robust recovery should happen at the timing of a recovery or restart of the Chinese tourism to Japan. So when do you think that will happen? What's your assumption of the timing and are you going to stay with your original planning or assumption? At the moment we don't have information on that so we are staying with our original plan and I believe that the rich Chinese tourists are coming back to a certain extent and what are their purchase behavior in relation to your products and I think you make an assumption based on their assumed consumption behavior, but I think there's different opinions about whether their purchase will come back or not. In any case, our plan is to expect 70% plus year on year. from the end of Q3 to Q4, our assumption is to see the recovery. So depending on how things will go, this timing may be delayed or come even earlier than our assumption. So we will keep an eye on this and So what we need to be careful about is the Japanese local market recovery, which has been quite stagnant and we are beginning to see the signs of its recovery. So how to accelerate it is something that we are focusing on at the moment. So for the Japanese local market recovery, there is a tendency that recovery is happening sooner than expected. So we would like to capture the moment. Thank you. So I would like to go back to the inbound topic. So Korea, so the... Do you think that they need some inbound from Korea? No, we're not looking into that much and so it's not realistic then. So there are some complex factors that would affect the And in any case, we would like to increase the local Japanese market or the business. And if that is compounded or supplemented by the inbound business, that would be great. So that's sort of the assumption that we are making. We'd like to move on to the next question.

From JP Morgan Asset, Osada-san. Can you hear me? Yes. Rohana-san asked a similar question, but about China and travel retail. The sellout, the consumer purchase. Excluding China's beauty, I feel that you are outperforming the other competitors. Not sell in, but sell out. And that, I think maybe, so is your high performance, is that because your strategy from last year has been performing well? And along with that, what is your current situation on the market share? And also for the source of demand, what is your core, such as Global Shiseido and Cuero Por Bote, what is supporting these consumer purchase? I'm sorry, let me confirm the question with you. Sorry, this question is specifically about China, China and travel retail.

In terms of China prestige, the market is the low single-digit growth.

Of that, the growth is about mid-single-digit, so about 5% was from offline. E-commerce dropped. as a result ended in low single-digit for the prestige market. Of that, for our company, so we strategically wanted to lower the ratio of extreme promotion and want to heighten, improve on the brand equity and that's been the strategy. So the huge The expectation to these huge promotions were not very high because of our strategic conversion of how we want to approach these promotions. But as for that, so as for that, we are lower in share to competitors, but that's because of our strategy. We don't want the extreme promotions. But offline, offline where it's recovering at the market, especially branching data, We believe that we are capturing the market share and we are on progress to capturing the market share for branches that are offline. So I believe that overall we are doing well and are doing well to the progress that we want to achieve in terms of the China market. And for travel retail, what was your question? Well, China and travel retail. So my image was When you think about the Chinese people demand, the Chinese people demand overall, I feel like you are capturing the sellout. Looking at the global suppliers, excluding, let's say, the South Korean players, I feel that the other players are not as performing well as Shiseido was in terms of the Chinese audience, in terms of sellout. So you're talking about Hainan Island? Well, travel retail overall... What was good was the travel retail Japan. There's some Chinese tourists are not back yet, but the travel retail Japan is growing versus last year. And that's one of the points to highlight. So these are Asians, excluding people from China, were the driver to the growth of Japan TR. And TR West is have solid growth. How are we against the market? I do not know. We do not know. But the travel rate to the west is doing well, too.

And the rest will be for Hainan, as mentioned earlier. It's in the mid-20%. Along with the traffic recovery, I think we are capturing the demand. Thank you very much.

So for travel retail, the mix of consumers are different from Japanese players. And for travel retail, for Hainan, the traffic is coming back. So we can only capture some of the information for domestic flights. And for January, it's been increased by 20% to Hainan Islands from the domestic flights. So I think from that, us capturing the mid-20% in growth, I think we're pretty much in line with the foot traffic recovery. Okay, thank you very much.

Next question. So I would like to take two last questions. And so please ask one short question per person. And from UBS, Kawamoto-san. Thank you very much for the presentation. My name is Kawamoto. I hope you can hear me. Yes, we can hear you. so in this um the increase of um operating income 8.2 billion yen i would like to understand it better according to hirotsumi san so half of it comes from uh forex impact and uh so from the second quarter um so i think uh the forex impact is going to settle um so i believe that there may be uh some shift in the sandals so um there will be a higher profit earned in China following the cost management. What did you do exactly? Did you try to reduce the fixed cost? Another question is that 600 billion... I'm very sorry, but we can only take one question. Yes. Thank you. So about the assumption on the increase in the operating profit... So I believe we were talking about Forex and as you said the last year the Forex since February, March it started going up and against the dollars the yen was very much appreciated and so this time the reflection of that came will not happen from second quarter onwards not in the same manner as we saw earlier and uh based on the uh the currency assumption that we have of course the um if there's a movement in the forex there's a potential that may be some shift but um so yes your assumption is correct at this point in time and i believe you had a question about china yes uh so was it the increase in the operating income in china is it due to the lower fixed cost are we talking about q1 yes the sales certainly yes we have worked on the reducing the fixed cost but the biggest element is the impact of a shift in the the booking of numbers And also in Europe, about the last minute purchase before the price increase, was there any increase in the cost? Well, or was there any impact? Well, it is really difficult to cut out which part of the purchase comes from the last minute purchase, but then yes, there will certainly be some contribution to the revenue, but it's not so significant. Having said that, and price increase was carried out in first quarter in EMEA and EOS. Thank you very much. Thank you.

Next will be the last question. Mitsubishi, USJ, Morgan Stanley, Sato-san. Hi, this is Sato. I didn't think I would be called upon. Thank you. Page 20, SG&A, 4 billion yen. So they said 2 billion yen will be carried over to Q2. When I look at what's happening here, so what from here is carried on, why? Can I have the reason? So brand development is going down significantly, for example. So what's going up, what's going down? For some of the booking delays, is mainly in the marketing cost. Samples, shipment of samples, for example, that's the big chunk of it. For brand development expense that's going down, that is not due to the booking gap or lag, but compared to last year, at this time for brand development, Last year, we had the Dolce & Gabbana transfer. We had the TSA-related things that were going on before D&G were transferred. So it's more of the commission that we have to pay to D&G commission that we have to pay to D&G. So that was why it looks lower than last year. So 4 billion yen, that's only in China? No, it's not only in China. It's others as well, but half is China.

Okay. Thank you. Thank you very much. With this, we would like to wrap up the Q&A session.

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