Shiseido Co Ltd Ord

investors, analysts, thank you very much for your attendance to Shiseido Company Limited 2025 second quarter earnings briefing. So today's disclaimer is shown on the screen. So today's session will be organized on audio only. Video and scripts will be posted on our website later. So today, the presenters will be Kentaroji Ujiwara, our president and CEO, and Ayako Hirofuji, CFO. Myself, IR department, Oshima, very pleased to meet you. I'm today's MC. And there will be presentation from Hirofuji and Fujiwara, and then there will be Q&A session. The time end will be around 5.45. Now, hand over to you, Hirofuji-san. Thank you very much. I will now explain our 2025 half-year results. Please take a look at page 3, the first half result and four-year outlook. Our current top priority is to steadily implement our action plan and build a business structure that generates stable profit. There are three key highlights I would like to explain. First is the result of our structure reform. Continued from Q1, in Japan, in China travel retail, the fixed cost reduction effort we have been working on since last year is clearly reflected in the first half figure, improving profitability and maintaining profit margins despite declining net sales. As there was a few media coverage in Americas under the new leadership structure, we accelerated personnel and organizational rationalization in July. As a result, we will accumulate the benefits of our annual structural reform across the company. Second is the strengthening financial discipline. Given the challenging market environment, we conducted further cost review across the company and despite the decline in net sales, our company core operating profit for the first half exceeded in our plan. In addition to our cost reductions in PL, we also focused on the cash balance sheet, reviewed capital investment and steadily implemented our asset light strategy including relocating and reducing offices to improve ROIC. Third, regarding our full-year outlook, while we anticipate certain risks to net sales, our commitment to achieving co-operating profit of 36.5 billion yen remains unchanged and we will achieve this through accelerating structural reforms and cost management. Since our disclosure in May, we have received many questions from investors regarding impairment risk. Given the declining profitability of America's business, we determined there are the indications of impairment and conducted impairment tests. As a result, we did not record any impairment loss for this quarter. However, given the underperformance of Drunk Elephant to date and uncertainty, including interest rate outlook, we recognize that the risk of impairment losses on our America's business is greater than ever. For details, please refer to Page 17 of Tangshin Report. Now page 4, the executive summary. Net sales for the first half were 469.8 billion yen, with the underlying growth rate of minus 6%, primarily due to a weakness in China travel retail and Drunk Elephant. Compared to the plan, the result was slightly below our initial forecast of our low single-digit decline due to poor performance of Drunk Elephant and others. Core operating profit was 23.4 billion yen, an increase of 4.1 billion yen year over year, exceeding our expectations. We are pleased to report that we have already achieved over 60% of our full year guidance of 36.5 billion yen. We view this as evidence that our structural reforms and strengthening the financial disciplines are beginning to bear fruit, but we are by no means optimistic as the upside in the first half includes expenses carried over on the second half and as a risk factor remains. Non-recurring items totaled 5.3 billion yen of the 23 billion yen in full year 2025 plan. We recorded 3 billion yen in expenses related to structural reforms in America in Q2. As a result, interim profit was 5.5 billion yen. While this has already exceeded our 6 billion yen net profit forecast for 2025 announced in February, we have not revised our earnings forecast as the majority of non-recurring items are expected to occur in the second half. Free cash flow was 17.5 billion yen, turning positive from a negative figure in Q1 due to factors such as higher profit before tax and others. Next, page 5, core operating profit. First, the cost of goods sold ratio improved 1.5 percentage point from last year to 22.6%, driven by better mix of brands and SKUs. Marketing investments decreased 2.7 billion yen from last year. Meanwhile, its share of net sales increased 1.7 points to 28.8%. This was primarily due to increased marketing investments associated with new product launches in EMEAs. And personnel expenses decreased 15 billion yen from last year, improving its share of net sales by 1.2 points. This primarily reflects the results of restructuring efforts in Japan, China, and travel retail. The effects of personnel reductions in the Americas are expected to be realized from Q3 onwards. Other SG&A decreased by 5.9 billion yen driven by a decrease in depreciation expenses and rigorous cost management and others. Next, page 6 shows net sales by region. The sales decline steadily narrowed from minus 9% in the first quarter to minus 3%. While this did not meet our main focus of flat sales growth in Q2, all regions are on recovery trend. We are expanding our market share in areas such as fragrances in Japan, Asia, Pacific, and Europe. Next, page 7. shows a sales trend by brand. Q and Q performances vary from brand to brand. We will carefully evaluate each brand from a strategic perspective to strengthen and expand our core brands and challenges will be properly identified and addressed. A positive sign across all brands is that the growth accelerated or revenue declines narrowed from Q1 to Q2, indicating a steady improvement. Clé de Topo, Botte, Nars and Elixir are performing well and driving growth across the company. Fragrance is capitalizing on market strength, improving in Q2 and accelerating growth in the second half. Unnecessary revenues declined primarily due to travel retail and inbound tourism to Japan, but this was in line with our strategy and generally anticipated in the plan. Drunk elephant and brown shiseido in China and travel retail are seeing a narrowing of their declines, but still in the process of recovering. Therefore, we will closely monitor their future improvements. Now, page 8 talks about the buy region. The figures on the upper left table and the text for the first half net sales and core operating profits show six-month basis, while Q2 market and Q2 customer purchases show the most recent three-month figures to indicate changes in momentum. Japan achieved a significant increase in profit despite the decrease in revenue, demonstrating continued progress in structural profitability improvements. On the other hand, what stands out as a trend is a slowdown in the inbound demand.

Local market in the second quarter continued modest growth. Consumer purchases grew low single-digit percent. Core brands drove growth and share expansion is continuing. Shiseido's new Altamune is continuing to drive momentum. E-commerce sales are maintaining growth at high teen percent. with loyal user purchases driving growth on our online website. On the other hand, the inbound market growing with an increase in number of visitors to Japan began to slow down in May, particularly in the department store channel and inbound consumer purchases turned negative in Q2. We analyzed that incentives to purchase in Japan declined because of factors such as the narrowing price gap between Japan and overseas markets caused by the strong yen, extension of the 6-1-8 shopping season and intensified low price competition in China. Despite the sales decline, core operating profit increased 13.2 billion yen thanks to structural reforms such as reduction in personal expenses due to early retirement and improved efficiency of marketing investments. First half margin was 13.3% and Q1 was higher at 15% due to rush demand before the price hike. We believe low 10% level is our normalized level averaging out such one-off factors. Slide 9 is China and travel retail. It was slightly ahead of sales target. If we focus on Q2 only, growth turned positive YOY in China. China's prestige market growth rate accelerated from Q1 to Q2 and market share expanded in Q2. In addition, 618 e-commerce sales saw fierce price competition among platformers and Price-driven purchasing behavior remained strong, but even excluding the impact of the extended sales period, sales increased marginally. Why or why? We outperformed the market, driven by high-prestige brands. Offline market faced ongoing challenges. Credit Po, Botte and NARS maintained strong momentum overall, including offline channels. With online consumption becoming the norm, Kleropo Botte is promoting customer visits by creating reasons to visit, such as opening a new spa on the upper floors of major department stores and providing the best customer experience possible. We believe that investing in experiences to build equity as a luxury brand is helping us stand out from the competition. Although Shiseido grew markedly in 618, it continued to suffer in offline channels. Travel retail continued to face challenges in the Asian market, and the Japanese market also slowed down and consumer purchases fell to the negative low 20% level. Despite sales decline and worsening business mix, We maintained high profitability with core operating profit of 38.8 billion yen, profit margin of 22.1% via structural reform such as fixed cost reduction and cost management. Slide 10 is about Americas. Americas market maintained YOY growth but fell short of expectations in Q2. Consumer purchases were negative high single percent and drank elephants struggled with results far below our initial expectation. Core operating profit dropped 3.3 billion yen due to sales decline. Shiseido benefited from new product launches with new Ultimune and Mineral Sun Care sunscreens already launched in Japan, fueling growth. We are accelerating structural reforms actions for a swift turnaround of Americas. CEO Fujiwara will give further details about this along with our recognition of challenges of Drunk Elephant. Slide 11 is on Asia-Pacific and EMEA. In Asia-Pacific, market contraction is continuing, notably in Taiwan and South Korea, and sales declined, but overall market share expanded, mainly in main markets. Core operating profit decreased by 1 billion yen due to sales decline and others. Next is EMEA. Q2 market maintained moderate growth, but the pace of growth decelerated. Q2 consumer purchases turned positive after negative growth in Q1. Drunk elephant continued to struggle, but fragrances remained buoyant with Zadig and Voltaire, fueling high growth at low 20%, outperforming the market by far, expanding its share. Core operating profit declined 4.6 billion yen on increased marketing investments and lower gross profit. Both Asia Pacific and EMEA are expected to secure profits on a full-year basis. Acceleration of sales and profitability improvements are expected in the second half. Slide 12 is on 2025 core operating profit forecast. We are expecting some downside risks to achieving sales target, but we will continue with management efforts to achieve 2025 core operating profit forecast of 36.5 billion yen. From next slide onwards, I will explain the major assumptions and initiatives. Slide 13 shows downside risks and opportunities. In Japan, sluggish inbound sales. In Asia Pacific, Americas in EMEA, market deceleration and continuing lackluster performance of drunk elephant are considered major risk factors. On the other hand, China and travel retail are trending better than expected as of now. which we see as an opportunity. Especially in China, although second half of last year was a low hurdle, actual shipment on a preliminary basis in July performed well with double-digit growth. We will continue to maximize opportunities. Slide 14 on tariff impact. As a result of reviewing assumptions reflecting changes in the situation, Sharif impact for 2025 full year is expected to shrink to around 3 billion yen as of now compared to the 7 billion yen a year at maximum which we announced the last time. We will aim to maximize the impact, minimize the impact by executing mitigation actions as described. Slide 15 is on progress on global cost structure transformation. In the first half of 2025, we realized 13.5 billion yen cost reduction benefits on track with the plan. On a full year basis, we will accelerate structural reforms in Americas ahead of schedule as a result accelerating personal expenses reduction and therefore raised cost reduction target from 20 billion yen to 25 billion yen. Furthermore, we will increase two-year reduction targets for 2025 and 2026 from 45 billion yen to 50 billion yen to improve profitability. This concludes my presentation.

Then I would like to talk about the action plan 2025 to 2026. So I will cover the important topics of that. And page 17, the further future initiatives for key brands. For key brands, we are working to strengthen brand equity, not only to generate sales, but also to ensure long-term sustainable growth. At the launch of the brand's hero product, Ultimune 4.0 branch shadow engaged a global campaign aggressively across all regions, making investment at an unprecedented level to acquire new customers. The campaign keywords, freedom from age and slow aging, helped deepen customers' understanding of the product's benefits and create new markets globally. In Japan, autoimmune sales are nearly doubled, and the brand as a whole achieved double-digit growth, maintaining its momentum in the second half. Additionally, the new Shiseido Men Autoimmune, which incorporates the full breadth of 100 years of research into men's skin, was launched on July 21st, with new promotions aiming to accelerate growth in the second half. Clé de Peau Beauté launched a renewed version of its key Radiance Care lotion, emulsion and cream in Japan on July 21. Initial sales have been extremely strong, setting a stage for subsequent global launches. Additionally, on July 25, Nicole Kidman became the new global brand ambassador. Through this, We aim to further strengthen our positioning as a luxury beauty brand, accelerating growth in Europe and the US, and expand our scale globally. For NARS, in the third quarter, we will relaunch the brand's iconic multiple line and create buzz through limited editions and new colors tailored to each region. In addition, we will continue to strengthen our loyal customer base and accelerate sales through a lineup of technologically advanced and topical products, including brands and items that are too numerous to introduce here. Now, page 18, Drunk Elephant continues to suffer from a challenging situation with falling the second quarter results far short of expectations. In light of this, headquarters and local offices work together to conduct a fair and transparent brand review and identified new issues to achieve a turnaround. There are three major challenges. the brand lacked targeting based on a clear understanding of customers. Two years ago, we achieved a significant sales growth thanks to social media buzz around our hero product. Since then, however, the brand's positioning has become unclear and our customer base has weakened as our original target customers have drifted away from the brand. Regarding brand value, Our once innovative, clean formula has now become commonplace in the US market. Our current communications do not adequately highlight the uniqueness and value proposition of our brand over competitors, making it insufficient to attract new customers. Furthermore, products lack groundbreaking innovation, causing us to lose market presence and competitive advantage. Therefore, we have postponed the strengthening of our clinical and high-performance skincare communications and review of our sales floor layout, which we explained last time. And this year, we will first clean up our market inventory, reduce uneven inventory, build in-store engagement, and redefine our value creation foundation. This will lead to successful brand reset campaign from next year onwards. Now, next page 19, we will discuss the efforts to achieve profitability in America's business by 2026. As previously announced, under the new management structure with Alberto as CEO, America's business has swiftly implemented a turnaround plan, completed key restructuring actions, and is now moving to face continuous investment. By streamlining and simplifying our organization, we have departed from silos and clarified accountability between functions. This will enable us to streamline operations and optimally allocate our resources even with the limited workforce, improving the flexibility and agility of the entire organization. As a result, we believe that we have created an environment for even stronger innovation enabling us to achieve sustainable growth and strengthen competitiveness.

Cost reduction benefits of this structural reform are expected to be approximately 15 billion yen per annum from mainly Q3 to Q2 of next year. We expect the half of the impact to be 7.5 billion yen this year and the remaining half 7.5 billion yen in next fiscal year. As for the breakdown, 7.5 billion yen, which is half of the impact, will be from workforce reduction and the remainder will be expense reduction such as downsizing office spaces and optimizing procurement. For office space downsizing, we are planning to post structural reform costs north of 4 billion yen in Q3. America's loss exceeded 10 billion yen in 2024, but we are steadily making progress to returning to profitability in 2026. Next, please move on to slide 20. In the second half of this year, we were planning to implement Focus ERP in Japan on global headquarters, and we have been able to go live in July, and global implementation was completed. With this, standardization and integration of system data was completed globally, and we achieved 80% standardization within Focus system globally. By launching Global One IT's team, We will integrate IT environments that tend to be fragmented by region and enable quick and flexible responses to global business needs. With this, we will increase agility and promote employees' productivity improvements. From here on, we will be transitioning to value realization phase on a full-fledged basis. Real-time visibility into accounting and supply chain data enables rapid global response to issues and opportunities, leading to faster and more accurate decision-making. It also contributes to improving inventory turnover and reducing inventory imbalances by maintaining appropriate inventory levels, thereby contributing to improved ROIC. As we will be able to capture each region's situation using common metrics, it will make it easier for us to share best practices. At this moment, the system has not been applicable to some of the regions, but we aim to maximize return on investments with headquarters support. Slide 21 is Action Plan 2025-2026 Assessments and Future Direction. So far, We have been communicating that we need to complete all actions within this year in order to deliver full benefits in 2026. We have been focusing on speed. As of today, we believe the progress is on track. There are some measures that have not been announced, but we plan to thoroughly implement them during the remainder of this year. As has been mentioned until today, completion of the action plan is merely a starting point. As a strong winning player in the global competitive environment that continues to generate solid returns, we must continue to evolve further. It is not enough to just take action based on the plan. There are more challenges that we need to tackle and more room for us to evolve. In order to bridge the gap between the ideal state and the current, we are currently working on a medium-term management plan, which we plan to announce by the end of this year. The themes will be achieve sustainable profitable growth, optimize cost structure, and reinvest for the next growth strategies. By clarifying the issues that need to be addressed, we aim to accelerate action and achieve profitability that exceeds capital costs at an early stage. This concludes my presentation. Thank you very much.

Now we would like to move to Q&A session. Those who have questions, please use the raise hand button at the end of the Zoom screen. I will call the name, then there will be a pop-up. Unmute yourself and share your affiliation, your name, and then raise questions. Those who have questions in English, there will be original or English language selection at the Zoom screen. speak up. And for the English questions, if you wish to hear Japanese translation, please select Japanese language. We appreciate your understanding for raising questions one question at a time. Now I would like to open the floor for questions. Now I would like to ask Huahara-san from JP Morgan. Thank you for taking my question. This is Kuwahara. Can you hear me? I am Kuwahara from JP Morgan. Thank you very much. I can hear you. So the first half and second half, there were some changes, so I would like to double-check the numbers. So the first half, so the core operating profit was better than the original expectations. What was the increase, and then what was the phasing out of the cost, and then the rest, how much was the contribution from your effort? And my second question is that for the full year, it's shown on page 12, but the cost management against the risks, you have to take many rigorous measures, otherwise you are not able to achieve this figure on page 12, but the cost management Is the one that you were explaining at the beginning of the year, for example, last year from the third quarter, like an emergency plan that you suggested some bonuses and so forth, is that the right understanding that like a similar way of the cost management? Or in that case, you know, whether the impact will also be reflecting in 2026? Well, thank you for your question. Your first question, is that the 36.5 billion for the first, I guess, a full year? And then originally, achievement for the first half was 40%. Therefore, from that perspective, this was the uplift of 8 billion yen or so Well, the market conditions is very uncertain but still we begun and then try to make the cost management rigorously and also we made a thorough review and then we make the some assessment on the expenses and some phase out of the cost the size of that is 5 billion yen or so. So that was the some phase out from the first half to the second half in terms of the cost implementation so my point is that the marketing investment for the future growth we continue to invest and so that investment will be fully utilized and also affecting for the future growth and then for the 13 billion yen of the core operating profit is expected in the second half so the against the sales plan and the four-year outlook is in line with the last year. So the net sales plan is a little short of 30 billion yen, of which that will be realized 20 billion yen or so in the second half. And there are some interest gap and also continued cost reduction efforts. and we maintain our outlook for the four-year guidance. In terms of the cost control, we had the GTC-led additional measures like 5 billion yen that was added. That is one of the reasons to absorb this figure.

In terms of the four-year guidance, you raised questions about the second half.

Actually, last year, we introduced the reduction on the bonuses and so forth in the third quarter last year.

That has to be offsetting this year.

Understood. Thank you for the explanation. In that sense, for this fiscal year, cost reduction is mainly led by GTC, and the payroll is returned in this fiscal year. That will be returned as you expected at the beginning of the year. Is that correct? Yes, you're right. So in terms of the third quarter, the payroll ratio was also reduced. returned compared to the last year's payroll adjustment. So negative impact in the second or the third quarter onwards in terms of the payroll. Understood. Thank you so much.

Thank you very much.

Next, Morgan Stanley, MUFG Securities.

Sato-san, please. This is Sato from Morgan Stanley. Can you hear me? Yes, we can hear you. Thank you. So this is a continuation from Kuwahara-san's question. Based on your explanation, in second quarter sales, you have already incorporated ¥25 billion of downside. Yes, that's right. And if that's the case, then roughly 5% or so is the number. So original plan was plus 10% in the second half, but then it changed to plus 5%. Is that right? Yes, that's right. Especially where? So I understand China is recovering, but which region? Where specifically are you worried about now? And Japan? inbound is changing and domestic demand is expected to be high originally based on your original plan but where are the risks of sales specifically can you tell me specifically so I believe it may be America's and Japan but could you share okay understood so it might be a repetition full year sales It was around 4% growth year on year. That was the original assumption. But now, we believe that there is a risk that it will remain flattish. And major reasons would be first, Japan inbound sales from the end of first half. We are seeing downward performance compared to our expectation. expecting 10%, mid 10% growth in the beginning of the year, but we have changed that to slight decrease or flourish. There is such a possibility. And the second reason, as I mentioned, in America's direct elephant recovery. Compared to the original assumption, expectation, we believe that there will be delay in recovery and the performance remains sluggish. But there is upside factors as well. China and travel retail in the second half. So, of course, there's a low base in last year, but low hurdle. And there is an opportunity of sales increase, and we will make efforts to maximize that. We would like to implement various measures to realize this, especially for the second half. As Mr. Fujiwara explained earlier, for brand, we have plans of introduction of new major products, and we'd like to make use of these launch opportunities maximally, at maximum. Okay, thank you. and five billion yen so this cost that was postponed so where is this uh which region is it which area so it's dispersed to be honest naturally so depending on the region's mix japan china travel retail so it was postponed from these uh shifting costs from these areas so it's like Japan and China travel retail. So not Japan, but China and travel retail has high cost shift. Yes, in terms of the two regions, these two regions, China and travel retail are higher. Okay, thank you very much.

Thank you for the question. So next is Miyazaki-san of the Goldman Sachs. Thank you for taking my question, Miyazaki from Goldman Sachs. I couldn't hear well for the answer of the first question, so let me confirm. In terms of the profit, corporate profit, what was the uplift from the beginning of the year? 40% of the full year was your original expectation, but compared to this 40% expectations in the first half, actual performance, the gap was the uplift. Is that correct? In this fiscal year, there was a structural reform of the Americas region. It's now realizing and contributing 5 billion yen uplift and then so 25 billion yen of the cost management. So do you have any good feel on the achievement? And 50 billion was add on. So what was the reason behind for that? Why there was an uplift? Well, apology for unclear answer, but the 3D 6.5 billion for the full year, 15 billion yen or so, and then original 8 billion was roughly uplift this first half. That's the result of which, of course, we are taking on the cost restructuring effort, and also some new measures are in place. So there are some uncertainties in the second half, so try to alleviate such risks through such initiatives. And then in terms of the global transformation, 5 billion yen is now added and mainly coming from America's region. Compared to the original timing, so America's restructuring effort has now advanced. So that's 5 billion yen. is mainly driven from the America's region, as you say. And the size of the America's region, the cost structure reform was bigger, quicker, and deeper. So that was the result of the additional 5 billion yen impact, and also the 45 billion original expectation, but now uplifted to 50 billion and so forth. And then that cost reduction effort will also contribute. Thank you so much. So let me double check, 8 billion yen of the first half uplift, of which 5 billion was the cost phasing, right? So it has to be recognized as a cost in the second half, right? Well, yes, we phased that cost in the second half. However, so we are now taking some risks of the in the second half, so margin of profit and so forth. Therefore, we would like to continue to monitor the expenses in the second half as well. Understood. Thank you very much.

Thank you very much. And in Ms. Hirofuji, 2024-2025 added. was from 45 billion to 50 billion yen. There's an increase, but this is two years of 2025 and 2026. I just wanted to make a correction. And the next question is CLSA Oliver-san, please.

Hello, thank you. Could I ask a first question? I know you're still working on the midterm plan, but with the good progress you're making, are we correct to assume that you're still targeting double digit? Your chair recently suggested you should be targeting more than 10% operating profit margin.

Yeah, thank you very much for your quick questions. Yes, we want to be the winner of the global company, so the tenfold double digit OP margin is the target for us.

Great, thank you. I think you'll get there. Second, a bit of a technical question. On the page, Twenty three. You show adjustments. I think these are same as headquarter costs, but they declined a lot from last year, like by eight billion. Could you explain what the difference is?

Thank you for raising this point, Oliver. This is indeed the adjustment piece would be incorporating the HQ costs. However, there are some technicalities with respect to foreign exchange rates differences. So allow my IR team to be following up separately with you to clarify what exactly is captured in the adjustments, as well as the others, actually.

Okay, but we should assume they continue a kind of positive downward trend. Is that right?

Yes, indeed, headquarter cost has been reduced since, you know, in this quarter as well through cost reduction measures that we have been implementing. And that is indeed captured in this adjustment section. But in addition to that, there are other foreign exchange savings that is captured here as well. So it is not necessarily entirely from headquarter cost reductions. So I just wanted to clarify that point.

All right. Thank you.

Thank you for the question. Thank you very much for taking my question. Can you hear me? My name is Hirozumi of Daiwa Securities. I have two questions. So in terms of the net sales for the first half, it was the uplift, and you explained that earlier. call operating profit but I just want to ask the question about the net sales what was the result of the net sales in the first half in your earlier explanation I may misunderstood understand that the second half you anticipate that itself in the second half because there is no change in the four-year guidance so what was the achievement in the first half and in this how should I interpret the second half target for the net sales well We do not incorporate or embed all the sales to be achieved, but there is certain risks. And, of course, the four-year guidance that roughly 4% growth was anticipated, at the moment, we see that it is in line with the last year's result. And then the first half performance was... 5 billion yen or so, and then 25 billion yen in the second half would be achieved. So there's certain risks of the declining internet sales. Okay, so there's a risk, but still there's an opportunity. That is why four-year guidance has not been changed. Is that correct? You're right. Based on certain risks, Of course, we'd like to manage properly the cost management measures and need to have a good conservative view on the sales achievement. So page 13, so a sales plan has not been changed, but there is a risk. You are making some heads up, right, for the second half achievement. Is that correct? Yes. Thank you. Now, the Americas region, I just want to understand the net sales achievement. So page 6, so you have the quarter by quarter, and Americas has a positive 4%, right? Plus 4. And then this is the sell-in, I believe. But the customer purchase in the second quarter was the single digit or high second single digit, right? So... What is the gap between the two, the customer purchase and the sell-out and sell-in? You're right. There are certain differences in sell-out and sell-in, and especially for the second quarter of America's region, there is the brand Shiseido mineral sun care products to be launched in the third quarter. That new product launch is coming, so we are very much expected for the good sales. But this was the upfront shipment was recognized. That is the positive figure. And the actual sales for the customer sell-out will be realized in the third quarter onwards. Understood. Then, page 10, the high single-digit figure. So how would you evaluate that? So, yes, page 10 for America's. So high single digits that you are expecting, right? For the sell-out. Yes, in terms of the customer purchase, we see the positive trend for the customer purchases. One reason, under the current momentum on the retail sales and e-commerce that we are running, and those two will contribute for the second half growth. So, America's region is very uncertain at the moment for the economic growth, and what is your perspective of the customer behavior in the third quarter onwards? Well, I believe there is not really big impact on the economic conditions, but beauty trend, quarter one to quarter two, there were some improvement in the customer purchase behavior. So, of course, there are certain external factors, but the beauty market is, to some extent, stabilized. Then, the situation for the customer purchases in the third quarter onwards is also in favorable, correct.

Thank you. Next, Mizuho Securities. Miyasako-san, please. This is Miyasako from Mizuho Securities. Thank you. Thank you, too. there is an upside you mentioned China and travel retail this is my question in the first half until first half how much upside in sales and also profit and is it the market that was good or is it that your market share is increasing and also how do you look at how do you view the market in the second half China and travel retail compared to our expectation, it's not that there is a major uplift, there is a challenging market situation, it's the same for us as well, but Clé de Poboté, DARS, the key brands performed very strongly despite the challenging market and we have been steadily increasing our market share and this is something that's very positive for us and we We'd like to continue this momentum in the second half as well. We have major events upcoming in the second half, and we would like to maximize the impact. And from second half onwards, especially in Q3 last year, China and travel retail was more than 20% negative. So it's a very big dip, and it's starting from a low base. And compared to that, we believe that we can surely increase. in q1 travel retail was better than your expectation and for q2 travel retail and china both was slightly better than your expectation yes exactly the market had recovered slightly and also in q2 we have been able to expand our market share so we have been able to grow steadily in travel retail the future is in transparent so and for that part we are looking conservatively because of that but when the market recovers this will be a positive factor for us and as for China as here Fujisa mentioned earlier customer trends and consumer trends are recovering slightly little by little and And at the same time, for W11 this time, we are forecasting slightly pessimistically, but looking at the first half situation, 618, we were able to mark strong sales, so there might be some upside for W11 also. And China and travel retail, so last year you forecasted slight decline, Does this view change? Have you changed or is China and travel retail trying to change over mid to long term? China and travel retail, it's not that we intentionally suspend sales, although we can sell. It's not that we are going to force ourselves to reduce share products. Because it's a big market, we would like to capture market share, but we don't want to have set excessive expectations and set budget. we don't want low quality growth we are not going to chase after short-term growth rather we would like to grow over long term in high quality to be able to control China and travel retail market and that's about you mentioned you have increased your market share is it in the key brands or is it that your share is growing in China overall looking at Q2 only So our market share fell in Q1, so in Q2, prestige beauty market, we have been able to confirm our growth in market share. So that means a share of brand Shiseido has increased also? So brand Shiseido was slow, and that was offset by the strong performance of NARS and Clé de Peau Beauté. So brand Shiseido, there is no change. So this is something that you can expect in the future. So to break down, e-commerce, we have been able to capture share, but offline channel. There are stores that are selling well, some that are not selling well. So there's clear difference, and that's challenging. So overall, Grand Shiseido has seen share drop. But online, we have increased share. Thank you.

Thank you very much.

Kawamoto-san from Jefferies. The floor is yours.

Hello.

Thank you very much for your explanation. Kawamoto from Jefferies. Thank you. Page 19, so the actual probability of the ninth, page 19. So a steady growth, a steady progress toward returning to profitability for Americas. So what is the number of people to reduce the human resource, or how many of us reduction are you expecting and this and other risks you in the middle of the chart what are the other risks and know how much I should be aware of in terms of the marginal profit it looks like a contribution of the margin is quite large so I just want to understand how accurate this no chart is so in terms of the conviction and the probability of this chart. I believe this is quite trustworthy. And then we have already implemented the structural reform in the US. And based on that, we now show our plan in terms of the office cost reduction. The cost space is already implemented. As was explained by the CEO presentation, as a result of such a cost reduction, 4 billion yen or so of the temporary cost reduction is implemented, and then roughly 300 or so human resources was reduced. So in terms of the probability of achieving this focus, it's quite solid. And other risks include Drunk Elephant, the declining sales, as well as the contribution coming from the Drunk Elephant and also other risks as well. So those potential risks will be offsetting by the other cost reduction measures. That is what we are doing at the moment. Well, thank you for the clarity.

Thank you. Are there any questions? Does anybody have any questions?

Please use the raise hand button if anybody has any questions. No.

Kuwahara-san, please.

So thank you for taking my second question. My name is from JP Morgan. I would like to ask for supplemental information explanation. America's impairment test. You have done the test, and this time you are not going to post impairment. But I believe that this possibility is increasing. So you will continue to make improvements and efforts, but the risk is increasing what does it mean so it's a simple question drunk elephant is it the delay with drunk elephant or are you thinking about the market environment can you explain about this so there is risk of impairment loss and this is the slowdown of sales recovery coming from a drunk elephant and discount rate interest rate increase discount rate might increase and also the impact of the tariff. Based on that, we are renewing the future cash flow and we are evaluating cautiously the possibility of impairment loss by brand we are not doing impairment loss it's done by region so the overall cash flow and we compare that to the carrying amount and this year we thought that the risk has been increasing and therefore on quarterly basis we have been doing the test and in q2 the slowdown of sales and drunk elephant and others because of such factors we have disclosed this thank you so the progress you mentioned about the progress you are looking at the track record and you have mentioned earlier about sales there's downside risk But you did not apply that as a part of the test.

As of now, the risk has been incorporated.

So including that, it was safe. So yes, we have put some assumptions, and we have done the impairment test. And in Q3, we will look at the progress at the time. and profit sales forecast will be incorporated to do the impairment test. That is what we are assuming. Thank you. I understood.

This will be the last question. SBC Nico, Yamanaka-san, the floor is yours. Thank you very much. This is Yamanaka from SBC Nico. So for the next year action plan, and the core profit, how you are evaluating the uplift or downward risks, because originally in November last year, 2020 compared to 2024, the net sales and the whole OP margin, it should be growth rate would be very hard and the 7 billion yen or so would be uplifting. That is our expectation. However, for the net sales, there is the downward risks but still the cost reduction effort is now better than expected but still in case the net sales in the second half would be difficult then the 70 billion in the second half may be rather difficult or travel retail is gradually picking up in the second quarter then It could be quite a good mix of the sales. Even the sales is slightly sluggish, but still 70 billion is achievable. Is that what you're thinking? Which is correct to understand your feeling? Well, to be honest, 2026 guidance will be disclosed at the right timing. we have risks of the net sales reduction and also the cost reduction is having good progress and so the 7% growth potential or the target this is unchanged so let me add in terms of the net sales there are some ups and downs for that we are evaluating the risks properly, and then we need to solidify our prime growth. And with that stable net sales target, we would like to achieve this 7% of the initiatives. So this is the intention of the cost-restriction measures, and even though there are some difficulties in the second half, we would like to achieve this 7% of the profits. then the OP margin 7%, you are making sure to achieve that, but in terms of the amount, you'll be disclosing at the full year report. Is that correct? Yes, you're right. Understood. Thank you so much. Now we would like to close the Q&A session now, and we also would like to end today's earnest briefing call. Now, after this session, there will be some questionnaire to be popped up, so please make sure to fill in. So thank you very much for your attendance today. Thank you very much.