Shiseido Co Ltd
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Shiseido Co Ltd
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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 impact was up by 7% year-on-year. Sales decline 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 demand. The market had faced difficult situation from the COVID impact for some time, but we are finally accelerating the growth momentum. Americas and India continued to perform strong from last year, contributing to the overall growth. By brand, our global brand, SHISEIDO, Clé de Peau Beauté, Drunk Elephant, and NARS captured 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, primarily contributing to higher gross profit from increased sales in 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 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 1.
Next is Page 4, the P&L executive summary. The core operating profit was ¥12.5 billion, an increase of ¥8.2 billion year-on-year. Operating profit was ¥10.5 billion, an increase of ¥6.1 billion year-on-year. There is a ¥2 billion loss in nonrecurring items for the quarter from the impairment losses and structural reform expenses and others related to the Kuki Factory transfer. Profit before tax for the quarter was ¥10.3 billion, an increase of [¥3.2 billion] [ph] year-on-year. Profit attributable to owners of parent for the quarter was ¥8.7 billion, an increase of ¥4.3 billion year-on-year. EBITDA was ¥24.9 billion, an increase of ¥7.8 billion versus last year. EBITDA margin was 10.4%.
Next is Page 5, the results by brand. Global brands, SHISEIDO Clé de Peau Beauté, NARS, and Drunk Elephant significantly contributed to the overall sales growth. SHISEIDO and Clé de Peau Beauté captured solid sales in EMEA and Japan and also achieved double-digit growth in China. The brand 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 strong. 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 have 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. The 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 and 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 on 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 13 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, aiming 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, in-bound market showed recovery trends from increase in 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 in-bound market fully resumes.
Japan business in 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 in-bound.
In terms of local market, which is the core area of business, the brand Clé de Peau Beauté 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 [indiscernible]. This product is the next core item of the brand after ultimately, realizing a growth of high-single-digit.
Furthermore, ELIXIR, which has turned into a growth trend after the renewal 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 1 share position in skin care 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 1 in brightening market share had a good start with the new innovation that was launched on March 21. 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 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 area 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 Ihada.
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 this time promotion. 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 evaluated that the overall progress is on track to our strategy. By brand, SHISEIDO and Clé de Peau Beauté 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 off-line as traffic recovers.
Although there is the 6/18, June 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 eased 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 brand SHISEIDO, NARS, and Drunk Elephant.
In total 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 continued to achieve strong growth, led by NARS and ANESSA by strengthened 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 2 points from 27.5% in the fourth quarter of 2022. This is due to impairment and restructuring costs associated with the transfer of Kuki plant, which were recorded in the current period. The new cost ratio shown by the dotted line was 21.6%, showing a steady improvement in real terms. In the second quarter, the impact of product supply at the Kuki factor 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. As core operating profit by reportable segment, Japan saw an increase in profit, mainly due to higher margin from higher sales and the promotion of cost efficiency measures, China increased profit on 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 versus [as previously] [ph] allocated to the brands to be transferred will redeploy to the ongoing businesses to accelerate growth.
The increase in profit was achieved despite the absence of large scale of G&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 lower 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 strengthened 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 skin care and strengthen activities in base makeup, point makeup and sun care. We will aim to increase the number of loyal customers and achieved strong sales growth by strategically launch 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 skin masking. Since March 13, we have seen an increase in demand for skin care products to address skin cases such as lines and wrinkles around the nose, mouth, as well as an increase in customers seeking base makeup and point makeup, especially lipstick. Seeing this opportunity, the launch of Clé de Peau Beauté, [Cushion Foundation] [ph] in March and [indiscernible] in 24 colors in April have been extremely successful.
Brand SHISEIDO also got off to a good start with the launch of 20 colors of techno setting gelled lip on May 1. In the mid-price MAQuillAGE brand, we are strengthening eye color and mascara products to meet the demand for eye makeup. And in May, we introduced loose parlor-less powder to the growing market for face powder to capture make-up demand. In the sun care business, which is entering the period of full-fledged demand, the company aims to expand market share by linking in in-store sales and mask promotions for ANESSA.
Along with such innovation and aggressive marketing, we will simultaneously improve productivity and restructure our cost structure. In terms of costs, we will ensure cost reduction by improving mix reducing uneven distribution and returned and improving factory productivity by way of increasing the promotion of skin beauty brand and core SKUs in particular.
The reduction of returned 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 auto suspension prior to renewal and maximizing, minimizing the over-the-counter inventory, which has a certain effect in quarter.
In addition, we’re also [formally] [ph] advancing actions to achieve the low – 60% lower SG&A expenses. We are working to establish an appropriate personal structure and improved 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 attrition.
In addition, the organization has been underway and it's been proceeded as planned a number of offices to be reorganized from 58 to 23 in July. We will continue our efforts to further improve operational efficiency in conjunction with the acceleration of the hybrid work. In addition, we [indiscernible] from convenient stores as part of our selection and concentration in customer contact points in-line with the strategy for sustainable growth. We will provide more specific growth now 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 off-line growth and strengthen our responses to the diversification of online platforms with an emphasis on sustainable profitability improvement by the brands such as Clé de Peau Beauté, Brand SHISEIDO and NARS. In Clé de Peau Beauté, we will capture the momentum in luxury uses in the higher prestige market.
In addition to continuing to strengthen the Supreme series, our top end line, we will implement a height of Radiance campaign, a measure to increase awareness of the brand's unique value of Radiance. And the campaign aims to attract new users with [indiscernible] face of the brand. And we will also work to promote the ramp of rolling out set boxes to [indiscernible] with the good-given season such as Mother's Day and 520 known as the day of loving China.
As for Brand SHISEIDO to rebuild its brand value and prestige image. We will strengthen the brand experience and the top-end future solutions line through the offline events focus on the high function products and launch of the wrinkle cream [bactofection] [ph] wrinkle relief as one way to expand appeal on its efficacy and stimulate demand for 680 products. And in addition to the light reflecting foundation, which performed extremely well last year announced plans to further strengthen expand foundation category to launch a new lip product in May to cultivate new product categories.
And in addition, we look to promote demand launching limited edition packages to capture the total fees, and we will steadily implement these initiatives to accelerate growth from the second quarter and onward.
So, this concludes my presentation of the first quarter results and the future initiatives. Lastly, I would like to introduce the looking good corporate message campaign on Page 14, starting with the newspaper ad on April 3 and commercial on May 7, we rolled-out the looking good message, corporate message on it. The status of our new coronavirus infection was moved to category 5, and we are developing this campaign with the hope that part of cosmetics and beauty will encourage people all over Japan to have good faces, the exquisite 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 specialty stores, drugstores GMF and department stores, the campaign message is being used in conjunction with the activities to utilize the power of people, such as skin diagnostics, skin care and makeup application and churning, well, addressing the needs of each customers.
We will continue to support each customer's good – looking good by meeting their individual needs. In this way, we will accelerate our growth potential by simultaneously expanding our market and market share by some – that will energize the industry as a whole in response to the consumer awareness and in-bound demand and will have greatly impacted by COVID.
Now we would like to go into the Q&A session. From JPMorgan – Ms. Kuwahara from JPMorgan.
Hello, this is Kuwahara from JPMorgan. Can you hear me?
Yes, we hear 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, is 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 a consolidated basis, like-for-like Q1 is 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 have the rush to buy before the price increase, so that probably gave us a little bit of a hike or push in sales. And to the 11% on a consolidated basis, it may seem a bit weaker. But originally, China and the in-bound 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 profit, there are some gaps of about ¥4 billion of when the cost will be booked, but excluding that, is what you're seeing on a year-on-year basis. But that too is within what we have expected. And that will be 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 more about is the investments being delayed too, especially for Japan, the mid-price range overall isn't really coming back. But your company is your company is investing and the talking about innovation and bringing back your brand power. And that is one of the contributors for the profit 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 investments, but there's other some expenses that will be carried over to the next quarter. And there's some 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, these expenses being carried over to Q2, there's no impact. It has no impact to the marketing activities.
We would like to move on to the next question. Hirozumi from Daiwa.
Hirozumi 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 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. Just so the – this is – but the brand held by the headquarter, sales associated with that is, we make sales from the headquarters and shipment is associated with the margin increase, which is about ¥3 billion. In addition to that, there is the ForEx impact. Also, there's a ¥3 billion of ForEx impact.
So, I think the brand holder. Is it a brand holder – of the headquarters, is brand holder? So, it [indiscernible] didn't do so well. As in the case of Page 5, yes. Having said that, but then the shipments of other brands was much more significant. And so, what brand is doing well in terms of the shipments in the other segment, Brand SHISEIDO, CPD were the main brands from the headquarters.
Okay. So, on the left, Page 5 on the left, on the Brand SHISEIDO and Clé de Peau Beauté, and so these did quite well then.
Yes, I understand now. So, then going forward, how to interpret the other segments. So the Brand Shiseido and Clé de Peau Beauté will do well. And then there's the ForEx with the yen depreciation. So, how to make an assumption?
So, I think this is going to shift as planned. So, we have difficulty in accurately assessing how the ForEx will move, but as long as the sales 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 assumptions. So the Brand SHISEIDO, the Clé de Peau Beauté have the higher margin. And when they ship more than it drives the 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'll go into the next question from Morgan Stanley. Morgan Stanley, UFG Securities, Miyake.
Thank you. I have a question around sales of EMEA and Americas. On Page 6, it's growing 20%, 30% and is performing well. So, I wanted more detail or clarity on that. Drunk Elephant doubled, NARS grew. So, I know these are the drivers, but of this increase in sales, it was this brand, it was the start. If I can have more clarity around that, that would be great? And also, so I understand, is it doing well because the market is doing well? Or are there other reasons? Or is it linked to the storefront sales? So about – some details around that as well. Thank you.
So your question is about Americas?
Both Americas and EMEA.
The sales are both 22% and 30% – America, 30%, EMEA, 22%. So, that's very strong. It looks very strong.
So more of the detail or breakdown of this. EMEA 22% and Americas 30%. So, if you could just maybe from what impacted the numbers significantly, have more clarity. And going forward, how – 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 Americas, the biggest driver was Drunk Elephant. As 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 sell-out. Actual sell-out was growing by about 30%. But the sell-in, there were so retailer inventory, so the sell-in wasn't catching up to the pace. So therefore, from about December onwards, we used the sell-in started to catch up, too.
So finally, the sell-out and sell-in GAAP has kind of come together and gave us a strong numbers in Q1, which has given us over double performance or sales performance for Drunk Elephant. And another [indiscernible] serum, that was a big hit. Last December alone – I heard that December sales was about the last full year sales. So, it was halo effect. So the man's protein and other products, there was halo effect from the [indiscernible] and sustaining the Drunk Elephant strong sales.
And to accelerate the 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 NARS, we have the light reflecting foundation. The reflection foundation, that was successful last year, not just in Americas, but it's a huge hit globally. And so that high performance of NARS that were 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, Drunk 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 Americas, these are the high contributors to our sales.
For EMEA, similarly, the market itself is very strong. It’s experiencing double-digit growth. The strong drivers to the EMEA performance is also the fragrance, and 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, Brand SHISEIDO, NARS, Drunk Elephant, similarly are performing well.
As for Brand SHISEIDO last year, we launched the bio performance skin filler, and that's been a huge hit, so major part of the contributors.
Okay, thank you. So the market is 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 afterward your balance.
Well, as for the market outlook and economy, it's what you hear on the news similar to all of us. In Americas, we will be focusing on what will happen in the second half of the U.S., for example. But that's 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 would like to take the next question from SMBC Nikko Securities, Yamanaka please.
Hello. Yamanaka from SMBC. Earlier in your explanation, the information on the cost, Page 10, I'm looking at. And so, from the second quarter and onwards, did you say that it's going to improve by 4 points? So, about the cost of goods sold and it's assumption from next quarter or the next year and onwards. Also, I would like to know – so, you are looking – are you looking at Page 10?
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, is the cost in the real term is the 21.6% with the remaining business – existing remaining business. And there is a gap between the COGS and COGS LFL. And for this particular quarter, there's an impact of impairment losses from the Kuki Factory transfer, which is 1.8 points associated with the transfer. This is a onetime phenomenon. So this will be eliminated going forward.
And also in association with the business transfer, there is – from Kuki Factory, there's a contract manufacturing, as in the case of the normal business, so unlike the normal business, it doesn't earn as much margin. And therefore, there will be about a 4-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, is – we are going to get closer to the numbers described with the dotted line in a 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 [indiscernible] from – deriving from Kuki Factory will be eliminated. Therefore, there will be a 4 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 Kuki Factory will happen in the first of April. And so there may be some costs associated with it, but then the 4 point will be eliminated for the provision and the supply.
Thank you.
Going on to the next question from Nomura Securities, Ohana.
Hi. My name is Ohana from Nomura Securities. I have a question regarding Travel Retail. The Travel Retail sales compared to other competitors' Travel Retail, you performed well. You were competitive. In your materials, you said South Korea did not perform well, but what about Asia? Hainan Island, South Korea, Hong Kong, and Ginza, what kind of plus and minus were there to result in these numbers? And for China, there has 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. South Korea ratio of our company sales, it's about 40%. You see the portion. But with the South Korea different policy change, there's been adjustments in inventory. So for Q1 versus last year, it impacted us by 50%. So that is the biggest impact reason – impacted reasons. In China Mainland and rest of Travel Retail Japan and Travel Retail West is covering for this loss. But as a result, though, we could not offset all of it. So therefore, it ended at minus 4%.
For Hainan Island, our sell-out is in the mid-20% in terms of the sell-out sales. If you are aware or if you remember from last year, last year, there was a China lockdown. So, as a result of that, our sell-in went out first. So, we have the advanced sell-in. So, the timing of the planning, Hainan was about 5 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 done pretty – have been quite good for the 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 Island momentum, we only have the data from the air flight travelers. So looking at just the flight, so not excluding ships and others, but by flight January to February, there is 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 flying. So, I think we're overall seeing the recovery in traffic to the 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?
Yes. 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 not to optimize, but that's all been planned.
Okay. Thank you very much.
Going to the next question. Miyasako from Jefferies Securities.
Miyasako speaking. So, I would like to ask a question about in-bound and how it is recovering, but 10%-plus, high 10%, and you have a plan for 70%, plus 70%. And the Chinese in-bounds are not recovering so much. And so what is your assumption on the shopping patterns or the behavior?
So, the Japanese in-bounds – so at the time of planning was to consider that the recovery will happen from second quarter and onwards. And also, when we look at the current situation, we – indeed, we see some recovery in 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. So, however, this is the recovery from in-bounds except Chinese travelers. So, the more robust recovery should happen when the – 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?
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. And in any case, our plan is to expect 70%-plus year-on-year. So, 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 assumptions.
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 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 in-bound topic. So, Korea – so the Hainan. And also, do you think that there needs some in-bounds 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 have affect the market. And in any case, we would like to increase the local Japanese market or the business. And if that is compounded or the supplemented by the in-bound business that will be great. So that's sort of the assumption that we are making.
We'd like to move on to the next question. [Foreign Language] From JPMorgan Asset, [indiscernible]. Can you hear me?
Yes. Ohana asked a similar question, but about China and Travel Retail. The sell-out, 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 is it – so 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 Clé de Peau Beauté, what is supporting these consumer purchase?
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 single – early, the low-single-digit growth. The growth is about mid-single-digit. So, about 5% was from off-line. 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. I want to heighten the improve on the brand equity, and that's been the strategy. So, the huge promotions.
The expectation to these huge promotions were not very high because of our strategic conversion of how we want to approach these promotions, but to ask for that, we are lower in share to competitors, but that's because of our strategy. We don't want the extreme promotion. But offline, we’re recovering of the market, especially, Brand SHISEIDO. We believe that we are capturing the market share, and we are on progress to capturing the market share for Brand SHISEIDO offline. So, I believe that overall, we are doing well. And our doing well to the progress that we want to achieve in terms of the China market. And for Travel Retail, what was your question?
So, 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 sell-out. So, 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 sell-out?
So, you're talking about Hainan Island or…?
Well, Travel Retail overall.
What was good was the Travel Retail Japan. Those 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 agents, excluding people from China were the driver to the growth of Japan PR. In PR West, is – has solid growth. How are we against the market? I do not know. We do not know. But the Travel Retail West is doing well too. Then the rest will be – now for Hainan, as mentioned earlier, it's in the mid-20%. Along with the traffic recovery, I think we are capturing the demand.
So, for Travel Retail, the mix of consumers are different from Japan players, Japanese players. And for travel retail, for Hainan, the traffic is coming back. So we'll as – we can only capture some of the information for domestic flights. And for January, it's been increased by 20% to Hainan Island from the domestic flight. 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.
The next question, so I would like to take last – two last questions. [Operator Instructions] From UBS, Kawamoto.
My name is Kawamoto. I hope you can hear me?
Yes, we can hear you.
So – and just on the increase of operating income, ¥8.2 billion. I would like to understand it better according to [Hirozumi] [ph]. So half of it comes from ForEx impact. And so from the second quarter, so I think the ForEx impact is going to settle. So, I believe that there may be some shift in the end. So, 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.
Thank you. So, about the assumption on the increase in the operating profit. So, I believe we're 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 based on the currency assumption that we have, of course, the – if there is a movement in the ForEx and potential, there may be some shift, but – so yes, your assumption is correct at this point in time. And I believe you had a question about China.
So, was the increase in the operating income in China, is it due to lower fixed cost? Are you talking about Q1?
Yes. Certainly, yes. We have worked on the reducing the fixed cost. But the biggest element is the impact of the shift in the booking top numbers.
And also in Europe about the last minute purchase before the price increase, was there any increase in the cost or was 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 the price increase will – was carried out in our first quarter in EMEA and the U.S.
Thank you very much.
Thank you. Next will be the last question. Mitsubishi UFJ Morgan Stanley, Sato.
Hi. This is Sato. I didn't think I will be called upon. Thank you. Page 20, SG&A. [¥2 billion] [ph]. So you said ¥2 billion 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, shipping – shipment of samples, for example, that's a 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 and 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. What we have to pay to D&G. So that was why it looks lower than last year.
The ¥4 billion. That's only in China?
No, it's not only in China. It's other 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. We will be sending you a questionnaire survey from the IR department. We would love to get your feedback on this survey so that we can continue to improve our IR activities. With this, we would like to close the phone conference. Thank you very much for your attendance today. Please don't forget to close your phones. Thank you very much.