Shiseido Reports Record Profit after Makeover

Japan’s largest cosmetics maker, Shiseido Co Ltd., Tokyo, reported a record profit for the latest business year on Wednesday as aggressive cost cutting and strong overseas sales helped to wipe out two years of red ink. Shiseido, whose brands include Cle de Peau Beaute, Aupres and Ipsa, attributed the turnaround to its efforts to trim inventories and cut its catalogue of brands, which lowered operating expenses.

“Sales growth and a sharp improvement in cost efficiency led to record earnings,” said president Morio Ikeda.

The company posted a group net profit of $208 million ($24.50 billion yen) for the year ended in March, swinging back from a loss of a year earlier when special losses on stockholdings and product recall charges hit its bottom line. The profit, which topped the 1996/97 record of 19 billion yen, was in line with the firm’s target and analysts’ estimates. Revenues grew 5.3% to a record 621.25 billion yen as healthy overseas sales offset soft demand for make-up in Japan.

For the year started in April, Shiseido forecast another year of record profits and sales–2% and 3% respectively.

Shiseido’s stock has lost about 22% this year, under-performing a 2% drop in the TOPIX index, due in part to investor concern about the impact of the SARS virus on consumer spending in Asia. Shiseido’s sales in Hong Kong and China were down 20% in April and May from a year ago but Mr. Ikeda said the firm was sticking to its forecast of a 25% rise in sales in China this year.

“We believe there will be some solution to the disease and the current scare will not last long. But if it does, we may need to revise our sales forecast,” he said.