The Company's SHIFT 2025 Strategy And ELIXIR Launch Will Enhance Profitability And Fuel Global Expansion

Key Takeaways

• Structural reforms and new high-end products drive cost savings, operational efficiency, and profitability, enhancing margins in Japan and China.
  
• Strategic price increases and inventory management bolster growth amid Travel Retail challenges, promoting robust revenue and EPS expansion.
  
• Declining demand and operational challenges in key markets like China and the Americas negatively impact Shiseido's sales, profitability, and revenue growth prospects.

Catalysts

Engages in the production and sale of cosmetics in Japan and internationally.

• The company's structural reforms, particularly in Japan and China, are showing promising results in terms of cost savings and operational efficiency. This is expected to positively impact net margins and overall profitability.
  
• The launch of new products such as the ELIXIR's Youth Accelerator Serum has been successful, contributing to brand growth in Japan, which can potentially drive revenue growth as these products gain traction in other markets.
  
• Despite challenges in the Travel Retail segment, the company's efforts to rigorously manage inventory levels could help stabilize and improve margins by reducing costs associated with overproduction and excess inventory.
  
• The implementation of strategic price increases and improvement in the product mix through newly launched high-end products are expected to enhance gross profit margins and support revenue growth, particularly in Japan and EMEA.
  
• The company's SHIFT 2025 strategy aims to build a more resilient and profitable business structure by reducing costs globally and enhancing operational efficiency, which could contribute to a stronger EPS growth in the coming years.

Shiseido Company Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shiseido Company's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 5.0% in 3 years time.
• Analysts expect earnings to reach ¥54.1 billion (and earnings per share of ¥145.03) by about January 2028, up from ¥2.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ¥42.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.1x on those 2028 earnings, down from 560.4x today. This future PE is lower than the current PE for the JP Personal Products industry at 25.6x.
• Analysts expect the number of shares outstanding to decline by 2.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.89%, as per the Simply Wall St company report.

Shiseido Company Future Earnings Per Share Growth

Risks

• Declining consumer demand in key markets such as China and the Americas has resulted in reduced sales, which could further impact Shiseido's revenue and earnings if these trends continue.
  
• The high-margin Travel Retail segment is experiencing a significant sales decline, affecting overall profitability and leading to a downward revision of profit forecasts, potentially impacting net margins and earnings.
  
• The company's reliance on cost efficiency and structural reforms to maintain profitability, particularly in Japan, may not fully compensate for declining sales elsewhere, impacting future revenue growth prospects.
  
• Challenges with IT system implementation in the Americas have led to production shortfalls and delays in sales recovery, potentially impacting immediate and future revenue generation.
  
• Given the need to restructure the business to adapt to declining sales in China and Travel Retail, Shiseido may face increased operational risks and costs, affecting its ability to meet profit expectations and maintain stable margins.

Valuation

• The analysts have a consensus price target of ¥3066.43 for Shiseido Company based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥3760.0, and the most bearish reporting a price target of just ¥2530.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥1088.9 billion, earnings will come to ¥54.1 billion, and it would be trading on a PE ratio of 25.1x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of ¥2786.5, the analyst's price target of ¥3066.43 is 9.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.