I would like to present to you the financial results for the first quarter of 2023. Please refer to page three. 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 declined in China due to infection re-expansion in January, and in travel retail due to the retailer inventory adjustments, primarily in South Korea. However, we are on track with the guidance. On the other hand, Japan realized solid recovery led by strong performing high price range sales and with the enhanced new product launches that capture the recovering market demands. The market had faced difficult 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 JPY 8.2 billion, primarily contributing to higher gross profit from increased sales and agile cost management, as well as FX impact from JPY depreciation. The company started off the year on track to the annual guidance of JPY 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 1st. Next is page four, the P&L executive summary. The core operating profit was JPY 12.5 billion, an increase of JPY 8.2 billion year-on-year. Operating profit was JPY 10.5 billion, an increase of JPY 6.1 billion year-on-year. There is a JPY 2 billion loss in non-recurrent 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 JPY 10.3 billion, an increase of JPY 2.2 billion year-on-year.
Profit attributable to owners of parent for the quarter was JPY 8.7 billion, an increase of JPY 4.3 billion year-on-year. EBITDA was JPY 24.9 billion, an increase of JPY 7.8 billion versus last year. EBITDA margin was 10.4%. Next is page five, 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 the 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 last year. Consumer purchases have been showing very strong growth momentum from second half of last year. 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 six, the net sales trend. The like-for-like net sales for the quarter was +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 -10% last year has shrunk to 3% for this quarter. With January hitting bottom, it has been showing a recovering trend since February. If you could take a look at the second column from the right, the total net sales was equivalent to 2019. The good news is Asia Pacific and EMEA that was underperforming against 2019 as of last year turned into positive. Even though Japan is on its recovering trend, it is still over -30% versus 2019. We will continue to work on its growth acceleration from Q2 and onwards. Next is page seven on Japan business. First of all, in terms of the Japan market, it showed solid recovery every month over Q1.
We see that the mask regulation being lifted on March 13th has had its impact on market recovery. For Q1 total, the local market growth was mid-single digit. To highlight, January was low single digit, February and March were high single digit in growth expansion, April is continuing this high single digit market growth, seeming to prove its momentum improvement. In terms of price range, high and low price ranges drove the market, while mid-price range remained flat year-on-year. On the other hand, inbound market showed recovery trend from increasing travelers from Asia, excluding China, Europe, and the U.S. We will start various initiatives as we eye on the timing of Chinese tourists to visit again, fully preparing ourselves to seize the opportunity when inbound market fully resumes. Japan business 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 purchases was high single digit for the total, mid-single digit for local, and high teen percentage for inbound. In terms of local market, which is the core area of business, the brand 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 Eudermine Essence Water. This product is the next core item of the brand after Ultimune, realizing a growth of high single digit.
ELIXIR, which had turned into a growth trend after the renewal of lotion and emulsion last September, it continued its growth in mid-single-digit this quarter with the renewal of the brightening line in February. It received many beauty awards and solidly creating the number one share position in skincare market. One of the important initiatives with the company for the year is strengthening the position in the brightening market across all brands, and we are making good progress to achieve the target. HAKU, the number one in brightening market share, had a good start with a new innovation that was launched on March 21st. Followed by that, products such as Clé de Peau Beauté Brightening Serum, ELIXIR's brightening line are establishing Shiseido's strong presence in the brightening market.
Overall, we are capturing solid progress in our core area of mid-to-high price range by strengthening loyal user base and share expansion, we will continue to make this one of the strongest area of focus. In terms of the lower price range, we are actually seeing stronger growth more than expected, we will strengthening initiatives to accelerate the sales in brands such as AQUALABEL and IHADA. Next is page eight, 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. February and March turned into a recovering trend. E-commerce underperformed last year's numbers for Q1 and for prestige market overall with the low-performing Women's Day promotion. Shiseido consumer purchase was minus low-single-digit.
This ended being a minus from the sluggish performance of Women's Day and our strategic conversion to not being too reliant on discount promotions. On the other hand, we have some positive news with the offline sales, which have been underperforming year-on-year due to 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. Even though the market momentum for the Women's Day was weaker than expected, we evaluated 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 offline as traffic recovers, although there is the 6-18, June 18th 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.
On page nine, I would like to discuss our 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 travel 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 strengthening our strategic promotions.
On page 10 is the cost of goods sold ratio. The COGS for the first quarter was 29.4%, worsened by slightly less than two points from 27.5% in the fourth quarter of 2022. This is due to impairment and restructuring costs associated with the transfer of Kuki Factory, which were recorded in the current period. The real cost ratio shown by the dotted line was 21.6%, showing a steady improvement in real terms. In the second quarter, the impact of products supplied at the Kuki plant will be eliminated, and the cost ratio shown by the solid line will improve by about 4 percentage points from the first quarter. Page 11 is 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 as cost management and other measures offset the margin decrease due to lower sales. Americas and Europe recorded an increase in profit due to an increase in margin increase and higher sales. Resources previously allocated to the brands to be transferred were redeployed to the ongoing businesses to accelerate growth. The increase in profit was achieved despite the absence of large scale of D&G and other products that existed in the previous year. This is a very encouraging result. Travel retail reported a decrease in income due to margin decrease from 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 investment. On page 12, we will discuss initiatives in Japan business for the second quarter and beyond.
In the second quarter, we will continue our efforts to expand market share in skincare and strengthen activities in base makeup, point makeup, and sun care. We will aim to increase the number of loyal customers and achieve strong sales growth by strategically launching innovative products and strengthening the communication of their values. We regret that we are unable to show you today. Each of our brands will launch groundbreaking innovative products in the second half of the year. We will also strengthen our activities to capture the customer trend of de-masking. Since March 13th, we have seen an increase in demand for skincare products that address skin concerns such as lines and wrinkles around the mouth, as well as an increase in customers seeking base makeup and point makeup, especially lipstick.
Seizing this opportunity, the launch of Clé de Peau Beauté cushion foundation in March and Rouge Cream 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 Satin Gel Lip on May 1st. In the mid-price MAQuillAGE brand, we are strengthening eye color and mascara products to meet the demand for eye makeup. In May, we introduced loose poreless powder to the growing market for face powder to capture makeup 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-store sales and less promotions for NSR. Along with such innovation and aggressive marketing, we will simultaneously improve productivity and restructure our cost structure.
In terms of cost, we will ensure cost reduction by improving mix, thoroughly reducing uneven distribution and returns, and improving factory productivity by way of increasing the promotion skin beauty brand and core SKUs in particular. The reduction of returns is an important initiative, not only in terms of profitability, but also in terms of environmental friendliness. We have been accelerating the timing for auto suspension prior to renewal and minimizing the over-the-counter inventory, which had a certain effect in the first quarter. In addition, we are formally advancing actions to achieve the lowest 60% level SG&A expenses. We are working to establish an appropriate personnel structure and improve productivity per employee, which has resulted in a significant year-on-year decrease in SG&A expenses in the period under review, mainly due to natural attrition. In addition, the office reorganization has been underway and has been proceeded as planned.
The number of offices to be reorganized from 58 to 23 in July. We will continue our efforts and further improve operation efficiency in conjunction with the acceleration of the hybrid work style. In addition, we withdraw from convenience stores as part of our selection and the concentration of customer contact points in line with the strategy for sustainable growth. We will provide a more specific roadmap for achieving SG&A ratio in the low 60% range in August or later. Next, on page 13, I will explain our future initiatives in China. In our China business, we will accelerate offline growth and strengthen our responses to the diversification of online platforms with an emphasis on sustainable profitability improvement by the brands such as Clé de Peau Beauté, Brand Shiseido, and NARS. In Clé de Peau Beauté, we will capture the momentum of luxury users and the higher prestige market.
In addition to continuing to strengthen the Supreme series, our top-end line, we will implement the Height of Radiance campaign, a measure to increase awareness of the brand's unique value of radiance. The campaign aims to attract new users with La Creme, La fond de teint , the face of the brand. We will also work to promote demand by rolling out set boxes to coincide with the gift-giving season such as Mother's Day and 5-20, known as the Day of Love in China. As for Brand Shiseido, to rebuild its brand value and prestige image, we will strengthen the brand experience and the top-end future solutions line through the offline events focused on the high-function products and launch of the wrinkle cream, Vital Perfection Wrinkle Lift , as one way to expand the appeal on its efficacy and stimulate demand for 680 products.
In addition to the Light Reflecting Foundation, which performed extremely well last year, NARS plans to further strengthen, expand the foundation category and to launch a new lip product in May to cultivate new product categories. In addition, we will work to promote demand, launching limited edition packages to capture the travel season. We will steadily implement these initiatives to accelerate growth from the second quarter and onwards. This concludes my presentation of first quarter results and our future initiatives. Lastly, I would like to introduce the Looking Good corporate message.
Campaign on page 14. Starting with the newspaper ad on April 3rd and a commercial on May 7th, we rolled out the Looking Good corporate message on 8th. The status of a new coronavirus infection was moved to Category V, and we are developing this campaign with the hope that the power of cosmetics and beauty will encourage people all over Japan to have good faces, expressive and unique. We have received many comments from consumers about these messages, such as it's heartwarming, very motivating, and it's nice to be able to see faces. In speciality stores, drugstores, GMS, and department stores, the campaign message is being used in conjunction with activities that utilize the power of people, such as skin diagnostics, skincare, and makeup application and training, while addressing the needs of each customer. We will continue to support each customer's Looking Good by meeting their individual needs.
This way, we will accelerate our growth potential by simultaneously expanding our market and market share that will energize the industry as a whole in response to the consumer awareness and inbound demand, and will help the greatly impacted by COVID.
We would like to go into the Q&A session. From JPMorgan, Kuwahara-san. Ms. Kuwahara from JPMorgan.
Hello, this is Kuwahara from JPMorgan. Can you hear me?
Yes, we hear you.
Thank you. One question per person, I understand. I want to hear about the comparison versus guidebook. The Japanese market is recovering well, and EMEA is overall doing well. 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? Now for profit.
Some of the costs will be carried over, is what you mentioned. How much are some of the costs or expenses being carried over? Anything related to the profit. 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 + 7%. I think that's pretty much in line with what we had expected. Overall, in line with what was expected. EMEA. In terms of EMEA, we had the rush to buy before the price increase, that probably gave us a little bit of a hike or push in sales.
To the 11% on the consolidated basis, it may seem a bit weaker. Originally China and the inbound sales in Japan, we are forecasting that we will have a better recovery from Q2 onwards. That included, I think we are on track. For profit, there is some gaps of about JPY 4 billion of when the cost will be booked. Excluding that is what you are seeing on a year-on-year basis. That too is within what we have expected. That will be it with my answer.
Thank you very much. The gap of when the timing of the booking is JPY 4 billion, that is going to be carried over to Q2 from Q1? JPY 4 billion will be carried over to Q2. Okay. What I am worried about is the investments being delayed too. Especially for Japan, the mid-price range overall is not really coming back.
Your company is investing and talking about innovation and bringing back your brand power. That is one of the contributors for the profit improvement for the Japan business. I think that is the key to making the Japan business. The investments to those areas are not behind, right?
That is correct. We are not behind on the investment, but there is some expenses that will be carried over to the next quarter, and there is some shipments of the samples as well, but that is different from the timing that is actually going to be used. We do not think of that as a problem. We do not think of this expense gap. In terms of the marketing activities that the expense is being carried over to Q2, there is no impact. It has no impact to the marketing activities.
I would like to move on to the next question. Hirozumi-san from Daiwa Securities, please.
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. There seems to be some adjustments, making a lot of changes or the differences. The profit from the other segment seems to be quite significant. Why is it? What is the background of this large profit from the other segments?
Year-over-year, JPY +5.3 billion. Half of it is Forex associated with the export. This is about the brand held by the headquarter. Sales associated with it. Yes, we make sales from the headquarters, and shipment is associated with the margin increase, which is about JPY 3 billion. In addition to that, there is the Forex impact. There's the JPY 3 billion of Forex impact. I think the brand holder at IPSA, is it a brand holder of the headquarters, a brand holder?
IPSA sales didn't do so well as in the case of page five. Yes. Have you said that? The shipment of other brands was much more significant. What brand was doing well in terms of the shipment in the other segment? Brand Shiseido, CPB, were the main brands from the headquarters.
Okay. On the left. Page five on the left under brand, Shiseido as a Clé de Peau, these did quite well then.
Yes, understand now. Going forward, how to interpret the other segments. The brand Shiseido and Clé de Peau will do well, and then there's the Forex with the yen depreciation. How are we to make an assumption?
I think this is going to shift as planned. We have difficulty in accurately assessing how the Forex will move. As long as the sales will shift as expected, then I think the result will be as expected, as planned. Some of the shipment may not happen, this will be within our assumption. The brand Shiseido, the Clé de Peau, have the higher margin. When they ship more, then it drives the profit higher.
Yes. The brand holder related profit will be recognized there in the other segment. Okay, understand. Thank you.
You're welcome. Thank you.
We'll go into the next question. From Morgan Stanley. Morgan Stanley MUFG Securities, Miyake-s an.
Thank you. I have a question around sales of EMEA and Americas. On page six, it's growing 20%, 30%, and it's performing well. I wanted more detail or clarity on that. Drunk Elephant doubled, NARS grew. I know these are the drivers, but of these increase in sales, it was this brand, it was this, that. If I could have more clarity around that would be great. I understand, is it doing well because the market's doing well, or are there other reasons, or is it linked to the storefront sales? About some details around that as well. Thank you.
Your question is about Americas?
Both Americas and EMEAs.
The sales are both 22% and 30%. America, 30%, EMEA, 22%.
That's very strong. It looks very strong. More the detail or breakdown of this, EMEA is 22% and America is 30%. If you can just maybe from what impacted the numbers significantly, have more clarity. Going forward, in order for me to know 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. If you may remember, last July to August, we started doing paid media to increase the Drunk Elephant awareness, which had gone up. Along with that, the sellout. The actual sellout was growing by about 30%. The sell-in, there were still retailer inventory, so the sell-in wasn't catching up to the pace. From about December onwards, the sell-in started to catch up too.
Finally, the sellout and sell-in gap has come together and gave us the strong numbers in Q1, which has given us over double performance or sales performance for Drunk Elephant. Another, the D-Bronzi serum. That was a big hit. Last December alone, I heard that December sales was about the last full-year sales. There was halo effect. The men's Protini and other products, there was halo effect from the D-Bronzi and sustaining the Drunk Elephant strong sales. To accelerate this strong sales, we are strengthening our investment. 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 Reflecting Foundation that was successful last year, not just in Americas, but it's a huge hit globally.
That high performance of NARS is sustaining the strong performance as a brand. Versus last year, it's over 20% and continuing to grow. These two brands, in terms of Americas, Drunk Elephant and NARS, were the strong drivers. 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. The growth of the market overall is very strong. Of that, where we're strong at the core, the skincare, Drunk Elephant, we are capturing the market share. I think in America, 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. The market itself for fragrance is doing well.
Our fragrance is a bit lower in terms of growth rate to the market growth of fragrance, but we do have plans for our big launches ahead of us. We're preparing for that. In the second half, we should be able to make a comeback in the fragrance market as well. 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. These are part of the contributors.
Okay. Thank you. The market's strong, and you're very competitive in that too. Okay. 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. Looking at the economy and going forward, your balance?
As for the market outlook and economy, it's what you hear on the news, similar to all of us. In Americas, we'll be focusing on what will happen in the second half of the U.S., for example. As for our outlook, if there is a recession, we think of it to be a mild recession. To that mild recession, the beauty market is quite resilient. We are planning and outlooking ourselves to plan to that kind of outlook.
Thank you very much.
We'd like to take a next question from SMBC Nikko Securities, Yamanaka-s an. Yes, please.
Hello. Yamanaka from SMBC. Earlier in your explanation, the information on the cost, page 10, I'm looking at. From the second quarter onwards, did you say that that's going to improve by 4 points? About the cost of goods sold and its assumption from next quarter or the next year onwards also, I would like to know.
Are you looking at page 10?
Yes.
The upper line, the solid red line is the cost ratio on our P&L. The reason why, as you see here, this is the cost on the real terms, is 21.6% with the existing remaining business. There's a gap between the COGS and the COGS LFL. 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 one-time phenomenon. This will be eliminated going forward. Also, in association with the business transfer, from Kuki Factory, there's a contract manufacturing, as in the case of the normal business. Unlike the normal business, it doesn't earn as much margin, therefore, there will be about 4 point improvements in the cost of goods sold.
Going forward, in relation to the business transfer, the main impacts will be eliminated, therefore, by and by, we're going to get closer to the numbers described with the dotted line in a real-time, real-life. Between now and 2025, we would like to lower this to about 20%. A number of actions are taken by different departments.
Thank you. In regards to the second quarter, this 1.8 point deriving from Kuki Factory will be eliminated, therefore there will be a 4 points improvement year-on-year. Am I correct in my understanding?
This is not the case of year-on-year comparison, the transfer of Kuki Factory will happen in the 1st of April, there may be some costs associated with it, the 4 point will be eliminated for the provision and the supply.
Going on to the next question from Nomura Securities, Ohana-san.
Hi, my name is Yuji Ohana from Nomura Securities. I have a question regarding travel retail. Your travel retail sales. Compared to other competitors' travel retail, you performed well, you were competitive. In your material, it says South Korea did not perform well, but what about Asia, Hainan Island, South Korea, Hong Kong, and the Ginza? What kind of plus and minus were there to result in these numbers? For China, there's been some topics about inventory adjustments. What is happening around that? Could you share with us?
Your question is about travel retail, China? Please wait. As for the South Korea ratio of our company sales, it's about 40%, is usually the portion. But with the South Korea different policy change, there's been adjustments in inventory. For Q1 versus last year, it's impacted us by 50%. That is the biggest impacted reason.
In China mainland and rest of travel retail, Japan and travel retail West is covering for this loss. As a result, though, we could not offset all of it, therefore, it ended at - 4%. For Hainan Island, our sellout is in the mid 20%, in terms of the sellout sales. If you are aware or if you remember from last year, last year, there was the China lockdown. As a result of that, our sell-in went out first. We had the advanced sell-in. At the timing of the planning, Hainan was about 5 points lower than what was expected. As a result of that was at the timing of the marketing planning. This year's Q1 sellout was mid 20%. Our sell-in was pretty much flat. I think that shows us that the restocking had been quite good for this Q1.
Thank you. 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. Looking at just the flights, excluding ships and others, but by flight, January through February, it's about + 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. I think we're overall seeing the recovery in traffic to these travel retail areas.
Q2 onwards, along with that, you think that you will be recovering along with this foot traffic recovery in travel retail?
In terms of travel retail, the impact of South Korea was the biggest in Q1 with these inventory adjustments. South Korea recovery is probably only from about Q3. For Hainan Island, we are doing inventory adjustments, rather than sell-out, sell in will be slightly lower, and we are trying to continue that to optimize, but that has all been planned.
Okay, thank you very much.
Okay. Going to the next question, by Miyasako-s an from Jefferies Securities. Miyasako speaking. Please.
I would like to ask a question about inbound, it is recovering, but 10% +, a high 10%, and you have a plan for +70%. The Chinese inbounds are not recovering so much. What is your assumption on the shopping patterns or the behavior?
The Japanese inbound.
At the time of planning, was to consider that the recovery happened from second quarter and onwards. When we look at the current situation, indeed we see some recovery in first quarter, but not so much. As far as the April situation is concerned, there is a clear recovery. There is a visible recovery. However, this is the recovery from inbounds except Chinese travelers. The more robust recovery should happen at the timing of a recovery or restart of the Chinese tourism to Japan.
When do you think that will happen? What is your assumption of the timing, and are you going to stay with your original planning or assumption?
At the moment, we do not have information on that. We are staying with our original plan.
I believe that the rich Chinese tourists are coming back to a certain extent. What are their purchase behavior in relation to your products? I think you make an assumption based on their assumed consumption behavior. I think there's different opinions about whether their purchase will come back or not.
In any case, our plan is to expect 70%+ year-on-year. From the end of Q3 to Q4, our assumption is to see the recovery. Depending on how things will go, this timing may be delayed or come even earlier than our assumptions. We will keep an eye on this. 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. How to accelerate it is something that we are focusing on at the moment.
For the Japanese local market recovery, there is a tendency that recovery is happening sooner than expected. We would like to capture the moment.
Thank you. I would like to go back to the inbound topic. Korea. Hainan Island. Do you think that they made some inbound from Korea?
No, we're not looking into that much.
It's not realistic then.
There are some complex factors that would affect the market. In any case, we would like to increase the local Japanese market or the business. If that is compounded or supplemented by the inbound business, that would be great. That's sort of the assumption that we are making.
We'd like to move on to the next question. From JPMorgan Asset, Osada-san.
Can you hear me?
Yes.
Ohana-san asked a similar question, about China and travel retail, the sellout, the consumer purchase. Excluding China's beauty, I feel that you are outperforming the other competitors. Not sell-in, but sell-out. Your high performance, is that because your strategy from last year has been performing well? Along with that, what is your current situation on the market share? 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 a low single-digit growth. Of that, the growth is about mid-single digit, so about 5% was from offline. E-commerce dropped. As a result, ended in low single-digit for the prestige market.
Of that, for our company, we strategically wanted to lower the ratio of extreme promotion and want to improve on the brand equity. That's been the strategy. 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. As for that, we are lower in share to competitors, but that's because of our strategy. We don't want the extreme promotions. Offline, where it's recovering as a 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. I believe that overall, we are doing well, and are doing well to the progress that we want to achieve in terms of the China market. For travel retail, what was your question?
China and travel retail.
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. 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.
You're talking about Hainan Island or...
Well, travel retail overall.
What was good was the travel retail Japan. 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. These are Asians, excluding people from China, who are the driver to the growth of Japan TR. TR West has solid growth. How are we against the market? I do not know. We do not know.
The travel retail West is doing well, too. The rest will be for Hainan. As mentioned earlier, it's in the mid 20%. Along with the traffic recovery, I think we are capturing the demand.
Thank you very much. For travel retail, the mix of consumers are different from Japan players, Japanese players.
For travel retail, for Hainan, the traffic is coming back. We can only capture some of the information for domestic flights. For January, it's been increased by 20% to Hainan Island from the domestic flight. 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. I would like to take two last questions. Please ask one short questions per person. From UBS, Kawamoto-s an.
Thank you very much for the presentation. My name is Kawamoto. I hope you can hear me.
Yes, we can hear you.
In this, the increase of operating income, JPY 8.2 billion. I would like to understand it better. According to Hirozumi-s an, half of it comes from Forex impact. From the second quarter, I think the Forex impact is going to settle. I believe that there may be some shift in the center. 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 JPY 600 billion
I'm very sorry, but we can only take one question.
Yes. Thank you. About the assumption on the increase in the operating profit. I believe you were talking about the Forex. As you said, the last year, the Forex since February, March, it started going up and against the dollar . The yen was very much appreciated. This time, the reflection of that will not happen from second quarter onwards, not in the same manner as we saw earlier. Based on the currency assumption that we have, of course, if there's a movement in the Forex, there's a potential that may be some shift. Yes, your assumption is correct at this point in time. I believe you had a question about China.
Yes. Was it the increase in the operating income in China, is it due to lower fixed cost? Are we talking about Q1?
Yes. The sales Certainly, yes, we have worked on the reducing the fixed cost. The biggest element is the impact of a shift in the booking of numbers.
Also, in Europe, about the last-minute purchase before the price increase, was there any increase in the cost? Or was there any impact?
Well, it is really difficult to cut out which part of the purchase comes from the last-minute purchase. Yes, there will certainly be some contribution to the revenue, but it's not so significant, having said that. Price increase? It was carried out in first quarter in EMEA and U.S.
Thank you very much.
Thank you. Next will be the last question. Mitsubishi UFJ Morgan Stanley, Sato-san.
Hi, this is Sato. I didn't think I would be called upon. Thank you. Page 20, SG&A, JPY 4 billion. You said JPY 2 billion will be carried over to Q2. When I look at what's happening here, what from here is carried on? Why? Can I have the reason? Brand development is going down significantly, for example. What's going up? What's going down?
For some of the booking delays, is mainly in the marketing cost. Samples, shipment of samples, for example. That's the big chunk of it. For brand development expense that's going down, that is not due to the booking gap or lag. Compared to last year, at this time, for brand development, last year, we had the Dolce & Gabbana transfer.
We had the TSA- related things that were going on before D&G were transferred. It's more of the commission that we had to pay to D&G. That was why it looks lower than last year.
JPY 4 billion, that's only in China?
No, it's not only in China, it's others as well. 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.