Thank you very much. I will now explain our 2025 half-year results. Please take a look at page three, the first half results and full-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 structural 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 few media coverage in the 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. The second is a 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's core operating profit for the first half exceeded our plan. In addition to our cost reductions in P&L, 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 core operating profit of ¥36.5 billion 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 our Americas business, we determined there are 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 Americas business is greater than ever. For details, please refer to page 17 of the Tan Shin report. Now, page four, the executive summary. Net sales for the first half were JPY 469.8 billion, with the underlying growth rate of -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 JPY 23.4 billion, an increase of JPY 4.1 billion year over year, exceeding our expectations. We are pleased to report that we have already achieved over 60% of our full-year guidance of JPY 36.5 billion.
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 uncertainty and risk factor remain. Known recurring items totaled JPY 5.3 billion of the JPY 23 billion in the full-year 2025 plan. We recorded JPY 3 billion in expenses related to structural reforms in the Americas in Q2. As a result, interim profit was JPY 5.5 billion. While this has already exceeded our JPY 6 billion 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 JPY 17.5 billion, turning positive from a negative figure in Q1 due to factors such as higher profit before tax and others.
Next, page five, core operating profit. First, the cost of goods sold ratio improved 1.5 percentage points from last year to 22.6%, driven by a better mix of brands and SKUs. Marketing investments decreased JPY 2.7 billion 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. Personnel expenses decreased JPY 15 billion 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 SSG&A decreased by JPY 5.9 billion, driven by a decrease in depreciation expenses and rigorous cost management and others. Next, page six shows net sales by region.
The sales decline steadily narrowed from -9% in the first quarter to -3%. While this did not meet our main focus of flat sales growth in Q2, all regions are on a recovery trend. We are expanding our market share in areas such as fragrances in Japan, Asia, Pacific, and Europe. Next, page seven shows a sales trend by brand. Q1 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 Peau Beauté, 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.
Our 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 brands 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 eight talks about the brand 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 inbound demand.
Local market in the second quarter continued modest growth. Consumer purchases grew low single-digit %. Core brands drove growth, and share expansion is continuing. Shiseido's new auto mune is continuing to drive momentum. E-commerce sales are maintaining growth at high teen %, with loyal user purchases driving growth on our online website. On the other hand, the inbound market growing with an increase in the 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 618 shopping season, and intensified low-price competition in China.
Despite the sales decline, core operating profit increased JPY 13.2 billion thanks to structural reforms such as reduction in personnel 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 the low teen % level is our normalized level, averaging out such one-off factors. Slide nine 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. Even excluding the impact of the extended sales period, sales increased marginally, YOY. We outperformed the market, driven by high-prestige brands. Offline market faced ongoing challenges.
Clé de Peau Beauté and Nars maintained strong momentum overall, including offline channels. With online consumption becoming the norm, Clé de Peau Beauté 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 a core operating profit of ¥38.8 billion, profit margin of 22.1% via structural reforms such as fixed cost reduction and cost management.
Slide ten is about Americas. Americas market maintained YOY growth but fell short of expectations in Q2. Consumer purchases were negative high single %, and Drunk Elephant struggled with results far below our initial expectation. Core operating profit dropped JPY 3.3 billion due to sales decline. Shiseido benefited from new product launches with new auto immune and mineral sun care, sunscreens already launched in Japan, fueling growth. We are accelerating structural reforms actions for a swift turnaround of Americas. CEO Kentaro 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 JPY 1 billion 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 brilliant with Zadig and Voltaire, fueling high growth at low 20%, outperforming the market by far, expanding its share. Core operating profit declined JPY 4.6 billion 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 JPY 36.5 billion. 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, and 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 the 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, tariff impact for 2025 full year is expected to shrink to around JPY 3 billion as of now compared to the JPY 7 billion a year at maximum, which we announced the last time. We will aim to 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 JPY13.5 billion cost reduction benefits on track with the plan. On a full-year basis, we will accelerate structural reforms in the Americas ahead of schedule. As a result, accelerating personnel expenses reduction and therefore raised cost reduction target from JPY 20 billion to JPY 25 billion. Furthermore, we will increase two-year reduction targets for 2025 and 2026 from JPY 45 billion to JPY 50 billion to improve profitability. This concludes my presentation.
I would like to talk about the action plan 2025 to 2026. I will cover the important topics of that. On page 17, the further future initiative 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, Autoimmune 4.0, brand Shiseido engaged in 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 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 21, 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 U.S., 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 the second quarter results falling far short of expectations. In light of this, headquarters and local offices worked together to conduct a fair and transparent brand review and identified new issues to achieve a turnaround.
There are three major challenges. First, the brand lacked targeting based on a clear understanding of customers. Two years ago, we achieved 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 U.S. 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, our 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.
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 a successful brand reset campaign from next year onwards. Now, on next page 19, we will discuss the efforts to achieve profitability in Americas business by 2026. As previously announced, under the new management structure with Alberto as CEO, our Americas business has swiftly implemented a turnaround plan, completed key restructuring actions, and is now moving to phase continuous investment. By streamlining and simplifying our organization, we have departed from silos and clarified accountability between functions. This will enable us to streamline our operations and optimally allocate our resources, even with a limited workforce, improving the flexibility and agility of the entire organization.
As a result, we believe that we will 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 JPY 15 billion per annum from mainly Q3 to Q2 of next year. We expect half of the impact to be JPY 7.5 billion this year and the remaining half, JPY 7.5 billion, in next fiscal year. As for the breakdown, JPY 7.5 billion, which is half of the impact, will be from workforce reduction, and the remainder will be expense reductions, such as downsizing office spaces and optimizing procurement. For office space downsizing, we are planning to post structural reform costs north of JPY 4 billion in Q3. Americas' loss exceeded JPY 10 billion in 2024, but we are steadily making progress to returning to profitability in 2026. Next, please move on to slide 20.
In the first half of the second half of this year, we were planning to implement focused ERP in Japan and 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 focused system globally. By launching Global One IT 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 headquarter support. Slide 21 is action plan 2025 to 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 cost at an early stage. This concludes my presentation.
Thank you very much. Now we would like to move to the Q&A session. Now I would like to open the floor for questions. Now I would like to ask Kuwahara 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.
The first half and second half, there were some changes. I would like to double-check the numbers. The first half, the core operating profit was better than the original expectations. What was the increase? What was the phasing out of the cost? The rest, how much was the contribution from your effort? 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. 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? In that case, you know whether the impact will also be reflecting in FY2026? Thank you for your question. Your first question is that the JPY 36.5 billion for the first, I guess, the full year. Originally, achievement for the first half was 40%. Therefore, from that perspective, this was the uplift of JPY 8 billion or so compared to that 40% to the full year basis.
The market conditions are very uncertain, but still we began and tried to make the cost management rigorously. We made a thorough review, and then we made some assessment on the expenses and some phased out of the cost. The size of that is JPY 5 billion or so. That was some phased out from the first half to the second half in terms of the cost implementation. My point is that the marketing investment for the future growth, we continue to invest, and that investment will be fully utilized and also affecting for the future growth. For the JPY 13 billion of the core operating profit is expected in the second half. Against the sales plan and the full year outlook is in line with last year.
The net sales plan is a little short of JPY 30 billion, of which that will be realized JPY 20 billion or so in the second half. There are some interest gaps and also continued cost reduction efforts. We maintain our outlook for the full year guidance. In terms of the growth control, we had the GTC-led additional measures like JPY 5 billion that were added. That is one of the reasons to absorb this figure. In terms of the full 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. In terms of the third quarter, the payroll ratio was also returned compared to last year's payroll adjustment. 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 MUFG Securities. Can you hear me?
Yes, we can hear you.
Thank you. This is a continuation from Kuwahara's question. Based on your explanation, in second quarter sales, you have already incorporated JPY 25 billion of downside.
Yes, that's right.
If that's the case, then roughly 5% or so is the number. The 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? I understand China is recovering, but which region? Where specifically are you worried about now? Japan? Inbound is changing, and domestic demand is expected to be high originally based on your original plan. Where are the risks of sales specifically? Can you tell me specifically? I believe it may be Americas and Japan, but could you share?
Okay, understood. It might be a repetition. Full year sales, it was around 4% growth year on year. That was the original assumption. Now we believe that there is a risk that it will be remaining flattish. The major reasons would be, first, Japan inbound sales from the end of the first half. We are seeing downward performance compared to our expectation. We were expecting 10%, mid-10% growth in the beginning of the year, but we have changed that to a slight decrease or flattish. There is such a possibility. The second reason, as you mentioned, in Americas, Drunk Elephant recovery. Compared to the original assumption expectation, we believe that there will be a delay in recovery, and the performance will remain sluggish. There are upside factors as well, China and travel retail in the second half. Of course, there's a low base in last year, but low hurdle.
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, core 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. JPY 5 billion. This cost that was postponed. Where is this? Which region is it? Which area? It's dispersed, to be honest. Naturally. Depending on the region's mix, Japan, China, travel retail. It was postponed from these, shifting costs from these areas. It's like a Japan and China travel retail.
Not Japan, but China and travel retail has a 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. Next is Miyazaki-san of Goldman Sachs.
Thank you for taking my question, Miyazaki from Goldman Sachs. I couldn't hear well for the answer of the first question. Let me confirm. In terms of the profit, core operating 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% expectation 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 JPY 5 billion uplift, and then JPY 25 billion of the cost management. Do you have any good feel on the achievement? The JPY 50 billion was added on. What was the reason behind that? Why was there an uplift?
Apology for unclear answer, but the JPY 36.5 billion for the full year, JPY 5 billion, JPY 15 billion or so, and then original JPY 8 billion was roughly uplift this first half. That's the result. Of which, of course, we are taking on the cost structuring effort, and also some new measures are in place. There are some uncertainties in the second half. We try to alleviate such risks through such initiatives. In terms of the global transformation, JPY 5 billion is now added and mainly coming from the Americas region. Compared to the original timing, the Americas restructuring effort has now advanced. That JPY 5 billion is mainly deriving from the Americas region, as you say. The size of the Americas region, the cost structure reform was bigger, quicker, and deeper. That was the result of the additional JPY 5 billion impact.
Also, the JPY 50 billion, JPY 45 billion original expectation, but now uplifted to JPY 50 billion and so forth. That cost reduction effort will also contribute.
Thank you so much. Let me double-check. No, JPY 8 billion of the first half uplift, of which 5 billion was the cost phasing, right? It has to be recognized as a cost in the second half, right? Yes, we phased that cost into the second half. However, we are now taking some risks in the second half. Marginal 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. In Ms. Hirofuji, 2024, 2025 added was 40 billion from JPY 45 billion to JPY 50 billion. There's an increase. This is two years of 2025 and 2026. I just wanted to make a correction. The next question is CLSA Limited, Oliver James Gray Matthew-san, please.
Hello. Thank you. Could I ask a first question? I know you're still working on the medium-term management 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.
Thank you very much for your questions. As we want to be the winner of the global company, the 10% double-digit OP margin is set for the target for us.
Great. Thank you. I think you'll get there. Second, a bit of a technical question. On page 23, you show adjustments. I think these are the same as headquarter costs, but they declined a lot from last year, like by JPY 8 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. 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. We should assume they continue a kind of positive downward trend. Is that right?
Yes. Indeed, headquarter cost has been reduced in this quarter as well through cost reduction measures that we have been implementing. That is indeed captured in this adjustment section. In addition to that, there are other foreign exchange savings that are captured here as well. It is not necessarily entirely from headquarter cost reductions. I just wanted to clarify that point.
All right. Thank you.
Thank you for the question. Move on to Hirozumi-san from Daiwa Securities.
Thank you very much for taking my question. Can you hear me? My name is Katsuro Hirozumi of Daiwa Securities . I have very brief two questions. In terms of the net sales for the first half, it was the uplift, and you explained that earlier. Sorry, core operating profit, but I just want to ask a question about the net sales. What was the result of the net sales in the first half? In your earlier explanation, I may misunderstood. I understand that the second half, you anticipate that the net sales in the second half because there is no change in the full-year guidance. What was the achievement in the first half? How should I interpret the second half target for the net sales?
We do not incorporate or embed all the sales to be achieved, but there are certain risks. Of course, the full-year guidance, that roughly 4% growth was anticipated. At the moment, we see that it is in line with last year's result. The first half performance was JPY 5 billion or so. Then JPY 2.25 billion in the second half would be achieved. There are certain risks of the declining in the net sales. Okay. There is a risk, but still there's an opportunity. That is why full-year guidance has not been changed. Is that correct? You're right. Based on certain risks, we, of course, would like to manage properly to achieve the sales, not just the net sales. We need to have rigorous cost management measures and need to have a good and conservative view on the sales achievement. Page 13.
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. Page six. You have the quarter by quarter. Americas has a positive 4%, right? Plus 4%. This is the sell-in, I believe. The customer purchase in the second quarter was the single digit or high second single digit, right? 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. Especially for the second quarter of the Americas region, there is the brand Shiseido mineral sun care products to be launched in the third quarter. That new product launch is coming. We are very much expected for the good sales.
This was the upfront shipment was recognized. That is the positive figure. The actual sales for the customer sell-out will be realized in the third quarter onwards. Understood. Page 10, the high single digit figure. How would you evaluate that? Yes, page 10 for Americas. High single digit 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. Those two will contribute for the second half growth. The Americas region is very uncertain at the moment for the economic growth. What is your perspective of the customer behavior in the third quarter onwards? I believe there is not really a big impact on the economic conditions.
The beauty trend, quarter one to quarter two, there were some improvements in the customer purchase behavior. Of course, there are certain external factors, but the beauty market is, to some extent, stabilized. The situation for the customer purchases in the third quarter onwards is also in favorable, correct?
Thank you. Next, Mizuho Securities. Mitsuko Miyasako, please.
This is Mitsuko 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 the first half, how much upside in sales and also profit? Is it the market that was good, or is it that your market share is increasing? 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. Clé de Peau Beauté, Nars, the key brands performed very strongly despite the challenging market. We have been steadily increasing our market share. This is something that's very positive for us.
We would 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. From the second half onwards, especially in Q3, last year, China and travel retail was more than 20% negative. It's a very big dip, and it's starting from a low base. Compared to that, we believe that we can surely increase. In Q1, travel retail was better than your expectation. For Q2, travel retail and China both were slightly better than your expectation. Yes, exactly. The market had recovered slightly. Also in Q2, we have been able to expand our market share. We have been able to grow steadily. Travel retail, the future is intransparent still. For that part, we are looking conservatively because of that. When the market recovers, this will be a positive factor for us.
As for China, as Ayako Hirofuji mentioned earlier, customer trends and consumer trends are recovering slightly, little by little. At the same time, for Double 11 this time, we are forecasting slightly pessimistically, but looking at the first half situation, 618, we were able to mark strong sales. There might be some upside for Double 11 also.
China and travel retail. Last year, you forecasted a 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 our products. We would like to, 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. Last of all, 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, our market share fell in Q1. In Q2, prestige beauty market, we have been able to confirm our growth in market share. That means a share of Brand Shiseido has increased also. Brand Shiseido was slow, and that was offset by the strong performance of Nars and Clé de Peau Beauté. Brand Shiseido, there is no change. This is something that you can expect in the future.
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. There is a clear difference, and that's challenging. Overall, the Brand Shiseido has seen share drop. Online, we have increased share. Thank you.
Thank you very much. Kawamoto-san from Jefferies, floor is yours.
Hell o. Thank you very much for your explanation, Kawamoto from Jefferies. Thank you. It's page 19. The actual probability of the nine page 19, a steady growth, a steady progress toward returning to profitability for Americas. What is the number of people to reduce the human resource, or how many office reductions are you expecting? There are other risks 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. I just want to understand how accurate this chart is.
In terms of the conviction and the probability of this chart, I believe this is quite trustworthy. We have already implemented the structural reform in the U.S.
Based on that, we now show our plan in terms of the office cost reduction. The cost base is already implemented. As was explained by the CEO presentation, as a result of such cost reduction, JPY 4 billion or so of the temporarily the cost reduction is implemented. Roughly 300 or so human resources were reduced. In terms of the probability of achieving this focus, it's quite solid. Other risks include Drunk Elephant, the declining sales, as well as for the margin coming from the contribution coming from the Drunk Elephant, and also other risks as well. Those potential risks will be offsetting by the other cost reduction measures. That is what we are doing at the moment. Thank you for the clarity.
Thank you. Kuwahara-san, please.
Thank you for taking my second question. My name is Akiko Kuwahara from JP Morgan. I would like to ask for a supplemental information explanation. Americas impairment test. You have done the test, and this time you are not going to post impairment. I believe that this possibility is increasing. You will continue to make improvements and efforts, but the risk is increasing. What does it mean? 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?
There is risk of impairment loss, and this is the slowdown of sales recovery coming from 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. The overall cash flow, and we compare that to the carrying amount. This year, we thought that the risk has been increasing, and therefore, on a quarterly basis, we have been doing the test. In Q2, the slowdown of sales and Drunk Elephant and others, because of such factors, we have disclosed this. Thank you. 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. Including that, it was safe. Yes, we have put some assumptions, and we have done the impairment test.
In Q3, we will look at the progress of 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. SMBC Nikko, Yamanaka-san, floor is yours.
Thank you very much. This is Yamanaka from SMBC Nikko. For the next year action plan and core profit, how you are evaluating the uplift or double risks?
Because originally in November last year, 2020, compared to 2024, the net sales and the core OP margin, it should be a growth rate would be very hard, and the JPY 7 billion or so would be uplifting. That is our expectation. However, for the net sales, there are the downward risks. Still, the cost reduction effort is now better than expected. Still, in case the net sales in the second half would be difficult, the JPY 70 billion in the second half may be rather difficult.
Travel retail is gradually picking up in the second quarter, then it could be quite a good mix of the sales, even though the sales are slightly sluggish. Still, JPY 70 billion is achievable. Is that what you're thinking? Which is the correct to understand your feeling? 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. The 7% growth potential or the target, this is unchanged. 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 brand growth. With that stable net sales target, we would like to achieve this 7% of the initiatives. This is the intention of the cost restructuring measures.
Even though there are some difficulties in the second half, we would like to achieve this 7% of the profits. The OP margin 7%, you are making sure to achieve that. In terms of the amount, you'll be disclosing the full-year reports. Is that correct?
Yes, you're right. Understood. Thank you so much.
Now we would like to close the Q&A session now. We also would like to end today's earnings briefing call. Thank you very much for your attendance today to pass through a busy schedule. Thank you very much.