Thank you very much. I am Fujiwara, President and CEO. Before we begin today's earnings presentation, I would like to address the Kumamoto earthquake occurred on July 28th. I wish to express my sincere condolences to those who lost their lives in the earthquake and to extend my heartfelt sympathies to everyone affected by the disaster. Regarding our company situation, we have confirmed the safety of all employees working in the afflicted areas. There has been no damage to our offices, factories, or distribution centers in the Kyushu region, and operations are continuing as usual. We sincerely hope for a swift recovery in the affected areas and have donated JPY 10 million in disaster relief funds and supplies through the Japanese Red Cross Society. We will continue to monitor the situation on the ground and provide necessary support and assistance. Now let me move on to today's presentation.
First, our CFO, Ms. Hirofuji, will explain our financial results for the second quarter, followed by my presentation on the progress of the growth strategy. Hand over to you, Ms. Hirofuji.
I am Hirofuji, the CFO. I will provide the details on our Q2 results and the situation in each region. The first point in the improvement in the first sales momentum. Sales for the first half totaled JPY 499 billion. The organic growth rate was on par with the previous year, marking a turnaround from a -3% in Q1 to a +2% increase in Q2. Excluding the impact on the decline following the initial shipment of new NARS products, all major products showed improvement, especially Elixir and Narciso Rodriguez fragrance line. By region, Japan, China, travel retail, Asia Pacific, and Europe all shifted to positive growth in Q2, with momentum accelerated across the board.
The second point in improvement in profitability. Core operating profit for the first half was JPY 44.4 billion, a significant increase of JPY 21.1 billion year-on-year. This reflects the benefits of structural reforms, particularly in the Americas region, as well as company-wide cost management efforts that are effectively translating into profit. The third point is the increased likelihood of achieving our full-year targets. In addition to our first half progress, the business environment is largely unfolding as expected, and our full-year performance is proceeding steadily, accelerating according to the plan. Regarding the geopolitical risks, the impact of the heightened tensions between Japan and China remains the same from the previous earnings briefing. As for the situation of the Middle East, the raw materials procurement conditions is improving. Consequently, the risks on production and rising costs are expected to be lower than the previous focus.
Given these circumstances, we are maintaining our full-year outlook at this time. Regarding net sales, we recognize a certain risk of underperformance in EMEA and Americas. Therefore, we will invest in marketing and brand enhancement to capitalize on growth opportunities in the second half. Core operating profit, however, based on first half progress and current currency trend, the likelihood of achieving our full-year target has increased and even aiming to exceed our initial plan. Page 4, overall summary. Net sales increased by 6% year-on-year, driven by the weaker yen. In real terms, the growth remained flat compared to the previous year. Core operating profit stood at JPY 44.4 billion. Even excluding approximately JPY 3 billion impact on exchange rate, profitability improved significantly in just the first half of the year, generating profit comparable to the entire previous year.
The core operating profit margin was approximately 9%, exceeding the full-year target of 7%, showing steady growth toward achieving our growth. Non-recurring items totaled JPY 2.5 billion, primarily due to structural reform costs. The full-year forecast remains unchanged from the initial plan with projected cost of JPY 10 billion. We achieved the profit growth across the board, not only on the core operating profit, but also operating profit before tax and profit attributable to owners of the parent. We continue to focus on increasing EPS. Next, page 5. COGS ratio was 21.1%, up 1.5 percentage point year on year. Contributing factors included the reversal of unevenly distributed inventory provisions, which had been a high level last year, and improvement as well as the brand mix. SG&A expenses decreased overall, excluding the currency effects. In addition to benefit of structural reforms, we are contributing agile cost management.
Regarding the P&L structure, while ratio of personnel and other expenses decline, marketing spend increased by 0.5 points year on year. By reallocating resources generated through structural reforms to priority brands and growth opportunities, we will achieve more balanced management for growth and profitability. Next, please turn to page 6 for net sales by reportable segment. On a global basis, net sales return to growth improving from minus 3% in the first quarter to positive 2% in the second quarter. Momentum improves across all regions except the Americas, demonstrating that our growth is becoming increasingly broad-based. Going forward, we will continue to pursue well-balanced growth across regions while further strengthening our business foundation.
Next is the regional review, starting with Japan on page 7. Despite the continued sharp decline in Chinese tourist traffic, first-half sales remained broadly in line with the previous year. Performance also improved from Q1 to Q2. Among local consumers, our focus brands continue to drive growth with brand Shiseido making solid progress in acquiring new customers. In particular, Elixir and ANESSA have not only attracted new customers through successful product launches, but have also achieved strong repeat purchases, creating a virtuous cycle that continues to support sustainable growth. Inbound sales remained in the mid-teens, but the rate of decline narrowed. Demand from travelers from Thailand, Taiwan, South Korea, and other markets increased, resulting in a more diversified inbound customer mix. Despite the headwind of lower inbound sales, we continue to make steady progress in improving profitability on a sustainable basis.
Next, please turn to page 8 for our China and travel retail businesses. China's prestige beauty market continued to grow. In travel retail, the negative impact of retailer restructuring in mainland China narrowed, while the recovery in Hainan Islands continued, resulting in an overall improving market environment. Customer purchases of our products also returned to growth in mainland China during the second quarter, allowing us to further expand our share in the prestige market. During the 618 shopping promotion, we concentrated our investment on high-growth categories and brands and SKUs, where we have a strong competitive advantage. This strategy delivered strong growth led by Clé de Peau Beauté and NARS. For ANESSA, sales continued to decline as we advanced inventory adjustments and worked to restore a healthier market environment. We are strengthening pricing discipline and governance to optimize distribution with the aim of enhancing the brand's long-term value.
Core operating profit increased by JPY 8.8 billion, with the margin reaching 24.6%. Even when excluding the one-time factors, profitability improved through higher workforce productivity and disciplined business management through selection and concentration. Next, turning to page 9. Our structural reforms in the Americas continue to deliver steady improvements in profitability. Core operating profit improved by JPY 7.8 billion, returning to a positive JPY 2 billion, in line with our plan to strengthen the earnings foundation. On the other hand, first-half revenue declined by 1%, slightly below our plan. However, this represents a significant improvement from the 9% decline recorded for the full year last year. Customer purchases also returned to growth in June, indicating early signs of recovery in demand. E-commerce, one of our strategic priorities, continued to deliver strong growth.
At the same time, we further improved the quality of our business by focusing offline investments on priority brands and key retail partners. In the second half, we will convert these early signs of demand recovery into sales growth and remain committed to achieving full-year profitability. Next, please turn to page 10. In Asia Pacific, key markets, including Taiwan, delivered positive growth, and the region returned to sales growth in the second quarter. Multiple markets led by South Korea and Vietnam contributed to sales growth, sustaining strong momentum across the region. This has been supported by expanding customer engagement through e-commerce, as well as the successful rollout of our proven brand-building model from Japan to other markets. Elixir is a prime example, delivering growth of more than 80% in the first half. Core operating profit also improved significantly.
We are building a virtuous cycle of growth and profitability and remain on track to achieve higher earnings for the full year. In EMEA, while competition from emerging brands remain intense, our fragrance business continued to outperform the market and gain share, led by the strong performance of Narciso Rodriguez. Although the business recorded a temporary operating loss in the first half due to upfront marketing investments to support future growth, we expect these investments to translate into stronger sales in the second half and remain on track to achieve full-year profitability and earnings growth. Turning to page 11, let me discuss the full-year outlook. In regards to the net sales, the competitive environment remains challenging, particularly in EMEA and the Americas, and some brands continue to face challenges. As a result, we remain careful on our sales outlook.
At the same time, we will continue to invest aggressively in marketing during the second half in areas where we see significant growth opportunities with the aim of further improving sales momentum. On our core operating profit side, considering our solid first-half performance and the recent foreign exchange environment, we have greater confidence in achieving our full-year core OP target. Last year, we achieved our initial full-year plan for the first time in four years. Going forward, we will continue to deliver on each of our commitments and earn your trust through consistent execution and tangible results. This concludes my presentation. Thank you.
Moving on. In addition to reviewing our first quarter financial results, I will explain how our growth strategy for 2030 is shifting from the concept to the execution and result generation phase. First, page 13. In the 2030 Medium-Term Strategy announced last November, we outlined our direction for achieving growth and enhancing corporate value by leveraging our inherent strengths. Since then, we saw an improvement in growth momentum during the first half of 2026 over achieving profitability target. However, what I want to emphasize is not just the short-term improvement in figures, but the fact that Shiseido has begun to transform into a company that delivers growth through the structural reform.
Over the past six months, we have translated our strategic initiatives into concrete actions, driving growth by strengthening our brands, establishing innovation mechanism to convert technology into growth, and focusing our resources through a select and concentrate approach on markets and areas where we can win. As Ms. Hirofuji explained, there are risks regarding the net sales and environmental factors such as intensifying competitive landscape. Yet, in the face of these challenges, we carefully analyze the success or failure of strategic measures by brand and region, identify the root causes behind the numbers and understand what is working, what is not working, and swiftly take corrective actions. At the same time, brand and regions are united to make aggressive investment in areas where growth opportunities are clear. Such a mechanism is steadily progressing. I will now explain the progress of those strategies by brand and region.
Now page 14, the strategy by brand. In our midterm strategy, we have positioned Shiseido, Clé de Peau Beauté, and NARS as core brands that drive both growth and profitability. Today, I will outline the vision for each brand and over the midterm plan and the shift the growth models require to achieve it. During the first half, we focus on hero products, strengthened our brand foundations, and transition from fragmented regional initiatives to consistent brand global operations, and established a framework for brands and regions to work together as one team. While progress varies by brand, the key takeaway is that each brand now has a clear picture of exactly what areas and products will drive growth. Now page 15. During the midterm, we aim to further evolve Shiseido as a global prestige brand originated from Japan.
To this end, we are currently working to rebuild brand value through high value-added offerings rather than just sales volume expansion. Specifically, we are concentrating management resources on product lines destined to become hero franchise, such as Ultimune or Vital Perfection, and that are enhancing their unique value by combining art and science. Although we are currently behind the full-year target of low single digit, the rate of the revenue decline narrowed between first quarter and the second quarter, indicating the results of these initiatives are yielding. Ultimune, in particular, is contributing to broadening the brand's fan and attracting younger consumers. Additionally, while revenue is still down in China travel retail, the underlying quality of business is improving. This indicates a shift toward a model that achieves sustainable growth by enhancing brand value through the expansion of high value-added products rather than relying on excessive promotion to drive sales.
In the second half, we will intensify strategic investment in our global hero products and launch new items, including our foundation serum featuring core science and technology and new additions to the Vital Perfection line. Through these initiatives, we will further revitalize the brand and put Shiseido, the Group's iconic brand, back on the growth trajectory.
Next, please turn to page 16. As our flagship luxury brand, Clé de Peau Beauté continues to strengthen its distinctive brand equity by combining cutting-edge science with luxury. During the first half, the brand delivered strong growth in its largest market, China and travel retail, while maintaining discipline in pricing and distribution to protect and enhance brand value. Our hero products drove robust performance. Our new brightening serum, powered by breakthrough science and technology, has also performed exceptionally well, demonstrating our ability to translate scientific innovation into brand value. In addition, continued growth in premium priced products and disciplined brand management focused on long-term brand value have enhanced not only sales performance, but also the overall quality of the brand.
In the second half, we will build on the momentum generated by new product launches by strengthening promotions and accelerating cross-selling, further reinforcing our loyal customer base, one of the brand's greatest strengths. By leveraging world-class dermatological science while delivering exceptional luxury experiences, we will continue to establish a differentiated value proposition that sets Clé de Peau Beauté apart from its competitors. Next, please turn to page 17. We position NARS as one of our core brands that should further strengthen its presence in the global makeup market. Over the medium term, we expect NARS to become a key driver of the turnaround in the Americas. At the same time, we aim to evolve the brand beyond a makeup brand by making base makeup as the core growth engine while strengthening the eye and cheek categories, enabling sustainable market share expansion.
In the first half, we saw both encouraging progress and areas requiring improvement. The flagship Light Reflecting series delivered strong growth and continued to attract new customers to the brand. On the other hand, our new natural matte long-wear foundation fell short of our high expectations. What matters most to us is not the short-term performance of any single product. Our focus is on building a business model that consistently converts innovation into sustainable growth. Through our post-launch review, we identified opportunities to improve our investment allocation in light of the competitive environment, optimize channel deployment in selected markets, and sharpen our consumer value proposition. At the same time, the launch successfully increased brand awareness and drove store traffic, while also creating positive synergies with existing products, including the Light Reflecting series. Strong momentum has continued at key retail partners, including in China and at Ulta in the Americas.
We are already taking action by refining our product messaging, strengthening sampling activities, and optimizing investment allocation toward priority markets. More importantly, we have begun incorporating these learnings into our next wave of innovation and future investment decisions. Our process does not end with a product launch. We rigorously evaluate outcomes, learn from them, and apply those insights to drive further growth. This demonstrates that we are making steady progress toward the business model we aspire to build, one that generates sustainable growth through innovation. Next, please turn to page 18. In addition to our core brands, we are also cultivating the next generation of growth drivers. Elixir is a prime example. Our strategic shift in 2021 to focus on five hero products has proven highly successful, making Elixir one of our most consistently growing brands while building exceptionally strong brand equity.
During the first half, growth was driven by the renewal of our brightening lotion and emulsion, as well as the launch of a new shade to our tone-up UV emulsion. We also benefited from increased demand from travelers of diverse nationalities and the expansion of our open channel business across Asia Pacific. We have now entered the next phase, scaling the successful brand building model we established in Japan to markets around the world. Looking ahead to the second half, we expect to accelerate growth further with the renewal of our BB cream, featuring our latest breakthrough science and technology.
Next, page 19. Our fragrance business, mainly in Europe, is making progress in both expanding market share and improving profitability. We are seeing results from a profitable growth model, which focuses on launching one major new product annually to efficiently generate consumer excitement, rather than the traditional model of spreading investment across numerous new products. We have built up a portfolio of large-scale SKUs through major launches such as Issey Miyake in 2024 and Zadig & Voltaire in 2025. In the first half of the year, new products from Narciso Rodriguez and Issey Miyake were key contributors. Looking to the second half, we have a major new product launch scheduled for the Max Mara brand. By combining this with the continued investment in the successful models established in the first half, we aim to further accelerate our growth momentum. Next, approach to the innovation on page 20.
This is another critical section demonstrating how our growth strategy is now yielding. We are often asked that while Shiseido possesses strong R&D capabilities, that strength has not necessarily translated into continuous sales growth. We believe the challenge lay not in our technical capabilities themselves, but in the lack of a sufficient mechanism to cultivate strong technologies into hero products and long-lasting brand assets, which should lead to the sustainable sales and profitability. We are now changing it. Instead of allowing R&D efforts to result merely in one-off hits, we are transforming technology into a sustainable and repeatable growth model by expanding from hero products and franchise development, SKU lineup, and global rollouts. A prime example of this is Shiseido's Serum Foundation series. Since the launch of the foundation in 2023, we have expanded the lineup. Everything from primer to powders that are centered around our Serum First technology.
This is a growth model that goes beyond a one-off hit by expanding the product range around the core technology and driving cross-sell. We aim to enhance customer value over the long term and generate both sales and profit. In the second half, we will launch a matte version of the Serum Foundation. The key is not simply to increase the number of new products, but to accelerate growth by leveraging our existing robust technological basis and customer assets. Furthermore, our core science technology, such as the Serum First technology, is already being deployed across multiple brands, and we plan to accelerate its adoption into international brands by 2028. We are currently evolving from a company that simply commercializes R&D efforts into one that continuously validates and learns from the innovation's outcome to fuel future growth.
We believe that this structural transformation serves as the foundation for converting Shiseido's strength, its scientific expertise, into sustainable and repeatable sales growth. Now moving to page 21 specific innovation initiative for 2026. The new products pipelines for the second half is even more exciting than that of the first half. We will incorporate our core science and technology across multiple departments, such as Serum First and Anti-Sagging Science V into new products. In the fragrance category, we will continue to roll out our products with high growth potential, including Max Mara, which represents our most important initiative this year. Particularly to ensure the success of these products, we are prioritizing the reallocation of investments toward brands, categories, and regions that have significant growth opportunities.
By combining the launch of new products featuring core science and technologies with the prioritized investment, we aim to increase the certainty of growth in the second half beyond that of the first half, and clearly demonstrate the results of sustained and repeatable growth model. Now, page 22. I will now explain the regional initiatives focusing on China and America's areas, which need to further accelerate our efforts for the second half. Regarding China and travel retail, our focus is shifting from the short-term pursuit of market share to high-quality growth that prioritize brand value and profitability. In the first half, we prioritize strengthening price discipline and rebranding the brand equity, and are already seeing steady results in our key products. Consumer purchasing behavior is also shifting these days towards seeking essential value.
Value such as superior science, technical excellence and comfort in product use and reliability that are reevaluated by Chinese consumers, which is a tailwind for our company. Moving forward, we accelerate high quality growth based on the three pillars, strengthening our products portfolio, evolving our marketing while leaving from reliance on excessive discounting, and maintaining appropriate channel control. Regarding the retailer restructuring in mainland China and travel retail, which continues to revenue decline, we expect normalization in return to positivity.
Now please turn to page 23. Our America's business continued to make solid progress toward achieving full year profitability in 2026. Nearly all of the JPY 7.5 billion effects expected from our structural reform has already been realized as planned. The Americas has now transitioned from a turnaround phase to a growth phase, having established a stronger earnings foundation through structural reforms. In the second half, we will accelerate focused investment in priority areas. One key initiative is our Power Duos strategy, which focuses resources on the combination of brands and retail partners that are most critical to driving both sales and profitability across the Americas. At the same time, we are accelerating the expansion of our online business, particularly through Amazon and other e-commerce platforms. We view e-commerce as far more than just a sales channel.
It is a strategic platform that integrates consumer insights, content, CRM, and conversion to strengthen both brand equity and profitability. By combining our Power Duos strategy with a stronger e-commerce foundation, we will maximize the return on our investments, deepen customer engagement, and deliver sustainable, profitable growth. Finally, please turn to page 24. Let me update you on the progress we have made in the strengthening our corporate foundation in line with our midterm strategy. The first pillar is accelerate growth with brand power. As mentioned earlier, we are transforming our innovation process into a system that consistently converts innovation into growth. At the same time, we are upgrading our development capabilities and shortening lead times in fast moving categories. We are also strengthening execution by bringing our brands and regions together as one team, creating a marketing foundation for the whole company to further strengthen our growth strategy.
The second pillar is to evolve global operations. We are embedding our new reporting structure across the organization while strengthening the governance and operating framework needed to optimize our brand and SKU portfolio. We have now moved firmly into the execution phase. Thirdly, and most importantly, is the organization culture. To create value that is uniquely Shiseido, we are embedding The Shiseido Way, not simply as a set of guiding principles, but as the foundation for our daily decision-making. By doing so, we are building a culture that responds quickly to change, embraces challenges, and continuously drives transformation. Shiseido's strategy has clearly progressed from structural reform to growth, and from defining our strategy to delivering tangible results. We remain firmly committed to maintaining cost discipline and preserving the momentum of our transformation.
We will have the courage to stop doing what no longer creates value, redirect those resources to our highest growth opportunities, and drive sustainable growth through thorough selection and concentration. While challenges do remain, we are becoming a stronger company, one that learns from those challenges, adapts quickly, and consistently delivers results. Shiseido is built on powerful assets, iconic brands developed over more than 150 years, world-class science and technology, and above all, a corporate culture that has always been deeply committed to enhancing people's beauty and well-being. The growth we aspire to achieve is not simply about expanding the size of our business. It is about delivering the unique value that only Shiseido can create to more consumers around the world, and translating that value into corporate value. Which brands have the greatest growth potential? Which technologies will create the greatest value for our consumers in the future?
In which markets and categories can Shiseido deliver the most instinctive value? These are the decisions we make not by keeping everything from the past, but by looking at the future to maximize our future corporate value. As a management team, we are committed to driving the transformation that will create Shiseido's next phase of growth by fully leveraging our brands, technologies, people, and corporate culture built over the past 150 years. We are confident that these efforts will unlock the full potential of Shiseido and maximize our corporate value over the medium to long term. This concludes my presentation. Thank you.
Thank you very much. Now we would like to open the floor for Q&A. Okay. Please open the questions now.
JPMorgan, Kuwahara-san, please start your question.
Thank you very much for taking my question. This is Kuwahara from JPMorgan. Do you hear me?
Yes, I can hear you.
Thank you very much. Only one question, right? Page 11. The net sales and core operating profits, the achievement in the first half, there was a slight gap between the two. I want to understand behind that. Also for the second half, what is the guidance? In the first half, the core operating profit was above the plan. Driven by what? Also there are some reasons behind, but what is the FX impact and also the cost management? What was the contribution for each category? I just want to understand in details.
In terms of your guidance, the achievement rate operating profit is quite good, but still you do not change your guidance, right? What was the reason behind what kind of risks you are taking, not changing the guidance? The second half, it was very clear to your explanation by brand, but NARS in overseas, especially China, a little bit of a struggle in my view. If you can share some initiatives about that will be appreciated.
Thank you very much for your question. In terms of the gap between the plan, in the first half, JPY 5 billion or so uplift compared to the plan. For the details, we do not disclose the breakdown, but the cost as well as the product mix and also the unevenly distributed inventory and some, the time difference in terms of the recognition of the sales or profit.
The year-over-year changes, especially the big U.S. brand, like unevenly distributed inventory provisions we had that is not recognized. It is now reversed. Therefore, that is contributing JPY 5 billion and also the profit JPY 3 billion or so positive impact. That was the tailwind for the first half. Another highlight is that the profitability improvement by quality, we see the good contribution coming from the structure reform. For each region and function, we do have a more cost-disciplined approach, and we have a production improvement as well as the GTC that is going well. All kinds of structure reform initiatives are yielding now. Based on that, we decided to keep the current guidance. The reason behind, indeed, the net sales impact and also the cooperating profit and FX impact was JPY 3 billion or so I mentioned.
But those, overall, there is a good sign. But in order to achieve our guidance, it still needs to achieve a quite aggressive net sales achievement. So in order to achieve that, we continue to monitor and also continue our efforts. So it's not just operating profit guidance to uplift, but rather we need to achieve the 7% operating profit margin guidance to be secured. And our this year's profitability structure by 2030, that has to be continued because this year's effort will eventually contribute for the 2030 achievement. Therefore, we want to achieve, overachieve hopefully, the guidance. But that is the background why we decided not to change this time. So in terms of your question for the ANESSA, you are right. The problem is in China. Q1, Q2, there is an improvement, but still there are structural reasons behind.
So it's not just a growth momentum, but we need to take on some challenges in terms of the structure reform. And Gold and other products, most of the products, Gold and others, are agency models or sales through the agency. That is the big impact. And there were some parallel imports and so forth that affected negatively for the price. And it's not just a single SKU, but Japan and Asia daily needs related product expansion or product line expansion to cope with the daily needs. We need to reposition our ANESSA brand especially in China. So that is our initiative for the second half.
Understood. Thank you very much.
Thank you. Next question from Jefferies, Hisae San.
Thank you very much for your presentation. Do you hear me?
Yes, we do hear you. Thank you.
For myself, for second half, what you mentioned earlier, the investment for second half, page 21. From next year and onwards, what kind of fruit will we be seeing from next fiscal year and onwards due to the investment in the second half, specifically around the fragrance? So you have here the photos of the products, detailed products here. But as we look at L'Oréal and Prada, they have a long-term license, so there is competition like that. So how do you see the differentiation in the fragrance? Are you going to focus on areas where you are really strong in? If you can re-explain to us about your fragrance strategy.
And in the midterm, what kind of impact are you seeing and what kind of [inaudible] you will be playing for the mid term plan.
Thank you very much. I will start with the growth model for myself and then afterwards the CFO will add on with some numbers. First of all, in the presentation I have touched upon this point, but fragrance. As for the fragrance area, in one year, we make a focused investment per year and we will focus it make it as a franchise and grow it and then year two and year three onwards, we continue to develop it. That has been the business model fragrance.
This has really been succesful for us, and in the first half this year too we did have a very strong growth, therefore we feel that we have a very good competitive advantage in how we have structured our business model. Looking at [inaudible] which is the core area for the fragrance sales, for the first half, we've been the top ten fragrances for women [inaudible] have been ranked at the top.
So as the overall market has been growing and we have been investing heavily and increasing our investment in it and with that, we were able to capture the biggest growth. Overall we are very confident in what we have built in the fragrance business model and we want to continue with that. That said, will this model always be advanced investment? It does always follow with profits, looking at the brand and the brand franchise, we want to make sure that there is a brand franchise that grows along with our investment.
Regarding some of the numbers we have realised double digits growth around the fragrance category. Second half we will have a very strong pipeline that will be added to the mix of [inaudible] and along with that we can foresee that there will be a stable growth and growth base with the profit. Overall the profitability base is growing and we were able to capture a good one in the first half too so for this brand with high potentioal we will continue to pursue further growth and use leverage whatever we can to further grow this strong brands within the fragrance category. Thank you very much. That's it for myself. Thank you.
Next, Goldman Sachs, Miyazaki-san the floor is yours.
This is Miyazaki from Goldman Sachs. Thank you very much for taking my question. My question is, how do you see the results of the first quarter and the first half and the second half. You said JPY 5 billion or so in the first half, JPY 39 billion or so, that was the original guidance. [inaudible] was bigger than the second half. Was it your original assumptions, if so is there any decline potentially in the second half, like market investment will go up aggressively or some [inaudible] in the first half was just a one off, and then in the second half, that profit will be gone in the second half, or how shall I read that?
First of all, for the second half, year over year, this will be potentially stable profit improvement is expected but the profit driver, the nature will be slightly different from the first half versus the second half, because the first half we expect JPY 16 billion of GGC global transformation [inaudible] impact, or prior year [inaudible]. There was a reversal of unevenly distributed inventory provision in the U.S. that was recoginsed last year but there will be [inaudible]
The second half, that will be settled, because in the second half of last year in U.S., there was already the structural reform impact. The top line, the gross profit, there will be some reduction. But in the second half, there will be some productivity improvement, and also the normal operations in the factory, like a JPY 3 billion or so minus negative, was recognized last year. But that is normalized this year, and also some COGS is also improving. So the profit improvement will be structural reform to the more normalized. That will be the nature of the profits in the first half and the second half. There will be some marketing spend, of course, generated. But the first half profit will be reallocated or invested in the second half of the marketing. That is how we want to achieve.
Well, thank you. Let me double-check. So marketing spend will be bigger than your original beginning of the year plan, or you have already taken that into consideration from the very beginning? In the bigger marketing spending in the second half. Also, the marketing spending in the second half is, of course, maybe by design, but how you are evaluating that, because the top line is not growing as you expect. But if you continue to spend the marketing investment, how can you guarantee that source?
For the second half, I showed you the new product list to be launched in the second half. So compared to the first half, the second half will be more exciting in terms of the product launch. From that, we need to spend more on the marketing in the second half, according to the launch.
The fragrance category, Max Mara, will be the big chunk of the second half investment. Especially fragrance, the initial year of the launch, we need to have more brand awareness. Therefore, we need to invest more marketing. In the first half, how should we evaluate the marketing ROI? We are making the review. For the large scale new product launch, whether the result was according to our expectation, we are now reviewing that. As I mentioned verbally, the first half, we expected the natural matte long-wear foundation. That big launch was lower than our expectation in terms of the first half result. So we are making the review and make some corrections in the second half. That kind of review is very essential. We continue to have that conversation and then make some corrections, as needed.
That will continue to contribute for the second half's success.
Thank you very much for your explanation.
Next, from Bank of America, Ashley or Julia. Ashley or Julia.
This is Ashley from Bank of America. Thank you for taking my question. I had a question on the natural wear foundation fell short of your expectations. Based on your post-launch review, as you prepare to launch the Shiseido matte foundation second half, which of the learnings are most relevant, and what gives you the confidence that the new Shiseido launch and foundation can deliver a stronger outcome? Thank you.
I think if I understand your question correctly, the natural matte foundation learnings, key learnings from the launch, and what are the learnings that we can reflect into the brand Shiseido foundation launch?
In case of the natural matte long-wear foundations, we debuted the result of the first half, and we found out that we need some adjustments. Those kind of adjustment need to happen mainly for the U.S.A. markets. In case of our Shiseido foundation, it's a very different story. We really leverage the current fundamental for the basis, and to leverage to make it for the further accelerations of the growth. This is a slightly different for the purpose. Are you okay to-
Thank you. Thank you very much.
Yeah.
Next, Haruka-san from Morgan Stanley, floor is yours.
Thank you very much. This is Haruka from Morgan Stanley. My question is about the net sales for the second half. You already explained, but I would like to deep dive on that. Americas region sees a more intensified competition. Can you clarify that. What is the direct impact on your company, and what is the level of the impact? My second question is the China travel retail. Mainland China travel retail negative margin was narrowed in the second quarter, but whether that would lead to the positive or break even. How much you can expect that? Of course, it could be rather difficult to have visibility. Hainan Island, there was some slight slowdown compared to the first quarter to second quarter. What kind of channel strategy you have for the Hainan Island or travel retail business? Thank you.
For the EMEA, competition is now intensifying. There are two reasons or impacts. Number one, the overall market is cooled down, and there should be some dominant players, and all the players are taking over the market share among the very crowded market. The price is now bipolarized and it is now becoming very challenging. As we see, not just a brand by brand approach, but what will be the competitive edge we have at each brand. We are now taking some strategy on that. For example, EMEA, brand versus retailers, and we call the Power Duos strategy that we name, and we try to have a good strategy for the retailer and the brand and the best mix. Also the skincare, we have a second ranked position, quite high ranking in the EMEA region for the skincare.
We want to maintain that. In the second half, we have anti-aging and anti-sagging products. We would like to take another step, another leap on that. Your second question, travel retail, especially for the mainland, the decline in the China mainland, there was a retailer's resale. In the first half, there was not realized last year, but still, in the second half, it will be recovering. Therefore, in the second half, we expect the recovery on a steady manner. TR, travel retail channel, there are a lot of volatility still. We needed to work toward the tourists mainly and then generate good solid sales. Daigou and others are not our focus, and that is the structure that we need to build by the end of the year. Thank you. Sorry, let me confirm one by one.
In EMEA, you say that the NARS Longwear matte foundation was a little short compared to your expectation. That was because the retailer competition or intensified competition. Was it because of such heated competition? Or at the retailer side, are there any making some inventory adjustments? That is not the reason behind. Is that correct?
NARS in EMEA, excluding U.K., it works quite well, to be honest. So no negative impact in EMEA, excluding U.K. for NARS. I mentioned earlier for the negative impact on natural matte foundation for the U.S., basically. So there is no issue on the brand NARS issue. It is just a regional U.S. issue.
But U.S. retailers do not make any kind of inventory adjustment, correct?
That is correct. No adjustment.
Travel retail. There is a change of the operator. I understand the difficulty. But the new operator, you have e-commerce and other customer database. You need to build it from scratch, right? You can expect the traffic can be generated as you saw in the past. You see the good signs already?
I do not say that the traffic will be the same as last year. I do not expect that big expectation now. But definitely the recovery is ensured. The impact was not so small. Even the new operator is assigned, and we will resume our operation so we can return to the normal trajectory, but not as good as the last year's level. China mainland travel retail plus Hainan Island Q1 to Q2, the CPB was progressing greatly. This is quite a good positive impact.
Travel retail last year, first half was very negative, but the second half we will be able to ship out and also the positive signs is expected. Thank you.
Thank you very much. We do have many of you raising your hands, but I do apologize. It is the scheduled time to finish this. We would like to conclude the Q&A for today. We from the IR division will be following up to those of you on the call. With this, we would like to close the presentation. Thank you very much for your participation today.