Shiseido Co., Japan’s biggest cosmetics maker, forecast its first annual loss in eight years as it struggles to boost sales of Bare Escentuals, the U.S. unit acquired for $1.7 billion.
It will book an impairment loss of 28.6 billion yen ($287 million) on goodwill associated with Bare Escentuals, which was bought in March 2010, the Tokyo-based company said yesterday in a statement. Net loss will probably be 14.7 billion yen in the year ended March, compared with a previous forecast for net income of 10.5 billion yen in the period, it said.
Shiseido reported a net income of 14.5 billion yen for the year ended March 2012, less than half its profit in the fiscal year it bought the San Francisco, California-based makeup and skincare producer. Since announcing the offer for Bare Escentuals on January 2010, its stock has lost 19 percent, compared with a 21 percent climb for the broader Topix index.
Bare Escentuals’ “sales have remained lower than expected,” Shiseido said in its statement. “Bare Escentuals has taken longer than initially envisioned to grow its retail business. The gap between its sales budget and sales performance has been widening during recent months.”
Some Bare Escentuals stores will be closed this year while the business expands marketing to rely more on “consumer-facing” promotions, television advertisements and the QVC home shopping network.
“It’s a little bit hard to imagine the recovery strategy,” said Hisae Kawamoto, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. “They’re posting an impairment loss only three years after the acquisition, which gives a negative impression. The company says they will close unprofitable stores, but it doesn’t explain how the business is going to improve.”
Shiseido jumped 5.6 percent to 1,580 yen as of the close of trading in Tokyo yesterday, the highest since March 2011, before the announcement was made. The shares have gained 30 percent this year, compared with a 33 percent advance in the benchmark Nikkei 225 Stock Average.
“There could potentially be further losses unless they sell the unit,” said Mitsushige Akino, executive director at Ichiyoshi Asset Management Co. in Tokyo. “They couldn’t operate Bare Escentuals as they had hoped to.”
Analysts expected net income of 10.2 billion yen for the year ended March, according to the average of 12 estimates compiled by Bloomberg.