illion yen. Yet, net sales, on a like-for-like basis that strips out currency swings and business transfers, fell 3 per cent. The China problem  China remains the most obvious drag. By the first quarter of this year, inbound sales in Shiseido’s Japan business had collapsed by roughly 20 per cent year-on-year due to the absence of Chinese tourist spending that once provided a lucrative lift to the domestic market. The company revised down its full-year Japan forecast, cutting its net sales growth expectation from a mid-single-digit percentage rise to a low-single-digit one.  The China & Travel Retail segment, which the group consolidated into a single unit in early 2025 to better manage this exact kind of volatility, saw a low-single-digit like-for-like decline. However, core operating profit in that segment rose 18 per cent to 15.7 billion yen.  The weakness is especially visible in categories that once looked resilient. Shiseido’s suncare franchise and one of its most profitable seasonal lines, Anessa, saw first-quarter net sales fall 17 per cent globally, with China recording a decline of more than 40 per cent. What kept the Japanese business from a steeper decline was the resilience of domestic consumers. Local customers drove low-single-digit growth, with Shiseido, Elixir and Anessa all recording double-digit gains in the local market. The company’s premium positioning held.  But domestic resilience is not a full substitute for lost Chinese tourist spending. The economics are simply different. Management’s answer is to follow the Chinese traveller rather than wait for them to return to Japan, redirecting travel retail efforts across broader Asian tourist corridors. Operationally, it will take time, and public markets rarely reward long transition periods. The Drunk Elephant question No honest accounting of Shiseido’s position can sidestep Drunk Elephant, the American skincare brand it acquired in 2019 for $845 million and has since written down by more than half. Drunk Elephant’s year-on-year sales decline narrowed in the first quarter compared with recent periods. The brand showed solid growth on Amazon and signs of recovery at Ulta, supported by creator-led campaigns and stronger direct-to-consumer engagement. But Shiseido’s own assessment is candid: converting social media buzz into repeat purchases remains the central challenge, and the brand still needs to prove it can hold shelf space at key retail partners while rebuilding a coherent identity for an older, wealthier consumer than the ones who were generating TikTok content in Sephora aisles. What management isn’t fully pricing in Shiseido used the Q1 briefing to announce the closure of its Hsinchu factory in Taiwan, a wholly logical step in its effort to consolidate production at higher-utilisation Japanese facilities. The total restructuring cost is approximately 3.5 billion yen, with about 2.0 billion yen landing in 2026 accounts. Annual savings once the factory closes, scheduled for the second half of 2027, are estimated at around 1 billion yen per year in personnel costs and depreciation. The company also flagged the Middle East conflict as an emerging pressure point, with declining traffic and shipments already affecting fragrance sales in the region, and rising raw material and logistics costs beginning to work through the supply chain. Shiseido has explicitly noted that two risks – production cuts at Japanese factories due to raw material shortages and factory utilisation losses resulting from those shortages – are not yet reflected in its full-year forecast.  Management is telling investors, in effect, that the 69 billion yen full-year core operating profit target is achievable only if these tail risks do not materialise. Further reading: How Shiseido is connecting with customers in a crowded beauty market.