Unicharm Corporation

For Q2, consolidated sales were JPY464.2 billion, down 4.8%, and core operating income was JPY57 billion, down 22%. Interim income attributable to owners rose, helped by JPY5.3 billion of insurance income in India and related tax loss carryforwards. On the cost side, core operating income fell by JPY16.1 billion, driven by a JPY12.9 billion drop in gross profit and a JPY3.2 billion increase in SG&A. Japan sales rose 4.1% and core operating income rose 2.9%; Asia sales fell 14.5% and core operating income fell 69.4%; rest of world sales rose 2.3% and core operating income rose 12.7%. For the full year, management said the forecast was revised down, and for the second half it expects sales of JPY509.8 billion and core operating income of JPY63 billion.

Takahisa Takahara framed the quarter as a mix of temporary setbacks and deliberate investments for future growth. He said the China feminine-care issue was reputational and transitory, and that market share has bottomed and is beginning to rise again, while Asia-wide investments in online channels should start showing effects from Q3 onward. He also emphasized that Japan, North America, and the Middle East are performing well and that the company is positioning product innovation and channel changes as the path back to growth.

Management attributed the core operating income decline mainly to a JPY12.9 billion gross profit drop and JPY3.2 billion higher SG&A. SG&A increased due to logistics, sales promotion, DX-related, labor, R&D, system, and depreciation costs, including JPY900 million more logistics expense in Japan and JPY900 million more sales promotion expense mainly in China. The company also highlighted JPY5.3 billion of insurance income in India, with about JPY2 billion still expected by year-end, which helped lower the tax rate to around 26% versus a normal 27% to 28%. On capital allocation, Unicharm reiterated a total return ratio target of 50% or more, raised its dividend payout target to 35%, plans an annual dividend of JPY18 per share, and said it will buy back an additional JPY10 billion of stock on top of the JPY12 billion already acquired.

Analysts focused on whether Asia, especially China, is truly recovering or just benefiting from temporary inventory and promotional actions. Management said the key indicators are retailer shipments and market share, and claimed market share has bottomed and is rising in China, with Q3 expected to show more visible improvement. They also explained that China’s weakness was driven by reputational damage and contract disruptions around online/KOL activity, while Indonesia and Thailand are more about channel shifts and price competition. On guidance, management said the revised second-half forecast is conservative and that core operating income should recover, with Europe? no, with Asia returning to normal next year in management’s view.