Isetan Mitsukoshi Holdings, which runs the Isetan and Mitsukoshi department store chains, raised its full-year operating profit forecast to 86 billion yen on Friday from 84 billion yen, after spending by foreign visitors and wealthy local shoppers lifted first-half profit 19.4% to 37.6 billion yen.

The upgrade matters beyond Shinjuku and Ginza. Visitors from China, Taiwan, South Korea and Hong Kong drove the group's tourist sales in the half, Fashionsnap reported, and their spending is one of the clearest live reads on regional consumer confidence and on how far a weak yen keeps pulling shoppers to Tokyo. The results also come less than two weeks after Japan changed how tax-free shopping works for visitors on Nov. 1.

Isetan Mitsukoshi's first half: record profit, wider margins

Revenue rose 3.7% to 263.2 billion yen in the six months to September, and net profit attributable to shareholders rose 26.4% to 37.1 billion yen, a record for any first half, according to the company's earnings statement filed with the Tokyo Stock Exchange. The company said a gain on the sale of shares in an affiliate helped the bottom line.

Gross sales, a measure that counts the full value of goods sold on consignment, rose 6.6% to 635.6 billion yen, Fashionsnap reported. Profit grew far faster than sales: operating profit at the department store segment rose 21.2% to 30.8 billion yen on segment revenue up only 2.1%.

Two groups drove the gains. Sales to overseas customers at the group's Japanese department stores rose 24.1% to 83.0 billion yen and made up 14.8% of store sales, up 2.1 percentage points. At Isetan's Shinjuku flagship, foreign shoppers spent 37.1 billion yen, up 32.2%, or 17.5% of the store's sales. At Mitsukoshi Ginza, where tourists account for 37.6% of sales, growth was slower at 8.4%. Iwataya Mitsukoshi in Fukuoka, a short flight from Seoul and Shanghai, posted a 37.6% rise, while Nagoya Mitsukoshi fell 9.3%.

Domestic shoppers also spent more. Gross sales to Japanese customers rose 3.6% to 476.5 billion yen, Fashionsnap reported, and sales to the group's top-tier "premier diamond" customers, who spend at least 10 million yen a year, rose 19%. Sales to customers who spend 3 million yen or more a year across the group rose 16%, the company said. Its autumn invitation-only events for top clients brought in 8.9 billion yen at Isetan Shinjuku and 5.3 billion yen at Mitsukoshi Nihonbashi, both records for an autumn event.

The company's app for overseas shoppers, "MITSUKOSHI ISETAN JAPAN," has about 1.29 million members, it said.

Raised forecast and dividend

For the year to March 2027, Isetan Mitsukoshi now expects revenue of 563 billion yen, up from 562 billion yen previously, and gross sales of 1.37 trillion yen, up from 1.36 trillion yen. Recurring profit is forecast at 87 billion yen, up from 83 billion yen. Net profit is now expected at 65.5 billion yen, up from 63 billion yen, but still 13.9% below last year's 76.1 billion yen. Fashionsnap reported that the company said last year's figure was inflated by one-time tax accounting effects, and that excluding them profit would hold near last year's record.

At 86 billion yen, operating profit would beat the 85 billion yen goal the company had set for the year to March 2028, a year ahead of schedule, Fashionsnap reported.

The board raised the interim dividend to 44 yen from the 40 yen it had forecast, against 30 yen a year earlier. It also lifted its year-end forecast to 22 yen, which equals 44 yen before the two-for-one stock split that took effect Oct. 1. On a pre-split basis, the annual payout would be 88 yen, against 70 yen last year. The company said it plans a progressive dividend and a payout of at least 5% of shareholders' equity from the year to March 2028.

October rush before the tax-free change

The second half started strongly. Fashionsnap reported that the company said sales to overseas customers hit a monthly record in October, helped by shoppers buying ahead of the change in the tax-free system, and that this was one reason for raising the forecast.

From Nov. 1, Japan moved to a refund system for consumption tax on purchases by foreign visitors, according to Honichi Lab, a trade publication on inbound tourism. Visitors now pay the tax-inclusive price at the till and get the tax back once customs confirms the goods are leaving the country, instead of being exempted at the point of sale. Pan Pacific International Holdings, which runs the Don Quijote discount chain, said on Nov. 2 that it would absorb the refund operators' fees itself, Honichi Lab reported, and that the removal of purchase limits would let tourists buy pricier consumables tax-free.

Rivals saw a similar October lift. J. Front Retailing, which runs the Daimaru and Matsuzakaya chains, said tax-free sales at its department stores rose 15.8% from a year earlier in October, and 20.2% excluding its Umeda store in Osaka, where a renovation has shrunk selling space, Honichi Lab reported. Takashimaya's tax-free sales slipped 0.5% in October against last year's Osaka Expo boost.

The test for the raised forecast is whether tourist spending holds once October's buying ahead of the rule change fades. Isetan Mitsukoshi pays its interim dividend on Dec. 10, and its November sales figures, the first full month under the refund system, are the next number to watch.