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Performance review and future efforts

On February 9, 2024, we published a financial result for the first quarter (the fiscal year ending September 2024).

The followings are detailed result and our future efforts.

About the first quarter (the fiscal year ending September 2024) in the 22nd period

　As for Japan’s economy during the first quarter of the consolidated fiscal year, business conditions DI (latest) has become better for three consecutive quarters in the manufacturing industry and for seven consecutive quarters in non-manufacturing industry according to Tankan survey issued in December, showing a sustainable economic recovery. As for major manufacturers, economic condition showed a recovery trend with the progress of pass-through of prices and recovery of car manufacturing, and major non-manufacturers achieved improvement for seven consecutive quarters making it the highest level since the survey in November 1991, with the mitigation of the impact of COVID-19 and the progress of pass-through of prices.

　However, business confidence has improved to the historic high and there is little room for improvement, therefore a cautious approach was taken to the economic prospect due to concerns over increase in cost caused by a rise in prices and decreased demand as well as a rise in labor costs due to understaffing.

　In these circumstances, we have been implementing active measures suited for characteristics of each segment and business style aiming at business recovery. As for the business performance of the first quarter of the consolidated fiscal year, there are segment profits in “Mail order business” and “Wholesale business,” while administrative costs such as listing fee which are difficult to allocate to each segment yielded a predictable result due to cost reduction. However, sales of “Hygiene consulting business” was significantly lower than expected and segment loss of “Retail business” largely surpassed expectation, so the sales was 573,420,000 yen (increase of 23.8% compared to the same quarter of the previous year), operating loss was 32,902,000 yen (operating loss in the first quarter of the previous year was 71,242,000 yen), the ordinary loss was 33,587,000 yen (ordinary loss in the first quarter of the previous year was 70,467,000 yen), and the net loss in this period attributable to shareholders of the parent company was 38,496,000 yen (the net loss attributable to shareholders of the parent company in the first quarter of the previous year was 72,018,000 yen).

　The administration department including R&D department of each segment is promoting product development speed-up and development of low-cost OEM products, along with the cost reduction project which has become our group’s culture.

 

■ Mail order business

　The mail order business consists of sales by phone operators in our call center and EC sales.In the first quarter of the consolidated fiscal year, the sales was 265,467,000 yen (increase of 72.7％ compared to the same quarter of the previous year) and the segment profit was 45,166,000 yen (increase of 14.4% compared to the same period of the previous year).

　As for the future measures for sales by phone operators, we aim at enlarging revenue by retaining customers by finding potential customer needs as well as cultivating potential customers by utilizing call center. As for EC sales, we aim at improving brand recognition by the use of SNS and ad delivery as well as updating website for online shopping and enhancement of mall sales. Until the previous year, we held down investment in web promotion to gain new customers in terms of cost efficiency because finding potential customers and prevention of cancellation of regular customers were considered to be the top priority, but we will strengthen measures in SNS from this year. 

　As for EC sales, we try to improve recognition of existing brands and share customer list with the retail business as well as promoting interaction among measures, but it took longer than planned to reflect new measurement to sales, resulting in the sales amount almost same as the same quarter of the previous year. However, we adopt a policy of making operating profits by reducing advertising and promotion cost and controlling costs.

 

■ Wholesale business

　The wholesale business consists of domestic wholesale business and overseas wholesale business.The sales in the first quarter of the consolidated fiscal year was 121,593,000 yen (increase of 36.2％ compared to the same quarter of the previous year) and the segment profit was 45,291,000 yen (increase of 154.5% compared to the same period of the previous year), showing significant increase in segment profit.

　As for the future measures, we aim at finding potential exfoliating market by expanding section for quasi-pharmaceutical products and broadening flagship products, entering into new domestic market, and expansion and overseas development. As for our brand “Favorina,” “Fine Visual” and “Aroma Bloom,” we have been working on active promotional activities domestically and overseas to expand awareness and those brands have been recognized widely. With respect to domestic wholesale business, we tried to improve recognition by participating in hometown tax donation programs and selling products just before expiration date at the website “Otameshi” to move to SDGs management since last fiscal year.

　With respect to overseas wholesale business, as stated in “Notice regarding settlement pertaining to a petition for provisional disposition order against a subsidiary firm” announced on June 28th, production and sales of our flagship product “Natural Aqua Gel” are banned from July 1st, 2022, to July 31st, 2023, in China, Hong Kong, and the United States, and the condition was removed and sales of the product was resumed since August 1st.

 

■ Retail business

　The retail business consists of store operation of Aroma Bloom.The sales in the first quarter of the consolidated fiscal year was 174,500,000 yen (decrease of 13.7％ compared to the same quarter of the previous year) and the loss by segment was 8,630,000 yen (loss by segment in the same period of the previous year was 23,456,000 yen), resulting in continuous loss by segment, although loss was drastically improved.

　As for the future measures, we aim at increasing the number of customers by attracting a new customer segment as well as generating repeat business and improve cost rate and personnel expenditure ratio in order to improve a profit structure. We currently operate twenty stores (as of December 31, 2023) around Tokyo, and newly opened stores in Shinyurigaoka in March 2022 and in Ebina in November 2022 with new concept “Aromatherapy shop to provide assistance with problems”. We also develop OEM products to improve cost rate, aiming at strengthening sales activity focusing on OEM products. In addition, we propose new usages of essential oils and set up events in stores by promoting “Eight aromas inspired by the world-view of novels” to enjoy the autumn season for art and “lucky aromas in 2024”.

　Member system was introduced last year and the number of app members exceeded 60,000 and the number of people who were added to official LINE account exceeded 50,000 (triple over the last year), leading to improvement of repeatability and unit price. As a result, cost rate and average customer spend were significantly improved compared to the same quarter of the previous year.

 

■ Hygiene consulting business

　In the first quarter of the consolidated fiscal year, the sales was 11,115,000 yen (decrease of 39.7％ compared to the same quarter of the previous year) and the loss by segment was 8,074,000 yen (loss by segment in the same period of the previous year was 5,981,000 yen), falling well below the same quarter of the previous year.

　As for the future measures, we will give HACCP management guidance corresponding to the food hygiene law gradually permeating in the entire food industry, as well as focusing on JFSM (Japan Food Safety Management Association) certification acquisition consultation and promoting measures to divert DevirusAC (Space sterilization device) for combatting infectious diseases in the livestock industry.

　Whether to employ HACCP management guidance and JFSM certification acquisition consultation largely depends on customers and HACCP is not yet widely spread in the food industry in Japan, so we will increase orders and alliance partner to get orders for seminars by proposing hygiene consultations to customers’ plans to build new or additional plants to expand their business, targeting at eating and drinking businesses with multiple stores.

　In addition, we develop measures to divert DevirusAC for combatting infectious diseases in the livestock industry, and large poultry houses in Japan already introduced DevirusAC.

 

 

About our future efforts

　Aiming at expanding sales and enhancing our group’s value by M&A and expanding overseas development and acceleration of sales in existing businesses are our group’s basic policy, as stated in the medium-term management plan announced in February 2022.

　As for the mail-order business, we will increase sales by widening product range to offer any products “that promote bouncing lifestyles and make people happy” without sticking to cosmetics to optimize sales capabilities of phone operators. In addition, iiy Co., Ltd., which has a proven record in EC sales, has joined our group, so we are also trying to raise the level of EC sales of the whole group. We spent less for ad expenses last year, but we will improve brand recognition by utilizing SNS and ad delivery to increase sales. We will also focus on widening sales and development of new products to maximize sales and benefit of iiy Co., Ltd. From December 2022, we started telephone business service to optimize the use of sales capacities of phone operators. Although we do not have enough achievement yet, we will create new opportunities by matching with companies suffering short staffing.

　As for the wholesale business, the sales of Cure brand which has a record of success in domestic wholesale business has recovered along with promotion activities by popular Youtuber and recovery of inbound demand. In addition, not only our exfoliating products but also Special Powder Soap achieved a certain effect, so we will keep on strengthening sales. As for our brand “Favorina,” “Fine Visual” and “Aroma Bloom,” we will continue active promotional activities and also try to enter a new market. As for overseas business, we will strengthen sales of Natural Aqua Gel and other products in China, Hong Kong and the United States, while developing market in Asia focused on Southeast Asia.

　As for the retail business, customers’ appetite for shopping is still low due to change in lifestyle after COVID-19 pandemic, so we returned to former store concept which is based on sundries. As a result, the cost rate became significantly worse. In addition, both sales and profit by segment fell substantially below the expectation compared to the same quarter of the consolidated fiscal year as we closed unprofitable stores, resulting in a continuous deficit. To erase chronic deficits, we revitalize existing stores by continuously reviewing merchandising concept (of brand, store, customer) adjusted to regional characteristics, strengthening approach on revisiting utilizing tools, improving cost rate by negotiating over purchase price and development of OEM products to enhance performance and restore profitability, along with closing unprofitable stores.

　As for the hygiene consulting business, damage from COVID-19 to food-related companies including restaurant is more serious than expected, and the economic environment is still tough, but we will restore profitability by proposing hygiene consultations to customers’ plans to build new or additional plants to expand their business, as well as strengthening sales by forming alliances with major companies and external sales agents.As for DevirusAC (Space sterilization device), we will develop measures to divert DevirusAC for combatting infectious diseases in the livestock industry such as poultry houses, as well as promoting various usages in the livestock industry.

 

　The forecast shown above has been created based on information available on the day of announcement of this material and actual performance results may differ from expected figure due to various factors.

February 2024

 

Change of business records

Change of financial condition

Change of cash flow

Information per share

Others

※1　Free cash flow is calculated as “cash flow from business operations + cash flow from investments”
※2　PER and PBR are calculated from the market price at the end of each fiscal year.
※3　Total number of issued shares at the end of each fiscal year (including treasury shares)
※4　Temporary employees are not included.