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Performance review and future efforts

On February 10, 2023, we published a financial result for the first quarter of the fiscal year ending September 2023.

The followings are detailed result and our future efforts.

About the first quarter (of the fiscal year ending September 2023) in the 21th period

　 As for Japan’s economy during the first quarter of the consolidated fiscal year, increasing import cost has put pressure on profit of manufacturing industry major companies in many business sectors, having deteriorated by one point compared to the previous survey (September) while profit of non-manufacturing industry improved five points, which is close to before COVID-19 pandemic, due to decreased downward pressure of COVID-19 pandemic on economy according to Tankan survey issued in December. However, although inbound demand is likely to be restored, we are aware of potential downside risks due to slowdown in the global economy, and we also concern about cost increase and demand decline due to rising prices, labor cost increase due to shortage in labor, and effect of the eighth wave of COVID-19, so economic prospect is still unclear.

　Under the circumstances, we have been implementing active measures suited for characteristics of each group company aiming at business recovery. Our business performance of the first quarter of this consolidated fiscal year was segment profit in “Mail order business” and “Wholesale business”, while “Hygiene consulting business” was loss by segment as we expected. The administration cost such as cost to maintain listing which is difficult to allocate to each segment improved than expected because of cost reduction, but loss by segment of “Retail business” was much worse than expected. As a result, our business performance of the first quarter of this consolidated fiscal year was 463,109,000 yen in sales (decrease of 29.0% compared to the same quarter of the previous year), while the operating loss was 71,242,000 yen (operating loss in the same quarter of the previous year was 53,817,000 yen), the ordinary loss was 70,467,000 yen (ordinary loss in the same quarter of the previous year was 52,666,000 yen), and the net loss in this period attributable to shareholders of the parent company was 72,018,000 yen (the net loss attributable to shareholders of the parent company in the same quarter of the previous year was 48,491,000 yen).

　As stated in “Notice regarding business segment change” announced on November 11th, 2022, we changed from segments by brand to segments by sales method, like “Mail order business”, “Wholesale business”, “Retail business” and “Hygiene consulting business”, and we reflect the administration cost including the cost to maintain listing which cannot be allocated to other segments in the adjustment section. Then, we changed business segment to report, and the comparison and analysis of the first quarter of the consolidated fiscal year are based on the segment after change. 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 telephone selling by phone operators in in-company call center and EC sales. The sales was 153,698,000 yen (decrease of 26.6% compared to the same quarter of the previous year) and the segment profit was 39,464,000 yen (decrease of 4.6% compared to the same quarter of the previous year) in the first quarter of this consolidated fiscal year.

　As for the measures during this period, we aimed at enlarging revenue by improving prevention ratio of cancellation by regular customers, finding dormant customers, inauguration of telephone business service utilizing skills of phone operators in telephone selling, and by gaining new customers by advertisements and sample distribution to influencers in EC sales. As for telephone selling, finding potential customers and prevention of cancellation of regular customers are considered to be the top priority because investment in web promotion was held down in terms of cost efficiency. From December 2022, we started telephone business service to optimize the use of sales capacities of phone operators. As for EC sales, we tried to improve brand recognition and share customer list with the retail business as well as promoting interaction among measures, but sales became lower than the same quarter of the previous year because it took longer than planned to reflect new measurement to sales. However, we restored profitability by reducing advertising and promotion cost and controlling miscellaneous costs, although segment profit was slightly lower than the first quarter of this consolidated fiscal year.

 

■ Wholesale business

　The wholesale business consists of domestic wholesale business and overseas wholesale business.

　The sales was 89,281,000 yen (decrease of 24.7% compared to the same quarter of the previous year) and the segment profit was 17,797,000 yen (increase of 186.2% compared to the same quarter of the previous year) in the first quarter of this consolidated fiscal year.

　As for the measures during this period, we aimed at widening overseas sales expanding product range by improving existing products and developing new products. As for our brand Favorina, Fine Visual and Aroma Bloom, we have been working on active promotional activities to expand awareness and those brands have been recognized widely. The sales of Cure brand which has a record of success in domestic wholesale business has been recovering along with promotion activities by popular Youtuber and slow but steady recovery of inbound demand. In addition, not only our exfoliating products but also Special Powder Soap achieved a certain effect. 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. Despite that, our cosmeceutical exfoliating product “White Clear Gel”, and “Extra Oil Cleansing” and “Special Powder Soap” containing enzymes which are exempt from the settlement has been expanding into Asia market with a central focus on Southeast Asia.

 

■ Retail business

　The retail business consists of store operation business of Aroma Bloom. The sales was 202,202,000 yen (decrease of 34.5% compared to the same quarter of the previous year) and the loss by segment was 23,456,000 yen (loss by segment in the same quarter of the previous year was 2,433,000 yen) in the first quarter of this consolidated fiscal year.

　As for the measures during this period, we aimed at improvement of the efficiency of business operation by integrating stores, and expansion of new customers by test marketing of new concept store. We already closed 14 stores and now operate 24 stores (as of December 31, 2022) around Tokyo. We newly opened stores with new concept “Aromatherapy shop to provide assistance with problems” in Shinyurigaoka in March 2022 and in Ebina in November 2022. We also develop and sell five types of OEM products to improve cost rate, aiming at strengthening of sales activity focusing on OEM products. In addition, we actively set up events in stores such as “workshop” to hand-craft aromatherapy items with essential oils of customers’ choice, and release of “Birth-aroma”, 24 types of essential oils related to birthstone. As a result, cost rate and average customer spend have significantly improved compared to the same quarter of the previous year. However, closing unprofitable stores and deploying merchandising concepts (of brand, store, customer) appropriate for each store’s characteristic to stores other than our new shops, Shinyurigaoka and Ebina, take longer, and customers are still slow to return to retail stores due to change in customers’ lifestyles after COVID-19 pandemic, resulting in much worse sales and loss by segment than expected.

 

■ Hygiene consulting business

　The sales was 18,425,000 yen (increase of 32.0% compared to the same quarter of the previous year) and the loss by segment was 5,981,000 yen (loss by segment in the same quarter of the previous year was 14,344,000 yen) in the first quarter of this consolidated fiscal year. Although there is a loss by segment, the performance increased significantly compared to the same quarter of the previous year.

　As for the measures during this period, we aimed at introduction and support of PL insurance of “Anshin HACCP” app, selling “BACTESTER” (fluorescent image measurement apparatus for microbe) to supporter, maximizing profit from water for DevirusAC (Space sterilization device) and expanding consulting business by participating in the business for development of overseas food sales channel by “Japan Foodies Choice” for supporting expansion and development of overseas sales channel of food manufacturers.

　To work on the measure, as stated in “First in Japan! Started to add food hygiene level in evaluation system at restaurant information site” announced on November 10th, 2022, we started the project to make standards of cleanliness in restaurants visible to customers working with Rakuten Communications Corp., which is ICT company of Rakuten group, and Higashiosaka CiPPo office, so that customers can choose restaurant at restaurant information site based on cleanliness level for food safety. As stated in “Adopted as IT introduction support business operator” announced on December 6, 2022, we are adopted as “IT introduction support business operator” in “IT introduction subsidies 2022” and the project is getting widely known as social action work.

 

 

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.

　We absorbed FAVORINA Co., Ltd. and Aroma LLC by 4Cs HD to start as an operating holding company from January 1st, 2022. Also, M&A of Cure, which was disclosed as the basic policy on October 14th, 2022, was formed officially at a board meeting in November 11th, 2022. As a result, the cosmetic wholesale business became our operating business since January 1st, 2023. Instead of segments by brands which was used until the previous consolidated fiscal year, we decided to adopt segments by sales methods from this consolidated fiscal year for more reasonability and understandability to the market, in order to face the market, expand sakes and improve company value as our strategy to explore new opportunities by accelerating overseas operations.

　As for the mail-order business, segment profit is feasible as a system, so 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. As stated in “Notice regarding acquiring 100% ownership of iiy Co., Ltd. through acquisition of share and short-form share-for-share exchange” announced on January 13th, 2023, 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.

　As for the wholesale business, although the domestic effect of the eighth wave of COVID-19 is our concern, we will deploy to drug stores and variety stores, strengthen sales to companies. At the same time, we estimate that inbound demand will recover. As for the overseas wholesale business, we aim to restore profitability for the full business year by actively developing an overseas market with a central focus on Southeast Asia.

　As for the retail business, we will revitalize existing stores to erase chronic deficits by continuously reviewing merchandising concept (of brand, store, customer) and deploying to other stores, improving cost rate by negotiating over purchase price and development of OEM products. We will restore profitability and extend performance early by opening more stores in profitable areas in view of site location and store opening conditions, 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 are going to form alliances with major companies, and we will restore profitability by strengthening business activity in collaboration with external sales agency.

 

　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 2023

 

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.