Istyle Inc
TSE:3660
Earnings Call Analysis
Q2-2024 Analysis
Istyle Inc
The CFO of istyle Inc. presented a bullish view on the company's performance, highlighting a remarkable year-over-year sales increase of 33.2% amounting to a record JPY 27 billion. Profits also jumped significantly, up by JPY 600 million to JPY 850 million. Particularly impressive was the domestic market in Japan, where both the marketing solutions and retail sectors thrived post-COVID. These segments saw growth in sales by 12.8% and 47% respectively, and even more striking was the profit increase in the retail segment by an astounding 173%.
The company's synergy between its media, e-commerce, and physical retail is yielding strong results. A new flagship store in Osaka and exciting @cosme Beauty Day events have added significant momentum to the retail sector with a 60% increase in brick-and-mortar stores sales. E-commerce isn't lagging behind either, showing a 20% uptick in sales. The strategic approach to customer acquisition and retention via cycle sales events is proving successful, with e-commerce benefiting from a 44% Y-o-Y increase in sales during the @cosme Beauty Day event.
While the global segment of istyle Inc.’s business faces headwinds, particularly in the China cross-border e-commerce with a 4.2% decline in sales, there is a silver lining with positive performance in Hong Kong and Taiwan. Efforts are being made to pivot and update the business model to face these challenges proactively. On a brighter note, the company’s branding and promotional events in these regions are enhancing local awareness and generating traffic.
The company is maintaining its guidance even as the second-quarter results exceeded expectations. Investments such as stock compensation are aimed at fueling employee motivation parallel to the company's growth. Efforts are also underway internally with initiatives like business process reengineering (BPR) to streamline efficiency in response to the growth observed post-COVID.
istyle is advancing its trimodal strategy, integrating media, e-commerce, and physical retail with a strong data backbone. The Marketing Solutions business is on the crux of expansion beyond the @cosme platform into broader marketing domains. The acquisition of a 30.8% stake in Trenders, with its strong social media platform and influencer network, is indicative of istyle’s commitment to deliver enhanced customer experiences and enter new business frontiers. In addition, partnerships with firms like NODE underline an emphasis on a data-driven approach to innovation.
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Thank you very much for joining the video. This is Kei Sugawara Vice Chairman of istyle, CFO. So let me start with the presentation material for the second quarter of this fiscal 2024. Sorry turn the page, okay. So first 2 pages is just an explanation of changes in the segmentation starting from the beginning of this year and it is an explanation of the segment. So let me skip that. So the first chapter is an overview of the financial result for the second quarter. As a summary, our domestic business in Japan including the marketing solution and the retail, these 2 businesses drove the increase in sales and profit quite a lot. Thanks to the macro environment in Japan after the COVID. Everyone is going out and making the skin care and makeups. And our media, e-commerce, physical retail, all the businesses going really well. And as a result, the consolidated sales revenue between JPY 27 billion that's record high on a past half year, which is increased Y-o-Y 33.2%. And at the same time, the operating profit wise, increased by the JPY 600 million Y-o-Y to JPY 850 million, which is about Y-o-Y [indiscernible] something percent increase. And if we had to look at each segment, though our sales for the Marketing Solutions business segment growth by 12.8% Y-o-Y, and the profit increased by 56% plus. And moving on to the Retail business including online and offline, sales increased by 47% Y-o-Y. This is a plus 47% due to the growth in both online and offline. For the brick-and-mortar stores, the sales increased by 60% due to the contribution of the new store, which is our second product @cosme Osaka as well as the existing stores, the steady growth. And if you look at the online retail side, the e-commerce, the sales increased by 20% and we have a special event @cosme Beauty Day at the beginning of December annual event. That was a great success. As a result, the profit of the Retail segment increased 173% that covers our marketing investment for @cosme Beauty Day as we spend like JPY 140 million, which was pretty much decrease from the last year, which we spend last year JPY 200 million. For the Global segment, on the other hand, which has been still in very difficult positions, where there are sales decline by 4.2% Y-o-Y and we have been really hard time in China, the cross-border e-commerce. But on the other hand, our business in Hong Kong and Taiwan business, the Retail and also the Media business were pretty good. And the global profit went down to the operating loss of JPY 76 million due to the challenge we have in Mainland China. And then some of the numbers that already covered from the previous pages. As a result, our business as a consolidated basis for the net sales and operating profit, both showing the strong progress compared from the last year and we are hoping to get it still continue on our second half as well. With the progress to our target through fiscal year, our second quarter accumulated results so far, it's pretty good as net sales progress is 54.2% to the target. And for the income-wise, operating income, ordinary income and net income, the progress towards the target is 70.9%, 80.8%, 68.8% so far. And regarding our 3-year focus from this point will be explained later. So if you look at the graph, you can see that our second quarter result in sales towards the target is pretty good so far. So this is a trend in the sales by segment by each quarter. So the consolidated basis Y-o-Y increase 131.5%. And that is driven by our retail business, which show the increase Y-o-Y 145.8% and well, I'm happy about is that we are increasing the OP ratio so far, especially if you look at our Q2 return on OP ratio, which was only 0.2%. That was normally happened on our Q2 as historical event. We spend the marketing investment for the @cosme Beauty Day for the December. So normally, our second quarter OP ratio tends to be really low. But instead, this year, we are increasing the operating OP ratio compared to our last quarter Q1 even. So this is the marketing solutions and the quarter segment. And this is the -- we are achieving the -- we achieved the record high quarter sales for the second quarter. This is thanks to our Media business, only online. And also as we are connecting all our Media business, E-commerce business, Physical Retail business together, that our Retail Media part of the business, which we are conducting pop-up events and the digital signings on our stores everywhere, that kind of Retail Media has been driven our increase in sales. And instead as I explained on the previous quarter that OP ratio of this segment have been dropped quite just a little bit. Thus due to the increase in the headcount as we are accelerating the hiring. And this is our Retail business, the trend by Q-on-Q -- by quarterly. And this was very strong this year. And you can see that we are showing the very strong growth, both in our physical stores and e-commerce at the same time. And -- but also our -- the operation drop just a little bit on the Q2. But if you look at the previous quarter, the last year's Q2, that we are maintaining still quite a bit of OP ratio. This is our global business. You can see the Y-o-Y sales has been dropped by almost 50%. And I explained in the previous call that we are not really focusing on the growth in sales. But our main focus is how we can get back to breakeven as soon as possible. So we are working really hard on restructuring our businesses and changing our business especially in China for the year. And also our business in China has been really difficult. But somehow, as I said earlier, the Hong Kong business and Taiwan business has been doing great. So those at the same time, our Korean business has been increased quite a bit and there was -- for the second quarter, our business in Korea has been a positive operating profit. And this is our business segment that we having really hard time to obtain the personnel or the beauty construct send to our beauty clients so that our revenue dropped just a little bit and accordingly, our operation drop just a little bit. And this is the breakdown of the SG&A by quarter. And we are increasing quite a lot of the size of -- amount of the expenses by [indiscernible], especially increasing quite a lot on the merchandising related costs, which includes the shipping, delivery and the payment settlement for the e-commerce, especially we had a big revenue from the @cosme Beauty Day, big sales on the e-commerce. And at the same time, what is important here to indicate is that we to lower in the SG&A ratio against our total revenue has been dropped quite a bit, which was lower to as much as 39.2% and we are hoping to maintain these levels in the SG&A ratio from our second half as well. So as a result, this is operating income by segment. So that we still spend quite a lot on the company-wide cost and at the same time as our losses on group of business has been getting closer to 0. And also, we had a strong growth in our Marketing Solutions and Retail altogether. So that the overall operating income increased JPY 466 million and also we are increasing our operating profit ratio little by little.
So this is our second chapter to just bring our strengths and our station to our platform. Although, we are just a little bit decline in our monthly active users. But we are still ahead of our competitors on the beauty industry online that we are maintaining monthly active users at a quite high level.
And our registered members has been increased step by step, and we are getting closer to achieve 10 million registered members. And this is the historical changes in our connections, which display our user engagement between the branch informations and our users. It has been increasing quite a lot. Also, I'd like to mention that we just exceeded the 20 million of the product review posted on our @cosme. Finally, as we are maintaining the core deals to perform operations that we've been making sure that our platform is very neutral. So that's the key of our platform and in terms of the fundamental part of our business, which is to transform the consumers by maintaining our platform being neutral. So there are -- we are keeping forward and at the same time, we are increasing the number of product review from now and then. And at the same time, this year, we are expecting to have our 25th anniversary. We open up brand @cosme on December 3rd, in '99. So it's getting closer to our 25th passing. So that we are starting our anniversary media campaign starting from this March. And to celebrate our anniversary, we are adding brand new contents and campaigns to celebrate our anniversary together with our users. So this is our review of our past year and some of them are already included on our -- my previous explanation on this slide. So I might be skipping some of the items. So that -- this is the summary. This is pretty much the same as our explanation on the previous chapters, but I'll just go through some of them.
For the Marketing Solutions, record of high sales. The platform has been getting even stronger. That's going to create some more value to the beauty client and that led to our good result in business. Although we opened up our second flagship stores in Osaka, which is @cosme Osaka starting from the day 1 and rocket start, very good start and effective to our business altogether in the Retail segment. And also e-commerce, we had a great increase in the number of customers and also at the same time, our Beauty Day this year, this December, last December was very good, and that was driven towards a good result in our e-commerce and also at the same time for the e-commerce. And we opened our brand-new branches on Amazon.co.jp and we had very smooth start, but I cannot disclose. But actually the start was very good. And that new stores already started contributing our revenue and the operating profit from the day 1. On the Global. The China cross-border e-commerce has been very difficult still so that we are still trying to modify the business model and updating the revenue, probably the model right now. And the Hong Kong, Taiwan, steady growth, moves awareness of @cosme amongst these local customers so that we are taking market conditions. And for the KPI, platform expansion has been very good and there are some marketing strategies have been working so that we have more user actions and most active user as well that led to a good result in the business too. For the Marketing Solutions. We are having a really hard time due to the COVID but after the COVID, we display the strong growth on Y-o-Y 133% and especially the -- what we are expecting more is our combination between our Physical stores and our Media business. As I said earlier, as Retail media that displayed the Y-o-Y growth of 158%. For the Physical stores, this displays the breakdown of the type of stores for our 2 quarters recently. And as you can see there, our existing stores has been displaying steady growth. And on the top of that is our -- the flagship stores in Osaka also adding the size of the new businesses and also at the same time, the new M&A for the addition of the small retail chain has been also adding some of the sites. So there are altogether there has been Y-o-Y growth in 155.4%. So the -- actually, what was the number @cosme Beauty Day this year? We had @cosme Beauty Day starting from 1st December to 3rd December, 3 days. And as a result, we had a JPY 2.3 billion sales for the 3 days that was 44% plus Y-o-Y compared to the last year. But this is not just [indiscernible] random big sale. We are to create a cycle of acquiring the new customers that makes them become our regular customers with 6 months [indiscernible] cycle.
And it does not it here, but we had the big -- one of the big sales normally in July. So that -- we are acquiring the new customers using the big sales, the maximum stay with the regular customers, that kind of cycles has been working. That's how we creating the scalability of our e-commerce business. And what is good is there are many of our Physical store customers offline using our mobile app and that has been driving the combination of our e-commerce and physical stores. So there are so many of our customers as much as 90.2% using both our e-commerce and our physical store at the same time. And this is how we started in @cosme shopping within Amazon.co.jp. We are starting from the 22nd of November last year and we had a very great start. And we selected a very small number of the brand, which more towards Prestige especially as Amazon is not really strong at Prestige brand. And we are still working with the brand to prepare launching the new brands, new products, increased the size of the SKUs, then we are expecting more of the size of the business here. And as I said many times already in this slide because it's written here, our Hong Kong business and Taiwan business have been doing great. And the specific awareness amongst the customers, the name of @cosme has been increased quite a bit. And thanks to that stations, and we are taking advantage of the name of @cosme having big pop-up events, bringing so many local influencers with the sponsor beauty products, combine them together to create this great pop-up promotional event.
And we have so many of the visitors in the local from Hong Kong, Tsim Sha Tsui and Taiwan, Taipei as well. And this is the explanation of our guidance not changing at this moment towards the end of this fiscal year. Also, our progress so far until the Q2 has been really great. But some of the cost or investment or expenses already planned -- planned at the beginning. And of course, @comes Beauty Day and Osaka, that has been already planned and we are expecting the still the -- towards the end of the fiscal and our results on both of them has been so far exceeding our initial -- the budget. And at the same time, we had to spend more of the expense on stock compensation. And also that composition related to our performance to motivate our employees and there has been -- that have to be included. And at the same time, as we are showing the strong growth and increase the size of the business from the middle of the COVID to after the COVID right now. We have to reengineer our business processes, otherwise, we have to hire so many people with so much of efficient business operations have to be conducted. So that we are starting some of the big initiative internally towards the BPR on our media business and original business both in Japan and we are still continuing and the budget we are declared towards the end of this fiscal. So at this moment, we cannot be sure whether we have to update our focus so that we are still keeping our original focus at this moment. So that we were going ahead towards our second quarter, then end of the whole fiscal. Then, I'd like to conclude with our future initiatives here. This is the diagram of concept, the model we expect -- we are displaying as I have been saying like this is a trimodal strategy, which we have 3 pillars -- 3 core businesses, media, e-commerce and the physical stores combined and together few of them as the database as a [indiscernible]. Then this business model has been -- this strategy has been working really well but we are more eager to expand the strengths of our media part as well. So I'd like to go into the detail of what's been -- what we've been working in the 2 initiatives. The one is the -- our marketing solutions business has been based on our platform @cosme. And we are more focusing on the promotions. When our client, the beauty brands are conceding or challenging on the marketing activities, the advisement promotions is not just the whole thing. There are so many other things that going to have take care. And we'd like to expand the marketing domains in order to increase the value we are creating and then deliver to our client. And second one is also that we have tonnes of data. We'd like to utilize better and more in depth using our capability together with upside partners taking advantage of the size of the data on the generative AIs and the other stuff. So our action so far right now as our initiative is to announce the capital and business alliance with Trenders, which is a listed company on the Tokyo Stock Exchange gross market to expand the scope of our expertise, not just within @cosme but outside @cosme as well. Also our second strategy, we are starting with many outside partners and we are just announcing one partnership yesterday. So let me start with our new capital and business alliance with Trenders. And Trenders, it has a very strong social network media platform called MiMiTV and also Trenders as one of the largest beauty influencer platform operators. So that combining the strengths of @cosme from istyle and Trenders from the influencer network on the MiMiTV or Trenders, we have to delivering the new customer experience in the beauty industry. So that we are jointly creating the combined market ratios. And those at the same time, we are working together to create our global business. And also at this moment, most of us are working on the skin care and the makeup, the beauty industry as a kind of beauty out there. So there will be an active challenge to initiate the new business opportunity in the future.
And capital alliance wise, we acquired the existing stock of the Trenders as much as 30.8%. So this is not consolidated fully but Trenders become our group company. So this is just the quick explanation of the Trenders. They have a strong social media platform called MiMiTV. Also they have a strong influencer network.
Then this is our second initiative. As I said earlier that we have to create more data driven approach, the consulting, user research, CX prototyping utilizing our data together with AI technologies. And as a result, we just announced our partnership with the CX consulting company called NODE to start with. We added more partnership to take advantage of our pre-sustainer of the customer, the assumptions and the behaviors on the beauty consumptions. So this is pretty much of the explanation from me. Thank you very much for being patient and watching to be here. Thank you very much.