Casio Computer Co Ltd
TSE:6952
Earnings Call Analysis
Q3-2024 Analysis
Casio Computer Co Ltd
In the third quarter, overall sales stood at JPY 67.7 billion, largely unchanged from the previous year. However, operating profit saw a steep decline of 43% to JPY 3.6 billion, with a reduced operating margin of 5.4%. Both ordinary and net income also fell by 34% and 31%, respectively, with an EPS of JPY 11.78.
The Timepieces segment experienced a sales increase but a dip in profits, with an operating margin of 13.6%. The Consumer segment witnessed decreases in both sales and profits, languishing at a 1.0% margin. The System Equipment segment also faced lower sales and profits, with adjustments decreasing by JPY 0.3 billion from last year.
Despite the underwhelming results in the third quarter, the full-year forecast has not been modified. Net sales are expected at JPY 275 billion, with a targeted operating profit of JPY 18 billion (6.5% margin), ordinary profit of JPY 20 billion, and net income of JPY 14 billion.
The Timepieces business observed increased net sales but faced challenges in the Chinese market and certain North American and ASEAN regions. The drop in operating margin was attributed to heightened sales promotion expenses and branding investments, viewed as strategic moves to revitalize the business.
Sales growth was recorded across several regions, with Europe capturing the analog trend and India leveraging its first major brand ambassadors' effect. North America saw a 5% decrease amid tough conditions, although direct e-commerce sales showed resilience. Challenges remained in China and certain ASEAN countries due to underwhelming Singles' Day sales and fragile consumer trends.
The EdTech business is performing on par with initial expectations for the fiscal year. However, the sound business is grappling with post-COVID demand reduction and inflation impacts. Notably, the European market is demonstrating signs of recovery.
For the System Equipment business, efforts are focused on transitioning to recurring business while targeting profitability in handheld terminals and compliance with legislative changes, such as the Electronic Books Maintenance Act, spurring demand.
The Timepieces business launched 'SHOCK THE WORLD' event series, culminating in lively activations across major markets such as China, ASEAN countries, and India. These events were complemented by influencer engagement and a strategic focus on visual merchandising in store developments.
New products in the sound segment include the launch of the Celviano digital piano lineup, designed to emulate the expressiveness of grand pianos. Catering to a gap in the mid- to high-price range, the strategy aims to tap into a previously untapped customer segment.
The company is undertaking a cautious approach in the Timepieces segment, especially in the volatile Chinese market. A combination of promotional strategies and the introduction of new products such as the Celviano piano intends to rejuvenate the sound business. Structural reforms are also on the horizon to streamline business operations to align with market conditions.
The company is reaching out to the Gen Z demographic by fostering virtual space communications. In a remarkable feat celebrating the 40th anniversary of G-Shock, a unique solid gold model fetched approximately JPY 58 million at a charity auction. Additionally, the Privia PX-S7000 digital piano won several prestigious design awards, highlighting the company's commitment to product excellence.
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This is Tamura. Thank you for taking time out of your busy schedules to listen to my presentation today. And I would also like to thank you for your continued guidance and support. Let me start my presentation on the financial results of the third quarter of the fiscal year ending March 2024. The table on the left shows the consolidated third quarter results for the entire company and sales were JPY 67.7 billion, almost unchanged from the previous year. Operating profit was JPY 3.6 billion, down 43% from the previous year. Operating profit margin was 5.4%. Ordinary income of JPY 3.6 billion is down 34%. Net income of JPY 2.7 billion is a 31% decrease. EPS is JPY 11.78. The table on the right shows third quarter results by segment. The Timepieces segment saw an increase in sales and a decrease in profit and the operating margin of 13.6%. The Consumer segment saw a decrease in both sales and profit with the operating margin of 1.0%. The System Equipment segment had lower sales and operating profit of minus JPY 1.1 billion. Adjustments were minus JPY 1.5 billion, a decrease of JPY 0.3 billion from the previous year. This is the cumulative from the first to third quarter. Net income for the first 3 quarters of this fiscal year was JPY 10 billion, and ROE was 6.1%. Our full year plan for the current fiscal year remains unchanged at JPY 275 billion in net sales, JPY 18 billion in operating profit, 6.5% operating margin, JPY 20 billion in ordinary profit and JPY 14 billion in net income. Next, I will explain the overview of each business segment for the third quarter. First, let me start with the Timepieces business. Although net sales increased year-on-year, the Chinese market has been more difficult than expected. In addition, weak consumption trends are seen in some parts of North America and the ASEAN region. Operating margin has declined year-over-year, but this is due to the impact of increased sales promotion expenses, including branding investment and the resumption of real events, which are strategic investments aimed at the regrowth of the Timepieces business, which we are continuing in this fiscal year. Next is a byproduct result and outline in the Timepieces business. In the G-Shock metal line, the G-Shock 40th anniversary limited edition model was very popular. The G-STEEL series also performed well, thanks to its appeal to young people on social networking sites. The G-Shock resin line continued to do well with the development of variations of the octagonal 2100 series. The Master of G MUDMASTER flagship model was popular as well. G-Shock sports lineups continue to perform well globally. In others, Casio brand Vintage and metal analog series continue to be popular in the U.S. and Europe. Next is an overview of the Timepieces business by area. Sales in the third quarter were up 4% on a local currency basis compared to the same period of last year. All of the regions are represented in local currency. In Japan, sales were up 2%. Directly-managed stores performed, well driven by the gift business, et cetera. Premium G-Shock sales exceeded the previous year's level driven by 40th anniversary models but did not reach the expected level. North America was minus 5%. Overall conditions remain difficult, but direct e-commerce is performing well. Europe was plus 5% with G-Shock sales continuing to be strong in all countries. Casio brand products are continuing to do well in Europe, capturing the analog trend. In China, sales were up 19% year-on-year. Last year's performance was weak. So on a year-over-year basis, sales grew, but the recovery in actual sales during and after the Singles' Day shopping season has been below expectations. We will continue to monitor consumption trends. Other regions was plus 3%. Although the region as a whole is experiencing positive growth, some ASEAN countries are seeing weaker consumption trends. On the other hand, India is performing very well with the appointment of its first major ambassadors. Next, I would like to talk about the EdTech business and the sound business. First of all, the EdTech business is performing in line with the plan at the beginning of the fiscal year. In the sound business, the drop of demand after COVID and the impact of inflation are still continuing. And it is taking some time for the industry as a whole to adjust its inventory. In Europe, however, there is a recovery trend in the market. Going to the System Equipment business. In the HR Solutions business, namely the CHS business, we will continue to replace existing users of the HR integration system, ADPS and cross-sell the talent management system, Hito-Compass. In addition, we will strengthen the shift to the recurring business. In the handheld terminal, the PA business, we will continue to respond to orders in consideration of profitability. The cash register, SA business and the management's support for small and medium businesses, the SMB business, demand continues to increase due to the start of the invoicing system in October last year. And in the SMB business, demand for compliance with the Electronic Books Maintenance Act continues. Next, let me introduce our initiative in the Timepieces business, SHOCK THE WORLD. This event kicked off in Tokyo in September. In the third quarter, we held events in 6 countries, London, New York, Berlin, Shanghai, Bali in ASEAN and in Mumbai, India. I would like to introduce our efforts in China, ASEAN and India, which are our focus markets, in China, we held events in our directly-managed stores and in the e-commerce market, we held live streams and SNS streams in conjunction with SHOCK THE WORLD. After the event, pop-up events were held in major cities. In the ASEAN region, we held the event in Bali, Indonesia in early December, inviting influential media from several countries in the ASEAN region and conducted an area promotion using Rich Brian, a famous hip hop star. We are rolling out sales counters linked with SHOCK THE WORLD in stores in 9 ASEAN countries. In India, this event was held in Mumbai in mid-December. In preparation for the event, various in-store promotions were conducted throughout India. Cricket player Shubman Gill and Bollywood star Vicky Kaushal took the role of ambassadors, and they are expanding brand awareness. We are also developing stores with an awareness of visual merchandising. Next, let me introduce our sound business initiatives. In February, we will launch the new Celviano, a digital piano with the new acoustics system that approaches the rich expressiveness of a grand piano. In addition to the top-of-the-line model AP-750, several lower-priced models are also available, priced around JPY 200,000, strengthening the lineup in the mid- to high-price range. We are strengthening our lineup in the price range that we have not been able to expand much in the past and are aiming to capture the customer base in this price range. We have held presentations, explanatory meetings and hands-on workshops around the world, and the new products have been highly acclaimed. The overall function of the product, including sound, tone, keyboard and pedal operation were highly acclaimed. We also received participants who we had never done business with in the past, and we had a full house at the presentation. Lastly, I would like to give you an overview of the current situation by business segment. the Timepieces business, we will continue to closely monitor consumption trends in China, which have rapidly worsened since the end of the year, and we will work to offset the decline in the Chinese market in other regions in order to achieve the plan. In India and ASEAN region, which are our focus areas, we will strengthen promotion after SHOCK THE WORLD. In the Consumer segment, the EdTech business will cover the slump in the sound business and the consumer segment as a whole is expected to achieve the plan. For the EdTech business' electronic dictionary business in Japan, this will be the first season after COVID that GAKUHAN activities will go back to normal, and we will aggressively expand sales activities for this occasion. In the sound business, inventory adjustment is continuing, but we have released a new product, Celviano, a digital piano, which will go on sale in February. We will strengthen our lineup of mid- to high-priced products and promote sales. In the System Equipment segment, we will continue to address items that we recognize as challenging businesses. We will continue to tighten investment in new businesses for company-wide adjustments and will continue to do so in the fourth quarter and beyond. In addition, we will formulate growth strategies for each business in response to the current business environment and implement structural reforms for leaner business structure. In the appendices, I would like to introduce some topics. First, restoration services. We are pleased to introduce the G-Shock restoration service, which we have been implementing since 2018. We are once again accepting the models that have been popular by our customers for a limited time. This is a service to restore the customer's G-Shock filled with memories so that they can be used for a longer period of time. We have also launched a limited time sale of virtual G-Shock NFTs on December 16. Since September last year, we have started a project to promote communication in virtual space in order to expand contact with new users, particularly Gen Z users. We will continue to provide new user experiences through this project.
G-Shock solid gold, the second dream project to commemorate the 40th anniversary of G-Shock has been unveiled as a limited addition of just one piece. The case, bezel and band are made of 18-karat yellow gold. Generative design using AI technology was used for the external design and by repeating this procedure of adding human-hand modifications to the modeling, we have created external parts that have both original shape and functionality. This model was sold for about JPY 58 million at a charity auction held in New York by the auction company, Phillips. Last but not least, the Musical Instrument Stores' grand price, the Privia PX-S7000 won the grand prize in the digital piano keyboard category of the Musical Instrument Stores' grand prize 2023. This is the third award of this model following the iF Design Award 2023 and New York Product Design Award 2023. This slide is about capital allocation. Please refer to the attached documents for further information. Thank you very much for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]