IK HOLDINGS Co.,Ltd. Q4 FY2025 earnings call

• Business Model Overview

  • The company positions itself as a "marketing manufacturer", developing and distributing consumer goods (food, cosmetics, general merchandise) across two core segments: Direct Marketing (B2C direct to consumer via EC, TV, physical stores) and Sales Marketing (wholesale to co-ops, e-commerce companies, drugstores and other retail partners).
  • Key competitive advantage: Wide product category and sales channel diversity generates rich consumer and market data, allowing the company to reuse successful products across different channels with adjusted pricing and packaging to target gap markets.
  • FY2025 Core Operational Achievements
  • Achieved the first increase in both revenue and profit in 5 years, returning to a growth track after two consecutive years of net losses followed by profit conversion in FY2024.
  • Korean cosmetics grew 22% YoY, becoming the company's core growth driver, supported by broad consumer demand across age groups (led by 20s-30s, with growing penetration across all age groups) driven by strong value for money, attractive packaging, and broad market demand. Korean cosmetics overtook French cosmetics as the largest imported cosmetics category in Japan by 2023, and the company is the largest listed formal import distributor of Korean cosmetics in Japan, with strengths in quality control, after-sales service, and existing wholesale distribution networks.
  • Completed significant corporate restructuring: Disposed of 110 million yen in legacy excess inventory from the declining TV shopping channel, improving overall business health. Total selling, general and administrative costs decreased by 1.1 percentage points, with advertising expenses falling 1.5 percentage points due to lower TV spending and lower ad requirements for Korean cosmetics, offset slightly by higher variable costs from growing EC business.
  • ODM (original design manufacturing) business grew steadily, now accounting for approximately 9% of total sales. The company's full-service ODM model covers planning, design, development and manufacturing, leveraging its market data and supplier network to create products for retail clients, and has achieved high client satisfaction and repeat business.
  • EC business grew 18% YoY, as the company shifted greater focus to this underpenetrated area (current EC share is only 10% of total sales).
  • Mid-Term (FY2028 May) Strategic Priorities
  • 1. Maximize growth of the Korean cosmetics category: Expand beyond core skincare/makeup into adjacent K-Beauty categories (fragrance, nail care, supplements, beauty devices) to sustain growth, add new brands and SKUs, and expand into new sales channels. Confirmed new entry to 7-Eleven convenience stores with two Korean cosmetics brands launching in August 2025, and plans to launch Korean cosmetics on TikTok Shop following its Japan launch in July 2025.
  • 1. Scale EC business and restart international expansion: Increase focus on repeat-purchase products for EC, and restart global expansion of Japanese-made products, with color shampoo already launched in Singapore and Taiwan after a previous forced exit from the Chinese market during COVID-19.
  • 1. Scale ODM business: Position as a core growth pillar, leveraging the company's unique market insight and supply chain capabilities to serve large retail clients.
  • 1. Portfolio transformation: Reduce exposure to volatile flow-type general merchandise and high-cost TV/self-operated physical store channels, and increase share of stable repeat-purchase cosmetics and food products.

1. Direct Marketing Segment: Both sales grew 12% year-over-year on an existing business basis, but operating profit shrank significantly due to the legacy underperforming TV shopping channel contraction and 110 million yen in excess inventory disposal costs. Total group overall growth was 8.3% year-over-year after accounting for the divested IT Solutions segment which contributed 3.5% of prior period sales. 2. Sales Marketing Segment: Both sales grew 12% year-over-year on an existing business basis, led by strong Korean cosmetics growth. Overall consolidated results for FY2025 May: Total sales reached 15.2 billion yen (+8.3% YoY), EBITDA reached 0.6 billion yen (+23.4% YoY), operating income reached 425 million yen (+24.5% YoY), net income reached 320 million yen (+40.1% YoY). By product category: Cosmetics (led by Korean cosmetics) grew dramatically, with Korean cosmetics sales exceeding 4 billion yen, accounting for 26.5% of total group revenue (400% growth over 4 years). Miscellaneous goods shrank steadily in line with TV shopping contraction, while food and repeat-purchase categories grew gradually. By channel: Store channel sales share grew from 16% to 20% (led by Korean cosmetics), all channels except TV achieved year-over-year sales growth.

• FY2026 May (current fiscal year) guidance: Target total sales of 16.4 billion yen (+7.8% YoY), operating income of 500 million yen (+17.6% YoY), net income attributable to parent shareholders of 325 million yen. The muted net income growth reflects the absence of a one-off gain from the IT Solutions segment divestment that boosted FY2025 net income.
  • Channel outlook for FY2026: TV shopping will continue to contract, self-operated cosmetic stores will be scaled back to focus on wholesale, so Direct Marketing segment will see slight contraction, while Sales Marketing will grow, with a focus on expanding in-store retail sales of Korean cosmetics.
  • Mid-term FY2028 May guidance: Target total sales of 20 billion yen and operating income of 1 billion yen. The prior 2027 target for these figures has been pushed back one year to allow sufficient time for investment and growth in EC, international and ODM businesses.
  • Shareholder return: A 1 yen per share dividend increase is planned for FY2026 May.

• The legacy declining TV shopping channel continues to generate revenue declines and requires ongoing restructuring, creating near-term profit drag, with remaining restructuring activities expected to impact results in FY2026.
  • International expansion is in an early, unproven stage after the company's prior failed COVID-era entry to China, and may not deliver expected returns.
  • The company's EC business is significantly underpenetrated relative to industry peers, requiring significant investment to scale, with uncertain timing of returns.
  • Korean cosmetics market growth depends on sustained consumer demand, though management notes the trend has built gradually over 10 years and is well-established as a core cosmetics category in Japan.

Q: Why doesn't IK sell its successful ODM products under its own brand instead of only for clients? / A: Management explains that ODM success leverages the client's existing strong customer base, brand recognition, and market credibility that IK currently lacks. By combining IK's product development and manufacturing capabilities with the client's customer and brand assets, the model creates stronger results than IK selling independently, so the company will continue focusing on the client-focused ODM model rather than in-house sales of these products.

Q: What is IK's competitive advantage as a formal Korean cosmetics importer compared to parallel or individual imports? / A: Management states that few mid-to-large listed companies in Japan operate as formal importers of multiple Korean cosmetics brands, and IK's broad existing distribution network across wholesale and retail channels allows it to quickly bring new Korean brands to the Japanese market. As a formal importer, IK provides guaranteed quality control and full after-sales service, which parallel and small-scale importers cannot offer, giving it a clear market advantage.

Q: Why was the mid-term 200 billion yen sales and 10 billion yen operating profit target pushed back from FY2027 to FY2028? / A: Management apologized for the delay, noting that while hitting the original 2027 target would have been possible, the company determined that additional time is needed to properly invest in and grow the new strategic growth areas of EC, international expansion and ODM. Pushing the target back one year allows the business to build a sustainable foundation for long-term growth rather than rushing to hit short-term numerical goals.