JOYFUL HONDA CO.,LTD. Q2 FY2025 earnings call

Core Financial Results

• Total company sales reached 102.7% of the prior year period, with operating profit at 106.5% year-on-year, ordinary profit at 105.9% year-on-year, and net profit at 105.1% year-on-year. Operating profit was 5.8 billion yen, and net profit was 4.3 billion yen; all profit metrics exceeded both prior year results and the first half performance forecast, with a forecast progress rate above 100% for all profit lines.
• Existing store sales reached 102.4% of the prior year; the 2023-opened Joyhon Yoshioka store was reclassified as an existing store from June 2024, and its growth contributed to the overall existing store sales result, with other stores also performing steadily.

Operational Improvement Initiatives

• Strengthened existing store operations: Improved 52-week merchandise planning (MD) accuracy and expanded proposal-based sales floors. Supervisors horizontally rolled out successful examples from both headquarters-led and store-led merchandise planning across all locations to reduce performance gaps between stores and maximize sales. Leveraged large store space to create dedicated sections for uniquely imported U.S. products to differentiate from competitors.
• Investment in people: Approved the disposition of treasury shares to provide restricted stock to employees via the employee stock ownership plan (ESOP), and expanded ESOP eligibility to include hourly social-insured employees regardless of employment type. This increased ESOP participation, aiming to boost employee motivation and improve welfare ahead of the company's 50th anniversary.
• Customer-focused capability building: Launched a new store education department this term to strengthen customer service skills. Created skill maps covering over 40 departments to outline clear employee competency benchmarks, updated training materials aligned with the skill maps, and produced on-demand videos for specialized knowledge training to enable broad, flexible customer service from all staff.
• Digital strategy: Completed the initial phase of digital transformation with self-checkout adoption and mobile device deployment, which has already delivered steady results including gradual checkout staff reductions and administrative time savings. The company will continue to strengthen digital initiatives to support sales operations and reduce management costs.
• Investment to improve existing store appeal: Revamped and swapped tenants in existing store areas to improve customer convenience, resulting in higher operating revenue this term. Continued large-scale solar energy investment: a 1,134 kW solar carport with 348 parking spots is under construction at the Chiba New Town store, with construction starting in January 2025 and power generation scheduled to start in July 2025. When completed, the store will reach 20% power self-sufficiency when combined with existing generation assets. By the end of the full fiscal year, 11 stores with installed solar panels are expected to source 25% of their electricity use from on-site solar generation, which has already helped contain utility cost increases from rising electricity prices.
• Expansion preparation: Launched a dedicated team to strengthen site development and store format development. For the "Hondoya" format, the company is developing a new 1,000 to 2,000 tsubo format that adds materials to the existing format. The company is also actively evaluating both horizontal and vertical M&A to enhance its business expertise.

Other Operational Updates

• Selling, general and administrative (SG&A) expenses increased by 218 million yen year-on-year, driven by labor cost increases (tied to the company's policy of capping total labor costs at 50% of gross profit, which rises with gross profit) and higher utility costs. Depreciation expense decreased year-on-year due to the elimination of asset removal obligation-related depreciation following the acquisition of the Newport Hitachinaka store land in the prior period.
• Capital expenditure in the first half was lower than the prior year, primarily because some store repair projects were deferred to the second half; new specialty store openings are planned for the second half.

1. Residence Field - Garden & Farm Group: Revenue saw a slight year-on-year decrease. The decline was caused by poor growth of flower seedlings and related products due to extreme heat, which reduced actual procurement volumes and limited sales growth. No absolute revenue amount or percentage contribution was provided.
2. Lifestyle Field - Daily & Household Goods Group: Achieved year-on-year revenue growth, driven by extended demand for insecticides, strong sales of parasols, special demand for rice, and successful promotional campaigns for branded cookware. Customer traffic declined due to heightened consumer cost-cutting sentiment, but overall revenue still increased. No absolute revenue amount or percentage contribution was provided.
3. Lifestyle Field - Materials & Professional Goods Group: Customer traffic exceeded the previous year's level, achieving year-on-year revenue growth as this segment is a company focus. No absolute revenue amount or percentage contribution was provided.

Total gross profit was higher than the previous year, but overall gross margin decreased slightly year-on-year due to a higher sales mix of low-margin, low-price products amid rising consumer frugality.

• Full year 2025 June term performance guidance is maintained at the initial forecast, with no revisions. Management expects to deliver full year revenue and profit growth, maintaining the first half performance trend, while accounting for the 1 fewer operating day this year relative to the prior leap year.
• The company plans to deliver 11 consecutive years of dividend increases, including a special 50th anniversary commemorative dividend. A dividend on equity (DOE) of approximately 3% is targeted for the full year, and the company will continue its progressive dividend policy aligned with sustained profit growth.
• The company has an approved maximum 5 billion yen treasury share repurchase program, and had already repurchased approximately 500 million yen of shares as of the end of December 2024. It will continue to execute repurchases in line with its treasury share policy.

• A warm winter led to slower-than-expected sales of seasonal goods in November, though December year-end holiday sales offset this weakness.
• Extreme heat caused poor growth and procurement shortfalls for garden and farm products, leading to a slight revenue decline in that segment.
• Heightened consumer cost-cutting sentiment has reduced customer traffic in daily goods categories and shifted the sales mix to lower-margin products, pulling down overall gross margin slightly.
• Rising electricity prices have pushed up utility costs, though solar and storage investments have partially offset this increase.

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