3660.T

• Overall business model and market position

  • The company's core business model of expanding the retail business while leveraging synergies to drive growth in the marketing support business has continued to perform well since last fiscal year
  • In the beauty and cosmetics industry, only a limited number of companies achieve integrated online-offline fusion, and the company has established a solid market position by providing high-quality marketing support for brands, which drives its consistent growth
  • Consolidated revenue for the cumulative 2Q period increased 21.2% YoY, consolidated operating profit increased 23.0% YoY, reaching a record high revenue, with growth absorbing past growth investments and on track for full-year targets

• Platform operation and synergy development

  • Total user actions across all services (content browsing, event participation, sample trial, purchase, etc.) reached a record high; @cosme membership has grown to 11.1 million people and continues to increase
  • The company's platform integrates EC, physical stores and media into a single connected database, with internal service alignment enabling end-to-end marketing solutions from user-brand connection to final purchase
  • Integrated data across media, EC, stores and purchase behavior enables deeper data consulting services, supporting mid-to-long term marketing planning for clients and deepening client relationships and service depth
  • Retail is positioned as a core touchpoint for user-brand interaction rather than just a sales channel; combined online-offline operations expand the breadth and depth of service offerings, driving growth for both retail and marketing support segments

• Recent key initiatives

  • The company opened @cosme HONG KONG flagship store in December; despite a quiet opening with muted promotional activities due to local conditions, the store achieved profitability in its first month, marking a good first step for renewed global expansion after consolidating domestic business post-pandemic
  • The company held the large co-creation event Tokyo Beauty Week in November; the event partnered with apparel brands and local business associations beyond cosmetics brands to create new user encounters, attracted over 10,000 visitors (held to planned capacity to ensure quality experience), achieved 95.3% user satisfaction, 95% brand satisfaction and 100% venue partner satisfaction, making it a successful first event that the company plans to hold again this year

• The full-year guidance maintained the previously announced targets of 83 billion yen in revenue and 3.8 billion yen in operating profit, which follows a profit plan weighted to the second half of the fiscal year
• Cumulative 2Q progress against full-year targets is 48.3% for revenue and 48.4% for operating profit, which is considered very on track; management will maintain current growth momentum in the second half and remain focused on achieving full-year targets
• The company is actively developing expansion plans for global business starting from Hong Kong, and will release more detailed specific plans in the coming fiscal period

1. Marketing Support: Revenue of 6.05 billion yen, 28.9% YoY growth; Operating profit of 1.77 billion yen, 24.4% YoY growth. Operating profit margin reaches 32.4% excluding event costs, and accounts for 15.1% of total cumulative 2Q revenue. 2. Retail (Online & Offline): Revenue of just over 30 billion yen, 20.7% YoY growth; Operating profit of 1.66 billion yen, 27.6% YoY growth. Operating profit margin improved from 4.2% YoY to 4.8% this period, and accounts for 75% of total cumulative 2Q revenue. 3. Global: Revenue of 2.43 billion yen, 18.3% YoY growth; Operating profit of negative 0.25 billion yen, a 0.22 billion yen YoY decrease in profit. Operating profit margin is negative 6.9%, which turns to positive 3.4% after excluding Hong Kong flagship store opening-related costs (improved from negative 0.9% YoY), and accounts for 6.1% of total cumulative 2Q revenue. 4. Other: Impacted by the planned termination of some B2C paid services, performing in line with prior expectations. Total corporate operating costs are negative 1.4 billion yen, a 60 million yen decrease YoY, indicating effective cost control.

• The retail business saw slight potential impact from inbound tourist decline in December, but domestic customer growth and new store contributions offset this impact to maintain YoY and quarter-over-quarter growth
• Overall consolidated operating profit margin appeared to decline slightly from 4.1% YoY to 3.7% this period, but this is entirely due to necessary growth investments for the Hong Kong flagship store opening and Tokyo Beauty Week; core operating performance without these investments remains on a steady growth trajectory, so the temporary margin decline is not considered a concern
• While overall limit profit continues to grow steadily, the margin contribution has decreased due to the growth of the lower gross margin retail segment (including the Hong Kong flagship store); management notes the need to further raise overall limit margin through continued growth of the higher-margin marketing support business

Q: After opening flagship stores in Tokyo, Nagoya, Osaka and now Hong Kong, it seems that room for large new flagship store openings in Japan is gradually decreasing. What is the growth potential for the retail business going forward?

A: Rather than actively increasing the number of flagship stores, we will continue to focus on expanding the scale of existing stores. We believe there are still plenty of untapped areas for expansion, and we have received far more inquiries from partners hoping for new store openings amid the ongoing decline of specialty cosmetics stores and department store beauty counters. We see significant remaining room for retail expansion: our key priorities going forward will be expanding the size of existing locations and entering new uncovered regions to broaden our geographic coverage, and we will announce new opening plans as they are finalized.

Q: What additional steps are needed to further accelerate the growth of the marketing support business going forward?

A: In addition to our existing services, we are working on two key new service areas to drive growth. First, we have built out our data consulting service to deepen client relationships, and second, we recently launched @cosme Copilot, a generative AI tool that analyzes user review content. We aim to deepen mutual understanding between brands and users by leveraging these new offerings to strengthen our overall service suite. We are also planning to launch new advertising services: beyond our traditional reservation-based advertising on @cosme, we are developing operational advertising capabilities, and strengthening this segment will help further accelerate business growth.

Q: How do you plan to expand demand across Asia starting from Hong Kong, how will you grow the influence of Asian beauty, and what is your outlook for establishing a presence in Hong Kong amid competition from existing players like Matsumoto Kiyoshi and Don Quijote?

A: (Endo) With the opening of the Hong Kong flagship store, we are moving forward with our global expansion: when we consolidated global operations during the pandemic, we maintained our position that East Asia holds significant untapped potential, and we will be accelerating our progress in this region going forward. (Yoshimatsu) The Hong Kong business is still very new, and we will include more detailed expansion plans in our next corporate plan. We already receive many inquiries from our clients asking about supporting their global expansion beyond Japan, we already maintain existing operations in other regional markets including @cosme Taiwan and Glowdays' GLOWPICK in Korea that we have continued to develop even through challenging conditions. We are working on plans to leverage these existing platforms to expand our service offerings, and we will refine these plans to share more concrete details with investors in the coming period. Domestically, we currently have an annual product sales plan of around 63 billion yen, which just exceeds 2% market share in Japan's 2.5 trillion yen cosmetics market; we are actively discussing how to grow our domestic market share to 3%, 4% and eventually 5%, and the Hong Kong flagship store is just one step in our broader expansion strategy. We are still exploring the most efficient formats for user-brand engagement to expand into new markets, and we are considering multiple approaches beyond just expanding the existing @cosme brand, including building new initiatives like Tokyo Beauty Week for future growth.