I-ne CO.,LTD. Q2 FY2025 earnings call

Financial and Cost Performance

• Cost of sales ratio improved 4.0 percentage points year-over-year, driven by the high gross margin skincare category growth, continuous cost reduction efforts with OEM partners, and eliminated intermediate margins via supply chain changes from the acquired Artemis.
• Selling commission increased 1.6 percentage points year-over-year due to rising online sales share, which now accounts for 46% of total company revenue (up 58.8% YoY overall across categories).
• Depreciation and amortization ratio increased 2.9 percentage points year-over-year due to M&A-related goodwill and intangible asset amortization, but EBITDA margin still expanded 0.5 percentage points to 11.4%.

M&A Post-Integration (PMI)

• Both 2024 October M&A targets (Touvere/TOUT VERT and Artemis) are progressing well. TOUT VERT achieved record half-year revenue (Jan-Jun 2025) led by Amazon sales growth, and completed its first offline expansion via test placement at LOFT stores.
• Artemis has delivered 6 to 11 percentage points of gross margin improvement via intermediate margin elimination, and synergy efforts will continue in subsequent quarters.

Sustainability Initiatives

• Earned a B (Management level) score from CDP for climate change risk management and emissions reduction target execution.
• Signed a Sustainability-Linked Loan agreement with Sumitomo Mitsui Banking Corporation, which links loan terms to sustainability target achievement to advance sustainable business practices.

R&D and Organizational Updates

• Established the company's first internal research institute, Japan Beauty Science Institute (JBIST), on August 1, 2025. JBIST focuses on in-house development of differentiated technology and unique formulations for patenting, and leverages existing OEM/ODM partner networks for formulation and mass production to deliver innovative products faster.
• Joint research with universities and AI-powered development initiatives are already underway, with first commercial product outputs expected in 2026.

Governance and Shareholder Initiatives

• Issued performance-linked paid stock options to align management and employee incentives with mid-term targets, with exercise tiers tied to 2028 financial results to accelerate progress toward long-term goals.
• Expanded shareholder benefit programs: increased points for shareholders holding 500+ shares from a flat 2,000 yen to 14,000 yen, to encourage long-term shareholding and deepen understanding of the company's products and business.

1. Hair Care Category: Revenue decreased 10.8% year-over-year, impacted by exit from the Chinese market and delayed awareness building after the April 2025 renewal of the YOLU brand. Online sales of hair care increased 16.7% year-over-year, with refill products performing particularly well; BOTANIST's sub-line ROOTH grew revenue 51.2% year-over-year, and YOLU online refill sales grew 136.9% year-over-year. This category currently accounts for approximately 60% of total company revenue.
2. Beauty Appliances Category: Cumulative second quarter revenue increased 0.3% year-over-year. While core staple products saw revenue decline due to a strategic shift in sales mix, mid-to-high price point products grew 69.4% year-over-year. The proportion of mid-to-high price point products shifted from 30% to 40% of the category, improving overall profit structure. The Smooth Shine Hair Iron grew 56.8% quarter-over-quarter.
3. Skincare and Other Categories: Cumulative second quarter revenue reached 43.4 billion yen, growing 432.7% year-over-year (up from 0.81 billion yen in the prior year period), and drove overall company revenue growth. Excluding the consolidated TOUT VERT from M&A, organic growth still reached 117.6% year-over-year. Standout brands include WrinkFade (38.9% YoY growth), SKIN REMED (17.7% QoQ growth), and newly launched ReWEAR fabric softener which saw strong off-line expansion after a successful EC early launch. This category currently accounts for approximately 19.4% of total company revenue. Overall total consolidated second quarter revenue was 22.32 billion yen, up 9.9% year-over-year. Consolidated EBITDA was 2.54 billion yen, up 15.2% year-over-year and 104% of plan. Consolidated operating profit was 1.68 billion yen, down 17% year-over-year due to amortization from two large 2024 M&A transactions, but still reached 110% of plan.

• The company maintains its full-year plan and is on track to meet targets, with many new brands and products scheduled for launch in the second half of the fiscal year.
• Mid-term strategic target: Achieve 100 billion yen in total revenue between 2028 and 2030, alongside 14 billion yen in EBITDA and 11 billion yen in operating profit. The company aims to rebalance its business portfolio to reduce hair care's revenue share from ~60% to ~40%, building new core revenue pillars in skincare and adjacent categories.
• Second half (H2) category-specific launch plans:
  1. Hair Care: 44 new products (double the volume of H1), including the launch of new brand Collagem, new skincare products for YOLU, the new BOTANIST SANTAL line, and product renewals for key brands.
  2. Beauty Appliances: More than double the number of new products from H1 for SALONIA, expand offline sales coverage via adding staffed retail locations and pilot sales programs, and launch the category's first new brand after SALONIA.
  3. Skincare and Other: 26 new products covering multiple categories, strengthen TOUT VERT's digital marketing leveraging I-ne's expertise, and plan to launch 3 to 5 new brands in new categories (health food, oral care) in H2, led by the CEO's direct oversight of the new business development unit to speed up product development.

• The YOLU brand experienced delayed market awareness building after its April 2025 renewal, which contributed to the hair care category's year-over-year revenue decline in the first half.
• Competition is intensifying in the high-premium segment of the hair care market, raising barriers to market share gain.

Q: With intensifying competition especially in the high-premium hair care market raising barriers to share growth, is there a need for strategic changes such as increasing brand launch volume? Is there concern over structural share decline for core brands BOTANIST and YOLU? / A: Management sees competition in hair care as a consistent long-standing condition, not a new change, and I-ne has a proven track record of launching successful hit brands including BOTANIST and YOLU. The company will remain focused on developing products that satisfy consumer needs rather than reacting to competitors, and will grow market share via a multi-brand portfolio strategy. Both BOTANIST and YOLU have significant room for growth via category expansion: BOTANIST is positioned as a lifestyle brand (not just hair care) with many adjacent categories to enter, while YOLU is expanding into categories like bath additives and skincare. The company will continue growing both online e-commerce (which is already performing very strongly) and offline channels, pursuing holistic OMO-driven growth for both core brands, and still expects both to deliver further growth. (1842 characters)