AXXZIA Inc. Q3 FY2025 earnings call

Corporate Activity Updates

• On May 9, 2025, AXXZIA submitted an application to change its listing segment to the Tokyo Stock Exchange Standard Market. The company had failed to meet the Prime Market's 10 billion yen minimum traded market capitalization requirement due to prolonged weak performance driven by poor Chinese market sentiment, and management determined it could not meet the requirement in the short term.
• Post-segment change, management will focus on solving core operating challenges, build internal capacity, and pursue medium-to-long term corporate value improvement.

Core Operating Initiatives

• Core product renewal: The flagship inner care product AG Drink was renewed and relaunched as AG Drink XI in April 2025. Management held a press conference in Japan, invited over 200 micro-influencers from China and Japan, featured a keynote by a Doshisha University professor (with future joint research planned), and hosted special live sales events. The full AG Drink series hit 1.1 billion yen in sales in April alone, exceeding expectations, and the high-margin product's stronger-than-expected performance narrowed full-year profit declines. This renewal was paired with expanded influencer marketing: mega/top influencers are used for brand value building and live sales conversion, while middle/micro influencers expand consumer touchpoints via word-of-mouth social posts.
• Strategic collaboration: The company launched Lacto Stick, a supplement co-developed with Kirin Fancl, under the new nurtured brand RevWell on AXXZIA's China cross-border EC flagship store, leveraging AXXZIA's existing brand power in China.
• Japan market expansion: Management is executing new customer acquisition initiatives: expanding influencer marketing and live sales online, while expanding offline touchpoints via GINZA SIX store renewal, pop-up stores, a new directly operated store in Shibuya Hikarie ShinQs, and expanded distribution through variety retailers like @cosme. Organic Japan EC sales have more than doubled YoY.
• Medium-to-long term Japan strategy: Leveraging existing Douyin (Chinese TikTok) EC expertise, the company is preparing to use TikTok Shop (once fully launched in Japan) to drive sales growth, and will also route TikTok content traffic to its own EC site and directly operated stores. It is also exploring AI application to improve content generation efficiency and advance data analytics.

Cost Performance

• Gross margin declined 7.8 percentage points due to the consolidation of M&D, but improved 1 percentage point versus Q2 forecast due to the strong sales growth of high-margin AG Drink. Selling, general and administrative (SG&A) expense as a percentage of sales improved 1.5 percentage points YoY, driven by effective advertising cost control and a 4.1 percentage point reduction in payment fees from expanded in-house live sales.

For the 9-month cumulative period ending Q3 FY2025 (July fiscal year):

1. By Region and Channel:
   • Total consolidated net sales: 10.08 billion yen, up 10.6% YoY. China region sales decreased 8.6% YoY, accounting for 71.5% of total revenue (down from 86.5% in the prior year period). Japan and other third market sales grew 133.6% YoY, accounting for 28.5% of total revenue (up from 13.5% YoY), with total Japan sales growing 3x YoY driven by M&D consolidation and organic growth.
   • China EC sales saw a slight YoY decline in Q3, but grew 33.6% quarter-over-quarter from Q2, with all platforms achieving quarter-over-quarter revenue growth.
2. By Brand: The AGTHEORY brand's cosmetic series sales contribution expanded significantly, reducing reliance on legacy core products AG Drink and Essence Sheet and improving the brand portfolio. Nurtured growth categories continue to expand sales to meet growing demand for inner care products in China.

• Full year total sales are expected to land at the level originally guided in the March 2025 disclosure, with no change to the sales forecast.
• Full year profit guidance has been upwardly revised: revised operating profit to 440 million yen (+112.3% from the prior forecast), and revised ordinary profit to 340 million yen, an 83% upward revision from prior guidance. The upward revision is driven by the stronger-than-expected sales of high-margin renewed AG Drink in Q3.
• 9-month cumulative profit performance through Q3 significantly exceeded prior Q2 guidance: operating profit hit 426 million yen, reaching 205.7% of the prior cumulative guidance; ordinary profit hit 342 million yen (184.8% of guidance); net income hit 211 million yen (190.2% of guidance).

• Prolonged slowdown in personal consumption in China, the company's core market, has led to continued weakness in China EC sales, which has weighed heavily on overall operating profit, resulting in a 55.3% YoY decline in 9-month cumulative operating profit even with double-digit overall revenue growth.
• The company has failed to meet the Tokyo Stock Exchange Prime Market requirement of 10 billion yen in traded market capitalization for a prolonged period due to weak performance and share price declines, prompting the application to downgrade to the Standard Market.
• The company's legacy business portfolio was overly reliant on a small number of core products, requiring active portfolio diversification to reduce risk.

Q: What was the year-over-year and plan-versus-actual performance of AG Drink's 1.1 billion yen April sales, and what is the outlook for the product going forward?

A: The transcript provided only includes the start of this question, with no full answer published in the available content. The strong April sales performance already led to the full-year ordinary profit upward revision of 83%, driven by the product's high margin. The company has framed the product renewal as a core turnaround initiative for the Chinese market.

Q: What is AXXZIA's strategy and preparation for TikTok Shop in Japan, and what consumer trends is management seeing?

A: AXXZIA already has deep experience with Douyin (TikTok's Chinese version) EC operations, so it has existing knowhow to leverage for the Japanese market. Management is actively preparing behind the scenes to launch sales on TikTok Shop once the platform is fully rolled out in Japan, as part of its medium-to-long term Japan sales expansion strategy, and will also use TikTok content to drive traffic to its owned EC and retail outlets.

Q: Can you share details on the collaboration with Kirin Fancl for the new Lacto Stick supplement, and what are the expectations for this product?

A: Lacto Stick is the first product launched under AXXZIA's new nurtured sub-brand RevWell, co-developed with Kirin Fancl. AXXZIA will handle sales via its own cross-border EC flagship store in China, leveraging its existing brand presence and EC operational capabilities in the Chinese market to grow this new product line and expand the company's brand portfolio.

Q: What is the current state of AXXZIA's global EC team, and what changes are being made to support regional growth?

A: The full exchange is not included in the available transcript, but the company has explicitly framed shifting its growth focus to the Japan market and improving its regional portfolio balance as a core priority, which will require corresponding investment and restructuring of its global EC organizational structure to support expanding Japan EC operations.