AXXZIA Inc. Q1 FY2026 earnings call

• Core Financial Performance

  • Total consolidated revenue hit 3.63 billion yen, +17.9% YoY, with operating profit of 60 million yen, +7.1% YoY, recurring profit +148.3% YoY, and net quarterly profit +138% YoY.
  • Sales cost ratio improved 1.7 percentage points YoY due to the higher share of high-margin AG Drinks. Selling, general and administrative (SG&A) ratio increased 1.8 percentage points YoY due to expanded advertising investment for the extended W11 event and higher platform fees from growing Chinese EC sales.
  • The balance sheet remains healthy, with a stable equity ratio of 77.9%.

• New Product & Market Expansion

  • China: Launched mid-priced inner care product PQ Drink Plus under the Venus Recipe brand, positioned as one of three core inner care products alongside existing hit products AG Drink and The Pure Drink. Sales are growing steadily via in-house live sales and mid-to-micro influencer marketing. AGTHEORY UV Protection Cream received NMPA special cosmetic regulatory approval in September 2025, enabling general trade sales in addition to existing cross-border EC, which is expected to expand distribution channels and drive sales growth.
  • Japan: Scaled up distribution and marketing for two focused brands, LisBlanc (skincare) and BELLE BAI (fragrance, a private brand from the company's Fukuoka subsidiary M&D). LisBlanc held a product launch for beauty press in Omotesando and expanded retail distribution to cosmetic specialty stores, with select product price adjustments implemented in October. BELLE BAI is currently available in ~570 drugstores, with influencer SNS and word-of-mouth marketing ongoing to build awareness.
  • Southeast Asia (Third Market): Market development is progressing well, with 177.6% YoY sales growth driven by influencer marketing, especially in Malaysia. The company will continue strengthening relationships with existing influencers and recruiting new influencers to further expand the market.

• Shareholder Return

  • Implemented a one-time special shareholder dividend offering a lottery for 10 million yen worth of Bitcoin to eligible shareholders (holders of 2 units/200+ shares as of the end of January 2026, excluding minors and non-residents). This campaign is intended to boost brand awareness in Japan and signal the company's commitment to new business expansion.

By Region:

1. China: 2.7 billion yen in revenue, +26% YoY, 75.2% of total revenue (up from 70.4% YoY). Within China, Chinese e-commerce (EC) revenue grew 28.8% YoY, with Douyin revenue growing 40.9% YoY driven by both KOL and in-house live sales. The company's overall Chinese EC flagship store GSV hit an all-time high during the W11 shopping event, up 16.2% YoY.
2. Japan and Third Markets: Combined 800 million yen in revenue, 24.8% of total revenue (down from 29.6% YoY). Japan revenue was roughly flat YoY. Third Markets (led by Southeast Asia) grew 177.6% YoY driven by influencer marketing in Malaysia, Singapore, Vietnam, and Myanmar.

By Brand:

1. AGTHEORY: 62.5% of total brand revenue, +40.3% YoY. AG Drinks grew 35.1% YoY, and AGTHEORY cosmetics grew 94.4% YoY.
2. AXXZIA Core Brand: +8.9% YoY.
3. Growth Brands (Venus Recipe, RevWell): +16.9% YoY.

• 1Q 2026 revenue came in at 101% of the original plan, while operating profit came in below plan due to higher-than-budgeted advertising and platform fee spending.
• Management confirms that Q1 overall performance was on track, but notes increased uncertainty for Q2. The company remains committed to achieving its full-year targets and will continue efforts to deliver on full-year guidance.
• Management expects Japanese TikTok Shop growth to take approximately 1 year to produce tangible results, and is investing in channel development now to drive long-term Japanese sales growth.

• Recent political tensions between China and Japan have not led to consumer product boycotts or purchasing delays for AXXZIA products, unlike the 2023 treated water discharge incident which negatively impacted sales. However, there is a trend of some Chinese KOLs pausing promotions of Japanese products, which could create ongoing near-term headwinds.
• Chinese KOL promotion restrictions are expected to be temporary, similar to the 2023 incident where impact lasted only ~2 months before activity resumed, but the uncertain duration of current restrictions creates near-term operational risk.
• Low operating profit growth relative to revenue growth is partially driven by lower profitability in the Japanese business, which the company acknowledges needs improvement through cost review and subsidiary profitability optimization.
• Japanese sales growth remains the company's largest strategic challenge, with flat YoY performance and ongoing competition from South Korean skincare brands.

Q: How has the Chinese market changed in October compared to July-September, and how does AXXZIA differentiate its in-house live sales from competitors? / A: October and November saw higher consumption due to the W11 shopping event, followed by a typical seasonal slowdown, with no major overall changes compared to previous years. Currently, KOL live sales account for ~70% of live sales revenue, and in-house live sales account for ~30%. The company is actively growing and scaling its in-house live sales capability to further differentiate from competitors.

Q: What impact have post-November political tensions had on business, and how does this compare to the 2023 treated water incident? / A: Unlike the 2023 incident, which created widespread consumer concern over Japanese products, current political tensions have not led to product distrust or consumer purchasing delays. However, there is a trend of KOLs holding back from live sales promotions, which could create a persistently challenging near-term operating environment, though management expects this trend to eventually ease.

Q: What is the rationale for the Bitcoin lottery special shareholder dividend? / A: Management believes a subset of investors are interested in Bitcoin. After moving from the Prime market to the Standard market, the company has lower general visibility among investors. The one-time Bitcoin lottery is a novel initiative intended to draw investor interest and attention to the company. It is not a permanent program.

Q: How will AXXZIA adjust marketing during the period of KOL promotion restrictions in China? / A: Consumer buying activity has not slowed so far, and management expects the KOL promotion pause to be temporary. In the near term, the company will shift marketing focus to scaling up its in-house live sales to maintain sales momentum.

Q: What are the benefits of the NMPA special cosmetic approval for UV Protection Cream? / A: The largest benefit is that it enables the company to conduct wholesale distribution in China in addition to its existing cross-border EC business. This is expected to significantly expand distribution channels and support future sales growth in China.