DAIWA CYCLE CO.,LTD. Q4 FY2025 earnings call

Overall Financial Results

• Both total revenue and operating profit hit all-time records for the 2025 January period. Total revenue reached 18.34 billion yen, up 19.6% year-over-year; operating profit reached 1.37 billion yen, up 72.6% year-over-year.
• Gross profit margin increased 0.5 percentage points year-over-year to an overall 7.5% operating profit margin (up 2.3 percentage points from the prior period), despite negative pressure from yen depreciation on costs, driven by internal cost reduction efforts and a higher share of higher-margin service revenue.
• For existing stores, cumulative revenue reached 112.7% of the prior year's level, with customer count up 4.8% and average transaction value up 7.5% year-over-year. The fourth quarter also delivered year-over-year revenue and operating profit growth, even during the typically slow winter season.

Store Network

• As of the end of January 2025, the company operates 134 total stores across the Tokyo-Nagoya-Osaka region: 79 stores in Kansai, 52 stores in Kanto, and 3 stores in Chubu. 10 new stores were opened during the period (6 in Kanto, 4 in Kansai) with no store closures, 7 fewer new openings than the prior period's 17.
• Stores follow two primary formats: large-format DAIWA CYCLE roadside suburban stores (~200 tsubo sales floor, ~500 bicycles on display), and smaller-format DAIWA CYCLE STYLE located in shopping malls or central city areas near stations (40-100 tsubo sales floor, leveraging accessible locations for customer engagement).

Core Competitive Strengths & Service Highlights

• The company's differentiator is customer-focused after-sales service, including on-demand on-site repair service (a unique offering not easily replicated by competitors) and a paid comprehensive support package that includes theft insurance, free periodic inspections, repair discount, and third-party liability insurance, which is adopted by the vast majority of new bicycle buyers.
• The company prioritizes growth in electric-assisted bicycles, a high-demand growth market aligned with core customer needs for child-rearing use.
• During the fourth quarter, the company launched 3 new private brand models and updated 1 existing private brand model.

Business Model

• The company sells both in-house designed/manufactured private brand (PB) products and third-party national brand (NB) products. Currently, most general-use bicycles are PB, while most electric-assisted bicycles are NB, with ongoing efforts to increase PB penetration for electric-assisted and sports bicycles.

1. Bicycle sales: 135.716 billion yen (converted from 18.34 billion yen total revenue × 74%), accounting for 74% of total revenue. Electric-assisted bicycles are the fastest growing category, comprising 59% of the company's total bicycle sales (vs. 39% industry average), with a 20% annual average growth rate (vs. 6% industry average).
2. Parts and accessories: 2.751 billion yen (18.34 billion yen × 15%), accounting for 15% of total revenue.
3. Repair and other services: 2.0174 billion yen (18.34 billion yen × 11%), accounting for 11% of total revenue. Overall private brand (PB) product revenue share remained flat at 34.6% year-over-year: even though absolute PB unit sales and revenue increased, the higher share of lower-PB-ratio electric-assisted bicycles in total sales offset PB growth for the overall bicycle category.

• For the 2026 January period, management forecasts total revenue of 20.586 billion yen (12.2% year-over-year growth), operating profit of 1.389 billion yen (130 million yen year-over-year growth), ordinary profit of 1.408 billion yen, and net income of 930 million yen.
• The company plans to open 20 new directly operated stores, double the 10 new stores opened in the 2025 January period. Higher planned opening costs, capital expenditures, and pre-opening advertising expenses for the accelerated new store plan are the primary reason for the muted operating profit growth despite double-digit revenue growth.
• The company maintains a 20% payout ratio target, forecasting a dividend of 68 yen per share for the 2026 January period.

No explicit risk or operational failure discussions are included in the provided transcript.

Q: How does management evaluate the 2025 January period performance, which delivered record high revenue and profit? / A: Management rates the period as very strong, with four core drivers behind the results. First, the full period was free of COVID-19 pandemic restrictions, leading to a large recovery in customer foot traffic after pandemic impacts faded in the prior period's first half. Second, the year had unusually favorable weather: less rain overall, especially on weekends and holidays when sales are strongest, and colder autumn temperatures arrived later than usual, keeping foot traffic higher through November compared to typical years. Third, product development and operational improvements delivered results: PB development aligned with customer latent demand progressed well, and inventory and logistics optimization improved product turnover efficiency. Fourth, the 2023 listing on the Tokyo Stock Exchange Growth Market increased brand awareness, which drove higher customer visits to stores, per anecdotal feedback from store staff.

Q: Why was new store opening volume lower than the prior year in the 2025 January period? / A: The provided transcript does not include management's answer to this question.

Q: Why is operating profit growth expected to be very muted even with double-digit revenue growth for next period? / A: The provided transcript does not include management's answer to this question.