QB Net Holdings Co.,Ltd. Q2 FY2025 earnings call

Consolidated Performance Summary

• Group consolidated revenue grew 2% year-over-year to 12.586 billion yen, but operating profit fell 43.9% year-over-year to 723 million yen, and net profit fell 50.6% year-over-year to 417 million yen. The profit decline was largely driven by high base effects from a one-time profit spike in the prior year (caused by a lag between 2023 price increases and subsequent stylist wage hikes), plus temporary investment costs and exogenous shocks. Management still maintains that full year targets are achievable with planned new store openings.

Domestic Operations Highlights

• Pricing & Promotion: Moved forward a national 50 yen all-brand price increase to February 2025 (two months ahead of schedule) after new ticket vending machines were installed ahead of plan. Expanded the "Tsukiichi Discount Campaign", which gives 100 yen off for return visits within a month, from only seniors to all age groups to boost repeat visits and revenue.
• Hiring & Personnel: Trained new hire (inexperienced) hiring is outperforming both prior year and plan, while experienced hire hiring missed targets due to competitor pay increases matching QB Net's levels and fading impact from the prior year's big benefits push. Turnover is already lower than plan and prior year after earlier working condition improvements. 72 trainees are currently in training (a company record), and will be deployed to stores from Q4 to next year Q1, which will lift seat utilization and revenue. Added a new short-hour store format, opening the first location in January 2025 with closing at 5PM on weekdays to accommodate stylists who cannot work full time, to support diverse working arrangements.
• New Store Expansion: Opened 6 new domestic stores in H1, closed 3 in line with plan. Plans to open 22 new stores and close 5 in H2, for a full year net increase of 20 stores. Aims to increase the share of stores open less than 3 years to 13% by 2029 (end of the mid-term plan) from the current low of 4%, after pausing expansion during COVID to build up personnel capacity.

Overseas Operations Highlights

• Pricing & Customer Experience: Implemented planned price increases in Hong Kong (14.2% hike, 5 years first) and an unplanned 16.7% hike in the US to offset inflation, both paired with digital improvements (real-time wait time information, pre-purchase via app for off-site queueing) to lift customer satisfaction. Hong Kong already saw positive results from operational changes (10% more staff per store, price hike) during the Lunar New Year peak period.
• New Store & New Market Expansion: Opened 4 new overseas stores in H1 (one each in Singapore, Hong Kong, US, Taiwan) and relocated 3 stores to better locations. Plans to open 4 new stores in H2, 3 already confirmed. New market progress: Canada opened first store in Toronto in August 2024 (3 months delayed) with solid visitor growth from SNS promotion, second store opening scheduled for May 2025; Vietnam opened first store in Ho Chi Minh City in January 2025; Malaysia is preparing for 20-year re-entry, with first store opening planned for Johor Bahru in April 2025, followed by Kuala Lumpur.

Strategic Initiatives

• IT/Digital Transformation: Launched domestic new app development in October 2024, on track for a small-scale trial launch in September 2025 and full rollout in the Tokyo area in early 2026, focused on improving customer convenience rather than just internal efficiency.
• New Shareholder Benefit Program: Launched a new program that gives free haircut coupons for domestic QB HOUSE stores based on shareholding, with additional coupons for longer holding periods starting next year, to thank shareholders and encourage long-term holding.

1. Domestic Business: Reported operating profit of 715 million yen, which was 223 million yen below plan. Revenue came in at 98.9% of plan, due to Q1 weather impacts, missed experienced hiring targets, and temporary staffing shortages from the December influenza outbreak. One-time cost increases from early new ticket vending machine rollout, higher than planned old machine disposal costs, and company-wide security camera installation also dragged profit down. The segment represents approximately 99.4% of total group operating profit. 2. Overseas Business: Reported operating profit of 8 million yen, which was 15 million yen below plan. Breakdown by market: - Hong Kong: Revenue was 99.6% of prior year and 96.4% of plan, impacted by sustained low domestic consumption and consumers shifting spending to Shenzhen, which reduced mall foot traffic to QB Net locations. - Taiwan: Revenue grew 109.5% year-over-year, reaching 97.4% of plan, hurt by developer-caused opening delays and unplanned store relocations that forced 46 total days of closure across 2 locations. The segment now has 35 total stores, with hiring performing better than any other overseas market. - Singapore: Customer losses after the 2022 price hike have nearly bottomed out, with recovery visible in Q2. Operating loss narrowed to 15.7 million yen from 41.1 million yen in the prior year. - New market entry costs for Canada and Vietnam pulled overall operating profit down by 40 million yen compared to the prior year. The segment represents approximately 0.6% of total group operating profit.

• Management maintains its full year 2025/06 target, and believes the company can make up H1 misses with H2 new store openings and the newly implemented pricing and promotion measures.
• For mid-term growth, the company targets raising the share of domestic stores open less than 3 years to 13% by the 2029 June end mid-term plan, balancing new store expansion with personnel capacity building.
• Taiwan plans to expand its store network into central and southern Taiwan (Taichung, Tainan, Kaohsiung) after solid growth in Taipei.
• Singapore targets achieving full year profitability in the 2025/06 full year via increased promotional activity and further cost cutting.

• Experienced stylist hiring is competitive, as rivals have matched QB Net's pay levels, leading to lower applicant volumes than plan, which creates staffing shortages that limit seat utilization and revenue.
• Construction delays at some large commercial sites in Japan may cause changes to new store opening timing in H2.
• Hong Kong's persistent consumer spending shift to mainland China has kept mall foot traffic lower than expected, dragging down Hong Kong segment performance against plan.
• Developer and construction related delays can push back new store openings in overseas markets, leading to revenue misses against plan.

Q: Performance was below plan across both Q1 and Q2, with influenza mentioned as a factor in December. Do external factors or internal factors like hiring misses account for more of the underperformance, and was there significant opportunity loss from the December staffing shortage? / A: External factors were the largest driver of underperformance. Q1 was heavily impacted by unfavorable weather, and December Q2 saw sudden, material operational disruption from influenza-related staffing shortages. Internal factors from the experienced hiring miss also contributed across the half. Management remains confident that H2 can recover the shortfall, as trained inexperienced hires will begin deployment to support the planned 22 new stores. (178 characters)

Q: Experienced stylist hiring is competitive industry-wide, creating persistent structural risk. Will the company shift to a higher share of inexperienced hiring, or use flexible pricing to secure more wage increase budget for hiring? What is the combined strategy for hiring and pricing? / A: After focusing extra urgent hiring spending on regional markets where experienced hiring was missing targets, the company has seen the highest number of experienced applicant inquiries since COVID from adjusted outreach. The medium-term strategy is to scale up new graduate and inexperienced hiring, which is the company's core strength and currently outperforming plans, to build enough capacity for new store expansion. Digital tools from new ticket machines and the new app will enable more flexible pricing in the future, with strategy adjusted based on the discount campaign's performance. (356 characters)

Q: With high hiring competition, experienced hiring applicant yield is typically low industry-wide. Is QB Net's hiring yield (offer to acceptance rate) holding steady, to give confidence that hiring targets can be met going forward? / A: The CEO oversees hiring processes directly and confirms that hiring yield has not declined meaningfully, and remains at similar levels to last year. Unlike generalist roles in other industries, stylist roles require professional certification, so most applicants are specifically seeking a long-term career in hair care focused on lifetime earnings, not just short-term pay, so applicant quality and yield remain stable. (251 characters)

Q: For planned new domestic store openings, how many additional hires are needed per store, and what annual total hiring volume is required to hit expansion targets? / A: On average, around 4 additional hires are needed per new store, though this varies by store seat count, and existing staff can support new stores in clustered (dominant) location strategies. With a turnover rate of roughly 6%, the company needs around 200 total hires per year, with roughly 100 net staff increases annually after accounting for attrition, to hit its new store expansion targets. (213 characters)