Kurashicom Inc. Q2 FY2025 earnings call

• Overall Financial Performance

  • Consolidated revenue grew 26% YoY to 2.29 billion yen, hitting an all-time quarterly high. Gross profit grew 31.9% YoY to exceed 1 billion yen, driven by improved cost of goods sold ratio. EBITDA grew 75 million yen YoY to 439 million yen (all-time high), with an EBITDA margin of 19.1%.
  • Selling, general and administrative expenses (SG&A) increased 184 million yen YoY to 638 million yen, with 120 million yen of the increase coming from higher advertising expenses focused on online app download ads. SG&A growth was controlled within gross profit expansion, leading to all profit items exceeding prior year levels.

• Mid-term Growth Strategy Progress

  • The 3-year mid-term strategy targets 10 billion yen in consolidated revenue and a 15% EBITDA margin by the 2027 July fiscal year, with upfront marketing investment in 2025 and 2026. The second quarter results have put the strategy on track, with clear visibility toward the final target.

• Marketing & Customer Growth

  • App download advertising investment has delivered strong results: the second quarter hit an all-time high for downloads, driving a 24.6% YoY increase in new buyers. New, repeat, and reactivated buyers all hit all-time records, reversing the prior declining trend in new buyers that existed through the third quarter of the 2024 July fiscal year. Total engagement accounts grew by nearly 800,000 in the first half of the fiscal year, cumulative members reached 733,000, and non-app engagement account growth has reaccelerated.
  • The YouTube channel for the main brand has seen subscriber growth surge since entering the third quarter, with over 100,000 new subscribers in the most recent month, putting 1 million total subscribers within reach for the full 2025 July fiscal year. Instagram followers for the main brand exceed 1.42 million, and for foufou hit 130,000 at the end of February, up 44% QoQ, with a 200,000 follower target now in sight.

• Category Expansion ("Bouquet of Categories" Strategy)

  • The cosmetics category grew 62.6% YoY, now exceeding 5% of total revenue. Newly launched core skincare products (toner and beauty emulsion) sold over 10,000 units in 4 months, exceeding expectations. Cosmetics have higher repeat purchase rates than other categories and lower cost ratios, so they contribute more to profit than their revenue share indicates.
  • New categories including bedding have delivered strong results: a convertible duvet cover/blanket sold 8,000 units in a short period. Collab products, such as the vintage cup and saucer collaboration with Noritake, sold out multiple restock runs. The fashion category grew strongly, supported by seasonal autumn-winter temperatures and growing new customers.

1. 「Hokuou, Kurashi no Doguten」 (Northern European Lifestyle Goods Store): Revenue grew 29.2% YoY to 2.22 billion yen, reaching a new all-time quarterly high. It contributes 96.9% of total consolidated revenue, with an EBITDA margin of 19.5%, a strong profitable level. Both buyer count and revenue per buyer grew year-over-year, with total buyers increasing ~20% YoY to 105,000, also an all-time quarterly high. 2. 「foufou」: Revenue fell 28 million yen YoY to 72 million yen, contributing 3.1% of total consolidated revenue. After a 42 million yen revenue first quarter, it achieved a 1.7x sequential increase quarter-over-quarter, realizing a V-shaped recovery. Instagram follower growth accelerated sharply in the second quarter, driving rising buyer counts.

• Full year 2025 July fiscal year guidance is maintained, despite first half revenue and gross profit progress exceeding 50% of full-year target and profit progress exceeding 70% of target, as results are within original expectations.
• Annual advertising spending will remain targeted at 1 billion yen, with a shift from testing mass advertising to concentrating all investment on high-efficiency online ads (focused on app downloads) for the second half.
• The mid-term growth strategy framework is maintained: the company confirms it will hit 10 billion yen revenue and 15% EBITDA margin by the 2027 July fiscal year, while noting that an earlier recovery of the 15% margin is possible depending on prioritization of top-line growth vs profit.
• Full year free cash flow guidance is maintained at 380 million yen, and annual dividend guidance is maintained at 25 yen per share, with payout equal to 50% of full year free cash flow, supported by the company's strong net cash position.

• For the foufou acquisition, Classicom has limited prior PMI (post-merger integration) experience, so the company is monitoring progress closely as it completes foundational infrastructure and organizational preparations ahead of accelerating growth.
• As a retail business, revenue growth depends on balanced inventory management: over-aggressive inventory expansion can damage the balance sheet, while insufficient inventory limits conversion of marketing demand into sales, requiring careful balance between growth and risk.
• The recent sharp growth in YouTube subscribers is a recent development, so the sustainability of this growth trend is still uncertain at this stage.

Q: YouTube subscriber counts have grown sharply since February. What is driving this growth, how much new customer acquisition does it drive, and is the growth sustainable?

A: The growth comes from a combination of effective content, operation, and marketing, not just a single viral video. Management expects the growth will likely continue for at least the next several months, but the recent acceleration is very new so long-term sustainability is still unconfirmed. YouTube's core role is brand building: it builds awareness and affinity with potential customers, which improves the conversion efficiency of app download ads across other platforms, rather than driving immediate direct sales. It also helps reactivate dormant customers by keeping them engaged even when they are not actively purchasing, so it is a critical long-term platform that will continue to receive investment.

Q: What are the current challenges for foufou, and what is the timeline for growth after the acquisition?

A: After acquiring foufou in August 2023, the first year focused on building foundational infrastructure (logistics systems, management structure), and the second year has focused on organizational building and improving inefficiencies. Management recently made the decision to close a small underperforming brick-and-mortar location, and has started improving product assortment, inventory ordering accuracy, and marketing using Classicom's expertise. Q2 revenue grew 1.7x sequentially from Q1, and Q3 is tracking solidly, so there is a good chance it will hit full year guidance. Now that foundational preparations are nearly complete, the focus is shifting to growing the customer base and aligning product offerings to demand, with active growth expected to start next fiscal year.

Q: Current Q2 EBITDA margin is 19% even after increased advertising spend, and the first half margin is 14%, which is well above the planned 10% full year margin. Is it possible to hit the 15% mid-term EBITDA margin target earlier than planned, and when would the plan be reviewed?

A: It is true that the business is in a position to return to 15% margin earlier than planned if management chooses to prioritize profit. However, management is also considering the alternative: prioritizing faster top-line growth to hit a larger final scale by 2027, which would mean keeping investment higher and delaying margin recovery. As a retail business, growth requires careful balance between marketing demand and inventory availability: if marketing is successful but inventory cannot support additional sales, management will shift to prioritizing profit, but if there is room for additional inventory and growth, management will choose to invest more even if it suppresses margin in the short term. The core 2027 target of 10 billion yen revenue and 15% margin remains in place, with adjustments to timing based on ongoing conditions.

Q: What principles guide Classicom's collaboration projects with external brands, and what additional benefits do these collaborations deliver?

A: The most important principle is that the team working on the collaboration genuinely likes and respects the partner brand, and that the partner has reciprocal respect and understanding for Classicom. Management avoids collaborations that are only focused on short-term revenue or exchanging customer bases, because collaborations built on mutual genuine respect and affinity resonate much more strongly with customers. The company prioritizes partnerships with brands that it has long admired regardless of the partner's size, and believes this organic approach leads to more compelling products and stronger long-term results.