CUBE CO.,LTD. Q4 FY2024 earnings call

• Overall 2024 Performance

  • Post-pandemic golf boom overheating has cooled, and extreme summer heat hurt early fall/winter product launches for both domestic retail and domestic EC
  • Inbound demand growth and strong performance from renovated GINZA SIX and Daimaru Shinsaibashi stores offset headwinds, alongside active pop-up expansion, delivering record domestic retail Q4 revenue
  • Higher labor costs from inflation-aligned wage hikes, increased staffing for new pop-ups, full-year expense recognition for the 2023-opened Aoyama flagship store, and renovation-related depreciation and capital expenses drove lower operating profit, even as advertising costs decreased year-over-year
  • A new shareholder dividend program was introduced: shareholders holding 200+ shares receive 10,000 points redeemable at domestic stores and the official online store

• 2025 Core Strategic Priorities

  • Global Expansion: China market entry is the core pillar; a JV with a local partner was established in 2024, with a 262 sqm flagship luxury store opening in a high-end Beijing department store in 2025, with no direct upfront investment for Cube. Expansion will prioritize Tier 1 cities, paired with local e-commerce development on platforms like WeChat, RED, and Tmall. The JV will also use shared local production and logistics hubs to cut costs. East Asia and ASEAN (Taiwan, Vietnam, Indonesia, Singapore) are key secondary focus areas, with a planned 2025 H1 opening for a delayed Singapore store, a permanent store in Vietnam, and a third Taiwanese store.
  • Store Development: Accelerate physical store openings aligned with post-pandemic return to in-person shopping. Plan ~2 new/renewed stores per year in department/commercial areas, plus 1 new outlet store per year, using pop-ups for test marketing before permanent openings. Continue to expand customer touchpoints and strengthen loyalty customer engagement with local in-store marketing and experiential events.
  • Branding: Strengthen branding in core Japan and Korea markets, launch collaborative products with Korean girl group VVUP aligned with the K-Culture trend to attract new users and grow social media followings, and plans to appoint the brand's first female ambassador in 2025 to expand reach to new demographics.

• Medium to Long Term Growth Strategy

  • Fandom Marketing: Treat loyal customers as the core growth driver, expand touchpoints across Japan, Korea and China to increase customer lifetime value and loyalty, and build flexible product strategies aligned with regional customer needs and climate shifts.
  • Supply Chain Reform: Pursue direct trade via the China JV to cut intermediate costs, consolidate suppliers and production hubs to reduce raw material and logistics costs, and lift gross margin.
  • Operating Cost Control: Advance digitalization via core system upgrades to improve labor efficiency and moderate wage growth, improve advertising cost efficiency via better ROI measurement, and conduct strict ROI analysis for all new store openings and renovations to improve store-level profitability.

By geographic/channel segments: 1. Domestic Retail: Record highest Q4 revenue in company history, driven by store expansions/renovations and active pop-up stores; reached 1.294 billion yen in Q4 2024, up from prior year levels, with a high contribution to overall gross margin that lifted consolidated gross margin to 57.7% from 56.7% year-over-year. 2. Domestic EC: Decreased revenue due to extreme summer heat and post-pandemic consumer shift back to physical retail, holding 21.6% of total revenue (in line with prior period). 3. Overseas EC: Increased revenue from growing brand recognition in new expansion markets and new content launches, supported by expanding cross-border e-commerce. 4. Korea Wholesale: Bottomed out after 2023's post-golf-boom decline, returning to year-over-year positive growth, holding roughly flat year-over-year at near-prior levels. 5. Taiwan: Grew 1.1 percentage points year-over-year, supported by new store openings. 6. D2C segment (combines domestic retail, domestic EC, overseas EC): Reached 62.1% of total revenue in 2024, up 4.3 percentage points from 2023. 7. Total consolidated revenue: 4.863 billion yen, up 0.1% year-over-year; operating profit margin dropped from 6.0% to 3.4%; net profit reached 0.108 billion yen.

• 2025 full-year guidance projects 5.2 billion yen total revenue (+6.9% year-over-year), 0.206 billion yen operating profit (+24.4% year-over-year), 0.206 billion yen ordinary profit (+21.5% year-over-year), and 0.125 billion yen net profit (+15.0% year-over-year), projecting top-line growth and increasing profit.
• 2025 overseas revenue ratio is projected at 35%, down 2.5 percentage points year-over-year, due to an expected decline in Korea wholesale sales amid continued market uncertainty; the new China business is expected to contribute approximately 0.1 billion yen in revenue from JV wholesale.
• The D2C ratio (a new KPI added in this report) is maintained as a core growth metric tracking direct touchpoints with loyalty customers, reaching 62.1% in 2024.
• Medium-term growth targets were revised: the annual revenue growth and operating profit margin targets were lowered to 15%+ from the prior 20%+ target, aligned with current market conditions; the operating profit growth target of 40%+ and ROE target of 15%+ remain unchanged.

• Korea's domestic social and market uncertainty remains high, leading the company to project a year-over-year decline in Korea wholesale revenue for 2025
• The Singapore first permanent store opening was delayed from 2024 to 2025 H1 due to construction delays
• Escalating US-China tariff tensions create uncertainty for the company's China expansion strategy
• Persistent inflation drives ongoing upward pressure on labor and operating costs
• Extreme weather (such as the 2024 record heat) can disrupt seasonal product sales cycles, as seen in 2024's delayed autumn/winter demand

Q: What are the plans for expanding domestic outlet stores? / A: Cube has already operated temporary pop-ups in outlets to expand new customer touchpoints. Going forward, the company will carefully balance outlet openings with discount rates and full-price store branding to protect its core luxury golf brand value, and will evaluate new outlet openings cautiously.

Q: What gross margin improvement can be expected from China's direct trade system? / A: The new China JV allows Cube to leverage the partner's local production and logistics resources, enabling more efficient operations than the prior trading house-based model. Benefits will include lower intermediate costs, consolidated suppliers that enable volume discounts, and shifting logistics hubs to China to cut delivery costs. Management expects a multiple percentage point improvement in gross margin, though no specific figure is available at this stage.

Q: What is Cube's 2025 store opening target for China, and what is the market outlook? / A: The company prioritizes finding store locations that match the luxury brand positioning over hitting a fixed opening quantity. After the Beijing flagship opening, it plans to open additional stores across Tier 1 cities, with location selection ongoing. It is also rolling out local e-commerce via Chinese social media and platforms alongside physical openings. China's golf apparel market has strong growth potential driven by rising affluence, increasing health consciousness, and growing demand for fashion-forward luxury options among younger and female golfers.

Q: Could escalating US-China tariffs impact Cube's China expansion strategy? / A: While the outlook for tariff policy remains unclear, Cube's US exposure is focused on cross-border e-commerce, which allows for easier pass-through of any cost increases to consumer prices. The company will continue to implement its medium-term China growth strategy while accounting for the risk of near-term Chinese economic volatility.