halmek holdings Co.,Ltd. Q4 FY2025 earnings call

Mission & Strategic Segmentation

• The company's core mission is to support better living for women aged 50 and over
• The customer base is split into two strategic segments with tailored approaches:
  • Active Seniors (65+): Less experienced with internet use, served via analog-focused business
  • Pre-Seniors (50-64): Internet-native, served via digital-focused business

Active Senior Analog Business Key Initiatives

• Store expansion & new customer acquisition: Accelerated store openings post-COVID, growing from 12 stores to 18 stores (19 as of the call) located primarily in department stores. Stores successfully acquired 33,000 new customers in the period, with steady sales growth.
• High-competitiveness product category expansion: Prioritized growth in footwear, innerwear, and cosmetics, testing multi-channel sales strategies combining print/newspaper advertising with TV and digital ads. Growth rates varied by category, but overall sales grew steadily.
• Profitability improvement:
  • Information Content: Successfully implemented a magazine price hike without meaningful reader loss, absorbing higher customer acquisition costs (actual 4,592 yen per customer vs target 3,789 yen) and delivering higher overall profit
  • Halmek Merchandising: Advertising efficiency improved starting in Q4, with catalog media cost ratio falling to 13.8%, below both forecast and prior year levels. Age-specific catalog marketing for 60/70-year-old customers performed well
  • Kotose Merchandising: Addressed early-period high stockout rates (which caused large lost sales through Q3) with corrective actions, normalizing stockout rates below prior year levels by Q1 2025, returning to normal operations
  • Corporate Business: Offset 0.04 billion yen in sales lost from a departing major client with cost cuts, delivering a 0.02 billion year-over-year profit increase
• M&A Strategy: Actively pursuing M&A with two priority target types: (1) Companies that can offer new products/services to the company's existing senior female customer base, and (2) Companies with large customer bases that have minimal overlap with the company's existing customers, to which the company can sell its existing products.

Pre-Senior Digital Business Key Initiatives

• HALMEK up Subscription Service: Completed a major December 2024 refresh, adding new original content including a special beauty-focused series and short dramas, and improving UI/UX. The company is still iterating on product-market fit, and has not yet begun large-scale customer acquisition promotion, planning to scale promotion once product improvement is complete.
• Pressed Flower Community Business: Working to build a self-sustaining growth system for the acquired business. Historically focused on in-person classes to grow membership, the company is now developing digital acquisition channels and flexible participation structures to appeal to working 50-somethings, which is the core target for this segment.

Strategic Positioning

• 2026 March year marks the shift from the prior period's restructuring and upfront investment to a monetization phase. Past investments included significant headcount expansion and splitting the single logistics hub into two hubs for eastern/western Japan for BCP resilience, and now the company will focus on driving profit growth from these investments, plus M&A to boost growth and profitability.

For the 2025 March full year (IFRS): Consolidated sales revenue was 33.93 billion yen, an 8% increase from the prior year, reaching an all-time high. Consolidated operating profit was 1.068 billion yen, up from 0.85 billion yen the prior year, and net profit rose from 0.47 billion yen to 0.62 billion yen. On a Japanese GAAP basis, total group sales were ~34 billion yen flat year-over-year, with total EBITDA of 1.882 billion yen, a slight decrease. Segment breakdown (Japanese GAAP): 1. Core Business: Total sales of 32.384 billion yen (revenue contribution 95.2%), EBITDA of 2.128 billion yen (slight profit increase). Core Business is further broken into: - Information Content (Halmek Magazine): Sales of 3.752 billion yen, up 0.284 billion yen year-over-year, EBITDA of 0.874 billion yen (strong increase driven by price hikes). Revenue contribution to group: 11%. - Halmek Merchandising: Sales of 21.065 billion yen, up 9.5% year-over-year, EBITDA of 1.294 billion yen, down 0.07 billion yen year-over-year. Revenue contribution to group: 61.9%. - Kotose Merchandising: EBITDA down 0.07 billion yen year-over-year due to widespread stockouts causing lost sales. 2. Corporate Business: Sales decreased slightly after losing a major client, but EBITDA increased 0.127 billion yen year-over-year, to a profit. Revenue contribution to group: ~3.7%. 3. Pre-Senior Digital / Growth Investment Business: Sales grew strongly to 0.645 billion yen, with a 0.094 billion yen reduction in net losses year-over-year (driven by narrower losses from the HALMEK up subscription service, plus the addition of the acquired pressed flower business). Revenue contribution to group: 1.9%. Key KPIs: Halmek Magazine maintained the #1 sales position among all domestic magazines at 467,000 average copies in H2 2024, and total active customers across all business lines grew slightly from 1.35 million to 1.37 million.

• 2026 March Fiscal Year Guidance:
  • Consolidated sales are projected to be 35 billion yen, a 3% year-over-year increase. Consolidated operating profit is projected to be 1.5 billion yen, representing a more than 40% year-over-year increase. Total EBITDA is projected to be 2.12 billion yen, up 0.238 billion yen year-over-year.
  • Segment breakdown: Core Business sales 33.1 billion yen (growing EBITDA to 2.4 billion yen); Corporate Business sales 1.25 billion yen with EBITDA growing 0.14 billion yen; Growth Investment Business sales 0.9 billion yen, with net losses narrowing by 0.03 billion yen to 0.33 billion yen. Within Core Business: Information Content EBITDA projected to 0.94 billion yen (benefiting from a full year of the price hike); Halmek Merchandising projected 21.8 billion yen in sales (+3.5% YoY) with EBITDA growing 0.125 billion yen to 1.42 billion yen; Kotose Merchandising projected 7.5 billion yen in sales (slight decline, with profitability prioritized over topline growth) with EBITDA returning to a +0.04 billion yen profit from a 0.039 billion yen loss last year.
  • Dividend: Full-year dividend of 30 yen per share, 36.7% payout ratio matching the 35% target. Introduced an interim dividend starting this fiscal year, with 15 yen per share for both interim and final dividend. Combined dividend and shareholder benefit yield is projected at up to 6.6% based on the closing share price as of March 31, 2025.
• Mid-Term Plan (to 2028 March Fiscal Year):
  • Topline targets: 375 billion yen sales in 2027 March, 400 billion yen sales in 2028 March. Operating profit targets: 20 billion yen in 2027 March, 25 billion yen in 2028 March, representing 2.5x operating profit compared to the 2025 March base.
  • Dividend target: 50 yen per share dividend in 2028 March, 2.5x the 2025 March dividend level, maintaining a 35% target payout ratio.
  • Target ROE: 15% by the end of the mid-term plan, up from 8% in 2025 March.
  • Strategic focus: Stable growth for the active senior core business, while continuing upfront investment to capture growing pre-senior market size (projected to grow from 12.7 million people to 12.9 million people by 2033 as junior baby boomers enter the segment). The company will maintain its unique three-pillar business model of information content, merchandising, and community, continuing to leverage trust built via information content to drive merchandising and community growth.

• Customer acquisition costs for magazine subscribers have increased above target, which could pressure profitability if future price increases do not offset higher costs
• Halmek Merchandising saw meaningful profit decline driven by higher store opening costs and weak advertising efficiency through the first three quarters of 2025 March, though improvement was seen in Q4
• High stockout rates at Kotose Merchandising caused significant lost sales and a 0.07 billion yen profit decline in 2025 March, even though corrective actions normalized the issue by year end
• The pre-senior digital business is still in the development phase, with no timeline confirmed for scaling promotion, and will continue to run operating losses through the mid-term plan period

Q: What are the key differences between Kotose Merchandising and Halmek Merchandising in terms of products, planning, and manufacturing? / A: The main product difference is category concentration: Kotose has a fashion concentration of more than 50%, while Halmek has fashion as its largest category but less than 50%, with a balanced split across seven categories including cosmetics, innerwear, and home goods. While historically Kotose carried more third-party branded goods and Halmek carried more private label goods, Kotose has greatly increased its private label share in recent years and is now primarily private label, matching Halmek. The largest remaining difference is price point: Kotose's average prices are roughly half of Halmek's, for example a basic knit shirt is ~3,000 yen at Kotose vs 6,000-7,000 yen at Halmek. Both share similar planning and manufacturing processes, and they share operational know-how with each other to improve mutual performance.