SHOBIDO Corporation Q2 FY2025 earnings call

Overall Financial Performance

• Both total company revenue and in-house planned product revenue hit all-time record highs. Despite a year-over-year weaker yen (headwind for the import-reliant company), operating profit reached 0.735 billion yen, +13.7% year-over-year. Total revenue was 10.737 billion yen, +1.1% year-over-year, and gross profit was 3.271 billion yen, +17.4% year-over-year.
• Gross margin improved 4.2pp year-over-year to 30.5%, even after a 1pp negative impact from weaker yen. The company's core long-term target is a 10% operating margin, and current performance shows steady progress toward this goal.

Margin Improvement Drivers

• NB segment: Focused on "Only Shobido" product development, creating differentiated products with functional, trend, and character added value that avoid price competition. This pushed up average selling prices and margins: the share of new products priced over 1,000 yen rose from 17.3% in the prior year to over 30% this period.
• PB segment: Actively re-evaluated and switched domestic and international suppliers to find new factories that balance lower costs and improved quality, delivering margin gains even in a tough sourcing environment.
• Mix effect: Higher-margin in-house planned products now make up a record 87.6% of revenue, with the highest-margin NB segment leading sales growth, further lifting overall profitability.

New Strategic Initiatives

• Completed the M&A of cosmetics manufacturer Piconte Japan in January 2025 to accelerate growth in the already strong cosmetics business segment.
• Launched a new outbound licensing business: Leveraging decades of in-house character business experience, the company now holds master licenses for famous IP and sub-licenses these rights to other manufacturers to earn royalty fees. This is an inventory-light, low-risk new business with high long-term growth potential.
• Reorganized in-house e-commerce: Moved the e-commerce team into the product planning division, aligning product development and direct sales under shared KPIs. In-house e-commerce revenue grew 28.4% year-over-year, and expanding this channel is a top company priority.
• The in-house planned product share has grown from under 50% at the 2009 IPO to nearly 90% today, representing a major multi-year transformation of the company's business model.

Balance Sheet and Cash Flow

• Total assets and liabilities increased due to consolidating Piconte Japan's balance sheet. Interest-bearing debt rose 0.877 billion yen from the end of the prior period, driven by early full-year funding to prepare for expected rising interest rates. There are no material concerns regarding cash flow.

By product category: 1. Cosmetics: 4.136 billion yen, +2.7% year-over-year, 38.5% of total revenue. Character-themed skincare and kids' cosmetics drove strong performance from strengthened sales to key retailers. 2. Cosmetic accessories: 3.384 billion yen, flat year-over-year, 31.5% of total revenue. Character-themed lines performed well, but this offset declines in other categories. 3. Contact lens-related products: large year-over-year decline of -24.1% following the exit from cross-border e-commerce business in China. 4. Fashion accessories: large double-digit year-over-year revenue growth, driven by strong demand for character-themed private label bags and pouches at key retailers. 5. Other (including pet-related products): +24.1% year-over-year revenue growth. By business type: In-house planned products: 9.406 billion yen, +5.4% year-over-year, accounting for a record high 87.6% of total revenue. National Brand (NB): highest-margin segment, growing as a core focus. Private Brand (PB): lower contribution growth as the company exited unprofitable contracted PB business. By sales channel: Drugstores, wholesalers, and discount stores achieved double-digit year-over-year growth from inbound tourism effects and strengthened sales focus. E-commerce: third-party e-commerce sales declined, but strengthened direct in-house e-commerce is contributing to improved profitability. Discount variety stores: large year-over-year revenue decline from exiting an unprofitable large-scale program with a key partner.

• Management upgraded full-year 2025 September fiscal year guidance from its initial forecast, now projecting full-year revenue of 22 billion yen, operating profit of 1.2 billion yen, and ordinary profit of 1.15 billion yen.
• The planned full-year dividend per share is 23 yen. Management maintains a policy of actively returning profits to shareholders targeting a 40% payout ratio.
• Entering the third quarter, yen exchange rates are at similar or stronger levels compared to the prior year, which management expects will ease pressure compared to the second quarter, putting the company in a good position to meet full-year targets.

• A weaker yen creates ongoing margin pressure for the import-reliant company: the company hedges 50-60% of import value via forward contracts, but the remaining 40-50% settled at spot rates is exposed to negative impacts from yen depreciation. The weaker yen in the first half created a 1.11 billion yen negative impact on operating profit.
• Rising raw material and sourcing costs from domestic suppliers created a 1.54 billion yen negative operating impact this period.
• Increased selling, general and administrative costs (up 18.5% year-over-year): growth in personnel costs (from M&A consolidation, active mid-career hiring for product planning roles, and higher performance incentives), sales promotion, advertising, and logistics costs all created downward pressure on profit, which was offset by higher sales and margins.
• Exit from unprofitable PB business and the China contact lens e-commerce business created temporary sales volume declines (a 0.9 billion yen negative operating impact this period), but this improves long-term profitability.

The provided transcript does not include a transcribed question and answer section, so no key exchanges can be summarized.