ARTNATURE INC. Q4 FY2025 earnings call

• Mid-term Management Plan Update

  • This was the second year of the "アートネイチャー Advance Plan" mid-term plan, which originally targeted 50 billion yen in revenue and double-digit ordinary profit margin and ROE. The final year plan has been revised based on recent performance.
  • The plan is structured around three core themes: value creation, sustainability promotion, and dialogue with the market.

• Value Creation by Business

  • Men's business: New sales struggled for multiple quarters, but turned positive YoY starting in Q2, driven by improved sales associate skills that allow better matching of high-value products to customer needs, raising closure rates and average order values. The key remaining challenge is growing the number of consultations, with a need to improve outreach to potential customers with thinning hair concerns.
  • Women's custom business: New sales have stagnated due to a lack of hit new products and underperforming customer contact initiatives. However, new sales have shown early recovery signs starting in February 2025, driven by strong demand for the newly launched October 2024 custom wig "Jasmee". The company will continue to pursue new customer contact initiatives to maintain this momentum.
  • Women's off-the-rack business: Both new and repeat sales are solid, driven by effective alignment with commercial facility promotions and a hit new product, October 2024-launched "Refia Grace". Julia Auger has grown steadily post-COVID. The company will strengthen cross-segment collaboration to pursue upselling from off-the-rack wig users to custom wig users going forward.

• Sustainability and Operational Initiatives

  • As a labor-intensive business, improving productivity and efficiency is critical for sustained value growth. The company is currently rolling out multiple digital transformation (DX) initiatives, leveraging new technology and system investment to improve labor productivity and operational efficiency, while also improving workplace quality. Further refinements will be made to raise customer satisfaction.

• Market and Investor Relations

  • Over one year has passed since the company moved to the Tokyo Stock Exchange Standard market in October 2023, and it continues to implement the originally announced improvement plans. The company actively conducts IR activities including regular online events for individual investors and participation in third-party IR events, and will continue prioritizing dialogue with the market.

Consolidated total revenue for FY2025 (ending March 2025) was 43.34 billion yen, up 1.1% year-over-year (YoY), which is an all-time high since listing.

1. Men's segment: Total revenue increased YoY, marking the first increase in new sales in 3 years. New sales grew 24.5% YoY for hair growth products, which offset a decline in new custom wig sales. Repeat sales remained steady. Average monthly sales came in at 101.7% of the prior year, but total visitor count was only 97.8% of the prior year. The segment accounts for ~54.2% of total standalone revenue, at 23.168 billion yen.
2. Women's segment: Total revenue increased YoY, despite a 13.4% YoY drop in new sales, supported by solid repeat sales and strong growth for the off-the-rack wig brand Julia Auger. New custom wig sales were weak, but repeat replacement demand drove growth in repeat custom wig revenue. Julia Auger grew 7.3% YoY, supported by commercial facility foot traffic recovery and effective new openings and promotion. Average monthly sales were 96.6% of the prior year, with total visitor count at 100.4% of the prior year. The segment accounts for ~40.1% of total standalone revenue, at 17.362 billion yen.
3. Other segments: Decreased revenue YoY.

• For FY2026 (ending March 2026), management targets 9.9% YoY consolidated revenue growth to 47.623 billion yen, and 27.4% YoY operating profit growth to 27.78 billion yen, aiming to return to growth in both revenue and profit through revenue expansion and profit structure improvement.
• Segment revenue targets: Men's segment revenue will grow 327 million yen YoY to 23.495 billion yen; custom wigs will remain nearly flat at 13.951 billion yen, while hair growth products will grow 321 million yen YoY to 3.128 billion yen. Women's segment revenue will grow 2.118 billion yen YoY to 19.48 billion yen; custom wigs will grow 686 million yen YoY to 8.844 billion yen, hair growth products will grow 253 million yen YoY to 1.363 billion yen, and Julia Auger will grow 1.1 billion yen YoY to 5.891 billion yen via expansion into untapped markets.
• The company targets 28.44 billion yen in consolidated ordinary profit, a 594 million yen YoY increase.
• Product cost ratio is expected to rise 1.3 percentage points YoY, factoring in new factory startup costs, ongoing yen depreciation and inflation impacts. Selling, general and administrative (SG&A) expenses will be controlled overall, with targeted resource allocation to high-growth priority areas. Total expense growth will be held below revenue growth.
• Total capital expenditure is planned at 2.82 billion yen, roughly flat year-over-year, with 1.144 billion yen allocated to store facilities, 689 million yen to system projects, and 535 million yen to new factory construction.
• Full-year dividend for FY2026 is planned at 28 yen per share, split into 14 yen interim and 14 yen year-end dividend.
• Management states they have revised the mid-term plan's final year (FY2026) targets, and aim to achieve the revised plan to set up the next mid-term plan. Expenses equal to expected revenue from new business areas are factored into the plan, offsetting the immediate profit impact from new expansion.

• Persistently weak new customer acquisition in both the men's (low consultation volumes) and women's (slow new custom sales) segments remains a core operational risk.
• Rising input costs from inflation, yen depreciation, and higher rent and labor costs are squeezing profit margins.
• Sustained lack of hit new products could continue to constrain new sales growth in the women's custom segment.
• The company's labor-intensive business model faces pressure from labor costs and need for productivity improvement.

Q: What is the basis for the planned 8% YoY growth in new women's custom wig sales for FY2026, given the segment's history of weak new customer acquisition, and what new channel initiatives are driving this outlook? / A: The growth plan is backed by strong initial reception for the company's recently launched new custom wig product, which has exceeded prior year order levels despite a one-month temporary delay in April 2025 deliveries that will be recovered in the first half of the fiscal year. Management tested multiple new channel and marketing initiatives in FY2025, including pop-up locations in high-foot-traffic underground passages and adjusted advertising channels. For FY2026, the company will focus resources on the initiatives that showed positive traction, and management is confident in the planned growth target based on the improving recent sales trend.