8166.T

Company-wide Transformation Initiative

• Under the theme "Our Company Will Change", 12 cross-functional projects grouped into product planning, production/logistics, sales, promotion, organization, and IR are underway, with 5-6 members assigned per project to drive full operational reform initiated one year ago by new management.

Product Transformation

• Brand Refresh: Core brand "TAKA-Q" was rebranded to unified "T/Q" (pronounced "Tea-Q") to emphasize the brand focus of combining trend and quality, with new logos rolled out to 2025 spring/summer products and updating on store signage incrementally during renovations.
• Target Repositioning: Lower the target age range for existing brands by 10 years: TAKA-Q will shift from 50s/60s to 40s/50s, m.f.editorial will shift from 50s to 30s/40s, with adjustments to sizing, pricing, and color offerings to align with the new younger target segments.
• New Model Suits: After 5 years, all suit patterns were updated, replacing traditional Y/A/AB body sizing with simple slim and regular body types, labeled with standard S/M/L/XL/2XL sizing, and adding relaxed fit options to match current preferences, while incorporating new functional stretch materials.
• NEO-BASICS Category Launch: A new updated basics category centered on monochrome color palettes, featuring three value pillars: premium rich materials, stress-free functional TECH materials, and eco-friendly ECO materials, with a long-term goal to build a global position through sustainable product practices.
• Cassette Wear New Category: A styling-focused selling framework that groups multiple coordinate-able items (jackets, tops, bottoms) by shared material into a single category (called cassette wear) to simplify customer outfit matching, with both men's and women's lines already launched in stores.
• New DRAW Brand Launch: A new brand launched primarily via ZOZOTOWN with limited in-store placement, delayed to mid-September from August due to supplier delivery delays; early performance is strong: non-sale full-price DRAW sales already outperform TAKA-Q and m.f.editorial on ZOZOTOWN, with the customer base heavily weighted to 30-40 year old women. Bags designed by an Italian designer are particularly popular, accounting for half of DRAW sales, and new categories and colors will be added in the next spring/summer season.
• Collaborations: Launched a collection with Sauna Camp themed around wear from morning commuting to evening sauna visits; future collaborations with anime, sports, and other brands are in planning, focused on refreshing brand image rather than just incremental sales.

Store, Digital, and Organizational Transformation

• New Store Format Rollout: The first rebranded T/Q store (Morrage Shobu store) launched with a new wood and concrete neutral design that displays full coordinated outfits alongside accessories and bags instead of just single items, and sales have hit 120% of budget through the first three months, with additional new format stores planned for viable locations.
• Digital Marketing Upgrade: Began rolling out vertical video, audio, and text-integrated social media ads after previously only using static image advertising, to reach younger consumers and build awareness for the refreshed brand.
• HR and Training Reform: Launched leadership training for emerging managers, and resumed new and mid-career store manager training with group work to share on-the-ground insights, to build internal leadership capacity for the transformation agenda.

Future Growth Initiatives

• Expand B2B opportunities targeting schools and medical businesses for uniform and apparel solutions
• Leverage the subsidiary TMM Service, which has in-house alteration factories and equipment, to develop new recycling, reuse, and remake apparel businesses, expanding beyond core alteration services
• Develop custom apparel for athletes (focused on college students, as professional athlete segments are already saturated) using stretch, flexible materials and tech-enabled custom ordering
• Explore local region-specific initiatives to leverage the national store footprint, developing custom products for regional markets over a 1-2 year timeline

• Management maintains the full-year 2026 February term earnings guidance initially announced on April 9, with no changes from the prior forecast. The moderate operating profit decline in the first half was in line with original plans tied to the membership program restructuring, so no update to full-year projections is required at this time.

For the 2026 February Term Second Quarter, total company revenue is 4.278 billion yen, an 8.8% decrease year-over-year. Revenue declined 4.8 percentage points from prior-period store closures and 4 percentage points from a 4.8% drop in existing store sales. Existing store sales (including e-commerce) reached 95.2% of the prior year level: customer count was 91.8% of prior year, while average transaction value rose to 103.7% of prior year. Gross profit totaled 2.668 billion yen, an 8.4% decrease year-over-year, but gross margin improved 0.3 percentage points to 62.4% due to reduced promotional discounting. Selling, general and administrative expenses (SG&A) totaled 2.665 billion yen, a 5.2% decrease year-over-year, driven by a 28 million yen reduction in advertising costs from shifting from print direct mail to digital promotion, a 21 million yen reduction in rent from prior-period store closures, and a 40 million yen reduction in point allowance reserves following membership program changes. Operating income fell 98 million yen year-over-year to 3 million yen, recurring profit fell 102 million yen year-over-year to 64 million yen, and net income fell 1.63 billion yen year-over-year to 1 million yen, with the large net income drop driven by a 1.499 billion yen debt exemption gain included in the prior year period. On the balance sheet, current assets decreased 158 million yen, fixed assets increased 243 million yen, total liabilities decreased 492 million yen, and net equity increased 577 million yen to 1.312 billion yen, improving balance sheet health. Operating cash flow improved approximately 200 million yen year-over-year, primarily due to reduced inventory, ending cash and cash equivalents totaled 1.103 billion yen.

• Membership program restructuring that discontinued regular 20-30% off promotional discounts has caused a larger-than-expected decline in member customer count and store visits, requiring additional strategic adjustments to address the drop in traffic.
• Unexpected extreme heat in July 2025 shifted customer demand faster than expected from dress shirts to t-shirts, resulting in unplanned stockouts of heat-appropriate products.
• The new DRAW brand launch was delayed by one month due to supplier delivery delays, limiting first quarter sales volume for the new brand.
• Expansion into custom athletic apparel faces higher barriers to entry, as the professional athlete segment already has widespread existing exclusive contracts with competing apparel firms.

No question and answer section was included in the provided earning call transcript.