Joshin Denki Co.,Ltd. Q4 FY2025 earnings call

Corporate Governance & Structural Changes

• Conditional approval for a name change to "Joshin Corporation" (pending June 2025 shareholder meeting approval), to reflect a shift away from being constrained by the traditional "electrical machinery" business framework while retaining the core home appliance foundation built over 75 years.
• Plans to transition from a company with a board of auditors to a company with an audit and supervisory committee, also pending June 2025 shareholder approval. This change is intended to speed up decision-making, improve the effectiveness of the board of directors, strengthen governance via an audit committee composed entirely of independent outside directors, and increase management transparency.
• Leadership transition: Outgoing CEO Jin'ya Kanatani will hand over the role of President and CEO to current Vice President Tetsuya Takahashi, conditional on shareholder approval. The new leadership team will guide the company through its current performance challenges and toward the next growth stage ahead of the 100th founding anniversary.
• The company will discontinue and abolish its existing takeover defense measures upon expiration at the close of the June 2025 shareholder meeting. The IR, sustainability and corporate planning departments will be moved to direct reporting under the new CEO to strengthen dialogue with capital markets.

2024 Full-Year Operational & Financial Performance

• Full-year consolidated revenue was roughly flat YoY, slightly above consensus expectations, but the company posted a full-year decline in both revenue and profit. Weak sales in the core home appliance segment left gross profit gains insufficient to offset increased selling, general and administrative expenses (SG&A), which was the main driver of the weaker full-year results.
• In-store sales continued a multi-year slump, but EC sales grew after the mid-2024 strategic shift to expand sales on both owned and third-party platforms. Q4 (Jan-Mar 2025) marked the first quarter of YoY growth in both revenue and profit for the 2024 fiscal year, with both in-store and EC sales growing, driven by company-wide efforts to revitalize large home appliance sales, leveraging the company's in-house delivery, installation and construction capabilities.
• Gross profit margin fell 0.7 percentage points YoY to 25.3%, and operating profit margin dropped to 0.9% amid significant operating profit decline. SG&A increased YoY, with 0.6 billion yen higher personnel costs from ongoing human capital investment, and 0.7 billion yen higher logistics costs from planned automation and system investments to expand EC shipping capacity at the Tokyo logistics center and upgrade the two-center (Tokyo/Kansai Ibaraki) distribution network.
• The company achieved major inventory reduction in H2 2024, cutting excess inventory and improving inventory turnover. This drove a 16.3 billion yen positive operating cash flow, resulting in a full-year 14.5 billion yen positive free cash flow, the first positive annual free cash flow since 2021.
• Net interest-bearing debt fell by 11 billion yen YoY as of March 2025, with a stable low net D/E ratio of 0.37x. The company will continue to implement its dominant region strategy, including pruning unprofitable stores, optimizing existing store network, and opening new stores outside the Kansai region to strengthen direct Joshin brand sales.

Medium-Term Planning & Capital Strategy

• The current JT-2025 Medium-Term Management Plan will end in FY2025, and full-year projections indicate the plan's original targets will not be met. The company will maintain the plan's targets and work to close the gap between results and projections through the end of the fiscal year. A new medium-term plan will be drafted under the new leadership team and published in FY2025, ahead of its 2026 launch.
• The company raised its target payout ratio to 40% or higher in March 2024. It plans to pay a full-year 2024 dividend of 100 yen per share (up 10 yen YoY), and maintain the 100 yen per share dividend for FY2025. Share buybacks will be considered on an ad-hoc basis, balanced against growth investment needs.

1. In-store Sales: Sales declined year-over-year (YoY), with continued sluggish performance since 2021. Per-store average sales also dropped, driven by weak performance in the core home appliances segment. For full-year 2024, most home appliance categories (excluding air conditioners) underperformed, but all categories returned to YoY growth in Q4 (Jan-Mar 2025). Core home appliance sales fell below 200 billion yen in 2023 and have maintained a downward trend since 2020, with a 10 billion yen (1.0 billion yen) annual sales decline over the past several years.
2. Internet (EC) Sales: Grew YoY in full-year 2024, with particularly strong growth in H2 2024 and Q4 2024 following a 2023 strategic shift to prioritize profitability that temporarily suppressed sales growth. After optimizing operational processes to improve profitability, the segment resumed active sales expansion on both the company's owned Joshin web shop and third-party marketplace platforms starting H2 2024, driving strong double-digit growth that lifted overall Q4 results to a YoY increase in both revenue and profit.
3. Growth Segments (Mobile Phones, Repair/Construction/Renovation): Have been growing steadily YoY, delivering a cumulative 8 billion yen (0.8 billion yen) net sales gain over the past several years, offsetting part of the decline in core home appliances. This segment has maintained stable expansion relative to the struggling core home appliances business.
4. Differentiated Segment (Entertainment including Gaming): Has maintained relatively stable sales, with performance fluctuating in line with new product release cycles for key categories like gaming.

• Management expects YoY growth in all key metrics except net income for FY2025 (March 2026 year-end), projecting 0.2% revenue growth and 8.5% operating profit growth. The operating profit margin is projected to edge up to 1.0% from 0.9% in FY2024.
• The published FY2025 guidance is positioned as a minimum mandatory target; management notes that if its home appliance revitalization efforts are executed successfully, results can exceed the current guidance. The expected positive sales impact of a potential Hanshin Tigers championship promotion has not been included in the current projections.
• The company prioritizes a strong Q1 (Apr-Jun 2025) start to FY2025, and has already launched multiple promotional initiatives starting in April to ensure achievement of the first-half guidance.
• The original JT-2025 Medium-Term Management Plan targets for FY2025 are maintained, despite a large gap between current projections and the original plan targets. Management will continue efforts to narrow the gap by the end of the fiscal year.

• Weak performance in the core home appliance segment has led to a large gap between current results and the JT-2025 Medium-Term Management Plan targets, making achievement of the plan's original ROE and financial targets highly challenging in the final year.
• The company's share price declined after the Q2 2024 earnings downward revision, and as of March 2025, market capitalization is below 60 billion yen, with PBR stuck at 0.5x, a large gap from the 1.0x target level. Foreign institutional shareholdings declined 5 percentage points after the Q2 earnings miss, reflecting weak investor sentiment.
• The core home appliance segment has faced a multi-year sales decline, and reversing this trend to return to stable growth carries execution risk, even after the positive Q4 2024 results.
• The macroeconomic outlook remains uncertain, creating headwinds for consumer discretionary spending on large home appliances, which is the company's core focus for revitalization.

Q: What strategic changes will the new leadership implement, and what is the key to growth amid uncertain market conditions? / A: The core priority remains revitalizing the core home appliance segment, which has seen a 10 billion yen annual sales decline, while expanding the already successful growth segments (mobile phones, renovation/repair) as an incremental driver of performance. The Q4 2024 sales recovery was led by EC, which spent 2023 optimizing profitability and developing new operational methods to support simultaneous sales growth and margin improvement. The company also built out a nationwide delivery and takeback network for large home appliances like refrigerators and washing machines, enabling it to accept orders from much farther distances and drive volume growth. Management will carry this Q4 momentum into FY2025 to deliver performance improvement.

Q: Has the internet sales strategy changed, and can the segment maintain both revenue growth and improving profitability? / A: The return to sales growth is not at the cost of profitability. After a 10 billion yen sales decline in 2023, the EC team spent the year developing and testing new business practices that allow profitable growth even on third-party marketplace platforms, which were rolled out starting in H2 2024. The completed nationwide delivery network provides an additional tailwind for growth. Higher EC sales also lift in-store foot traffic and overall company sales, which increases home appliance volume and improves manufacturer rebates, driving gross margin improvements across the entire business. Management targets a clear improvement in gross profit margin in FY2025, after the 2024 decline, by tying home appliance revitalization directly to improved profitability and higher gross profit.