BOOKOFF GROUP HOLDINGS LIMITED Q2 FY2025 earnings call

• Consolidated Financial Overview

  • The first half (first two quarters) delivered total consolidated revenue of 56.781 billion yen, operating profit of 1.498 billion yen, ordinary profit of 1.713 billion yen, and net profit of 912 million yen, marking overall year-over-year growth in both revenue and profit. First quarter profits grew year-over-year, while the second quarter saw a year-over-year profit decline that was largely expected.
  • Operating cash flow increased approximately 700 million yen year-over-year, driven by higher earnings and slower inventory growth, and free cash flow improved despite elevated investment spending for new store openings.
  • As of the second quarter end, total assets stood at 56.406 billion yen, net assets at 21.0 billion yen, and interest-bearing debt at 20.579 billion yen, which was lower than the prior year's second quarter end level.

• Mid-term Strategic Direction

  • The company's mid-term strategy through 2028 May fiscal year focuses on portfolio transformation: maintaining Domestic Bookoff as a stable core profit generator, while Premium Service and Overseas Business act as growth exploration areas, with new business development and M&A to enable long-term sustainable growth.
  • Domestic Bookoff strategic priorities: (1) Expand product assortment aligned with local market needs centered on core book products; (2) Improve convenience and experiential value for customers amid accelerating digital shift; (3) Maintain stable earnings from core book/soft media, while growing gross profit from additional product categories. Core book sales have recovered to 102.8% of prior year levels in existing stores, driven by curated merchandising of popular titles, transparent online pricing to drive higher quality inventory, and digital integration: the official app has 8.11 million members, 70% of online orders use in-store pickup, and 1 in 3 pickup customers make additional in-store purchases.
  • Premium Service strategic priorities: Reach 100 stores in 5 years, targeting upper-mass/affluent customers with buyback services in urban and department store locations under multiple brands. The former BOOKOFF General Buyback Counter has been rebranded to Rehello, with the first location opening in January 2025, to focus on broad merchandise assortment for less experienced sellers and integrate online sales and in-store buyback to improve conversion and customer experience. The company targets over 50 stores by the end of the current fiscal year.
  • Overseas Business strategic priorities: Reach 100 BOOKOFF stores in the US and 100 Jalan Jalan Japan stores across Southeast Asia and Central Asia. In the US, the company is expanding to new states (recently entered Arizona) focused on local management training, and targets 30 new US stores in the mid-term. For Jalan Jalan Japan, the company has launched a new apparel-focused store concept that leverages reliable supply of Japanese used clothing, solves prior inventory sourcing challenges for full assortment stores, and will roll out this format in both Malaysia and Kazakhstan to accelerate new store openings.

• Incident Response Progress

  • After a June 2024 internal fraud incident, the company has implemented preventive and detective internal controls, alongside revised staffing, evaluation criteria, and compliance training. As of the second quarter, 5 out of 52 planned system improvement projects have been completed, with full implementation and material costs expected to be concentrated in the second half of the fiscal year, starting from the third quarter.

• Domestic Bookoff Business: Revenue of 49.705 billion yen, segment profit of 2.381 billion yen. This represents year-over-year revenue and profit growth, contributing 87.5% of total consolidated revenue. Existing direct managed stores reported 105.2% of prior year revenue for the first half, with 46 consecutive months of year-over-year growth through November. 5 new stores were opened in the first half, including a large BOOKOFF SUPER BAZAAR location.
• Premium Service Business: Revenue of 3.427 billion yen, segment profit of 17 million yen. This represents year-over-year revenue growth but profit decline, contributing 6% of total consolidated revenue. 6 new stores were opened in the first half; core business purchase volume grew 7.5% year-over-year, but higher labor costs, new store opening expenses, and a 50 million yen expense increase from revised inter-segment transaction terms led to lower profits.
• Overseas Business: Revenue of 2.933 billion yen, segment profit of 414 million yen. This represents year-over-year revenue growth with profit flat compared to the prior year, contributing 5.2% of total consolidated revenue. 7 new stores were opened in the first half, including the first locations in Kazakhstan. Sales in the US and Malaysia grew approximately 20% year-over-year in local currency terms, but startup and overhead costs for the new Kazakhstan operations led to a second quarter profit decline.

• Management maintained the full-year 2025 May fiscal year guidance originally announced in October, with no changes to the targets: 120.0 billion yen in consolidated revenue, 35.0 billion yen in operating profit, 38.0 billion yen in ordinary profit, and 21.0 billion yen in net profit.
• The top priority for the second half is restoring purchase volume, which declined after the fraud incident, particularly for Domestic Bookoff and Premium Service. Domestic Bookoff purchase volumes have recovered from a July trough but remain below prior year levels, while Premium Service has seen a large drop in partner referrals post-incident and has not yet returned to prior purchase growth levels.
• The company plans to open more than 30 new stores across all segments in the full fiscal year, in line with prior plans.

• Customer trust and inventory supply risk: The June 2024 fraud incident led to a sustained decline in customer buy-in volumes for both Domestic Bookoff and Premium Service, which constrains inventory availability and future sales growth. Successful recovery of buy-in volumes is the key risk factor for full-year performance.
• New store performance variability: As more customers have multiple options to sell used goods, the ability to secure buy-in volumes for new stores varies more than in the past, creating execution risk for the company's aggressive new store opening target.
• Premium Service operational risk: The business has failed to convert growing purchase volume into sales and gross profit at the rate management expected, leading to lower-than-forecast profits, highlighting ongoing risk around sales conversion efficiency for the new growth segment.
• Overseas expansion execution risk: New market expansion (e.g. Kazakhstan) requires upfront investment in overhead and store startup costs, with near-term profit drag and uncertainty around long-term market adoption.

Q: What are the main drivers of the second quarter year-over-year profit decline? / A: The primary cause is upfront investment spending across the two growth segments. For Premium Service, large increases in hiring for existing stores, new stores, and headquarters expanded personnel costs, alongside higher new store opening costs, a 50 million yen expense increase from inter-segment transaction price revisions, and slower-than-planned conversion of purchased inventory into sales due to post-fraud buy-in volume declines. For Overseas Business, 3 new stores opened in Kazakhstan in the second quarter, with upfront startup costs and ongoing operating losses for new locations, plus overhead costs to establish a new local legal entity, all of which were planned in advance. Overall the decline was mostly expected, only Premium Service sales came in below forecast. /

Q: What is the budget and timing for future fraud prevention expenses? / A: Management has set a total budget of 200 million yen for all prevention measures, with most system development and renovation costs to be expensed immediately rather than capitalized. The total cost is expected to stay within this budget, with final amounts to be confirmed in the third quarter. Most of the 200 million yen in expenses will be recognized in the fourth quarter, with only a small amount recognized in the third quarter. /

Q: Is the increased inter-segment transaction cost for Premium Service a permanent or one-time change? / A: The current large increase is mostly one-time, resulting from a company-wide review of buyback cost and disability employment cost allocation across segments. While minor future adjustments will be made as purchase volumes change, no additional large-scale revisions are planned, so this should not be a recurring major cost increase going forward. /

Q: What is your outlook for expanding the spread between book buyback and selling prices? / A: Management believes expanding the overall average spread for books is not feasible, due to customer perception that Bookoff offers low buyback prices. Instead, the company is adjusting pricing selectively: it raises buyback prices for recently released popular titles to improve customer satisfaction, while holding buyback prices down for slow-selling overstocked older titles. It avoids extremely low buyback prices (1-5 yen) to prevent worsening customer experience and reducing future customer sell-ins. The overall average spread will stay flat, but spreads will widen for slow sellers and narrow for fast sellers, while the company works to build a cycle of frequent customer sell-ins.