MORITO CO.,LTD. Q4 FY2024 earnings call

• Overall Financial Performance

  • For the 2024 November full year, Morito achieved record-high revenue, operating profit, and ordinary profit for the second consecutive period. Gross margin improved by nearly 2 percentage points year-over-year, and operating profit grew 16.4% year-over-year (an increase of approximately 400 million yen) driven by higher gross margins and transportation cost cuts, partially offset by rising personnel costs and M&A-related expenses. Net profit rose 16% year-over-year.
  • Total assets increased approximately 1 billion yen year-over-year, driven primarily by higher cash and deposits. Net equity increased approximately 800 million yen driven by securities valuation adjustments. The cash conversion cycle (CCC) improved for the second consecutive year, leading to stronger operating cash flow.
  • Regionally, domestic revenue fell approximately 1 billion yen year-over-year, while revenue from Asia, Europe and North America rose 1 billion yen, reflecting a growing trend of localized production for local consumption.

• M&A Update (Ms.ID Acquisition)

  • Ms.ID, an EC-focused women's apparel and accessories company with three owned brands (SELECT MOCA, TEN., C.T.plage) and an EC platform business managing third-party brand sales, has been acquired as a subsidiary. Ms.ID has strong EC marketing and consumer fan acquisition capabilities, with over 910,000 SNS followers, and targets 10 billion yen in revenue over 10 years.
  • Expected synergies include: Morito's components used in Ms.ID products, acquisition of B2C/EC expertise and talent to grow Morito's existing B2C brands, Ms.ID leveraging Morito's global network, procurement and quality management capabilities, and joint new product development combining both firms' expertise.

• Sustainability Strategy

  • Environmentally-friendly products (branded ASUKAMI, made from recycled fishing net fabric and factory offcut mixed paper) reached nearly 800 million yen in revenue in 2024. In 2025, the firm will launch full sales of MURON, a yarn made 100% from domestic recycled fishing nets, and establish a new sustainable product development department to hit the 1 billion yen revenue target, with long-term targets of 3 billion to 5 billion yen in sustainable product revenue.
  • MURON has already been selected for use in a new collaborative apparel collection from HELLY HANSEN and agnes b., launching in January 2025.

• Investment Strategy and Shareholder Returns

  • In 2024, Morito invested approximately 1.1 billion yen primarily in US factory equipment upgrades and kitchen equipment service capital expenditure, and completed the Ms.ID acquisition. Approximately 60% of the total planned 13-14 billion yen investment for the 8th Mid-Term Management Plan has already been deployed, and the firm will continue actively evaluating new M&A opportunities.
  • The firm maintains a shareholder return policy of stable continuous dividends, minimum 50% payout ratio, and 4% DOE target. A 67 yen per share full year dividend is planned for 2025. Morito also approved a new share repurchase program of up to 1.2 million shares (2 billion yen maximum purchase price), aimed at returning excess capital, improving ROE, and adjusting net equity, as management views the current share price as undervalued.

• Strategic Positioning

  • Morito's long-term vision is to become a global niche top company, with a long-term revenue target of 100 billion yen. The current 8th Mid-Term Management Plan is positioned as a preparation period for growth, focused on building a lean profit structure and making proactive growth investments ahead of the next mid-term plan, when the firm will target simultaneous top-line growth and margin expansion.

1. Apparel-related segment: Revenue increased 1 billion yen year-over-year. Domestic performance was constrained by post-COVID rebound demand tapering off and ongoing inventory adjustments driven by warm weather, but strong growth in Asia (driven by rising local consumption demand) and a recovery in Europe/North America following 2023 inventory adjustments offset domestic weakness, leading to net growth. 2. Product-related segment: Revenue decreased 450 million yen year-over-year. Solid performance from products for uniform price retailers, stationery products, and kitchen equipment-related services was offset by weak domestic conditions and falling sales of snowboard and surfing-related products due to yen depreciation, leading to a net decline. 3. Transport-related segment: Revenue decreased 560 million yen year-over-year. While North American operations continued an expansion trend, stagnant production volumes for domestic Japanese automakers and slowing demand from struggling Japanese automakers in China offset growth, leading to a net decline. Revenue contribution percentages for each segment were not provided in the transcript.

• For the 2025 November full year, Morito guides revenue of 53 billion yen, operating profit of 3.1 billion yen, and net profit of 2.7 billion yen. The guidance includes 9 months of results from newly acquired Ms.ID (January to September 2025).
• The 8th Mid-Term Management Plan's original operating profit target of 3 billion yen will be achieved one year early in 2025, an upward revision from the original timeline. The firm remains on track to hit the mid-term plan's 60 billion yen revenue target in 2026, maintaining this target.
• By segment: Apparel-related expects continued domestic inventory adjustment impacts, with growth driven by Asian local demand and recovering European/North American demand, supported by key trends of heat adaptation, sustainable products, and inbound consumption. Product-related expects continued solid performance from uniform retail and kitchen service segments, with mild improvement in action sports product sales after 2024 inventory clearing, and has launched preparations for a new direct-to-consumer (DtoC) business led by a new team of young employees. Transport-related expects flat domestic Japanese production and continued weakness for Japanese automakers in Asia, with growth from North America driven by local procurement and localization out of the firm's Mexico facility.
• Environmentally-friendly product revenue is targeted to reach 900 million yen in 2025, up from just over 700 million yen in 2024, on track to hit the mid-term 1 billion yen target.

• Geopolitical and supply chain risk: Dependence on Chinese manufacturing for products exported to the US exposes the firm to potential new tariff risks under the Trump administration. The firm is responding by shifting a greater share of supply to its existing factory in Vietnam and other non-Chinese Asian locations.
• Policy risk: Potential 25% tariffs on Mexican-made goods imported to the US under the new Trump administration is a key monitoring risk, though management expects full implementation of such tariffs is unlikely given domestic production constraints in the US.
• Domestic market weakness: Domestic demand for both apparel and product-related segments remains constrained, with ongoing inventory adjustments in apparel continuing to impact performance in 2025.
• Automotive market weakness: Stagnant domestic Japanese vehicle production and ongoing weakness of Japanese automakers in China will continue to pressure the transport-related segment in 2025.

Q: What priorities will the firm focus on to hit the mid-term 60 billion yen revenue target? / A: Management will prioritize delivering synergies from the Ms.ID acquisition including post-merger integration. By segment, apparel-related will focus on the Asian localization strategy, product-related will prioritize reviewing and adjusting the supply chain to mitigate geopolitical risk, and transport-related will focus on simplifying commercial flows across global locations and improving the clarity of segment profitability, centered on a localization strategy.

Q: What is the revenue target for environmentally-friendly products in 2025? / A: Management targets 900 million yen in 2025, up from just over 700 million yen in 2024. Management emphasizes that only authentic, high-quality sustainable products will remain viable long-term, and the firm will maintain its product policy while growing this segment.

Q: What impacts do you expect from the Trump administration, and what countermeasures are you planning? / A: The biggest risk is US-China trade policy, as the firm ships a large volume of China-made products directly to the US, and cannot fully remove China from its supply chain. The firm already operates a factory in Vietnam, so it will increase supply from Vietnam and other non-Chinese Asian locations to mitigate risk. For potential tariffs on Mexican goods, management expects full implementation of the proposed 25% tariff is unlikely given US production capacity constraints, but will continue monitoring policy developments.

Q: Is additional M&A planned to help close the gap between 2025's 53 billion yen revenue guidance and the 2026 60 billion yen mid-term target? / A: Management is fully committed to hitting the 60 billion yen target. Since existing organic growth will not close the full gap, the firm is actively evaluating additional M&A and new business expansion opportunities alongside organic growth to hit the target.