MORITO CO.,LTD. Q2 FY2025 earnings call

Overall Financial Performance

• The first half of the 2025 November term achieved record-high revenue, operating profit, and recurring profit since the start of semi-annual disclosure, driven by the new consolidation of Ms.ID, organic business sales growth, and gross margin improvement. The company hit its 30% gross profit target in the first half.
• Year-over-year, revenue grew 8.7%, gross profit grew 13.5%, gross margin expanded 1.3 percentage points, and operating profit grew 5.9%. Operating profit reached 1.57 billion yen, an increase of 87 million yen year-over-year. Net profit was 2.359 billion yen, boosted by provisional negative goodwill recognition from the Mitsuboshi Corporation acquisition.

Capital and Shareholder Strategy

• The company targets achieving ROE of 8.0% or higher by the final year of the 8th Medium-Term Management Plan (2026 November term) to close the gap between its 5.8% CAPM-based cost of equity and the 8.0% market expected return. It will drive sales growth through organic growth and synergistic M&A, building on ongoing structural reform that has already improved profit margins.
• The company raised its full year dividend forecast by 2 yen per share, bringing the annual forecast to 69 yen per share (a 6 yen increase from the prior year actual), maintaining its policy of targeting a 50%+ payout ratio and 4% DOE.

8th Medium-Term Management Plan Initiatives

• BtoC Business Focus: Ms.ID's consolidation has driven strong BtoC sales growth; combined with existing BtoC businesses, first half sales exceeded 1.4 billion yen, with full year sales projected near 4 billion yen. The company is developing synergies between Ms.ID's sales expertise and existing BtoC brands, including a recently launched collaboration bag collection with Neon Genesis Evangelion for the 52 BY HIKARUMATSUMURA brand to reach new customer segments.
• Environmental Initiatives: The company launched full sales of MURON, a yarn made 100% from recovered discarded fishing nets in Japan, which has already been adopted for HELLY HANSEN products and uniforms for the NTT Pavilion at the Osaka-Kansai World Expo. First half cumulative environmental-related sales exceeded 400 million yen, with full year sales projected to reach ~900 million yen.
• Local-for-Local Production for Apparel Accessories: The company is advancing an Asia strategy project to strengthen production, procurement, and sales networks in response to growing local-for-local demand. It exhibited at the Saigon Tex trade show in Vietnam to leverage its Danan manufacturing facility and Ho Chi Minh branch to expand its presence in the ASEAN region.

Operational Updates

• Post-spinoff of Morito Japan, Morito Apparel, and Morito Auto Parts in June 2022, all subsidiary companies are actively pursuing profit-focused product development and investment. Inventory adjustment in the domestic apparel market is recovering, and inbound demand and sports-related products are expected to remain strong.

1. Apparel-related segment: Revenue increased 20.7% year-over-year, driven by strong performance of sports/outdoor goods, department store apparel accessories and silver accessories in Japan, and solid demand for workwear accessories for Europe and the US and Vietnam sales offset a casual wear sales decline in China/Hong Kong. It accounts for 54% of total pre-elimination operating profit, up from 46% in the prior year full year. 2. Product-related segment: Revenue increased 2.4% year-over-year. Active sports (especially snowboard-related) products struggled due to lingering inventory adjustments from the 2023/2024 warm winter, but stationery, extreme heat countermeasure products, and kitchen equipment-related services performed strongly. It (including Product M acquired via M&A) accounts for 37% of total pre-elimination operating profit, down from 44% in the prior year full year. 3. Transportation-related segment: Revenue decreased by 519 million yen year-over-year, dragged by stagnant domestic sales to Japanese automakers, weak performance at Chinese Japanese automaker clients, and partial business withdrawal in Europe, partially offset by expanding North American operations. The segment's profit actually improved after the European business exit, and it accounts for 9% of total pre-elimination operating profit, down from 10% in the prior year full year. All regional segments (Japan, Asia, Europe/Americas) achieved year-over-year revenue growth.

• Full-year earnings guidance is maintained at current levels, as management is conducting a careful assessment of goodwill and trademark valuations for Morito Scovill Americas amid accelerating local-for-local production shifts, and Mitsuboshi Corporation will be added to consolidation starting from the third quarter.
• Overall progress against plan is on track: revenue is progressing as expected, and operating profit is on track despite rising labor costs. First half net profit already reached 84.3% of the full year target due to provisional negative goodwill from the Mitsuboshi Corporation acquisition.
• Apparel-related business: The overall market environment is expected to remain broadly healthy barring a major global economic downturn. ASEAN manufacturing shift acceleration will see the company focus on Vietnam-based production and procurement, and workwear demand in Europe and the US is expected to remain stable. Management is monitoring changes to the US business from tariff trends and local-for-local shifts.
• Product-related business: Stationery, extreme heat countermeasure products, and kitchen equipment services are expected to remain solid. Colder winter in 2024/2025 has worked down excess active sports/snowboard inventory, and healthy demand is expected for the 2025/2026 winter season.
• Transportation-related business: Multiple mass production projects will launch in the second half in Japan, so performance is expected to improve from the first half. North American operations remain strong supported by Mexican sourcing, but overall Europe/Americas revenue is expected to see a slight decline due to the prior European business exit, and the Asian market (led by China) will remain challenging.

• Rising labor costs from headcount increases and base pay raises, plus increased e-commerce related expenses and higher goodwill amortization, are putting upward pressure on operating costs, offsetting some of the benefit from sales and margin growth.
• Uncertainty around US tariff policy creates downside risk for Asian export-focused apparel operations, though the company has limited exposure to China-made sewn products exported to the US.
• Weak demand from Japanese automakers in China and stagnant domestic demand for automotive-related products creates ongoing headwinds for the transportation-related segment.
• Impairment risk for goodwill and trademarks at Morito Scovill Americas requires careful valuation assessment, which is the reason management did not revise full-year guidance despite strong first half performance.

Note: The full Q&A transcript is cut off in the source document. The key outlined topics for Q&A are as below:

Q: What is the current operational and financial status of Morito Scovill Americas, and why is full-year net profit not being upward revised despite strong first half performance?

A: Management needs to complete a careful valuation assessment of the subsidiary's goodwill and trademark rights amid accelerating local-for-local production shifts in North America before updating guidance, so full-year guidance is held steady pending this review.

Q: How much profitability improvement can be expected from post-M&A integration (PMI) for recently acquired businesses?

A: Newly consolidated Ms.ID is already contributing positively to both sales and profit, and the company is actively working to capture synergies with existing BtoC and group businesses to drive ongoing margin gains. The Mitsuboshi Corporation acquisition will add further scale to the apparel segment when consolidated from Q3.

Q: What is the strategy for portfolio review to improve profit margins, and what is the growth outlook for the BtoC business?

A: The company is prioritizing BtoC as a core growth pillar under the 8th Medium-Term Management Plan, with full-year sales projected to hit nearly 4 billion yen after Ms.ID's consolidation. Underperforming non-strategic businesses (such as the exited European transportation operations) are being rationalized to improve overall group profit margins.

Q: How will Mitsuboshi Corporation expand overseas and increase uniform market share, and what is the outlook for ASEAN local production expansion?

A: Mitsuboshi will add meaningful scale to the domestic apparel and uniform business, and the company is leveraging its Vietnam manufacturing base to expand ASEAN production capabilities to match the shift of global apparel brands to the region, supporting further revenue and share gains.