Tokyo Lifestyle Co., Ltd. Q2 FY2022 earnings call

• The company made significant efforts to deliver solid financial results despite challenges from the COVID-19 pandemic, global supply chain issues, and travel restrictions.
• Online stores posted impressive revenue growth of 111.6%, contributing to the overall revenue increase.
• Franchise stores and wholesale customers saw a 34.2% revenue increase.
• The company focused strategically on overseas online markets to minimize the impact of physical store sales on overall performance.
• The team's dedication was crucial in achieving these results, and the company is confident about future growth with plans for global expansion, including in Europe, North America, and Southeast Asia, and plans to manufacture private label products in five years.

Total revenue for the first half of fiscal year 2022 was USD 112.3 million, up 34.8% year-over-year. Revenue from directly operated physical stores decreased by 74.5% to $5.2 million for the period. Revenue from online stores increased by 111.6% to $62.4 million. Revenue from franchise stores and wholesale customers rose by 34.2% to $44.7 million. Online stores contributed a significant portion to the revenue growth, while physical store sales were negatively impacted by the COVID-19 pandemic.

• Management expects a 120% increase in revenue in fiscal year 2022.
• There is an awareness of potential heightened transportation costs and operating expenses due to current market conditions.

• Impact of the ongoing COVID-19 pandemic, including challenges to the global supply chain and travel restrictions.
• Potential heightened transportation costs and operating expenses in the future.

Q: According to the company's IPO prospectus, what is the current development and progress on opening new directly-operated stores and adding franchise stores?

A: The company is actively looking for suitable new store locations, with a new store to open in the Tokyo metropolitan area in the next few months. A new franchise store was opened in Canada in December last year, and plans are in place to open franchise stores in Australia, North America, and Southeast Asia.

Q: Consider the current worldwide supply chain issues, what is the potential impact to our business?

A: Supply chain issues have not had a worse negative impact on the company; overseas turnover reached new highs, with cumulative sales of overseas wholesales and online stores showing significant growth.

Q: What causes the increase of the company's long-term borrowings?

A: The increase in long-term borrowings is due to warehouse construction costs, with the aim of concentrating several warehouses in one place to reduce costs and increase gross profit in the long run.

Q: Compared to the same period last year, the gross margin decreased by 1.4% to 16.3%. What's the plan for Yoshitsu to improve your gross margin?

A: The decline in gross margin was due to increased promotion activities, price discounts, and operating expenses of online stores. The company considers these as investments to secure products, increase brand awareness, improve customer service, and attract more customers. With the stabilization of the COVID-19 pandemic, improvements in gross profit margin are expected.