AEON Mall Co., Ltd. (8905) Earnings Call Transcript & Summary

So let me share with you the overview of the FY 2024 Q2 results. First, the consolidated results. Operating revenue was up 5.4% year-on-year and hit JPY 222.2 billion, up JPY 11.4 billion year-on-year. Operating income was up 9.9% year-on-year and hit JPY 26.8 billion, up JPY 2.4 billion year-on-year. Net income was down around 13% year-on-year at around JPY 9.1 billion and was down JPY 1.4 billion year-on-year. All 3 of these numbers exceeded our original first half plan. For net income, please note that there are some structural reform expenses, which were originally planned to be incurred in the first half. But as they have shifted to the second half, that is the reason for the gap against plan. Next, I will explain the domestic and overseas businesses separately. First, the domestic business. Existing specialty store sales rose 5.9% year-on-year. The bottom left graph shows operating income. Note the 13.8% growth or JPY 2.5 billion growth year-on-year, hitting JPY 20.7 billion of operating income. The bottom right shows the sales and number of customers for the existing mall specialty store sales in our 92 malls. This is calculated using the exact same date for each month. So there are some fluctuation based on what particular day of the week it was. However, if you adjust the date by day of week, on average from June to August, there's between 7% to 9% growth in sales year-on-year. Thus, the domestic business is continuing to be strong. Next, the overseas business. Unfortunately, the decrease in profits in China is continuing. Notice in the bottom left bar chart. In last year's first half, the overseas segment had JPY 6.2 billion of operating income. We went down in China around JPY 640 million. Out of this number, last year, we closed 1 store, which had an impact of JPY 440 million. Considering this, China was only down JPY 200 million. ASEAN region overall was up JPY 550 million. Within the ASEAN region, Vietnam and Indonesia had positive growth, but Cambodia was down around JPY 200 million due to the third store. The total for this year's Q2 is JPY 6.1 billion, so lower profits year-on-year. The bottom right shows the sales and number of customers for China and Vietnam, which are important markets for us. In China, in Q1, we saw an increase of customer traffic, which allowed us to offset the drop in the spend per customer. However, lately, unfortunately, we are seeing a slight drop in customer traffic, so we must think about what measures we can take to recover our customer traffic. For Vietnam, you see some slight volatility. Please note that there were some special factors occurring in July and September, which is why those months are down. However, if you exclude this, we are seeing continued 10% growth. So we are not really concerned about Vietnam. Next, let's talk about why the domestic business is so strong. I already mentioned this in the Q1 results presentation, so I won't go into the details. However, I do want to emphasize there are 2 important things happening. One is expansions, including renovations are leading to greater sales and the second is that inbound demand has grown quite a lot. Some investors have mentioned that I should not just point out the malls that are doing good, but I should also talk about those malls which have not undergone renovations/expansions. Look at the second from the top. For those existing malls without renovations/expansions in the first half, their sales grew 4.5% year-on-year and the traffic grew 2% year-on-year. To break it down even further, on a quarterly basis, for those malls without renovations, et cetera, the traffic grew 0.6% in Q1. And in Q2, they grew 3.4%. This is due to the company-wide initiatives we implemented, and I will go into the details in a little bit. So for the first half, total growth in traffic was 2% year-on-year. So I want to emphasize that we are seeing growth in both malls which had renovations, et cetera, and also those which did not. Next, let me address the initiatives we took in the first half, especially focusing on Q2. Two initiatives we proactively focused on was the so-called cooling shelter and the cool share programs. Given the fact that we had a very hot summer, we coordinated with the Ministry of the Environment and the government to implement the cooling shelter initiative in order to reduce heat stroke incidences by encouraging people to visit our malls. However, it would be a waste if we didn't do something to try to encourage the visitors to stay longer at our malls and to enjoy their time more, which is why we implemented over 500 cool share programs across our malls. As a result of doing such initiatives for Q2, we saw 4.6% growth in customer traffic. In Q1, it was 1.5% growth, which means that we had a 3-point increase in customer traffic from Q1 to Q2. The details of these initiatives are on the next page. Next, we did a variety of events at many different malls. We had a snowfall event, a fireworks event, a shaved ice festival, and ice pillar event, et cetera. So we're doing the cooling shelter program to get the customers to come, and then we do the cool share program to get them to stay longer, sometimes until the evening so that they can enjoy the evening event. So by doing these many events, this is the reason why the domestic business is so strong. Next, we talked about this at the Q1 earnings announcement, but with the new management team in place, we are focused on these 3 areas. Regarding the medium to long term, we are currently discussing this internally, so I will limit my discussion today to the 4 items in the short-term business perspective. Regarding the cost reduction measures item, we have assigned an owner to this internally, and they are currently checking each part of the business to see where we can lower costs. Therefore, I won't be able to discuss the impact of this item today. The first item to discuss is the recovery of the domestic business. The 3 points I will discuss are value creation, inbound and customer traffic. Next, this is similar to the cooling shelter program I mentioned before, but we have 260 shopping centers and malls all across Japan. Our customers are facing higher inflation and travel-related costs, which have become very expensive, which is why we are focused on sharing the message regarding the true value we offer. Thus, we are focused on providing interactive events and strengthening our food, beverage and amusement specialty stores. This will lead the customers wanting to use our malls as a nearby leisure facility and want to spend a lot of time, perhaps the whole day, enjoying themselves at our malls. This is an example of value creation. Some of the initiatives we are planning in the second half to increase customer traffic are mentioned on the right, such as Halloween-related events, Christmas-related events, Black Friday-related events, et cetera. These are events that only we, AEON Mall can do to increase customer traffic. Next, one important factor, which will contribute to the recovery of the domestic business is inbound tourism. Let's talk about group travel and non-group travel separately. First, group travel. I mentioned in the Q1 earnings announcement, we are currently strengthening our ability to deal with group travelers. For example, we are working with travel agencies and et cetera, to receive large buses. One of our strengths is that we have large parking areas. Thus, it's very easy to park and shop at our malls. As a result of these efforts, in the first half, the number of tour buses grew 63% year-on-year. Next, non-group travel. I talked about this previously, but it is important for us to reach out to the traveler even before they leave for Japan. One of the strengths is that we have locations overseas. We have 40 locations in China and the ASEAN region. For example, in our 4 malls in Guangzhou, we use digital signage to talk about our domestic malls and point out the locations which are close to tourism spots. We also use social media. For example, we collaborated with Chiba City to use influencers to do a Weibo live streaming on August 21. This live streaming event had 4 million views, so many potential customers viewed it. We want to continue to do such initiatives so that when foreigners come to Japan, they will automatically want to visit our malls. Next, the progress of our fundamental business structure reforms. Many people point out that there doesn't seem to be a lot of progress being made. Now with the new management team, we are checking the situation of each store. Of course, as part of this activity, we will consider which stores are good candidates for revitalization activities or which stores are good candidates for financial schemes such as negotiating with the property owners to lower the rent we are paying. However, we will have to consider closing those stores, which we can expect to see a certain level of improvement in the medium to long term. One example of this is in the first half, we decided to terminate the contract for the Seisekisakuragaoka OPA property at the end of August 2025, thus closing this store. Of course, we will continue the structural reforms in the second half. And as a result, we expect operating income to improve by JPY 0.4 billion by the end of fiscal 2025 and by JPY 3.0 billion by the end of fiscal 2030. We are also planning on checking not only our domestic stores, but each of our overseas stores as well. Next, redefining our overseas strategy. As the new management team is working on the next midterm plan targeting fiscal year 2026 onwards, today, I will only be discussing the changes to the current ongoing midterm plan, which cover fiscal year 2023 to fiscal year 2025. On the right, you can see the changes we made to the new mall opening plan. For Japan, it went from 3 to 2 malls; for China, 2 to 1 mall and for Asian region, 2 to 0 malls. We have adjusted the pace of new mall openings to an appropriate level considering the external factors, et cetera, in each country/region. One thing to note for Vietnam and the ASEAN region, we would like to quickly open new malls. However, there has been a delay due to negotiating with the government regarding licensing. So we are currently reviewing the pace and investment allocation for fiscal year 2025 onwards. Next, regarding entering overseas areas with high growth potential, in September, we opened our first store in the Hunan Province in China. In Vietnam, so far, we've opened mainly stores in Hanoi and Ho Chi Minh. But for the first time, we opened a new store in Central Vietnam in the city of Hue. Our new store opening strategy is that we consider China's Hunan province to be a growth area for us going forward. And for Vietnam, we want to enter and open up new stores in other regional areas across Vietnam. For both of these 2 new stores I just mentioned, they've only been opened for less than a month, but both are going according to plan, and they are very popular with customers. Next, we are especially focused on opening new malls in Vietnam, and our strategy is that we want to open up more stores in the regional areas. We've already announced the malls in the Ha Long and Thanh Hoa. These are suburbs of Hanoi, about 2 to 3 hours away from Hanoi City. Also, we are working on opening a mall in Central area Da Nang city, which is around an hour away from the mall in the city of Hue that I mentioned that we just opened in September. Next, the final topic is creating new business for new value. What's shown on this page would probably be planned for 2030 onwards, but we would like to be involved in the redevelopment project in the Senri-Chuo area. We would like to be involved in the development of not only retail facilities, but hospitals and many types of mixed-use facilities. This concludes my overview of the Q2 results. In summary, the first half results were in line with our plan. However, lately, China results are not according to plan, and we expect the situation to continue through the second half. So we need to check next year and onwards plans for the overseas business. For this year, we want to achieve the full year plan by offsetting any negative impact from the overseas business with the growth in the domestic business. This concludes my presentation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]