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

I will now discuss the financial results for Q3 fiscal year 2024, along with the slides. Please turn to Page 3. In the third quarter, operating revenue was at a record high, and operating income increased 11.9% year-on-year. Net income attributable to owners of the parent was lower than in the previous year due to the recognition of an extraordinary loss as a result of the planned business restructuring, but other income and expense items exceeded the previous year's results. See the next page about performance by segment. Japan. Operating income increased by JPY 4.4 billion from the previous year to JPY 30.2 billion, up 17.2% year-on-year, achieving double-digit growth. Specialty store sales increased 6% year-on-year, and the percentage of lease income increased due to a 3.1% year-on-year increase in the number of customers at the existing 92 malls and an increase in average spending per customer due to inflation. Preliminary December figures show that specialty store sales continue to be strong with a 6.2% increase. Next is performance by segment overseas. Operating income decreased by JPY 0.4 billion year-on-year to JPY 7.9 billion. By country, operating income increased in Vietnam and Indonesia, but decreased in China and Cambodia. In China, operating income decreased by JPY 1.07 billion. This was due to a loss from new mall openings and the decrease in profits from malls that closed in the previous fiscal year. Another factor contributing to the decrease in income was the sluggish growth in specialty store sales at the existing 21 malls, which increased only 1.3% year-on-year due to the economic slowdown caused by the slump in the real estate market. In Vietnam, specialty store sales of 6 existing malls increased 7.5% year-on-year and operating income increased 19.3% year-on-year or JPY 550 million to achieve profit growth. In Indonesia, operating income improved by JPY 410 million (sic) [ JPY 415 million ] year-on-year due to progress in improving the vacancy rate at existing malls and an 8.7% year-on-year increase in the number of customers visiting stores at existing malls. For a summary of profit/loss by segment, please see Page 6. Continued on Page 7. The main reason for the strong performance of domestic specialty store sales is the strong performance of the renovation program we have been actively implementing since last year as well as the strong performance of our malls enacting priority measures for inbound customers. Sales of the 26 malls that underwent renovations in 2023 and 2024 were up 9.3% year-on-year, continuing to drive overall sales. The inbound effect also continued from the beginning of the period with sales at 17 malls conducting inbound measures increasing 9.4% year-on-year, mainly malls near tourist destination to capture demand. In addition, cumulative duty-free sales for the third quarter were approximately double that of the previous year. See the next page, please. In Japan, we're also focusing on sales promotion to increase the number of customers visiting our malls. In Japan, the yen has been weakening and prices have been rising for a long time, and customers are becoming increasingly frugal. In response to customer needs and social changes, AEON held AEON Black Friday from November 22 to December 1, although Black Friday is a policy that the entire AEON Group has been working on every year. We did not simply hold the event as in previous years, but rather considered what local customers are looking for in the midst of high prices and worked to provide them with bargain products and enjoyable shopping experiences. The company also worked on measures to attract customers and encouraged them to buy. By implementing measures to attract customers and encourage purchases, we were able to significantly increase specialty store sales and customer visits during Black Friday by 20.1% and 13.2%, respectively, year-on-year. During the 3 months of the third quarter, major sales events such as Halloween and Black Friday were held in shopping malls across the country, resulting in increased customer traffic and sales. Next, as for improving the profits of the Urban SC business, we recognize that this is an important issue that is lagging behind. This fiscal year, we're working to increase sales by restoring the profitability of existing stores, while at the same time, reforming the business of some stores whose cash flow generating capacity has declined. The slide shows Urban SC specialty store sales, which grew 7.1% year-on-year in Q3 cumulative as a result of revitalizing existing facilities and capturing inbound demand. The results of some stores are shown here, but we are implementing approaches to capture sales such as the introduction of character pop-up shops to capture inbound demand. Please see the next page. In addition to improving the performance of existing stores, we have been implementing fundamental business structure reforms since last year, targeting some malls that have been declining cash flow generation capacity due to declining customer attraction and profitability. For the current fiscal year, we expect to incur an extraordinary loss of approximately JPY 6 billion as a result of the restructuring. In the first half, we decided to terminate the management and operation of Seisekisakuragaoka OPA at the end of August 2025. And together with another property, we recorded an extraordinary loss of JPY 1.86 billion. In the second half of the year, we decided to close another property and recorded an extraordinary loss of JPY 2.56 billion. Although this is a temporary loss, it's expected to improve operating income by JPY 0.4 billion by the end of fiscal year 2025 and by JPY 3.0 billion by the end of fiscal year 2030. This is China. In China, customers continue to prefer low-priced products due to a decline in customer confidence amid a prolonged slump in the property market and a tight employment environment. The slide shows trends in specialty store sales and customer visits in China. In the cumulative third quarter, the number of customers increased 9% year-on-year, while specialty store sales increased 1.3% year-on-year, indicating that customers are holding back on purchases and buying low-priced items due to uncertainty about the future and the difficult situation continues. On the other hand, during the National Day Campaign, a major holiday week from September 29 through October 7, specialty store sales increased 23.3% year-on-year, a significant increase that showed. There is a high willingness to spend on ceremonial-style product purchase. We will stimulate ceremonial-style product purchases and maximize sales and customer traffic by launching sales promotions for each seasonal event. In November, we held AEON Mall Super Lucky Day, our own sales plan to stimulate ceremonial style product purchases at all AEON malls and conducted a large-scale campaign that included a drawing for free purchases and distribution of discount coupons. As a result, sales of specialty stores and the number of customers visiting stores during the period increased significantly by 13.6% and 12.4% year-on-year, respectively. Although the trend in average spending per customer is declining due to the economic environment, we'll develop customer attraction measures to further increase the number of customers visiting our stores and implement sales policies that will lead to higher purchase rates and average spending per customer. There have been grim reports about the Chinese economy. However, as the market has a large population in the trade area, what kind of shopping mall can meet the needs of local customers. We'll reconsider that and strive to improve profitability by revitalizing existing malls and developing sales promotions. This slide shows specialty store sales in Vietnam. In July, the death of the General Secretary of the Communist Party of Vietnam, the country's prominent leader led to a period of self-restraint in outings and consumer activities, which affected sales and traffic at our malls, including the cancellation of lively customer attracting events. In September, a major typhoon hit the northern part of the country, causing some of our malls to temporarily close their specialty stores. Despite some of these negative impacts, specialty store sales remained strong throughout the year. In September, we opened AEON MALL Hue, our first store in the central area. The market area has a population of approximately 650,000 within a 30 minutes drive. On the first day of opening, 70,000 customers visited the mall, making it a smooth start. We're making steady progress in securing land for new stores and have already announced plans to open 3 malls. So far, we have only opened malls in urban areas such as Hanoi and Ho Chi Minh City. But in the future, we plan to open malls in leading regional cities where high economic growth is expected. As I mentioned earlier, in the third quarter, domestic operating income increased 17.2% year-on-year, a significant increase that drove our consolidated performance. Although customers showed a tendency to save due to rising prices, we were able to achieve results by launching sales promotions such as Black Friday during the period of high sales index. On the other hand, the China business is experiencing a deviation from the plan. But in the midst of a difficult environment, we have been able to achieve results by setting up sales plans to stimulate ceremonial-type product purchases. Although we're not optimistic about achieving the full year plan, we'll achieve the planned figures by absorbing the setback in overseas business with the domestic business. Under the new management structure that began in the current fiscal year, we have been promptly addressing various issues, including drastic business restructuring and the formulation of medium- and long-term strategies. We'd like to show you the path of our medium- to long-term strategy as a company that can continue to grow sustainably in the future. This concludes my presentation. Thank you very much.