APR Co., Ltd. (A278470) Earnings Call Transcript & Summary

[Foreign Language] [Interpreted] Good afternoon. My name is Jae-Ha Shin, Vice President of APR Corporation. I would like to express my profound gratitude to all our shareholders for joining our earnings call. Today's presentation will proceed in Korean first and followed by English. Lastly, Q&A session will begin after English interpretation. Before getting into the presentation, the information included in this presentation material is prepared and provided for the convenience of shareholders and investors as a reference. So the financial information and data have not yet been audited from the external auditors and may cause some modifications during the final audit. Also, the forecast or the forward-looking statements or information may change due to the changes in market conditions and modifications of strategic planning.

[Foreign Language] [Interpreted] Before we proceed with the detailed earnings presentation, I would like to provide a summary of the key highlights for the fourth quarter of 2024. Please refer to Page 3. APR is committed to becoming a Korea's leading global K-beauty company. In the fourth quarter of last year, both Cosmetics and Beauty Device divisions achieved remarkable growth, leading to record high earnings. Building upon the momentum from 2024, we anticipate even stronger growth in 2025, particularly in the U.S. and other global markets. Looking at our Cosmetics performance, it is evident that APR is not just a company with strength in Beauty Devices, but also one of the most dynamic and high-growth players in the K-beauty industry. Last year, we accumulated significant experience and established a robust data foundation, which contributed to meaningful top line growth. As evidenced by our fourth quarter results, our sales have expanded substantially, and we expect this momentum to continue into the first quarter of this year 2025. In our Cosmetics division, we are seeing exceptional growth in cost competitiveness, category leadership and brand awareness. Additionally, B2B sales are increasing significantly, contributing to improvements in our operating profit margin. Our Beauty Device division continues to experience strong growth, particularly in our flagship product lines. Contrary to concerns that the beauty device market may be slowing, we recorded nearly 50% growth last year. For 2025, we plan to launch 3 to 4 new products, while expanding into new overseas sales channels, which we expect will drive continued high growth next year as well. Furthermore, our Medical Device business is progressing according to our plan. In the fashion segment, we believe the market will not deteriorate further. Since 2024, inventory turnover period has improved, and we recognized most of our inventory provisions or allowance last year. By significantly reducing our order volumes for 2025, we anticipate a substantial improvement in operating loss compared to the previous year. Now I may start the presentation by announcing our financial performance for the fourth quarter of 2024. You may refer to Page 4, overall sales trends. We achieved record-breaking sales growth through continued global expansion, further strengthening and solidifying our position as a game changer in the beauty industry. For the fourth quarter, we recorded consolidated sales of KRW 244 billion, once again setting a new all-time record for the quarterly sales. The fourth quarter has consistently been our strongest period in terms of sales growth each fiscal year. Also, our sustained growth across all quarters enabled us to achieve continuous Y-o-Y growth for the 40 consecutive quarters since our founding in 2014. On an annual basis, following our milestone of surpassing KRW 500 billion in the sales in 2023, we have now exceeded KRW 700 billion in 2024, marking another year of explosive growth. The following pages will provide a more detailed overview of our performance in the fourth quarter. It's Page 5, fourth quarter results. For the fourth quarter, our consolidated sales reached KRW 244 billion, recording a Y-o-Y growth of 60% and marking the highest quarterly sales in our business history. Both Beauty Devices and Cosmetics division surpassed KRW 100 billion in sales, achieving a significant milestone of exceeding KRW 200 billion in quarterly sales for the first time. Especially our Cosmetics division delivered an outstanding performance, recording an exceptional 103% Y-o-Y growth. This remarkable achievement was driven by the accelerated global expansion of Medicube brand led to enhanced global brand awareness. Our fourth quarter operating profit was around KRW 40 billion, a 15% growth in Y-o-Y, and net profit reached KRW 42 billion, a 74% growth in Y-o-Y. On an annual basis, sales reached KRW 723 billion, resulting in Y-o-Y growth of 43%, and operating profit increased by 18% to KRW 123 billion, while net profit increased by 30% to KRW 106 billion. Last year, the Fashion business division recorded an operating loss of approximately KRW 16 billion, which means that the profitability of Beauty division was significantly stronger in the comparison. The growth in the net profit was driven by an increase of over KRW 10 billion in interest income from financial instruments and also investment gains from divestment of equity investments, resulting in higher nonoperating income. And these factors contributed to exceeding KRW 100 billion in annual net profit, achieving a 30% Y-o-Y growth. In line with our strategic priorities, we will continue to focus on top line growth in 2025, following our momentum from 2024. And by strengthening our global competitiveness, we aim to drive sustainable profitability and establish ourselves as a leading global beauty company. It's Page 6, our fourth quarter results by division. Beauty Device division recorded sales of KRW 103 billion, resulting in Y-o-Y growth of 47%. Beauty Device division set new record for both sales volume and sales by selling approximately 580,000 units and recording over KRW 100 billion. Strong sales growth was sustained through the U.S. market and B2B exports with particularly strong performance on Amazon during the Black Friday promotion period, where our flagship product, Booster Pro, secured top rank, reaffirming its growth potential in the global market. In the domestic market, we launched Booster Pro Mini, a cost-effective entry model in November, to enhance accessibility and expand our targeted demographic group to the younger 10 and 20 segments. Moving on to the Cosmetics division. Cosmetics division recorded sales of KRW 116 billion, resulting in significant Y-o-Y growth of 103%. Medicube Cosmetics demonstrated strong expansion momentum, not only in the domestic market, but also global markets, particularly in the U.S. and Japan. We have strengthened its product lineup with PDRN-based skin care, enhancing overall product competitiveness. As a result, Medicube cosmetics achieved KRW 97 billion in sales, marking an explosive Y-o-Y growth of 141%. APRILSKIN also exhibited solid growth, both in domestic and overseas markets, with sales increasing by 34% Y-o-Y, positioning itself as the next global brand following Medicube. In the Others division, NERDY experienced a sales reduction due to the termination of its distribution agreement in China. However, growth in [indiscernible] sales and instant photo studio brand helped maintain overall sales at a level comparable to its previous year. It's Page 7, fourth quarter sales by region. Following the strong sales growth in third quarter, our overseas sales continued to demonstrate remarkable growth in the fourth quarter. Overseas sales reached KRW 156 billion, marking a Y-o-Y growth of 135%. We are building on the milestone of surpassing KRW 100 billion in the third quarter, and our overseas sales further grew, exceeding KRW 150 billion in fourth quarter. Driven by this robust growth, the proportion of overseas sales rose from 44% to 64%. Further details about our regional performance will be demonstrated on the following page. It's Page 8, fourth quarter results by region. We continue to strengthen our global competitiveness by maintaining Y-o-Y growth across all overseas markets, except for China. Especially in U.S. and Japan, we expanded our sales channels through other online platforms such as Amazon and Qoo10, thereby broadening our local customer pool, while simultaneously enhancing global brand awareness. The strong sales performance in these key leading markets accelerated our expansion into new markets through B2B exports, which resulted in an unprecedented quarterly Y-o-Y growth of 1,171%. Breaking down our performance into regions. First, Korea, sales reached KRW 88 billion, reflecting a 3% Y-o-Y growth. In United States, sales surged to KRW 69 billion, marking a significant Y-o-Y growth of 131% and breaking another quarterly sales record. During the Black Friday promotions, our key products were marked top rank in their respective categories, resulting in noticeable growth in 182% in our cosmetic divisions. Moving on to Japan. Sales grew to KRW 18 billion, reflecting a significant Y-o-Y growth of 125%. During the Qoo10 Mega Wari promotion in November, Medicube ranked second in overall sales performance. Additionally, cosmetic sales achieved explosive Y-o-Y growth of 343%. In China, sales declined to KRW 5 billion due to the termination of our exclusive distribution agreement for the NERDY brand, which led to a sales decrease in Fashion division. And Hong Kong reached KRW 21 billion for sales, marking a significant Y-o-Y growth of 143%. The offline public store pull in December further reinforced Medicube's strong brand awareness in Hong Kong market. And Singapore, Malaysia and Taiwan regions are included in other segments and the combined sales for these regions reached KRW 14 billion, resulting in high double-digit Y-o-Y growth of 71%. And lastly, B2B export sales surged to KRW 30 billion, achieving an extraordinary Y-o-Y growth of 1,171%. And our expansion into additional European markets contributed to this remarkable performance. Moving on to Page 9, strategy global expansion. Over the past year, we accomplished record-breaking results in the U.S. market, and we expect the strong momentum to continue. Our U.S. sales doubled from KRW 30 billion in 2022 to KRW 60 billion in 2023. And in 2024, we achieved over 160% growth, reaching approximately KRW 160 billion. APR's growing presence and brand awareness in U.S. has extended globally, leading to surge in B2B sales through overseas distributors and retailers. In 2024, our overseas B2B sales reached KRW 60 billion, demonstrating exceptional growth. For 2025, we forecast a threefold increase in B2B sales compared to last year. As we move forward into 2025, we will not only maintain our strong growth in U.S. and B2B regions, but also pursue an aggressive global expansion strategy. Moving on to Japan. Medicube officially entered the offline retail sector in January 2025. Based on industry benchmarks from peer companies, the offline sales contribution is projected to account for approximately 30% to 50%, supporting our expectations for additional growth. Our goal for Medicube is to secure placement in 3,000 stores across Japan by the end of this year 2025. We are also advancing our expansion into the European market, and we have successfully obtained CPMP certification for our key products, granting us access to all 27 member nations of EU. And these certifications will allow us to accelerate our market entry across Europe. Lastly, we are actively expanding into high-growth emerging markets, including Middle East and Southeast Asia, to strengthen our global footprint. If I move on to Page 10, rapid growth in cosmetics U.S. success and global market expansion. We successfully accelerated our overseas expansion, broadening brand awareness in global markets and achieving remarkable growth. As a result, our quarterly cosmetic sales surpassed KRW 100 billion for the first time. The strong performance of our Cosmetics division is also reflected in the increasing number of products, ranking among the top sellers on global e-commerce platforms such as Amazon in the U.S. and Qoo10 in Japan. For more detailed information, one of key products, Zero Pore Pad has solidified its position as a global steady seller item, while new hero products such as Collagen Night Wrapping Peel Off and Zero Exosome Shot have rapidly gained customer attention, fueling the momentum of our cosmetic business and driving explosive sales growth. To further accelerate our global expansion, we plan to broaden our SKU portfolio, introducing additional hero products and launching differentiated new products tailored for key markets such as U.S. and Japan. Additionally, we will strengthen Medicube's PDRN lineup, positioning the brand as a leading symbol of PDRN category. If I move on to Page 11, key highlights. First is our inclusion in the KOSPI 200 index. So back in December, APR was newly added to the KOSPI 200 index, which took less than a year after our listing to KOSE market. Moving forward, we are committed to establishing ourselves as a trusted company that represents the industry and upholds its credibility. Next is the share buybacks and cancellations. As part of our shareholders' return initiatives, we executed share buybacks that are approximately KRW 60 billion worth of common shares in 2024, and canceled the entire amount in January 2025. Additionally, on February 4, we announced an additional share buyback of KRW 300 billion. Given the increment of this market volatility driven by domestic and global political and economic uncertainties, we remain dedicated to enhancing shareholders' value through proactive measures and initiatives. And last is our participation in CES 2025. To expand our global network, APR has participated in CES for 2 consecutive years. And this year, we welcomed over 1,000 visitors, marking a more than 70% increase from the previous year. And this significant growth reaffirms the rising global presence of K-beauty and the increasing brand awareness of our brand, Medicube, within the industry. And moving on to Page 12. This is a summary of our consolidated financial statement, and you may refer to this page at your convenience. And now let me outline our 2025 financial targets. For this year, our management has set an annual sales target of KRW 1 trillion with an operating profit of approximately KRW 170 billion to KRW 180 billion, representing an OP margin of 17% to 18%. And this target aligns closely with last year's profitability level. The stated targets exceed the current consensus in the capital market, while sales mix dynamics continue to evolve, and we are more confident in our performance this year compared to last year. Moving forward, APR remains committed to upholding its position as a leading K-beauty company, ensuring transparent communications with our shareholders. And this is the end of our presentation, and now we can move on to the Q&A session. Thank you.

[Operator Instructions] The first question will be provided by Lim Heejin from Citi Securities.

[Foreign Language].

[Foreign Language].

[Interpreted] I have 3 questions. First of all, could you share the basis of this KRW 1 trillion revenue guidance broken down by Device and Cosmetics segment? And secondly, regarding global expansion, please provide specific plans for Europe? And lastly, on cost, how did marketing expenses and logistics costs compare to revenue this time?

[Interpreted] Regarding the guidance, actually, when we were firstly establishing our 2025 guidance, we were actually -- we were determining whether we should approach it as cautiously or we should provide more aggressive or challenging guidance to the capital markets. But we ended up deciding to deliver more challenging and aggressive guidance to the market. And under this guidance, actually, we have to record additional KRW 300 billion and also additional 40% Y-o-Y growth in terms of sales. And as a rolling basis, for the first quarter this year, actually, we are quite confident that we will be able to deliver some more positive outcomes for the coming quarters and the end of this year as well. And also regarding some concerns about the tariff and the exchange rate, those 2 factors are something that we cannot control. However, still our business statuses are going very well as of now. So we are quite confident that our fourth quarter results will be quite positive. And regarding the sales by region, business divisions, we think that the sales proportion for Beauty Device and Cosmetics will maintain the similar number, but we think the Cosmetics division will be slightly higher. And the next will be Beauty Devices. And when it comes to the region, especially for Europe, we will be able to deliver more detailed strategies and information in the coming time. But as of now, we are preparing to expand our sales channels that are commonly known in European markets. And also, we are preparing to enter some offline channels. And lastly, we will be utilizing more the B2B partners that are commonly known in European markets. And regarding the expenses and some logistic fees, for our marketing expenses for the fourth quarter, its proportion was around 70% from the total sales. And for the logistic fees, it was about late 8%. So it has been decreased relatively to the third quarter last year 2024. But when we take into account our overseas sales, proportion is continuously increasing. We don't think that the logistic fee will recover on to our first or second quarter level, but it will be maintaining around the similar number as our fourth quarter. And also one of the key factors that our SG&A increment is because of our aggressive expansion to the U.S. market starting from the end of the second quarter last year. And this is the end of the first question. Maybe we can go on to the second question.

[Foreign Language] [Interpreted] The following question will be presented by [ Shin Dong Cheol ] from CLSA.

[Foreign Language].

[Foreign Language].

[Interpreted] I have 3 things to ask. First, regarding our guidance, exchange rates may decline. So I'd like to know what exchange rate assumptions were considered when setting this year's target. Additionally, our dependence on Amazon is increasing. So what was Amazon's share of U.S. sales in the first quarter and what is the target for this year? And lastly, regarding the 4 new products launching this year, in which regions will they be released? What types of products are they? And what will their price range be?

[Interpreted] Regarding the exchange rate, actually, our management executives are considering our exchange rate more conservatively. So as of now, our exchange rate is about KRW 1,450. But internally, we are considering our exchange rate as below KRW 1,400. And it is somewhat true that the exchange rate helps our sales, but still we are taking our exchange rate more conservatively. And for Amazon, the sales proportion -- for the fourth quarter, sales proportion for Amazon channel in U.S. market takes about 50%, and the rest is from our D2C channel and TikTok Shop. It's not confirmed yet. We are also considering to enter the new sales channels as well. So in this regard, we are expecting that the sales proportion for Amazon will be lower in the coming quarters. And for the product launch, as of now, it is quite confidential to deliver more detailed information about the new product. But in terms of features, it will be the upgraded version of the existing device lineup that we are currently selling. This is the end of the second question. We can move on to the next question.

[Foreign Language] [Interpreted] The following question will be presented by [indiscernible] from Hana Securities.

[Foreign Language].

[Foreign Language].

[Interpreted] First, while our Cosmetics and Device business are both performing well, could you roughly break down the profit margin for each segment in the first quarter? Second, for our key market, Korea, U.S. and Hong Kong, how the profit margins in Korea, U.S. and Hong Kong compared to the average in this quarter? And third, North America performance was impressive. So could you break down the revenue share of Cosmetics and Devices in North America? Also, what was the percentage of device sales within the North American market? Fourth, as we expand through Amazon, could you share the first quarter Amazon revenue and its growth details? Additionally, could you provide a rough estimate of how much growth is possible on Amazon by 2025? And furthermore, how much was our marketing expense specifically for North America?

[Interpreted] Firstly, regarding the operating profit margins for specifically Cosmetics and Devices. For Devices, its average, the OP margin is around 20% and the Medicube Cosmetics is around 20% as well. And for Other Cosmetics, for example, like FORMENT or GLAM.D Bio or APRILSKIN, its OP margin is around early to mid 10%. So by adding them up, roughly, the entire Cosmetics division, the OP margin is around late 10%, so around 18% to 19%. And regarding the OP margins for the region, specifically in Korea, U.S. and Hong Kong, as of now, it's quite hard to break down our OP margins more specifically in regions. So we will be able to deliver this information the next time. And for the Device sales volumes for North America, specifically in U.S., for the fourth quarter, we sold about 192,000 units when we take into account that the sales volume in the first quarter was around 48,000 and the second quarter was about 40,000. There has been some big increments regarding the sales volumes in the U.S. region. And also recently, there has been some facial palsy or other palsies, the issues has been brought up for the Booster Pro in the U.S. through TikTok. But APR have a lot of academical papers relating to the medical purpose. And so once we notice about the issues, we've straightly announced our announcement regarding this issue. So we don't think there will be some big impact or any noticeable impact on our business. And for the sales proportion for Amazon for the fourth quarter; in the previous time, it was about 20%, but as mentioned previously, its sales proportion for Amazon as of the fourth quarter is about 50%. And there are some -- the sales proportion for Amazon actually varies by quarters, especially during the promotions or the seasonal factors. So it actually varies by quarters. And regarding our D2C channels proportion, actually, it's been lower compared to its peak, but still it's consistently recording about KRW 4 billion to KRW 5 billion monthly. And also for the marketing expenses, just specifically for U.S. regions, well, the entire budget for our marketing expense relative to our sales is about 20%. But in U.S., it will be slightly higher, because in U.S., specifically for Amazon, its competition rate is relatively higher, and also the competition rate, specifically in Amazon channel is also increasing. So it will be relatively higher than other regions. This is the end of question 3, and maybe we can move on to the next question.

[Foreign Language] [Interpreted] The following question will be presented by Park Hyunjin from Shinhan Investment Securities.

[Foreign Language].

[Foreign Language].

[Interpreted] Sales performance has been excellent and logistics costs have decreased compared to the third quarter, while advertising efficiency has improved. In which areas did additional cost arise? And regarding sales channels, how much improvement has there been in B2B segment? Lastly, for 2025 operating profit, which cost categories do you plan to reduce to achieve your target?

[Interpreted] Firstly, about our OP margins, specifically which expenses are impacting largely for our reduced OP margins relative to the past quarters, it's not only 1 or 2 issues, it's more like comprehensive issues. Firstly, our sales commissions has been increased about 3% to 4% points relative to the third quarter. And secondly is our logistic fees. Even though the logistic fee has been decreased compared to the third quarter, but it's not noticeably decreased. And one of the key factor is that because of the steep -- the sales growth in our Cosmetics, especially in U.S. regions, it was inevitable for us to use the [indiscernible] to maintain the inventory level for our Cosmetics. And we are still also using the [indiscernible] because there have been some steep sales increments in the Cosmetics as of still now in U.S. For that reason, we are expecting that our logistic fee will maintain around the similar level as of now. And also, another factor was the NERDY brand. So as of now, the accumulated level of the inventory allowance or the provision was around KRW 6 billion, and it actually impacted negatively on our margins. And lastly, one of the reasons why we are expecting some improvements on the OP margin is because of the increments in our B2B sector. So well, it is true that our B2B sector has been increased significantly during the fourth quarter, but it mainly occurred during December. So the absolute time line was quite short. And that's one of the reason why our OP margin forecast will improve on the long-term basis, because our B2B segment is increasing at a rapid pace.

[Foreign Language]. [Interpreted] Once again, I would like to express my profound gratitude to all shareholders for joining our earnings call. Every one of us in APR will continue to strive for sustained growth through constant and endless efforts. We kindly ask for your continued interest, encouragement and support. Thank you for listening, and this is the end of earnings presentation for the fourth quarter of 2024. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]