Marui Group Co., Ltd. (8252) Earnings Call Transcript & Summary

Now it's time, we'd like to start Marui IR Day 2024. First of all, thank you very much for your participation amid your busy schedule. Today's presentation material is available on our corporate website. Please take a look at Marui IR Day 2024 material. Here is today's agenda. And we're going to have explanatory session followed by Q&A. And today's session will be uploaded to our website later. Now let us introduce today's speakers Mr. Aono, President and Representative Director of Marui; and Event Preparatory E-office Ms. Endo; Epos Card, Mr. Saito, CO; and Ms. Araki Business Planning Epos Card. Let us start. First of all, we'd like to discuss retail segment progress and initiatives. Mr. Aono and Ms. Endo will provide you the explanation.

Now let us provide you explanation on our retailing segment. I, myself, Aono, and Ms. Endo, Event Business Preparatory Office will provide you explanation. Here are the voices or questions we have been receiving a lot from shareholders and investors. We'd like to respond to them, answer to them. Number 1 is how are we expecting to land versus our expectation? And number 2 is about business focusing on people's interest. And number 3 is capital allocation. Here is today's agenda. First of all, we'd like to review the current midterm plan. The retail segment profit by increasing the number of stores that don't sell and eventful, we were being able to generate JPY 7 billion profit last year. This year, we're expecting JPY 8.5 billion. Till now, we've been focusing on stores that do not sell. And by increasing non-retail old store, we've been able to increase the sales per tsubo. And since our value is now higher, the number of applications to open new stores at our properties is increasing. And by continuously reshuffling the tenant. We believe that our earnings are going to keep increasing in the future. And we are being able to well leverage OMEMIE, which is online store opening service. Actually, 70% of events stores and 50% of tenant stores are being approaching to us via OMEMIE. And by leveraging OMEMIE more in the future, we believe that we should be able to reach out to new tenants in a stable manner. And talking about non-retail old tenants, we believe that we are going to increase the number of tenants who are going to focus more on businesses, focusing on support, individual or interest. Till now the store floor mix was 30%, but we are aiming to increase this to 60%. And by focusing more on supporting people's interest, we are going to further enhance our facility value. Next is e-commerce. E-commerce, by leveraging web specialists, we've been able to grow. And this year, we are expecting to generate record high JPY 25 billion. However, there are challenges. Actually, 70% of the transaction value is coming from fashion category, but this growth ratio has been only 1%. And next year, we are expecting JPY 3 billion less sales than this year, we are expecting JPY 27 billion next year. However, if we look at the category, which focuses on individuals that supports individual's interest, this category is growing by 28% year-on-year. And we are going to focus more on this category to make sure e-commerce is going to focus more on this area as well. Through these initiatives, this year, we are expecting the operating profit to be JPY 8.5 billion. Next year, we will generate JPY 12 billion. Next is about our growth strategy, focusing on business, which focuses on people's interest. As discussed at the earnings results session. We are going to go -- focus less on cost performance economy. We're going to create a business, which is whose -- where people's interest is going to be the driving force. And when we talk about this, this does not only focus on [ Oshikatsu ] but also include pet and music. And the market size is as big as JPY 10 trillion or bigger. And to materialize this interest -- business focusing on interest, we are going to focus on events and goods or merchandise businesses. Specifically speaking, event business is going to be rolled out, not only at Marui stores, but external facilities as well. We are going to enroll more, or we are going to introduce more card members. And these goods or merchandise businesses, which is going to support people's interest is going to generate more profit. And as a result, we believe that the number of card enrollment is going to be much bigger. And we've been holding various events. Last year, the number of events focusing on people's interest was 1,300. And compared to 4 years ago, the earnings became 2.5x, transaction value was JPY 7.5 billion, and this has been contributing to increase the number of card enrollment as well. Out of 810,000 new enrollment last year, approximately 40% was thanks to these events focusing on people's interest. And these events focusing on people's interest out of 1,300 last year, 300 were held at non-Marui facilities. And the reason was because we'd like to raise awareness not only among the metropolitan cities, but also in other areas as well and that should be -- that is coming from IP holders as well. And we do have experiences holding sales and events in various -- at various locations, we do have know-how to make it happen and people are feeling trust in holding these kind of events. Actually, I had opportunity to visit one of these events held at external site, and I heard that they were very happy because typically events are held in Kanto. And let me introduce one of such examples. This is One Piece and Evangelion, we are also using for Epos Card. Initially, we held events at Marui stores. We were being very successful. So we decided to hold at external facilities as well, which did increase the number of new cardholders. We do have a lot of such cases. So we believe that we should be able to keep expanding in the future, but we still face challenges. If you look at Epos cardholder market share, out of our commercial territory, the ratio is less. So we do have a big room to grow in the future. However, the actual number of enrollment is not that high. In the future, we're going to roll out on a more full-fledged basis in major cities and at external facilities. And as a result, we are going to increase the number of cardholders who -- which are focusing on people's interest. And we are targeting 800,000 enrollment in the future. Next is about goods or merchandise business. At event until now, the profit margin was 20% or so, but we are going to hold -- sell merchandises more on a full-fledged basis. We are going to produce and sell. And as a result, we believe our margin can become 80%. And as a result, we believe that earnings to be generated by events is going to be much, much bigger. However, if we are to produce these goods or merchandises, we need to learn lesson from the unsuccessful case in the past. Before -- our private brand transaction value was JPY 73 billion 10 years ago. But in March 2020, it dropped to JPY 15 billion, and we had to withdraw from the business in March 2023. And the reason was because sellout was trending at a low level, our inventory became too high. We had to dispose this inventory and which led to incur a loss. And the reason was because we were prioritizing bigger sales too much. And talking about goods production, merchandise production in the future, we're going to learn from that lesson. We are going to change our mindset. We are no longer going to focus on sales. We're going to prioritize profit. And talking about types of goods or merchandises. We are not going to handle general products. We are going to focus on rare items, limited items. And we're going to achieve 100% sellout ratio, no inventory anymore by more leveraging e-commerce and produce based on orders. Let me talk about 1 example. First is collaborative sneakers between game maker and sports maker. We have been able to let them work together, and we held a trial session. And other one is there is a sword fan. And this was about selling yukata and manicure imaging the sword held at Tokugawa Art. And this production was our idea is very unique, and we could make it happen because we do have private brand experience. Both cases, we did not have any inventory at all. We could sell all of the items. And merchandise business, we are being able to leverage the future-oriented investments know-how, especially it's very difficult to enter into contents, which do have a lot of fans. If you look at the blue portion, small fans but high energy level, we have flexibility to create any type of goods. So this is the area we are going to target. And we're going to leverage the forward-looking investments. We're going to make investments in small-sized, middle-sized IP holders and creators and develop content together. With these kind of unique goods or merchandises, we believe that we should be able to sell not only at events, but also through online. And we may want to wholesale to other stores, and we may want to sell in overseas markets as well. We should have more sales opportunities that is going to expand our business further in the future. Through these initiatives, events and goods merchandise business, business profit, we are aiming to generate JPY 5 billion by March 3031 (sic) [ March 2031 ]. In the future, following channel expansion, we believe that gross profit can much -- become much, much bigger. And this event goods or merchandise business, we believe that has enabled us to expand the contact points with our customers and as a result, we should be able to reach out to new card members who have high level of interest, and who should be able to generate big LTV. Let me finally talk about retail or business capital allocation. As we've been discussing to you now, retail core competence is not with the stores, but it is about customer service and sales floor management and product designing capability. Therefore, we are going to downsize the tangible assets which are stores, and we are going to focus more on retail or talent, people who are going to support people interest. As a result, we believe that the efficiency of the business is going to be much higher. Talking about store allocation. We're going to downsize non-core stores whose profit is small and whose card enrollment is small. And as a result, we are going to reallocate these people who used to work for non-core stores to high-efficient stores. And as a result, we believe that the card new enrollment can be even bigger, although we are closing some stores. And we're going to hold events at non-Marui stores and external facilities and exhibition centers. And we believe by leveraging our talent, we should be able to increase the number of cardholders. And talking about human resource allocation. We've been closing stores. But as a result, we believe that people who we were assigning to FinTech business can be reallocated to retail, who have retail high strength. And we are going to reallocate 150 of them. By doing so, they are going to generate additional earnings and productivity will become higher. And finally, let me talk about retail business, profit growth image. Store business profit from next fiscal midterm plan onward is going to be trending stably, and the increase in profit is going to be small. On the other hand, event goods business is going to be the growth driver for our retail business, meaning we're going to rely less on stores to further grow our profit. That's all from me. Thank you very much. Now we'd like to take your questions.

Kanamori-san from Okasan Securities.

This is Kanamori from Okasan Securities. Can you hear me okay?

Yes, we can.

Thank you for detailed explanations. With regard to the projects that you have been working on, I do not have perfect understanding about them. So this could be a very basic question that I'm asking. So allow me to ask a couple of questions. On the document, Page 25, you are entering the [indiscernible] business. So that means that your own developed products if you are running your own developed products, the GP margin could be 80%. But when it comes to production bases and production costs would incur in my view. So in the past, you outsourced the production. And going forward, you are able to produce these internally developed products end to end. What are the backgrounds that led you to this point? Can you elaborate on the background that led to decide this?

Yes, I, Endo will answer that question. So reducing the cost and developing the premium products by realizing this, we'd like to achieve this high GP margin. And why are we able to do this now. In the past, we could have done this if we wanted to. But we focused on the operational side of the business. And at this point in time, we entered goods business. And we would like to get off to a new start. So please go ahead.

I'd like to supplement that explanation. Originally, with the events, the goods that we sell at events, for instance, those include postcards and clear files, those commoditized products, but we procured these products and sold them. And the IP holders wanted to have more original products because that's what the customers and consumers want. We weren't able to supply those original products. So we wanted to develop those original and unique distinct products internally. And there were many, many such products we were able to develop that could be appreciated by customers. So as Endo san just mentioned, first, we used to just focus on sale of procured products. But going forward, for those rare premium products, we thought that we will be able to develop and produce them. So we built this business model to be able to do that.

So in terms of the production site, have you already owned those production sites?

Well, this is a very simple question. When it comes to the plant, we are not using the plant that we own, that we are leveraging the plant owned by our partner.

The second question is about profit generation. I think I'm talking about Page 31. You're seeing JPY 5 billion. That's your target. But we're talking about this goods business and event business. If you're going to split into 2, what is the breakdown? Out of this JPY 5 billion profit, how much is coming from goods? What's your image?

We are currently scrutinizing the details, but when we achieve this JPY 5 billion, I think the split is going to be 50 to 50. But gross profit margin is going to be very high with goods business. So I thought majority is going to come from goods business, but that's not the answer. Well, because events, as we've been explaining, we are going to expand, we're going to hold at major cities across Japan. So the image we have is, again, 50 to 50.

There's no more question. We'd like to close the session, and we'd like to move on to the next session.

Next is about FinTech segment progress and initiative. Mr. Saito and Ms. Araki will provide your explanation.

I am Saito. Thank you very much. The presentation will be made by myself and Ms. Araki. Here is today's agenda. Number 1 will be explained by Ms. Araki. Number 2 will be explained by myself.

First, regarding how we intend to achieve JPY 10 trillion in transaction volume since we started to issue the card in our card credit transaction volume has grown much faster than the industry average and is expected to expand to JPY 4.5 trillion in this fiscal year. We will continue to accelerate our growth and aim to achieve a total group transaction volume of JPY 10 trillion in fiscal 2031, outperforming the market growth. Future growth strategy. We will accelerate the growth with twin engines by adding Epos Card that support individual interest to the existing gold cards that have driven growth to date. Let me elaborate on the cards that support individual interests. The number of members will hold cards that support individual interest is forecast to exceed 1 million and transaction volume is expected to grow at an average annual growth rate of 50% to reach JPY 200 billion this fiscal year. Going forward, we will work to further expand the membership and transaction volume. In order to increase the membership, it is important to leverage group synergies. To support diverse interest of our customers, we are developing projects not only in FinTech, but also in retail and planning future investments, realizing speedy development that our competitors cannot imitate. As of September, the number of projects stood at 88 and is expected to exceed 100 by the end of this fiscal year. Also, the number of events held in collaboration with retail have been extremely effective in recruiting members. The number of in-store events in fiscal '23 was 1,300 and popular events attracted more than 70,000 visitors. During the event period, the new membership grew significantly compared to the normal period, contributing significantly to membership growth. And now in this new category of cards that support individual interests, we've launched the only 1 card, a unique and 1 and the only card that exists in the world. The Epos pet card, the first of its kind, was launched in March and has gained support not only because it allows users to design a card with a photo of their beloved pet, but also because it donates points to animal welfare organizations. Various companies have voiced their support for this pet card concept, and we plan to use this as a platform for co-creation efforts with relevant companies. This month, we launched our second only 1 card, the YAMAP EPOS card. Through co-creation with YAMAP, the #1 mountaineering map app in terms of user base, we will issue a card for its 4.7 million users with photos of mountains and landscapes taken by the users on the face of the card. A portion of the amount spent on these cards will be used to support conservation activities such as trail maintenance and tree planting. Through these efforts, we aim to triple the current membership of the card that supports individual interest to more than 3 million by the fiscal 2031. Next, we will improve the amount of usage. The card that supports individual interest is well received by customers who place importance on emotional value. To further promote the use of the card as a main card, we will introduce like premium, a new service that offers unique experience distinct from point redemption. While the gold card offers bonus points based on annual spending, like premium will offer original goods that can only be obtained by cardholders, further enhancing the value of the experience, the only type that this card can provide. The response to the initial trial offering of original Epos goods has been very strong with some members saying that they would like to spend more if they could receive such goods. Accordingly, we expect to see further increase in the amount of spending. Previously, holders of the card that support individual interests had the inconvenience of not having enough credit limit to use as their main card. With the like premium, they will now have the same limit as a gold card, which allows them to use it as their main card with peace of mind. We have conducted trials with some customers and found that some of them have increased their spending to the level of the gold card showing the potential of this card serving as their main card. Lastly, in regards to our plan to transaction volume of the card. During the next medium-term management plan period, we plan to increase the number of premium members of the card that supports individual interest to 1 million. We aim to achieve high growth of more than 30% per year on average and to reach more than JPY 1 trillion by the fiscal year ending March 2031. Next, we will strengthen our gold cards. The growth of Epos Card has so far been driven by gold card. However, due to the impact of COVID, the number of new cardholders has decreased and the number of new gold cardholders has also declined, and the growth in gold card transaction volume has been slowing. Going forward, we will work to increase the new gold card holders in order to achieve renewed growth of the gold card. We will re-expand the gold cardholders to 450,000 by implementing new initiatives in addition to our existing in-store and digital efforts. Our gold card is unique in that it is issued free of charge based on general card usage. Until now, we have issued a general card to our rent guarantee customers. But after enrollment, their usage has been high, averaging more than JPY 1 million in the first year. In the future, by issuing a gold card from the beginning, we intend to increase the number of gold members and drive it as a main card. This initiative will also be expanded to embedded finance such as licenses and dental credit. Through this new initiative, we aim to achieve an average annual growth rate of more than 12% in gold and platinum transaction volume and the transaction volume of more than JPY 6 trillion by the fiscal 2031. Through the high growth of cards that support individual interest as explained so far, and the steady expansion of gold and platinum cards, we expect that number of cardholders to reach more than 10 million in the fiscal 2031. In the future, we intend to grow the membership of the card that supports individual interest to exceed the membership of gold and platinum cards.