Performance trends of DM Solutions <6549>

Performance trend for the year ending March 2024.

For the FY ending March 2024, the revenue was JPY 18.207 billion (increased by 1.9% YoY), operating profit was JPY 568 million (increased by 22.9% YoY), ordinary profit was JPY 575 million (increased by 20.4% YoY), and net income attributable to the parent company shareholders was JPY 402 million (increased by 27.7% YoY). The revenue reached the historical highest level due to the promotion of the fulfillment service. Operating profit was the second highest level ever recorded. Regarding operating profit, this time, all segments contributed to push up the operating profit, which was rather balanced. The reason of this performance was that DM Solutions was actively hiring staff, enhancing sales force and service offerings, and providing optimal solutions for marketing in various aspects under uncertain circumstances such as geopolitical risks originated from Ukraine and Middle East, surge of global raw material and energy prices, and inflation in Japan's domestic market. As a result, with steady growth of DM delivery service and high profitability of fulfillment service, recovery of profits from internet business, improvement of profitability in clothing business and so on, all segments improved the earnings, which could be balanced even more by business activities driven by DX promotion.

Japanese economy has been operating in an uncertain environment due to insecurity in Ukraine and the Middle East, soaring prices of raw materials and energy on a global scale, and rising prices. In such an environment, the company worked on aggressive personnel recruitment, strengthening sales force and service offerings, and conducting direct marketing to provide optimal solutions for customers in marketing in all stages. As a result of these efforts, revenue from DM delivery service was solid, high-profitable fulfillment service grew significantly, internet business regained the profit, profitability of clothing business improved, and DX promotion made business activities more efficient, leading to a substantial increase in profit, which covered an increase in expenses such as personnel and recruitment expenses, advertising expenses, and acquisition costs of land and buildings for national fulfillment center.

In comparison with the initial plan, it did not reach the expected sales of JPY 1.599 billion, but operating profit exceeded by JPY 68 million, ordinary profit exceeded by JPY 63 million, and net income attributable to the parent company shareholders exceeded by JPY 72 million. This is because the reason of not achieving the sales target was the difficulty of the three-party cooperation that was essential to deliver the services, and the reason of exceeding the profit targets was that there was a new cost incurred for the acquisition of the land for the national fulfillment center, and the fulfillment service had a significant growth, while self-media services with high profitability grew beyond expectations in the vertical media sector.

Segment profits showed significant growth in each business.

2. Status of segment performance

For the FY ending March 2024, revenue for each segment was JPY 15.904 billion (increased by 2.8% YoY) for DM delivery service, JPY 1.316 billion (decreased by 0.7% YoY) for internet business, and JPY 986 million (decreased by 6.8% YoY) for clothing business. Segment profits were JPY 882 million (increased by 4.8% YoY) for DM delivery service, JPY 268 million (increased by 43.7% YoY) for internet business, and JPY 53 million (increased by 122.2% YoY) for clothing business. Although the revenue growth was not significant, segment profits grew significantly in each business.

(1) DM delivery service

In DM delivery service, a one-stop service that handles everything from planning and production, design, printing, and envelope sealing based on a strong sales force of 90 staff members and offers proposal-type sales taking advantage of the scale merits of postal and Yu-mail was actively expanded. Therefore, although sales from some existing customers decreased, sales acquisition from other existing customers and new customers was solid, and web ordering service 'Selmark' also expanded smoothly by increasing introduction from web ads to landing page, taking advantage of its strong SEO know-how. In fulfillment service, as the handling of small-lot cargos such as home delivery service continued to increase due to the expansion of the EC mail-order market, the fulfillment service expanded the services for logistic agents for EC business operators 'ULLLOGI' ( = Ururoji), while strengthening the customer service after shipment, and enhanced the appeal of the product through web advertising, EC-related seminars, and news distribution to raise the product's awareness. As a result, new orders that were said to be difficult to acquire were strong, and revenue continued to grow for over 20%.

In terms of revenue, sales acquisition from new customers and from existing customers went well. In terms of profits, progress was made in the adoption of price increases that had been proposed to clients since the middle of 2023, and by increasing the efficiency of operations by focusing on Selmark and DM-WEB orders, which together covered 30% of all orders, and as the sales composition ratio of high-profitable fulfillment service was increasing, profits could absorb the associated expenses incurred by the acquisition of land and buildings for the national fulfillment center.

Internet Business (2) In the digital marketing service, the company strengthened its service by enhancing consultants and collaborating with sales to deliver accurate proposals to all cases, given the advantages and high profitability of SEO consulting. In the vertical media service, while existing partner media are struggling due to algorithm changes, the company's own media, Collect, with a very high gross margin, has grown significantly. Also, the water server comparison site, which became popular during the hot summer, has been doing well. As a result, while the SEO consulting business has steadily expanded its revenues, sales have declined in low-profit partner media, but high-profit company media have done well, allowing the entire internet business to achieve a significant increase in profit despite a slight decrease in revenue.

Apparel Business (3) The company's subsidiary, Biathlon Sports, improved its sales efficiency and achieved cost savings by reforming inefficient businesses and shifting to a business of buying large quantities by sea and selling only popular items. In addition, the favorable performance of their own planned products and contributions to retail through other fashion sites launched by third-party companies in the second half of the 2024 fiscal year also contributed to a significant improvement in profit margins, offsetting the impact of deteriorating external factors such as high raw material costs, inflation in the United States and a weak yen, which are the procurement sources.

Internet Business (2)

Apparel Business (3)

(Author: FISCO guest analyst Nobumitsu Miyata)