Performance Trend 1. Overview of performance for FY3/2024 Consolidated performance for FY3/2024 of G-7 Holdings <7508> was 192,992 million yen in increased operating income of 9.1% over the previous year, and increased ordinary income of 7.4% to 7,318 million yen, and attributed to the parent company's net income of 5,175 million yen, an increase of 35.3% over the previous year. Sales were driven by the Business Supermarket Business and the Meat Business, and continued to set a new record high, exceeding the company's plan by 4.3%. However, in terms of profits, the automobile-related business was affected by a decrease in profits due to poor sales of winter tires due to a warm winter, and could not reach the company's plan, it turned to a profit increase for the second time due to the growth of other businesses centered on the Business Supermarket business. The sales cost ratio has increased by 0.8 points over the previous year due to changes in the sales composition ratio; however, the selling, general and administrative expense ratio decreased by 0.7 points due to the effect of increased earnings, and the operating margin decreased by 0.1 points to 3.6%. The main reasons for the increase/decrease of selling, general and administrative expenses were a decrease of 600 million yen in energy costs due to subsidies from rising electricity prices, and an increase of 1 billion yen in labor costs due to improvements in employee treatment and increased education costs. In addition to this, depreciation expenses increased by nearly 600 million yen due to rising construction material costs and rising costs of opening stores etc. The EBITDA margin has increased by 0.1 points from the previous year. Also, the reason for the large increase in the net income of the parent company's shareholders attributable to the current period is due to the elimination of 500 million yen in retirement benefits paid to executives that were recorded as special losses in the previous year, a decrease of 455 million yen in impairment losses, and a gain of 127 million yen on the sale of investment securities in FY3/2024.

Overview of consolidated performance for fiscal year ending March 2024.

For the fiscal year ending in March 2024, Kawabe <8123> achieved consolidated sales of  13.068 billion yen, up 4.1% from the previous year, operating profit of 252 million yen, up 104.9% YoY. The profit for the period attributable to the shareholders of the parent company increased by 114.4% to 266 million yen, and the ordinary profit increased by 73.0% to 355 million yen. It achieved a significant increase in profit, exceeding the revised forecast announced in February 2024 (sales revenue of  13.113 billion, operating profit of 183 million yen, ordinary profit of 299 million yen, and net income attributable to the parent company shareholders of 183 million yen).

Although the effect of a warm winter and the closure and reduction of sales floor area of some domestic major retailers were negative factors, the impact of the COVID-19 pandemic eased overall, and the flow of people recovered. This, along with the recovery of inbound demand, price revisions, and the active introduction of new brands and original company-planned products, contributed to the positive growth. The gross profit increased by 12.5% from the previous year, and the gross profit margin increased by 2.9 percentage points to 38.9%. Selling, general, and administrative expenses increased by 9.9% YoY, and the expense ratio rose by 2.0 percentage points to 37.0%. As a result, the operating profit margin increased by 0.9 percentage points to 1.9%, and the ordinary profit margin increased by 1.1 percentage points to 2.7%. Although a 39 million yen profit from the sale of investment securities recorded in the previous year was lost in special profits, the total amount of corporate tax decreased by 29 million yen.

In the personal products business, sales revenue increased by 2.4% YoY to 10.980 billion yen, and segment profit (ordinary profit before adjustment for company-wide expenses) increased by 48.5% YoY to 573 million yen. By product category, handkerchiefs were 8.186 billion yen, up 6.2% YoY; scarves/mufflers were 1.270 billion yen, down 1.5%; towels were 658 million yen, down 7.7%; and miscellaneous goods/others were 864 million yen, down 15.0%. Although sales revenue increased slightly overall, the company absorbed the increase in selling, general and administrative expenses with the effect of increased revenue from its main product, handkerchiefs, and the effect of increasing gross profit margin, resulting in a significant profit increase.

The main handkerchief product expanded sales by developing new customers, holding events outside department store floors, and significant extension of sales for some branded products propelled by inbound demand, increased unit prices due to price revisions, the high-cost product strategy and the introduction of proprietary company-planned products and character products. Scarves/mufflers remained strong with silk scarves and other items in the spring market but faced a slight decline in the full year due to the impact of the record warm winter on cold-weather items in the fall/winter market, which is the peak demand period. Towels and miscellaneous goods/other items suffered a decline in revenue as the sales of pool-related products' warp towels decreased, and television sales of towels also dropped in the wake of the rising urge to go outside.

※1Introduced Chenille-woven planned handkerchief products, introduced high-priced branded Eco-bags as a product handled in the handkerchief department.

※2These included KATOKOA, which put endangered species in the spotlight, CHIZUTABI, which focused on major cities around the world, and 47 JAPAN RE DISCOVERY, which expressed the unique characteristics and specialty products of all 47 prefectures in the design of handkerchief and mini-towel products.

In the fragrance business, sales revenue increased by 14.5% YoY to 2.088 billion yen, and the segment profit increased from a loss of 24 million yen in the previous year to a profit of 7 million yen. Pre-existing brands expanded, centering on ACQUA DI PARMA, due to the recovery of people's activities and inbound demand. In addition, significant revenue growth was achieved by the new store opened with the CREED brand launched in August 2023, and ordinary profit and loss were made profitable.

Financial situation:

Total assets at the end of March 2024 increased by ¥507 million compared to the previous period to ¥12,695 million. While cash and deposits decreased by ¥105 million and deferred tax assets decreased by ¥57 million, bills receivable and accounts receivable increased by ¥42 million, inventories increased by ¥117 million, and investment securities increased by ¥525 million. Total liabilities increased by ¥51 million to ¥5,833 million. While notes payable and accounts payable increased by ¥188 million, unpaid corporate taxes decreased by ¥64 million and interest-bearing debt (total of long and short-term borrowings) decreased by ¥98 million. Interest-bearing debt amounted to ¥2,486 million. Total net assets increased by ¥455 million to ¥6,862 million. Retained earnings increased by ¥239 million and other investment securities valuation difference increased by ¥206 million. As a result, the equity ratio increased by 1.5 points to 54.1%. We at our company do not find any particular point of concern and believe that the financial health is being maintained overall.

To maintain the soundness of finance and secure flexibility and agility in capital policy in accordance with the business scale, the company conducted a reduction of capital (decrease in the amount of capital stock) as of August 1, 2024. The amount of capital stock decreased from ¥1,720,500 thousand at the end of March 2024 to ¥1,620,500 thousand, reducing the amount of capital stock to ¥100,000 thousand. The total number of issued shares remains unchanged, and the entire amount of ¥1,620,500 thousand of the reduced capital stock is transferred to other capital surplus. There is no change in the company's net asset amount and the number of issued shares due to the transfer of accounts between accounts, but the effect of reducing the burden of corporate taxes can be obtained.

(Authored by FISCO guest analyst Masanobu Mizuta)