Summary: RIZAP Group<2928>The comprehensive enterprise, which is committed to proving that "people can change" as its unique management philosophy, develops a variety of businesses in the three areas of health creation, health care / beauty, lifestyle, and investment. Under the vision of "Global No.1 in the self-investment industry", it has achieved remarkable growth by actively utilizing M&A under the holding company structure and has grown to include 68 group companies, including 5 listed subsidiaries, and 4,606 consolidated employees. Listed on the Sapporo Stock Exchange's Ambitious Market in 2006, it formulated a medium-term management plan in September 2022, but revised it in February 2024 to achieve an operating profit of ¥400 million (fiscal year ending March 2027) by aggressively expanding the new business "chocoZAP". The fiscal 2024 performance was sales revenue of ¥16,629.8 million (+7.6% YoY), operating loss of ¥594 million (compared to a loss of ¥4948 million in the same period of the previous year), pre-tax loss of ¥4524 million (compared to a loss of ¥7,031 million in the same period of the previous year), and net loss attributable to the owners of the parent of ¥4,300 million (compared to a loss of ¥12,673 million in the same period of the previous year). Due to the black ink conversion of the chocoZAP business, it achieved a black ink of ¥417.5 million on an operating profit basis in the fourth quarter alone. As for sales revenue, the RIZAP-related business (including the chocoZAP business) significantly increased its revenue (+¥201 million) by focusing on expanding the convenience gym "chocoZAP". In existing businesses, there was an increase in revenue, including Antiroza Co., Ltd. (+¥419.8 million), while there was a decrease in revenue due to store structure reform in REXT Co., Ltd., etc. (-¥599.8 million) and the impact of selling the Sikata business under the subsidiary BRUNO<3140>at the end of the previous year (-¥511.1 million). As for operating loss, the group as a whole improved due to the transition of the chocoZAP business to the investment recovery period and the success of business portfolio reform such as REXT.

Yamano Holdings <7571> raises the five original principles of beauty advocated by Aiko Yamano, the founder of the Yamano Group, as the corporate philosophy: 'hair, face, attire, spiritual beauty, and health beauty.' It engages in beauty business, Japanese-style attire and jewelry business, DSM (Direct Sales Marketing) business, mainland education business, and reuse business, and promotes business succession-oriented M&A as a business growth model for small and medium-sized enterprises.

2024 FY Performance Overview 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. Changes in the ratio of revenues - while the revenue composition ratio increased by 0.8 points from the previous year, 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 factors affecting selling, general and administrative expenses were a drop of 600 million yen in energy costs due to subsidies from rising electricity rates and an increase of 1 billion yen in labor costs due to increases in treatment and education expenses for employees. Depreciation expenses also rose by just under 600 million yen due to increased costs of construction materials and opening new stores. The EBITDA (earnings before interest, taxes, depreciation, and amortization) margin rose 0.1 points from the previous year. Lastly, the reason for the increase in the net income of the parent company's shareholders attributable to the current period was due to the elimination of the 500 million yen for executive retirement bonuses paid in the previous period, the reduction of impairment losses by 455 million yen, and the realization of gains on investment securities of 127 million yen in FY3/2024.

The consolidated business results for the fiscal year ending March 2024 showed a 0.5% decrease in revenue to 13,837 million yen, a 66.2% decrease in operating profit to 100 million yen, a 64.4% decrease in ordinary profit to 102 million yen, and a net loss attributable to the parent company's shareholders of 28 million yen (compared to a profit of 173 million yen in the previous year). The Japanese-style attire and jewelry business, which accounts for about 70% of the revenue, suffered a significant decline. On the other hand, the education business, with the subsidiary acquisition of the cram school company Tomogakusha in December 2023, expanded and grew as one of the pillars of the business, showing an increase in revenue and profit. However, the subsidiary acquisition of the second-hand clothing retailer OLD FLIP in June 2022, contributed to the revenue but experienced a deterioration of profit due to factors such as reduced consumer purchasing interest in second-hand clothing after the spread of the coronavirus disease (COVID-19), increased tenant costs and purchase prices, and product shortages. Therefore, a special loss of 34 million yen for impairment of goodwill related to OLD FLIP was recorded as a special loss, resulting in the recognition of the net loss attributable to the parent company's shareholders, leading to no distribution of dividends.

2. Forecast for the fiscal year ending March 2025

The consolidated business results for the fiscal year ending March 2025 are expected to show a 1.2% increase in revenue to 14,000 million yen, a 157.8% increase in operating profit to 260 million yen, a 125.2% increase in ordinary profit to 230 million yen, and a net profit attributable to the parent company's shareholders of 120 million yen (compared to a loss of 28 million yen in the previous year). The key to performance lies in the recovery of the mainstay beauty business and the full-fledged recovery of the Japanese-style attire and jewelry business, which has been slow to recover even after the COVID-19 pandemic. In terms of revenue, considering the full-year contribution from Tomogakusha, the plan could be regarded as somewhat conservative. In terms of profit and loss, the company plans to focus on improving the profit and loss of the Japanese-style attire and jewelry business, and the beauty business, aiming for a reversal to increased profit. The Japanese-style attire and jewelry business will aim to expand its customer base by reducing unprofitable stores, expanding the number and scale of events such as kimono-wearing events and zori sandals tying classes, and strengthening the development and proposal capabilities of new products. The beauty business is also pursuing a strategy to improve profit and loss by promoting changes in store formats and increasing customer spending.

3. Vision and Medium-term Management Plan for 2030

In May 2024, the company formulated a medium-term management plan (for the fiscal years ending March 2025 to March 2027). It set the mission of 'continuing to create a rich and colorful lifestyle,' and established the '2030 Vision' to aim for 'a company that employees want to invest in.' In the medium-term plan, the company will focus on further strengthening its management base, placing particular emphasis on 'leveraging human capital,' 'stabilizing the profits of existing businesses,' and 'managing with awareness of capital costs and stock prices.' It will especially concentrate on improving productivity in store operations, targeting a sales target of 14.5 billion yen (annual average growth rate of 1.6%) and EBITDA of 0.4 billion yen for the fiscal year ending March 2027. Furthermore, through the synergy with existing businesses and the acquisition of new businesses through M&A, the company aims to achieve a sales target of 30 to 40 billion yen and EBITDA of 3 to 4 billion yen that will be added to the existing businesses. By expanding its business scope, the company aims to enhance its business profitability and achieve an ROE that exceeds the cost of capital for shareholders. The profit distribution plan emphasizes the resumption of dividends in the fiscal year ending March 2025, and then prioritizes a stable and continuous distribution of stock dividends while balancing human investment, business growth investment, and the accumulation of self-owned capital.

■Key Points

- In the fiscal year ending March 2024, while experiencing a decrease in both revenue and profit, the education business has grown into one of the pillars of the company with an increase in both revenue and profit.

- In the fiscal year ending March 2025, the company will focus on improving the profitability of the Japanese traditional jewelry business and beauty business, aiming for a turnaround.

- In the fiscal year ending March 2027, the company aims to achieve a revenue of 175 to 18.5 billion yen and EBITDA of 7 to 0.8 billion yen, further strengthening its management foundation.

(Author: FISCO Guest Analyst Shuji Matsumoto)