Upfront Investment in Advertising and Organizational Capabilities

「During the current interim consolidated accounting period, advertising investment was not made indiscriminately solely to expand sales, and the advertising investment balance (Note 1) remained within a range that did not exceed the optimal level of 1.00.」

「During the fiscal year, revenue exceeded expectations because new customer acquisition was very strong while initial ROAS, an indicator of advertising investment efficiency, was maintained above the expected level. As a result, sales promotion expenses, including new customer acquisition expenses, exceeded expectations, and selling profit fell below expectations. However, this was a positive result because upfront investment in acquiring new customers who would contribute to future recurring revenue increased within profitable levels.」

「Although new customer acquisition expenses increased, ROAS exceeded the initial assumptions, enabling the company to expand upfront investment while maintaining advertising investment efficiency.」

「During the nine-month period ended in the third quarter, ROAS improved by 3.5% from the earnings forecast, but revenue from new customer acquisitions was ¥189.414 million below the forecast because investment in new customer acquisition expenses did not proceed as planned. Although new customer acquisition expenses increased, ROAS exceeded the initial assumptions, enabling the company to expand upfront investment while maintaining advertising investment efficiency.」

「The indicators for the fiscal years ended before the previous consolidated fiscal year are presented as recalculated retrospectively using the new standards.」

「The indicators for the fiscal years ended before the previous consolidated fiscal year are presented as recalculated retrospectively using the new standards.」

「However, new customer acquisition subsequently exceeded expectations even further, prompting the company to invest ¥3,414.543 million in advertising, ¥160.824 million above the previous plan and substantially above the initial plan of ¥1,555.170 million.」

「Compared with the earnings forecast, revenue amounted to ¥3,747.122 million, exceeding the forecast as new customer acquisitions recovered to substantially above expectations. In response to strong new customer acquisition, the company made strategic and aggressive advertising investments to avoid lost opportunities, and advertising expenses substantially exceeded plan. It explained that advertising investment to acquire new customers who would generate future revenue and profit was proceeding smoothly.」

「In May 2022, in particular, the company recorded its highest number of new customer acquisitions since September 2021, when the number began to trend downward substantially. It explained that advertising investment to acquire new customers who would generate future revenue and profit was proceeding smoothly.」

「During the consolidated fiscal year, new customer acquisitions fell below expectations as advertising placements were reduced, and revenue amounted to ¥8,739.007 million, substantially below the initial forecast announced on 14 April 2021. On the other hand, operating profit amounted to ¥2,086.126 million, exceeding the forecast because advertising expenses were reduced significantly below plan.」

「During the nine-month consolidated period ended in the third quarter, new customer acquisitions fell below expectations as advertising placements were reduced, and revenue amounted to ¥6,785.350 million, below the forecast. On the other hand, operating profit amounted to ¥1,614.147 million, substantially above the forecast, because advertising expenses were reduced significantly below plan and the sales mix shifted toward products with lower cost ratios, improving the gross profit margin by more than 1% above the forecast.」

「The number of new customer acquisitions during the six-month consolidated period ended in the second quarter, from March to August 2021, increased to 114% of the figure for the same period of the previous year. As this substantially exceeded the initial assumptions, advertising expenses amounted to ¥1,389.039 million, ¥151.999 million above plan.」

「Advertising expenses for the fiscal year amounted to ¥2,681.834 million, ¥661.074 million above plan.」

「Advertising expenses for the nine-month period ended in the third quarter amounted to ¥2,023.800 million, ¥508.230 million above plan.」

「During the six-month period ended in the second quarter, new customer acquisitions increased more than expected because the company invested more in advertising than initially planned. Consequently, revenue amounted to ¥4,592.280 million, exceeding the initial forecast announced on 14 April 2020. On the other hand, profit at each stage fell below the initial forecasts because the company invested more in advertising than initially planned and ROAS (Note 4), an indicator of advertising investment efficiency, declined from April to June.」

「In the e-commerce business, revenue can be increased temporarily by expanding advertising investment without regard to profitability. However, to strengthen its financial base and achieve sustainable growth, the company considers profit a more important indicator than revenue.」

「Advertising expenses for the fiscal year amounted to ¥2,748.221 million, substantially below the initial plan of ¥3,614.742 million, while operating profit amounted to ¥2,915.329 million, ¥212.910 million above the initial forecast of ¥2,702.418 million.」

「As described above, during the third quarter the company strategically allocated resources in its customer acquisition function to preparing its structure for future growth. In addition, it reduced advertising investment for new customer acquisition to adjust the balance between new customer acquisitions and inventory levels for Hyalo Deep Patch. Consequently, advertising expenses for the nine-month period ended in the third quarter were ¥2,126.361 million, substantially below the initial plan of ¥2,711.056 million, and profit at each stage substantially exceeded the initial forecasts.」

「During the six-month period ended in the first quarter, the injectable hyaluronic acid cosmetic product Hyalo Deep Patch became more popular than expected, causing production to fall behind. As a result, the company reduced advertising placements and restricted orders, causing advertising expenses to fall substantially below the initial plan.」

「In April and May 2019, when shipping delays began, the company did not allocate resources to new customer acquisition in consideration of the delays, while focusing on reviewing profitability in order to increase new customer acquisitions more efficiently. Specifically, it sought to improve profitability by lowering the maximum advertising investment per new customer acquired. As a result, the number of new customer acquisitions declined slightly, but efficiency improved substantially.」

「After narrowing the targets of its advertising investments, the company spent ¥3,077.565 million, compared with the initial plan of ¥1,847.700 million.」

「The company positioned the third quarter as a period of upfront investment aimed at further increasing future revenue and profit, and continued to implement various initiatives while investing in advertising expenses substantially more aggressively than initially planned.」

「During the second quarter, the company continued to implement various initiatives and actively invest in acquiring new customers in order to further increase future revenue and profit.」

「Against this backdrop, the company is actively investing in advertising expenses from the beginning of the fiscal year in order to make maximum use of the customer acquisition structure established in the previous fiscal year, which achieved both a significant increase in new customer acquisitions and a high level of efficiency, and to further increase the number of new customer acquisitions.」

「As a result, the company achieved both a significant increase in customer acquisition capacity and improved efficiency, and established a structure capable of generating sufficient profit even while making substantial additional upfront investments in advertising expenses. Going forward, it aims to develop a highly profitable business by implementing advertising initiatives that only the company can carry out.」

「However, based on progress through the nine months ended the third quarter, the company expects the efficiency of its new customer acquisition capacity to improve substantially more than anticipated, making it possible to achieve the sales level in the previous forecast with less advertising expenditure than planned. As a result, advertising expenditure during the third quarter is expected to be reduced substantially below the forecast, and profit at each stage is expected to exceed the previous forecast. Accordingly, the company decided to revise its forecasts for the fiscal year ending February 2018.」

「Against this backdrop, the company continued to significantly increase staffing in its customer acquisition function during the fiscal year, as it had in the previous fiscal year, and further strengthened its customer acquisition capabilities. Through measures including promoting in-house advertising operations and strengthening initiatives involving new media, it achieved both a significant increase in customer acquisition capacity and improved efficiency. As a result, it has established a structure capable of generating sufficient profit even while making substantial additional upfront investments in advertising expenses.」

「Against this backdrop, during the first quarter, as in the previous fiscal year, we substantially increased staffing in the customer acquisition division and further strengthened our customer acquisition structure. Through measures such as promoting in-house advertising operations and strengthening initiatives involving new media, we achieved both a substantial increase in new customer acquisition capacity and improved efficiency.」

「In terms of the cost-effectiveness of advertising and promotional expenses, we promoted the in-house operation of internet advertising to attract customers efficiently without waste, while substantially increasing staffing in the relevant department to strengthen our customer acquisition structure.」

「In terms of the cost-effectiveness of advertising and promotional expenses, results improved after establishing specialist social media advertising methods using existing customer data. The company is also strengthening in-house operations in cooperation with Facebook Singapore, and is moving toward a structure that steadily increases sales and profits for each product while controlling advertising and promotional expenses.」

「The effectiveness of advertising expenditure has improved following the establishment of specialized social media advertising methods using existing customer data. We are also strengthening in-house operations in collaboration with Facebook Singapore and transitioning to a structure that steadily increases sales and profit for each product while controlling advertising expenditure.」