Reducing Losses Through Purchasing and Inventory Control

「This was due to the solid performance of エムシーファッション㈱, the results of inventory optimization by the apparel brands, and the fact that the compression of working capital, mainly due to the impact of holidays at the end of the period, became a positive factor for cash flow.」

「We shifted our policy toward a strategy of strategically restricting winter merchandise purchases and giving top priority to improving the full-price sell-through rate and optimizing inventory. Although these efforts produced results for the next fiscal year, including improvements in cash flow and gross margin,」

「We recognize in all seriousness that challenges remain, both qualitatively and quantitatively, in addressing climate change, the precision of merchandise planning, and production and sales control.」

「In the current consolidated fiscal year, lifestyle brands performed well, but issues with merchandise were evident at apparel brands. The company's ability to adapt product design and other aspects to the exceptionally hot August 2024, unseasonably warm weather in September and October, and the subsequent delayed start to the fall/winter season was weak. In combination with the earlier fiscal year-end, the merchandise valuation loss rules applied quarterly from the current fiscal year led to inadequate pricing adjustments at some brands.」

「However, in the brand business centered on apparel brands, challenges remained in both the quantity and quality of the late-summer and early-fall merchandise assortment during the transition period centered on August. The company believes there is significant room to further increase earnings by offering products that accurately capture sales opportunities. In terms of earnings, although challenges remained in improving the transition-season assortment described above and adapting to the quarterly valuation rules, continued efforts to emphasize full-price sales through both stores and e-commerce resulted in gross margin improving by 0.3 percentage points year on year to 59.4%.」

「During the six months ended the first quarter, some brands struggled to balance inventory clearance with maintaining gross profit, partly because this was the first spring selling season in which the merchandise valuation loss rules were applied on a quarterly basis.」

「The main factor was a roughly ¥3.9 billion increase in inventories, while right-of-use assets declined by approximately ¥4.6 billion due to amortization over the contractual terms of store properties, the equity-method investment in W&D Investment Design Investment Business Limited Liability Partnership, a jointly controlled entity of the company, declined by approximately ¥1.7 billion following the receipt of distributions, and deferred tax assets declined by approximately ¥1.9 billion.」

「The main factor was a roughly ¥4.1 billion increase in inventories, while trade and other receivables declined by approximately ¥4.7 billion, right-of-use assets by approximately ¥4.2 billion due to amortization over the contractual terms of store properties, and the equity-method investment in W&D Investment Design Investment Business Limited Liability Partnership, a jointly controlled entity of the company, by approximately ¥1.7 billion following the receipt of distributions.」

「The absence of delivery delays caused by China's lockdowns, unlike in the previous fiscal year, and advance purchasing resulted in a roughly ¥1.6 billion change in trade payables and other payables, which was a negative factor in cash flow.」

「Inventories at the end of the current consolidated fiscal year were ¥26.097 billion, an increase of approximately ¥2.7 billion from the end of the previous consolidated fiscal year. Although purchase volumes declined as a result of purchasing controls, the purchase amount increased against a backdrop of higher costs due to rising global energy prices and higher purchase prices caused by the weaker yen.」

「The main factor was a roughly ¥6.0 billion increase in inventories, mainly of fall/winter (AW) and the following spring/summer (SS) merchandise, while property, plant and equipment declined by approximately ¥1.2 billion and right-of-use assets by approximately ¥3.4 billion, partly due to store closures.」

「In terms of earnings, merchandise delivery delays associated with China's lockdowns, higher global energy prices and sharply weaker yen contributed to higher purchase costs. However, the company rebuilt its supply-chain strategy, represented by a return to domestic production for its middle-to-upper market format, reviewed prices to optimize ticket prices according to the value-price balance, and emphasized full-price sales through both stores and e-commerce.」

「In terms of earnings, although delayed delivery of merchandise due to China's lockdowns resulted in some lost sales opportunities, the sales strategy emphasizing full-price merchandise across both stores and e-commerce proved effective, enabling further improvements in the sales approach.」

「Although inventories increased by approximately ¥3.2 billion due to the impact of a newly consolidated subsidiary, they declined by approximately ¥1.7 billion as the company thoroughly controlled purchases and cleared inventory, and phased out some brands during the current consolidated fiscal year.」

「Following the spring/summer merchandise, the company also controlled the timing and volume of purchases in advance for fall/winter merchandise and worked to improve its sales approach by emphasizing sales centered on full-price merchandise across most brands. As a result, gross margin increased 3.7 percentage points year on year.」

「In response to the previous year's experience, when increased discount sales to clear spring merchandise led to a sharp decline in margins, the company controlled the timing and volume of purchases in advance during the current fiscal year and worked to improve profitability by emphasizing sales centered on full-price merchandise across most brands. As a result, gross margin increased 4.8 percentage points year on year.」

「In response to the previous year's experience, when increased discount sales to clear spring merchandise that had lost sales opportunities in the first quarter led to a sharp decline in margins, the company controlled the timing and volume of purchases in advance during the first quarter and worked to improve profitability by focusing sales on full-price merchandise across most brands. As a result, gross margin increased 4.0 percentage points year on year.」

「Inventories at the end of the current consolidated fiscal year were ¥21.778 billion, a decrease of ¥3.518 billion from the end of the previous consolidated fiscal year. This was mainly because, although revenue in the brand business remained sluggish, the company tightly controlled purchases accordingly and thoroughly cleared inventory of brands being phased out.」

「In preparation for the fall/winter season, we reduced purchases by approximately 20% from the previous year and worked to improve gross margin by promoting sales focused on full-price merchandise. This control of purchasing and sales produced some improvement in margins during the third quarter of the fiscal year (October to December), but it was not enough to offset all of the deterioration in profitability since the start of the fiscal year, and gross margin declined 5.2 percentage points year on year.」

「In terms of earnings, the company accelerated the clearance of spring merchandise that had lost sales opportunities through the Golden Week holiday in May. As increased discount sales weighed on results, gross margin fell sharply by 8.0 percentage points year on year to 50.7%.」

「Although the company promoted inventory clearance by reviewing purchase volumes for the season and using sales channels centered on its own e-commerce site, merchandise remained in inventory because of temporary store closures, shortened operating hours and the cancellation of events, resulting in a roughly ¥3.2 billion increase in inventories.」

「At the same time, we continued to pursue rigorous control of production and sales and reduce expenses, securing higher core operating profit during the first nine months of the fiscal year.」

「Gross margin improved mainly at apparel brands in the brand business through IT-enabled inventory management and more precise pricing adjustments.」

「The middle-to-lower brands, which are primarily developed in shopping centers, faced inventory-control challenges in the previous fiscal year. In the current fiscal year, however, they returned to planning and sales centered on full-price merchandise, and inventory efficiency improved, as it had in the second half of the previous fiscal year, leading to improved earnings.」

「Inventories, which should be treated as a top priority, declined by ¥106 million from the end of the previous consolidated fiscal year, even after absorbing the impact of newly consolidated entities from M&A and other transactions, resulting in a healthy inventory position.」

「Through the development and promotion of the "SPARCS model," our group is working to rapidly identify rapidly changing consumer demand and manage inventory appropriately based on that demand.」

「Over approximately the past two years, we improved inventory turnover by reducing inventories, a core asset of the brand business.」

「We worked to control procurement and inventory, thereby seeking to shift to a more profitable P&L structure.」