Risk of Higher Procurement Prices Due to Labor Costs, Raw Material Costs and Exchange-Rate Fluctuations

「During the six-month period ended in the second quarter of the current fiscal year, progress was made in securing gross profit through changes to transaction terms in response to the weaker yen and in accepting external sales orders after considering profitability on a project-by-project basis, enabling segment profit to turn positive from a loss in the same period of the previous year.」

「Although the impact of higher costs and other factors arising from continued sharp yen depreciation since the previous consolidated fiscal year persisted, each company worked to secure gross profit through price revisions and reduce expenses unrelated to sales activities.」

「These strategies proved effective, allowing the company to absorb upward pressure on purchase costs through improvements in sales methods and other measures. As a result, the gross margin improved by 0.3 percentage points from the previous fiscal year to 57.8%.」

「Although the company faced delays in product delivery due to lockdowns in China and higher purchase prices caused by rising global energy prices and the rapidly weakening yen, it rebuilt its supply chain strategy, exemplified by bringing production of middle-to-upper-market products back to Japan, revised prices to optimal levels in line with the balance between value and price, and emphasized full-price sales through both stores and e-commerce. These strategies proved effective, enabling further improvements in sales methods than before.」

「Although purchase prices rose due to higher global energy prices and the rapidly weakening yen, the company rebuilt its supply chain strategy, exemplified by bringing production of middle-to-upper-market products back to Japan, and revised prices to optimal levels in line with the balance between value and price.」

「Although changes in the external environment that drive up purchase prices, such as rising global energy prices and the yen's rapid depreciation, could affect future results, purchase prices remained within expectations during the cumulative first quarter.」

「In the platform business, profitability in the production platform declined substantially due to the loss in the current consolidated fiscal year of the special demand for medical gowns seen in the previous consolidated fiscal year, as well as higher procurement costs associated with lockdowns in overseas production regions.」

「Meanwhile, in the B2C neo-economy business, investment costs for future growth are also being incurred ahead of schedule, as illustrated by the increased burden of TV commercial costs for Raxus in the first quarter.」

「However, the company also made aggressive investments in sales promotion and experienced higher variable-cost ratios associated with logistics and other activities, making further improvement in profitability through expense control a challenge for the future.」

「Digital business performance was affected by higher point discounts and other costs resulting from intensified sales competition in the e-commerce business, as well as higher delivery costs. Upfront investment in essential digital solutions systems and development investment, including M&A in the B2C neo-economy area, also pressured profit. Consequently, revenue was ¥18,488 million, up 0.8% year on year, while core operating profit (segment profit) was a loss of ¥18 million, down ¥639 million year on year, resulting in higher revenue but lower profit.」

「Digital business performance was affected by higher point discounts and other costs resulting from intensified sales competition in the e-commerce business, as well as higher delivery costs. Upfront investment in essential digital solutions systems and development investment, including M&A in the B2C neo-economy area, also pressured profit. Consequently, revenue was ¥11,391 million, up 1.9% year on year, while core operating profit (segment profit) was a loss of ¥304 million, down ¥487 million year on year, resulting in higher revenue but lower profit.」

「Digital business performance was affected by higher point discounts and other costs resulting from intensified sales competition in the e-commerce business, as well as higher delivery costs. Upfront investment in essential digital solutions systems and development investment, including M&A in the B2C neo-economy area, also compressed profit. Consequently, revenue was ¥5,877 million, up 1.3% year on year, including external revenue of ¥2,329 million, up 4.0%, while core operating profit (segment profit) was a loss of ¥25 million, down ¥280 million year on year, resulting in higher revenue but lower profit.」

「Revenue was ¥19,210 million, up 1.3% from the previous fiscal year, driven by digital solutions, including external revenue of ¥4,770 million, up 14.0%, but core operating profit (segment profit) fell 21.5% to ¥516 million due to upfront systems investment and higher delivery costs at the e-commerce marketplace.」

「The benefits of controlling expenses were partly offset by higher logistics costs, resulting in core operating profit (segment profit) of ¥15,621 million, down 0.6% year on year, and operating profit of ¥15,302 million, also down 0.6%.」

「In Japan, the company also expects rent increases for leased properties, particularly in urban areas; higher transportation costs due to soaring crude oil prices and labor shortages in the parcel delivery industry; higher labor costs at sales channels and production sites; and higher depreciation expenses resulting from future new store openings and systems investment.」

「Our Group faces the risk of higher procurement costs due to increases in labor costs in manufacturing countries and regions, increases in raw-material costs, and fluctuations in foreign-exchange rates.」