Decline in gross margin due to higher raw material prices, ocean freight rates and the shift of production to China

「In addition to the weaker yen and soaring raw-material costs, the increased use of alternative transportation, including ferries and air freight, to avoid delays in ocean shipments caused by natural disasters raised procurement costs and reduced the gross profit margin.」

「To address the risk of higher costs resulting from yen depreciation and persistently high raw-material prices, we are shifting production to Southeast Asia, utilizing tariff-reduction and exemption measures under RCEP (the Regional Comprehensive Economic Partnership), and thoroughly reviewing our methods and means of ocean transportation.」

「The company maintained a sales approach focused on profitability, integrated the organization of its core wholesale business, strengthened comprehensive proposals combining individual items, and expanded materials and products that address functionality and environmental considerations.」

「The company has worked to reflect a certain portion of the cost increases resulting from persistently high raw material prices and yen depreciation in selling prices, while thoroughly maintaining a sales stance aimed at securing appropriate profitability.」

「As a result of these measures, revenue for the cumulative first quarter of the current consolidated fiscal year remained broadly in line with the previous year at ¥14,660 million, down 0.1% year on year. Improvements in the gross profit margin, which rose 4.0 percentage points to 22.8%, resulted in operating profit of ¥415 million, compared with an operating loss of ¥87 million in the same period of the previous year, and ordinary profit of ¥446 million, up ¥421 million year on year, marking a return to profitability.」

「During the consolidated fiscal year, Japan's economy remained in an uncertain outlook as raw material prices, labor costs and ocean freight rates stayed high due to factors including the prolonged situation in Ukraine, production cuts by OPEC (the Organization of the Petroleum Exporting Countries), the rapid recovery in demand following the COVID-19 pandemic and the established trend toward yen depreciation accompanying revisions to monetary policy in various countries.」

「During the cumulative third quarter of the fiscal year, Japan's economy remained unstable and difficult to predict, due to persistently high raw material prices and ocean freight rates amid the prolonged situation in Ukraine, energy-related issues, supply chain disruptions and foreign exchange fluctuations.」

「During the cumulative consolidated second quarter, we recognize that the business environment has become increasingly challenging. Consumer behavior has changed significantly in response to the COVID-19 pandemic, while raw material prices and ocean freight rates have remained high due to the prolonged situation in Ukraine, and costs have risen as a result of the yen's sharp depreciation.」

「For apparel, profitability is expected to remain under pressure due to persistently high raw material prices and ocean freight rates, limited progress in passing these costs on to customers, and delivery delays resulting from lockdowns in China, the main production base. The rapid depreciation of the yen is also expected to have a significant impact on future procurement prices.」

「Strongly affected by the rapid increases since the third quarter in raw material prices, the depreciation of the yen, ocean freight rates and labor costs at outsourced production plants, among other factors, the gross profit margin declined 2.8 percentage points year on year to 17.3%.」

「In addition to the decline in the gross profit margin resulting from higher raw material prices, yen depreciation, higher ocean freight rates and the shift of production to China, operating expenses including logistics costs increased with higher sales. As a result, the operating loss was ¥923 million (operating loss of ¥543 million in the same period of the previous year), the ordinary loss was ¥751 million (ordinary loss of ¥399 million in the same period of the previous year), and the quarterly net loss attributable to owners of the parent was ¥989 million (net loss of ¥710 million in the same period of the previous year).」