Tokyo Lifestyle Co., Ltd. (TKLF) Q4 2022 Earnings Report, Transcript and Summary

Thank you, operator and everyone, for joining Yoshitsu's Fiscal Year 2022 Earnings Conference Call today. On our call today, I will give an overview of our performance for fiscal year 2022. Then our Principal Accounting and Financial Officer, Mr. Youichiro Haga will share the details of the company's financial review. Lastly, we'll conduct a Q&A session to take your questions. [Foreign Language] We are pleased to announce that we have closed out a successful year, although the resurgence of COVID-19 had a significant impact on our business. During fiscal year 2022, we have achieved several accomplishments. We completed our Initial Public Offering successfully in January 2022 and listed on NASDAQ, which marked a new chapter in our company's history. We also actively expanded our business by adding more stores and wholesale customers. In addition, we implemented strict prevention measures to protect our employees and customers from the COVID-19. As a result, we generated a record revenue of $228.4 million, representing an increase of 3.1% from last fiscal year. Revenues generated from online stores increased by 8.7% and revenue from franchise stores and wholesale customers increased by 19.7% during this challenging period. Our solid financial results demonstrated our efforts and dedication to execute the company's strategic initiatives, our capabilities to grow business, and the ability of our team to provide high-quality products and unparalleled service to our customers As of August 15, 2022, we had 11 directly operated physical stores in Japan, five directly operated physical stores in Hong Kong, 25 online stores, eight franchise stores in the US, four franchise stores in Canada, one since store in the UK and around 151 wholesale customers in Japan and other countries. We continue to expand our business broadly and optimize our international warehouse operations in North America. We will focus on diversifying our products and providing more options for our customers. We remain focused on providing high-quality products and invaluable service to our customers. We believe these initiatives will improve our brand awareness, strengthen relationship with existing customers and attract new customers. We're confident about the flexibility and resilience of our business model and the strategic development initiative we are making. Thank you for your continued support to the company. Next, I will turn the call over to our Principal Accounting and Financial Officer, Mr. Youichiro Haga for a closer review of our financials for fiscal year 2022 on behalf of the management team. Mr. Haga, please go ahead.

Thank you, Mr. Kanayama. Good morning, everyone. On behalf of the management team, I will provide refinancial overview of fiscal year 2022. Our business has been affected by various uncertainties and challenges during fiscal year 2022. Our business has been affected by various uncertainties and challenges during fiscal year 2022, but we generated a record revenue with our strong business fundamentals. Total revenue net 3.1% to $228.4 million for fiscal year 2022 from $221.5 million for the same period of last year. The increase was due to the increased revenue from online stores, franchise stores and wholesale customers which was partially offset by the decrease in revenue from directly operated physical stores. Revenue from directly operated physical stores down by Revenue from directly operated fiscal store down by 53.3% to $10.8 million for fiscal year 2022. The decrease was mainly due to the state of emergency declared by the Japanese government in April 2021 in response to the COVID-19 pandemic. Almost all of the company's physical stores were temporarily closed from late April 2021 to the end of May 2021. After company's physical stores reopened in June 2021, most of the company's physical stores remained closed on Saturdays or Sundays and the opening hours were shortened of weekday. After July 2021, most of the company's physical stores resumed their business with working hours reduced by one to two hours everyday. The company's physical store business was still negatively affected during fiscal year 2022. Revenue from online stores up by 8.7% to $121.2 million for fiscal year 2022. The increase was due to the growing popularity of the online shopping, given that the e-commerce industry has been rapidly expanding in recent years. In order to seize, the opportunities, the company expanded its online store network by opening new stores on multiple popular and reputable third-party e-commerce marketplaces in overseas regions while improving the efficiency of its supply chain and storage and inventory management. Revenue from franchise stores and wholesale customers, up by 19.10% to $196.4 million for fiscal year 2022. With improvement of the company's supply chain and storage and logistic capacity, the company added five new franchise stores and increased sales to oversees wholesale customers, on per capital basis during fiscal year 2022. Gross profit decreased slightly by 2.3% to $39.1 million for fiscal year 2022. Overall gross margins was 17.1% for fiscal year 2022. Operating expenses increased by 11.5% to $32.7 million for fiscal year 2022. The increase was due to the increase in shipping expenses, transaction commissions, consulting and professional service fees, payroll employee benefit expenses and bonus expenses. Net income was $3.3 million for the fiscal year 2022. Basic and diluted earnings per share were $0.10 for fiscal year 2022. As of March 31, 2021, the company had cash of $17.7 million. As of March 31, 2022, the company had accounts receivable balance due from third parties and related parties of $34.8 million and $6.3 million, respectively. Approximately 53.1% as of March 31, 2022 have been substantially collected and the remaining balance is expected to fully collect by the September 30, 2022. The corrected balances of such receivables provide cash available for use and the company's operations as working capital if necessary. As of March 30, 2022, the company has merchandise inventories of $30.2 million, which the company believes can be sold quickly based on its analysis of the current trend in demand for its products. For fiscal year 2022, net cash used in operating activities was $12.3 million. Net cash used in investing activities was $2.9 million. Net cash provided by financing activities were $18.3 million. We feel very positive about our overseas e-commerce business and eye on achieving approximately 11% increase in our revenue in fiscal year 2023. We remain confident in our business and the potential to grow, but we might expect to see low transportation cost and high proportion and advertising expenses and facility-related costs. Now, I would like to turn the discussion over to the operator for any questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Lucas Shang [ph] with Johnson Company. Please go ahead.

Hi. Thank you for sharing the information. I think in the remarks, Mr. Kanayama mentioned that the company plans to optimize the international warehouse operations in North America. So what are the approaches for the company to achieve this?

[Foreign Language] Thank you very much for your interest in our business. Currently, we're negotiating with potential partners regarding the overseas established warehouses. We plan to build several large integrated warehouses in the United States, Canada, and other places. By setting up overseas warehouses, we can quickly supply goods to franchise stores as well as other wholesalers, which is expected to expand our customer base. It is worth mentioning that we have also made the same strategic arrangement in Hong Kong for our business expansion.

Thank you for your answer. And my second question is, since Japan has reopened for tourism and some quarantine requirements. So, what do you expect to see the business of the physical stores? And how you are thinking about the outlook for the next fiscal year?

[Foreign Language] Yes. We're excited about the recovery of the tourism in Japan, and we believe sales at our physical stores will surely pick up gradually. In the meantime, we are working to attract more customers. Recently, we developed our lead streaming income business, which is a popular trend right now. We also set up a space at our stores to do lead streaming and shared some teams about choosing merchandise and cosmetics knowledge. We aim to attract more customers and enhance our brand awareness by leveraging the power of the Internet and live streaming. On the other hand, we have also reassessed our current business model after experiencing the challenge associated with COVID-19 pandemic. And we realize that it is necessary for us to make some change. We need to generated -- generate revenues through various streams at our physical stores instead of relying solely on overseas tourists, which we are currently working on. In order to achieve this, we have taken some necessary measures, including adding billboards in the streets and hosted promotional activities, which have been effective in attracting customers. With these efforts, our goal is to consistently build our brand popularity to have a good impression and gain the trust from our customers. Thank you.

Thank you. Our next question comes from David Lee [ph], a Private Investor. Please go ahead. Q – Unidentified Analyst: Hi, everyone. I saw the company's released the press released and I noticed that the company plans to enter into a Malaysia market. So as the company has planned to further plan into Southeast Asian markets, or are there any regions the company plans to enter. Thank you. A – Mei Kanayama: We're starting to expand to the broad Southeast Asia market, we are planning to partner with some high-profile business partners in the local market to set up distribution channels in specific regions or countries in general as it is in the preparation of launching new stores in Southeast Asia. It is also in our future blueprint to further our business in New Zealand and Australia. Thank you.

Thank you. Our next question today I'm sorry – [Operator Instructions] our next question today comes from Kathleen Long [ph] a Private Investor. Please go ahead. Q – Unidentified Analyst: Hi company Given the current product offering, so does the company plan to expand your product lines besides beauty and healthy products?

[Foreign Language] We are working hard to enrich our product offering. We are currently the sole retailer to offer trendy toys and rail lines with high value, which our competitors have not been able to offer. At the same time, we are also working on the development of our private label products. So far, we have developed products such as shampoo, shower gel, shower products for baby, grocery bags, thermos flask, disposable face mask and natural water. We are also exploring in virus fields with innovation and making some good progress. In addition, an experienced expert holding a PhD degree with 25 years of experience in the medical device field recently joined us to empower with R&D team to develop more new products. Thank you.

Thank you for sharing. I have one more question. So could you please elaborate the company's initiatives to improve the profitability?

[Foreign Language] During the fiscal year 2022, to mitigate the negative impact of COVID-19, we will continue to enhance our brand awareness, refined product management, reduced shipping costs, optimize operations and diversify marketing. Specifically, we invested more in our advertising campaigns, continuing to build our own channels and advertising banners, not only on street sides but also on [Indiscernible] our Internet platforms such as YouTube and Facebook. We also plan to expand the number of physical stores, which is also a way of branding. By importing Japanese inventory management system into the overseas warehouse space, we can quickly grasp the status of products entering and leaving the warehouse and popular products in the market, respond to distribution and products purchase more quickly and accurately and reduce shipping costs and unnecessary purchase of goods. In addition, we have contracted with a well-known job recruitment agents in Japan to continue recruiting experienced employees. We aim to form a more experienced team to run the business better and more effectively. In addition, we are diversifying our sales channels and market development. We are also working on expanding our EC channel in countries and regions such as UK and the Southeast Asia. Opening new warehouses and franchise in North America and developing wholesaler customers. Based on the above management plans, we can expect a lot of growth in the next fiscal year. At present, we are facing many difficulties and challenge caused by the epidemic, but this is also an opportunity for company reform. A company that has overcome many difficulties and is still profitable is a company worth of investors' trust. I can confidently say that Yoshitsu is one of such company. Thank you.

Thank you. Showing no further questions let me turn the call over to the company's IR representative from Ascent Investor Relations for closing remarks.

Thank you very much for joining this conference call. If you have any questions, please contact us through e-mail at ir@ystbek.co.jp or reach our IR counsel Ascent Investor Relations at tina.xiao@ascent-ir.com. Management will respond to your questions as soon as possible. We appreciate your interest and support in Yoshitsu and look forward to speaking with you again next time.

Thank you again for attending the Yoshitsu’s fiscal year 2022 earnings conference call. This concludes our call today, and we thank you all for listening in. Goodbye.