Istyle Inc.TSE: 3660

FY24.Q4 Analyst Report Issued by WARC Inc.

Sep 2, 2024 at 11:38 AM UTC · Issued by Istyle Inc.

Istyle, Inc.

02/09/2024

3660 JP / TSE Prime / Industry: Household Necessities Stores, Specialised Information Sites Information Sites

Go Saito (WARC Inc. CFO)

ir@warc.jp

The challenge of over 5 years begins again.

What the mid-term business policy means.

The medium-term business policy announced by the company should not focus on numerical targets, but rather on the fact that it is now ready to take the fighting pose of aiming for growth again.
By using the source of cash generated by stable growth through new store openings, renewals, and sales per floor in retail, and investing it in the utilization of data through the fusion of online and offline operations and business development in beauty areas other than cosmetics, we expect new profit opportunities.
The global business remains a concern. It is difficult to say that the company has found a way to win, and we will carefully watch its future efforts.

Considering the FY6/24 results and FY6/25 plan disclosed by Istyle (3660; “the company”) on August 14, we have revised our forecasts. We have raised our forecasts for sales for the next three fiscal years by 6-10%, while raising our forecasts for operating profit by 2-5% for the next two fiscal years and reducing our forecasts for FY6/27 by 7%. The change in the store-opening plan is the main reason for the revision, and the company's fundamental outlook remains unchanged.

Closing Price	30/08/2024	526.000
Moving Average	Last 1M	449.045
	Last 3M	464.000
	Last 6M	483.304
High Price	Last 1Y	545.000
Low Price	Last 1Y	319.000
Turnover	30/08/2024	1,946,100
(Source) SPEEDA		Unit : JPY

arket cap	30/08/2024	526.000
Value	Last 1M	449.045
	Last 3M	464.000
	Last 6M	483.304
	Last 1Y	545.000
	Last 1Y	319.000
	30/08/2024	1,946,100
	30/08/2024	526.000
	Last 1M	449.045
	Last 3M	464.000
	Last 6M	483.304
	Last 1Y	545.000
profit	Last 1Y	319.000
	30/08/2024	1,946,100
	30/08/2024	526.000
(Source) SPEEDA		Unit : JPY

The company also disclosed its medium-term business policy. The numerical	04/09/2023 – 30/08/2024
targets are sales of 100 billion yen (up 78% from the previous fiscal year) and
operating profit of 8 billion yen (4.1 times the previous fiscal year) in FY6/28-
FY6/29. We intend to achieve this goal by increasing the number of points of
contact between users and brands in the retail business, monetizing the use of
data in the marketing support business, and developing business in the beauty
field (health foods, medical beauty care, etc.) in addition to cosmetics. We are
cautiously watching the global business recover and turn profitable, but the
company is eyeing a return to profitability in the current fiscal year.
The company has long advocated the utilization of data through the fusion of
offline and online, and now that its revenue base has stabilized, it is finally able to
engage in full-fledged efforts in this area. At this timing, we believe that the
company's capital policy of achieving ROE above an assumed cost of capital of
10-11% and its suggestion of resumption of dividend payments are actions that
deserve recognition.
In its financial results presentation, the company reiterated its message that “we
are not just a company that plans and operates @cosme, but also a company
that provides a place where people can encounter services and products to
make their lives more beautiful, enjoyable, and personalized. In fact, the
company's valuations appear to be based solely on its retail business. Therefore,
if the company's data-driven growth becomes clearer in the future, the stock
market's valuation of the company is likely to change.

This report is for informational purposes only and is not intended as a solicitation or inducement to engage in investment activities, nor is it intended to provide opinions or judgments regarding investments or the other related matters.

This report was prepared at the request of the subject company, with information provided by the company through interviews, etc. However, the information, interpretation of data, credibility, hypotheses, conclusions, and all other content in this report is based on WARC's analysis, and the accuracy, safety, and validity of the information or opinions contained in this report are not guaranteed.

WARC assumes no responsibility for any costs or damages arising from the use of this report or information obtained from this report.

WARC does or may do business with companies covered in this report. Accordingly, investors should be aware that WARC may have conflicts of interest that could affect the objectivity of this report. The content of this report is subject to change without notice.

WARC is under no obligation to update this report.
Investment decisions should be made at your own discretion.
All rights to this report are reserved by WARC. All rights reserved.	Copyright © WARC Inc. 2024 All rights reserved.

W A R C \| istyle, Inc.	2/09/2024

Financial Statement

			Revenue		EBITDA		OP		RP		NP		EPS
			(Y mil)	（Y/y）	(Y mil)	（Y/y）	(Y mil)	（Y/y）	(Y mil)	（Y/y）	(Y mil)	（Y/y）	（円）
FY06/21	FY	Actual	30,950	1.3%	1,205	1269.3%	-604	-	-795	-	379	-	5.5
FY06/22	FY	Actual	34,401	11.2%	1,556	29.1%	-453	-	-593	-	-571	-	-7.4
FY06/23	FY	Actual	42,890	24.7%	2,935	88.6%	817	-	410	-	275	-	3.7
FY06/24	FY	Actual	56,085	30.8%	4,581	56.1%	1,940	137.5%	1,721	319.8%	1,214	341.5%	15.7
FY06/25	FY	Company plan	64,000	14.1%	-	-	2,400	23.7%	2,400	39.5%	1,600	31.8%	20.3
FY06/25	FY	WARC forecast	63,836	13.8%	3,727	-18.6%	2,366	22.0%	2,372	37.8%	1,582	30.3%	20.1
FY06/26	FY	WARC forecast	73,542	15.2%	5,091	36.6%	3,058	29.2%	3,076	29.7%	2,052	29.7%	26.0
FY06/27	FY	WARC forecast	78,787	7.1%	6,146	20.7%	3,498	14.4%	3,529	14.7%	2,354	14.7%	29.9

(Source) Company data, WARC

Key message

In August 2016, the company announced its Road to 2020 mid-term management plan at the time of its full-year FY6/16 results announcement. The specific numerical targets for FY6/20 are sales of 50 billion yen and operating profit of 7 billion yen (sales of

14.2 billion yen and operating profit of 1.75 billion yen in FY6/16). The three core business strategies were (1) to strengthen the profit structure based on @cosme, (2) to make new inroads into beauty-related businesses following the cosmetics retail store business, and (3) to make full-scale inroads into overseas markets.

However, due to delays in the progress of each business in FY6/19, the company has revised its course to aim for net sales of 50 billion yen and an operating surplus by implementing major measures that have remained in the pipeline through FY6/21, although the strategic policy remains unchanged. However, in addition to the sluggish global business, the company was unable to absorb the increase in initial expenses due to restrictions on outings caused by the outbreak of the COVID-19 from January 2020 onward, and ended up posting an operating loss of 2.3 billion yen. Since then, the company's sales exceeded 50 billion yen and EBITDA reached a record high in FY6/24, partly due to the capital and business alliance with Amazon.com Inc. in August 2022.

The message announced in August 2024 was “We want to be a company that not only plans and operates @cosme, but also provides a place where people can encounter services and products that help them live beautifully, happily, and in their own way. Except for the tone of the company's global business, the company's business strategies have remained largely unchanged. We can honestly say that the company's struggle over the past five years has finally begun to show results, and it is now ready to climb the stairs of growth once again.

Source : SPEEDA, WARC

WARC assumes no responsibility for any costs or damages arising from the use of this report or information obtained from this report.

WARC does or may do business with companies covered in this report. Accordingly, investors should be aware that WARC may have conflicts of interest that could affect the objectivity of this report.

The content of this report is subject to change without notice.
WARC is under no obligation to update this report.
Investment decisions should be made at your own discretion.
All rights to this report are reserved by WARC. All rights reserved.	Copyright © WARC Inc. 2024 All rights reserved.

W A R C \| istyle, Inc.	2/09/2024

Summary of FY6/24

In FY24/6, the domestic business, centered on the retail and marketing solutions businesses, drove overall performance. Both sales and profit exceeded the company's revised forecasts.

Marginal profit margin declined to 29.9% in 4QFY6/24 (vs. 30.2% in 4QFY6/23 and 31.1% in 3QFY6/24). The main factor was a change in the mix due to growth in the retail business, which has relatively low marginal profit margins.

The company is continuing to pursue its business strategy of increasing the points of contact between users and brands in its retail business through stores and e-commerce, and monetizing the marketing solution business by linking the user purchase data accumulated in the retail business with the action data in its own media. However, even though the MAUs of its own media have reached 17.6 million, the number of monthly purchases is only 430,000 in stores and 170,000 in EC, for a combined ratio of 22.3%. In other words, the company's future upside potential lies in narrowing this gap.

ROE rose to 10.6% from 2.8% in the previous fiscal year. Improved profitability has brought it back to the pre-COVID-19 disaster level. With retained earnings also becoming positive, the company has indicated a desire to resume dividend payments.

								(Y mil)
	FY6/23				FY6/24			Comments
	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q
Net sales	9,200	11,158	10,576	11,956	12,449	14,668	13,863	15,105 Driven by retail business
Gross profit	4,336	4,896	4,699	5,240	5,612	6,230	6,225	6,578
% of Sales	47.1%	43.9%	44.4%	43.8%	45.1%	42.5%	44.9%	43.5%
SG&A	4,100	4,878	4,409	4,966	5,244	5,747	5,621	6,093
% of Sales	44.6%	43.7%	41.7%	41.5%	42.1%	39.2%	40.5%	40.3%
Operateing profit	237	17	290	273	368	483	604	485
% of Sales	2.6%	0.2%	2.7%	2.3%	3.0%	3.3%	4.4%	3.2%
Ordinary income	158	-140	187	205	349	459	534	379
% of Sales	1.7%	-	1.8%	1.7%	2.8%	3.1%	3.9%	2.5%
Net income	101	-137	56	255	171	311	351	381
% of Sales	1.1%	-	0.5%	2.1%	1.4%	2.1%	2.5%	2.5%
								(Y mil)
	FY6/23				FY6/24			Comments
	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q
Net sales	9,200	11,158	10,576	11,956	12,449	14,668	13,863
%YoY	-	-	-	-	35.3%	31.5%	31.1%
								Retail sales promotion services are strong. Synergistic
Marketing solution	1,947	2,038	1,897	2,161	2,263	2,394	2,242	effect on advertising and solutions.
%YoY	-	-	-	-	16.2%	17.5%	18.2%
Retail	5,908	7,630	7,386	8,340	8,836	11,135	10,610	Retail event “@cosme SPECIAL WEEK” held.
%YoY	-	-	-	-	49.6%	45.9%	43.7%
Global	1,033	1,178	1,004	1,190	1,101	1,008	823	Steady growth in BtoB services
%YoY	-	-	-	-	6.6%	-14.4%	-18.0%
								Temporary staffing business sales declined, while B-to-
Other	434	479	459	473	441	441	428	C billing services were solid.
%YoY	-	-	-	-	1.6%	-7.9%	-6.8%
Intersegment sales and transfers	-121	-168	-170	-209	-193	-308	-242
Segment profit	237	17	290	273	368	483	604
%YoY	-	-	-	-	55.3%	2741.2%	108.3%
% of Sales	2.6%	0.2%	2.7%	2.3%	3.0%	3.3%	4.4%	-
Marketing solution	334	273	262	267	484	464	274	Software amortization expense of 112 million yen in 3Q
%YoY	-	-	-	-	44.9%	70.0%	4.6%
% of Sales	17.2%	13.4%	13.8%	12.4%	21.4%	19.4%	12.2%	-
								139 million yen spent on app download promotion ads in
Retail	226	153	505	513	517	515	901	4Q
%YoY	-	-	-	-	128.8%	236.6%	78.4%
% of Sales	3.8%	2.0%	6.8%	6.2%	5.9%	4.6%	8.5%	-
Global	-5	15	-89	-7	-65	-11	-111	Shift to more profitable services underway
%YoY	-	-	-	-	-	-	-
% of Sales	-	1.3%	-	-	-	-	-	-
Other	60	64	61	39	60	42	97
%YoY	-	-	-	-	0.0%	-34.4%	59.0%
% of Sales	13.8%	13.4%	13.3%	8.2%	13.6%	9.5%	22.7%	-
Adjustment	-378	-488	-448	-539	-628	-528	-556	Number of employees at the end of the period 1,539

Source : Company data, WARC

WARC assumes no responsibility for any costs or damages arising from the use of this report or information obtained from this report.

WARC does or may do business with companies covered in this report. Accordingly, investors should be aware that WARC may have conflicts of interest that could affect the objectivity of this report.

The content of this report is subject to change without notice.
WARC is under no obligation to update this report.
Investment decisions should be made at your own discretion.
All rights to this report are reserved by WARC. All rights reserved.	Copyright © WARC Inc. 2024 All rights reserved.

W A R C \| istyle, Inc.	2/09/2024

Earnings forecast

In response to the above, we have developed a forecast of the company's earnings. Please note that although this is a sponsored report, the forecasts are based on WARC's analysis of publicly available information and the macro environment.

For the FY6/25, we forecast net sales of 63,836 million yen (+14% y-o-y) and operating profit of 2,366 million yen (+22% y-o-y). These figures are slightly below the company's forecasts (net sales of 64 billion yen and operating profit of 2.4 billion yen), but this is due to the difference in the outlook for the global business. The company expects its global business to bottom out and return to profitability, but we are conservative in our forecast considering the previous year's performance.

We assume that the retail business will open three new stores and renovate five existing stores. While the growth of the retail business will continue to drive overall performance, the data solutions generated from this business will spread to synergies between stores and EC and to the marketing solution business. For the time being, the company believes that this will be a period of upfront investment. In its financial results presentation, the company cited the following as investments for the future:

personnel-relatedexpenses: +900 million yen y-o-y (personnel expenses increased due to new store openings and increased floor space at existing stores, and increased personnel in the marketing support business), (2) system development expenses: +400 million yen y-o-y (development expenses for data solutions, etc.), and (3) other expenses: +500 million yen y-o-y (marketing expenses to acquire users, new stores, and marketing expenses for marketing support business). (marketing expenses for user acquisition, outsourcing expenses for new stores).

We expect a 14% y-o-y sales increase in FY6/26 and a 7% y-o-y sales increase in FY6/27, with the full-year contribution of new store openings and floor space expansion/renovation expected in FY6/25 to boost the overall growth rate in FY6/26. New store openings have not been factored into the forecast. We continue to base our forecasts for the global business on conservative assumptions. We have assumed that the timing of returning to profitability will be from 3Q FY6/26.

Profit and loss statement							(Y mil)

	FY06/23		FY06/24		FY06/25	FY06/26	FY06/27
	Actual		Actual		Forecast	Forecast	Forecast

Net sales	42,890	56,085	63,836	73,542	78,787
%YoY	24.7%	30.8%	13.8%	15.2%	7.1%

Gross profit	19,171	24,645	28,088	32,359	34,666
%YoY	28.6%	28.6%	14.0%	15.2%	7.1%
% of Sales	44.7%	43.9%	44.0%	44.0%	44.0%
SG&A	18,353	22,705	25,722	29,301	31,168
%YoY	12.7%	23.7%	13.3%	13.9%	6.4%
% of Sales	42.8%	40.5%	40.3%	39.8%	39.6%
EBITDA	2,935	4,581	3,727	5,091	6,146
%YoY	6.8%	56.1%	-18.6%	36.6%	20.7%
% of Sales	6.8%	8.2%	5.8%	6.9%	7.8%
Operating profit	817	1,940	2,366	3,058	3,498
%YoY	-	137.5%	22.0%	29.2%	14.4%
% of Sales	1.9%	3.5%	3.7%	4.2%	4.4%
Ordinary income	410	1,721	2,372	3,076	3,529
%YoY	-	319.8%	37.8%	29.7%	14.7%
% of Sales	1.0%	3.1%	3.7%	4.2%	4.5%
Net income	275	1,214	1,582	2,052	2,354
%YoY	-	341.5%	30.3%	29.7%	14.7%
% of Sales	0.6%	2.2%	2.5%	2.8%	3.0%

Source : Company data, WARC

WARC assumes no responsibility for any costs or damages arising from the use of this report or information obtained from this report.

WARC does or may do business with companies covered in this report. Accordingly, investors should be aware that WARC may have conflicts of interest that could affect the objectivity of this report.

The content of this report is subject to change without notice.
WARC is under no obligation to update this report.
Investment decisions should be made at your own discretion.
All rights to this report are reserved by WARC. All rights reserved.	Copyright © WARC Inc. 2024 All rights reserved.

W A R C \| istyle, Inc.						2/09/2024

Balance sheet						(Y mil)
	FY06/23		FY06/24	FY06/25	FY06/26	FY06/27
Current assets	15,231	16,484	15,930	12,562	13,348
Ready liquidity	6,723	5,762	7,056	2,339	2,395
Notes and accounts receivable	4,149	4,646	5,288	6,092	6,527
Inventories	2,945	4,217	2,688	3,097	3,317
Others	1,414	1,859	898	1,035	1,108
Fixed assets	9,070	11,656	13,034	15,063	16,731
Tangible fixed assets	1,588	1,762	2,105	3,148	3,994
Intangible fixed assets	3,849	3,572	4,607	5,594	6,416
Investments and other assets	3,632	6,322	6,322	6,322	6,322
Total assets	24,301	28,141	28,964	27,625	30,079
Current liabilities	6,371	8,237	7,991	9,022	9,579
Notes and account payable	2,043	2,711	3,086	3,555	3,808
Short term interest bearing debt	1,055	1,208	1,208	1,208	1,208
Advances received	698	819	0	0	0
Other current liabilities	2,575	3,499	3,697	4,259	4,563
Non-current liabilities	7,240	7,717	7,203	2,782	2,324
Long term interest bearing debt	6,906	7,185	6,685	2,185	1,685

Others	334	0	518	597	639
Shareholders' equity	9,038	9,607	11,190	13,242	15,596
Net assets	10,690	12,187	13,770	15,822	18,176
Total liabilities and net assets	24,301	28,141	28,964	27,625	30,079

Cash flow statement	FY06/23		FY01/00	FY06/25	FY06/26	FY06/27


Operating CF	2,942	3,336	5,159	3,689	4,740
Investing CF	-1,247	-4,569	-3,390	-3,906	-4,184
Financing CF	-612	160	-500	-4,500	-500
Effect of exchange rates	-14	102	0	0	0
Net cash flow	1,069	-972	1,269	-4,717	56
Cash & equivalents at end-FY	6,759	5,787	7,056	2,339	2,395

Source : Company data, WARC

WARC assumes no responsibility for any costs or damages arising from the use of this report or information obtained from this report.

WARC does or may do business with companies covered in this report. Accordingly, investors should be aware that WARC may have conflicts of interest that could affect the objectivity of this report.

The content of this report is subject to change without notice.
WARC is under no obligation to update this report.
Investment decisions should be made at your own discretion.
All rights to this report are reserved by WARC. All rights reserved.	Copyright © WARC Inc. 2024 All rights reserved.

W A R C \| istyle, Inc.	2/09/2024

ROIC							7.8%
15%
10%
5%
0%	FY21	FY22	FY23	FY24	FY25	FY26	FY27
-5%
-10%

NOPLAT/Sales					2.7%	COGS ratio						56.1%
4%								57%
							56%

2%								55%
							54%
								53%
0%								52%
-2%	FY21	FY22	FY23	FY24	FY25	FY26	FY27	FY21	FY22	FY23	FY24	FY25	FY26	FY27

								SG&A ratio						40.5%	Personal-related cost rate		14.2%
								60%							20%
								40%							15%
														10%
								20%
														5%

								0%							0%
								FY21	FY22	FY23	FY24	FY25	FY26	FY27	FY21	FY22	FY23	FY24	FY25	FY26	FY27
															Merchandising-related cost r		13.8%
															15%
															15%
															14%
															14%
															13%
															FY21	FY22	FY23	FY24	FY25	FY26	FY27
															System-related cost rate			3.8%
															6%
															4%
															2%
															0%
															FY21	FY22	FY23	FY24	FY25	FY26	FY27

Capital turnover					2.86	Working-capital turnover			10.01
600%									2000%

400%									1500%

								1000%
200%

								500%


0%									0%
FY21	FY22	FY23	FY24	FY25	FY26	FY27	FY21	FY22	FY23	FY24	FY25	FY26	FY27

									Fixed assets turnover				5.41
									600%

									400%

									200%

									0%
									FY21	FY22	FY23	FY24	FY25	FY26	FY27

Source: Company data, WARC

WARC assumes no responsibility for any costs or damages arising from the use of this report or information obtained from this report.

WARC does or may do business with companies covered in this report. Accordingly, investors should be aware that WARC may have conflicts of interest that could affect the objectivity of this report.

The content of this report is subject to change without notice.
WARC is under no obligation to update this report.
Investment decisions should be made at your own discretion.
All rights to this report are reserved by WARC. All rights reserved.	Copyright © WARC Inc. 2024 All rights reserved.

W A R C \| istyle, Inc.	2/09/2024

Company Profile

Company	Istyle Inc.
Ticker	3660
Description	istyle Inc is engaged in the operation of cosmetics portal Website under the name @cosme.
Industry	Household Necessities Stores, Specialised Information Sites
Representative	Tetsuro Yoshimatsu (Representative Director Chairperson and CEO)
	Hajime Endo (President),Tetsuro Yoshimatsu (Chief Executive Officer,Chairman)
Address	34F ARK Mori Building 1-12-32, Akasaka, Minato-ku Tokyo Japan
Phone	-
Website	https://www.istyle.co.jp/
Founded	27/07/1999
IPO Date	08/03/2012
Main Stock Exchange	TSE Prime
Capital Stock	5,719 JPY Million (FY2024/06)
Headcount	996 ( FY2023/06 Consolidated )
(Source) SPEEDA

(Unit: JPY Million)	FY2019/06	FY2020/06	FY2021/06	FY2022/06	FY2023/06	FY2024/06	FY2025/06
		Con	Con	Con	Con	Con	Con	Con
		Actual	Actual	Actual	Actual	Actual	Actual	Company
								Estimates
I/S	Total Revenue	32,193	30,564	30,950	34,401	42,890	56,085	64,000
	EBITDA	1,835	88	1,205	1,556	2,935	4,002	4,462
	EBITDA Margin	5.7％	0.3％	3.9％	4.5％	6.8％	7.1％	7.0％
	Operating Profit	476	-2,325	-604	-453	817	1,940	2,400
	Operating Margin	1.5％	-7.6％	-2.0％	-1.3％	1.9％	3.5％	3.8％
	Ordinary Profit	380	-2,438	-795	-593	410	1,721	2,400
	Ordinary Margin	1.2％	-8.0％	-2.6％	-1.7％	1.0％	3.1％	3.8％
	Net Profit Attribute to	-519	-5,020	379	-571	275	1,214	1,600
	parent company
	Net Margin	-1.6％	-16.4％	1.2％	-1.7％	0.6％	2.2％	2.5％
BS	Total Assets	22,003	24,157	22,235	22,168	24,301	28,141	-
	Shldr' Eq.	10,489	5,288	7,961	8,454	10,535	11,989	-
	Shldr' Eq. Ratio	47.67％	21.89％	35.80％	38.14％	43.35％	42.60％	-
	Debt(IBD)	7,275	14,720	11,057	9,800	8,430	8,721	-
	D/E Ratio	0.69x	2.78x	1.39x	1.16x	0.80x	0.73x	-
	ROE	-4.68％	-63.64％	5.72％	-6.96％	2.90％	10.78％	-
	ROA	-2.36％	-21.75％	1.63％	-2.57％	1.18％	4.63％	-
C/F	Operating CF	154	-202	1,553	1,276	2,942	3,336	-
	Investing CF	-4,096	-2,399	389	-1,529	-1,247	-4,569	-
	Financing CF	1,176	6,026	-1,557	-1,354	-612	160	-