With a rebound to front-loaded demand prompted by the lingering effects of the last fiscal year’s COVID-19 pandemic and sluggish consumption due to soaring prices, the business environment lacked vitality on the whole, other than demand for buying replacements associated with additional leisure spending due to the easing of restrictions on going out. Meanwhile, we held two major sales campaigns due to the Hanshin Tigers winning the league championship in September and then the Japan Series in November, as we are the only official sponsor of that team in the entire industry. These sales brought crowds of customers to our Group company stores and we saw major growth in new memberships that will serve as a foundation for business in the future.
In this context, the results for the first year of the new medium-term management plan JT-2025 Management Plan mostly failed to meet financial targets. Improvements to the gross profit margin (+1.3% YoY) pushed operating income ahead of last fiscal year’s result (+0.6% YoY), while in terms of “financial base” indicators, net assets were 104.6 billion yen and the net D/E ratio was 0.47, indicating that financial soundness was maintained.
Meanwhile, there were issues associated with sluggish sales across the Company as a whole, such as increasing inventory assets (approx. 2.1 billion yen) and trade receivables in March alone (approx. 2.4 billion yen), resulting in operating cash flow declining by roughly 4.8 billion yen and net interestbearing liabilities* increasing by roughly 6.0 billion yen. By further expanding on initiatives in which we have already been engaged such as the effective utilization of our Kansai Ibaraki Logistics Center, the blending of physical and online retail formats, and the enhancement of sales strategy through active investment in stores, the Company views the improvement of our ability to draw consumer interest despite the harsh business environment as a challenge for the Group to find room to grow in the future. We aim to connect this back to Company-wide initiatives so that we can achieve our total cash flow targets in the medium-term management plan overall.
* Net interest-bearing liabilities = Interest-bearing liabilities – Deposits
Our basic financial policy is to support sustainable corporate management through a solid financial base and efficient capital management. The three key points of our financial policy are as follows. The new medium-term management plan uses ROE, ROA, and ROIC as its core management indicators.
(1) Maintenance of a solid financial base
(2) Optimal allocation of operating cash flows
(3) Promotion of efficient management that is conscious of capital cost and stock price
The Group views financial stability, an area in which we have previously been inferior to our competitors, as the foundation for corporate growth. In the previous medium-term management plan, we focused on building up capital with an aim to achieve an equity ratio of over 45.0%. Since fiscal 2019, we have generally maintained this equity ratio level while also keeping the D/E ratio under 0.5.
Moving forward, we will continue to maintain a stable financial base that will serve as the key to our corporate growth.
In the new medium-term management plan, while still focusing centrally on growth investment for the future, we allocate cash flows generated by businesses to shareholder returns and reduction of interest-bearing liabilities in a balanced manner, and we work to optimize capital efficiency.
In order to achieve management conscious of the cost of capital and the stock price, the Group will craft a story for the path ahead, break down the logic tree of the price-to-book ratio, and apply that logic to our various management initiatives. Then we will pursue engagement with our shareholders and investors, and strive to manage our business such that we can push PBR over 1 (as of the end of fiscal 2023, it is 0.6).
Capital allocation in the new medium-term management plan is based on the goal of generating operating cash flow of approximately 40 to 45 billion yen over a three-year period. Cash flow in the first fiscal year of the plan was only 2.3 billion yen, but we will maintain the current direction for future growth investment through appropriate financial leverage and other means.
Specifically, at least 40% of this investment is assumed to be devoted to the shareholder payout ratio, with roughly 20% for operating cash flow and 70-80% centered on growth strategy investment into existing businesses, M&As, and improvements to service infrastructure. The remainder will be used for reducing interest-bearing liabilities in order to maintain a stable financial base, as well as to improve ROE to enhance shareholder returns.
In terms of growth investment, we will continue to actively pursue human capital — an operating expense in terms of operating cash flow — in addition to actively pursuing system and DX-related intangible assets.
We recently revisited the Company’s shareholder returns (March 26, 2024 - Notice Regarding Changes to Dividend Policy).
The Company’s basic approach to dividends remains unchanged: to maintain consistent dividends while fully considering business results and the balance between dividends and internal reserves. In addition, we shifted the payout ratio from 30% to 40% or more. Under this approach, we maintained a dividend of 90 yen per share in fiscal 2023 (vs. 75 yen per share in fiscal 2022). (Payout ratio of 48.4%)
We will continue to consider shareholder returns a critical priority in the future, adapting our various approaches to suit the circumstances (e.g. DOE and total payout ratio through share buybacks) as necessary in order to optimize returns.
We seek to optimize our net assets, the core of capital allocations, through annual reviews, accounting discussions, and scrap-and-build strategies when appropriate. This strengthening of profitability in asset-based business activities will help grow EPS (earnings per share), and achieving this consistently will build expectations for future growth, raise PER (price-earnings ratio), and boost PBR.
(1) Share buybacks
The Company currently has relatively few outstanding shares (28 million shares), so moving towards setting up a bracket for share buybacks is unrealistic.
However, in the recent moves to dispose of crossshareholding positions, there have been batches of shares sold off all at once in some cases, and in the course of striking a good balance with shareholder interests, we have also considered acquiring shares as it is expeditious to do so.
(2) Payout ratio
As stated, we will continue to consider and work to optimize the payout ratio as one means of securing shareholder returns. Due to the number of outstanding shares, it is possible to be flexible with respect to dividends and there will be limited impact on cash flow.
(3) Cross-shareholdings
As stated in the Corporate Governance Report, we will be disposing of sellable shares as appropriate, with mutual consent with counterparties after repeated discussions that examine the purpose of holding such shares. In fiscal 2023, the Company recorded approximately 1.2 billion yen in gains from stock transactions including cross-shareholding and net investments, and this has played a role in final earnings and ROE improvement, so we will continue to engage in these activities from a capital efficiency perspective. (As a rule, the Company also will not acquire new cross-shareholdings.)
(4) Building an Optimized Business Portfolio
The Company is actively pursuing sustainable corporate management by building an optimized business portfolio and making strategic growth investments. However, we believe that investment decisions must be based on the premise of sustaining Company-wide management metrics such as ROA and ROIC. Moving forward, we will continue to work with the Chief Officer for Business Strategy to make active investments with a focus on efficient management.
(5) Strengthening IR Activities (Bolstering Organizational Systems)
The Company is actively engaged in IR activities, including biannual financial results briefings, individual investor meetings, and web disclosures. We will continue to actively conduct IR activities, aiming to enhance communication with shareholders, investors, and other stakeholders, and thereby enhancing corporate management and deepening their understanding of our growth strategy.
We newly established an IR Promotion Office on July 1, 2024.
Although we did not have many meetings in fiscal 2023, we used the valued opinions and findings gained from these limited opportunities to re-examine our cost of equity and weighted average cost of capital, while sharing our progress and issues with individual strategies discussed in the new medium-term management plan. Aiming to achieve our ideal state in 2030 through management conscious of our capital costs and stock price, we have launched discussions within the Board of Directors and other executive-level committees on business strategy focused on the next medium-term management plan to follow the current one.
The diversification of shareholders will be one of our most important themes moving forward. The Company has integrated the fan base strategy approach into our IR activities as well, seeking to acquire a diverse body of “fan” shareholders regardless of the investors’ personal attributes or whether they are domestic or international. As a result of our steady work, the number of unit shareholders continued to increase as of the end of March 2024, growing by 2,784 people (about a 17.0% increase, totaling 18,543 shareholders as of the end of March). Most of this was from individual shareholders, so it is expected to contribute to our efforts to build fans for our stores and e-commerce business (being as we are in the retail industry).
However, the ratio of overseas investors is currently only 7.51% (as of the end of March 2024), and we aim to more than double that ratio over the medium term in order to improve our price-to-book ratio and improve liquidity as called for by the Tokyo Stock Exchange. In addition to disclosing materials simultaneously in English and providing information in a timely manner, generally all internal directors participate in individual investor relations meetings with institutional investors and others, whether online or face-to-face. Through consistently candid, active engagement, we can benefit from a variety of new findings to inform future management decisions. Additionally, we actively set up opportunities to meet with securities analysts who cover the retail sector (to which we belong) and engage in discussions that will deepen those analysts’ understanding of the Company’s unique qualities and differentiation strategy. We then utilize that in implementing management strategy that is mindful of capital costs and share price.
Going forward, as a company listed on the Prime Market, we will continue to make growth investments that are even more proactive and conscious of capital efficiency, while maintaining a strong balance with improving shareholder returns. We will also further intensify our investor relations (IR) activities, and strive to be evaluated as a target for medium- to long-term investment by a wide range of investors.
