*The share price is the closing price on September 5. The number of shares issued was as of the end of 1Q. ROE and BPS are actual results of the previous term.

 

*The forecasted values are from the Company.
*Net income is profit attributable to owners of parent. Hereinafter the same shall apply.

This report outlines Belluna, the financial results for the first quarter of the term ending March 2019, etc.

 

 

 

 

Belluna is a leading general catalog retailer. In addition to the mail-order business specializing in some genres, this company operates the Retail Store Sales Business, the Solution Business for providing corporations with its know-how and infrastructure that have been nurtured through its mail-order business, and so on. Its strengths and characteristics include a database of customers who are mainly married women, and stable profitability and growth potential based on portfolio management. It also conducts M&A actively. 【1-1 Corporate History】 In 1968, Mr. Kiyoshi Yasuno, who is currently the representative director and president of the company, started the business of selling seals door-to-door under the name of "Yukado." Then, starting with the mail-order sale of clothes, the company started dealing in food products, cosmetics, etc. While operating the Specialty Mail Order Business, the company has enriched its business portfolio, including the Finance Business, Property Business, Retail Store Sales Business, Solution Business, etc. targeted at mail-order customers. In March 2000, the company was listed in the first section of Tokyo Stock Exchange. It actively conducts M&A, to fortify its business base. 【1-2 Management Philosophy】 ◎ Management Philosophy In addition, Belluna set "Basic Mind," which describes the mindset of Belluna's employees, and "Basic Action," which is a code of conduct. Basic Mind, which is composed of "the awareness as a party involved," "the awareness of profit," "a sense of playing a game," "positive thinking," and "the willingness to grow," and Basic Action, which is composed of "use of others," etc., are what the employees of Belluna should return back to when facing a challenging problem. 【1-3 Market Environment】 According to "Commercial Statistics Table in 2014-Statistics for each business category (retail)" announced by the Ministry of Economy, Trade and Industry on March 9, 2016, the annual sales of products via mail order, catalogs, and the Internet amount to 3.9 trillion yen. Detailed statistics have not been checked, but it seems that the catalog retail market has recently shrunk 1-2%, as competitors in the general mail-order field suffered a significant drop in sales while the online shopping market has grown rapidly. Amid this situation, the General Mail Order Business segment of Belluna, in which catalog retail accounts for 80% of total sales although it is concentrating on online shopping business, increased sales 4.5% in the term ended March 2018, achieving an annual sales growth rate of 4.3% in the past 3 years and expanding its market share steadily. ◎ Comparison of major mail-order companies *Sales and operating income are the values estimated by the company for this term. ROE is the result in the previous term. Market cap, PER, and PBR are the values calculated from the closing prices on September 4, 2018. Compared with Scroll and Senshukai, which are competitors in the general mail-order field, Belluna has large sales and market cap, and high profit ratio and capital efficiency. 【1-4 Business Contents】 (1) Segments Belluna operates seven business segments: General Mail Order Business, which is its core business, Specialty Mail Order Business, Retail Store Sales Business, Solution Business, Finance Business, Property Business, and Other Business. General Mail Order Business and Specialty Mail Order Business account for about 80% of total sales. ① General Mail Order Business ◎ Outline The company receives orders for and sells apparel, fashion goods, interior accessories, etc. via catalogs, flyers, and the Internet. ◎ Attributes of subscribers As of the end of March 2018, the number of subscribers is about 18.5 million, and married women in their 40s or older account for about 80% of them. The subscribers aged 65 to 69 years, who are major married women, make up 31.4% of the population of this age group in Japan, indicating an overwhelming market share. The number of loyal subscribers, who are defined as subscribers who have purchased products within 2 years after registration, was 5.08 million in the term ended March 2018. Despite some fluctuations, it is steadily increasing. Belluna employs about 70 full-time designers, and offers more fashionable products than leading supermarkets and women's apparel shops. In addition, the company offers a variety of unrivaled catalogs targeted at customers in their 50s to 70s. Accordingly, it won overwhelming support from married women. ◎ Customer segments Female customer segments are divided into three ones: "Mrs" for customers in their 50s or older, "Ranan" for customers in their 40s, and "Ryu-Ryu" for customers in their 30s. The company offers products tailored for the preferences and needs of each age group. ◎ Efforts for developing e-commerce Catalogs are primary sales channels, but the company has been striving to promote online shopping in recent years. For "Ryu-Ryu" targeted at customers in their 30s, the sales via e-commerce (EC) now account for over 60%, and the ratio of EC sales is steadily growing for Mrs and other segments. ② Specialty Mail Order Business By specializing in specific genres, the company adds characteristics to its product lineup, prices, and services. Therefore, the company can retain customers easily, and receive orders from repeat customers. ③ Retail Store Sales Business This segment targets customers who cannot be approached via mail order, with the aim of realizing synergetic effects of the channels of the mail-order business, the Internet, and real shops. The company operates three types of shops at shopping centers and malls. "BANKAN" and "Wamonoya" sell kimono and Japanese clothing-related goods, and "BELLUNA" offers casual clothes targeted at mainly women in their 40s and 50s at low prices. Shop area is about 30 tsubo (≒ 100 m²) for Japanese clothing shops, and 80 to 100 tsubo (≒ 265 to 330 m²) for apparel shops. As a characteristic, Japanese clothing shops are highly profitable, because average spending per customer is large. As of the end of March 2018, the number of Japanese clothing shops was 79, that of apparel shops was 59, and the total number of shops was 138. ④ Solution Business By utilizing the know-how and infrastructure that have been nurtured through the mail-order business for many years, Belluna offers the "service of enclosing promotional flyers" and the "mail-order agency service" to corporations. In the service of enclosing promotional flyers, the company encloses the flyers, product samples, etc. of client companies with products and catalogs and ships them to customers, by utilizing its enormous customer database. It is possible to narrow down target customers according to the needs of client companies. Accordingly, client companies can expect effective sales promotion. "The mail-order agency service" is to offer a series of functions, including the infrastructure and know-how of Belluna, to enterprises that sell products by mail order. Belluna comprehensively undertakes the tasks of managing stocks at distribution warehouses, operating call centers, and shipping products to customers. Even enterprises that are starting the mail-order business do not need to prepare their own infrastructure, and they can offer products and services swiftly at low prices. ⑤ Finance Business It is a consumer finance business utilizing the database developed through the mail-order business. The company mainly introduces loans to mail-order customers by enclosing flyers, etc. Since the company possesses the data of the past purchases and payments by customers, credibility is high and the balance of loan receivables is expanding steadily, while the percentage of credit losses is low compared with other companies. Its profitability is high, partially because the cost for reeling in borrowers is low as mail-order customers are targeted. ⑥ Property Business The company leases real estate, such as office buildings, operates hotels, and so on. ⑦ Other Business The company operates the wholesale business targeted at department stores and co-op shops, and the insurance business. 【1-5 Characteristics and Strengths】 ① Customer database and know-how mainly for married women, which have been nurtured through the mail-order business for about 40 years As mentioned in the section of business contents, about 80% of over 18 million subscribers of Belluna are married women in their 40s or older. Belluna's female subscribers aged 65 to 69 years, who are dominant among married women, account for 31.4% of the population of this age group in Japan. The competitive customer database and know-how, which have been developed through the mail-order business for about 40 years, are significant features that contribute to the creation of corporate value. In the mail-order sale business, which is its mainstay, Belluna won strong support from married women by proposing products that can meet their needs based on the requests from customers, etc. grasped through sales and purchase activities and questionnaire surveys. In the finance business, the company earn sales and profit stably by utilizing its database. In the solution business, the company creates new business opportunities by offering its customer database, know-how, and infrastructure. ② Stable profitability and growth potential based on portfolio management Another characteristic of Belluna is the business model called "portfolio management," which actualizes stable growth potential and profitability by conducting business in a multifaceted manner while utilizing its managerial resources nurtured through the mail-order business. Based on this business model, the company disperses the risks of changes in social situations and economic trends, allows each business to exert its strengths as a mainstay, brings out the synergy among businesses, and actualizes stable profitability and growth potential. 【1-6 Shareholder Return】 Belluna determines dividends while considering its business performance and strategic investments for mid-term growth. This term, the company plans to pay 15 yen/share, up 2.5 yen/share from the previous year. The company has been implementing a shareholders' benefit plan, and gives benefits twice a year to shareholders who hold 100 or more shares as of the end of March and the end of September every year. For the purposes of expressing gratitude to shareholders and deepening shareholders' understanding, the company announced the enrichment of the shareholders' benefit plan in November 2017, adding complimentary coupons that can be used in Belluna Net. There is no revision to the criteria for receiving shareholders' benefits, the date of issuance of coupons, or their effective periods. *The accommodation coupon of Le Grand Kyu Karuizawa is distributed once a year (issued in early December). 【1-7 ROE analysis】 Due to the increase in net income margin, ROE exceeded 10% in the term ended Mar. 2018. The estimated margin for this term is 5.8%, and ROE will probably exceed 8%, which is the goal of the third management plan. We would like to expect that they will make efforts to increase it further.

 

 

Sales grew, while operating income dropped. Sales were 41.9 billion yen, up 2.0% year on year. The Specialty Mail Order Business contributed. The increase in sales of the General Mail Order Business was slight. Operating income was 2.4 billion yen, down 13.7% year on year, as the profit of the Specialty Mail Order Business grew, but distribution cost and SGA, including M&A-related expenses, augmented. Ordinary income was 4.5 billion yen, up 27.4% year on year. Gain on valuation of derivatives rose 1.1 billion yen year on year. Net income declined 7.7% year on year. In the same period of the previous year, an extraordinary income of 1 billion yen was posted. ◎General Mail Order Business Sales increased, while profit declined. Profit decreased, because distribution costs rose steeply and so on, although cost rate improved. ◎Specialty Mail Order Business Sales and profit grew. Sales were favorable in the fields of cosmetics (Ozio), gourmet, and wine. As for profit, the mail-order business for nurses and the healthy food product business (refre) witnessed the improvement in profitability. For cosmetics, gourmet, and wine, the company made upfront investment. ◎Retail Store Sales Business Sales and profit declined. The sales of the apparel shop business dropped, partially because of the closing of stores in the previous year. As for the Japanese clothing shop business, sales and profit decreased. ◎Solution Business Sales and profit shrank. The performance of the mail-order agency business was healthy, but the transactions with major clients decreased, and the performance of the service of enclosing promotional flyers was stagnant. ◎Finance Business Sales and profit rose. The balance of loan receivables in the domestic consumer finance business increased. ◎Property Business Sales grew, but profit dropped. The sales of the hotel in Kyoto, which was opened in July last year, contributed, but the expenses for opening new hotels augmented. ◎Other Business Sales grow, but loss augmented. Sales of the wholesale business, etc. increased. Current assets increased 3.1 billion yen from the end of the previous term, as trade receivables and inventory assets grew due to the M&A of Sagami Group Holdings Co., Ltd., etc. Noncurrent assets grew 8.2 billion yen due to the increase of property, plant and equipment, including the shops of Sagami Group Holdings Co., Ltd. and total assets rose 11.4 billion yen to 207.4 billion yen. Total liabilities augmented 8.4 billion yen to 111.2 billion yen, due to the increase in trade payables and short-term debts, etc. Net assets rose 3 billion yen to 96.1 billion yen, due to the increase in retained earnings, etc. As a result, capital-to-asset ratio dropped 1.4 points from the end of the previous term to 45.7%.

 

 

No revision to the earnings forecast. Sales and profit estimated to grow. There is no revision to the earnings forecast. It is forecasted that sales will grow 11.3% year on year to 180 billion yen and operating income will rise 15.3% year on year to 15 billion yen. The dividend amount is to be 15.00 yen/share, up 2.5 yen/share from the previous term. The estimated payout ratio is 13.9%. This forecast indicates that sales are slightly falling below the estimate, but operating income is exceeding the estimate. Sales increased in all segments, mainly the 4 primary businesses. As for Property Business, it is estimated that the company will sell real estate outside Japan. Profit declined in the previous term and budget failed to reach the estimate, but the Specialty Mail Order Business contributed, as the company strived to increase customers and withdraw from unprofitable media. For Retail Store Sales Business, the company will invest in opening shops.

 

 

In order to increase the scale of the Japanese clothing business, Belluna acquired "Sagami Group Holdings Co., Ltd." (1st section of Tokyo Stock Exchange; securities code: 8201), which sells kimono, jewelry, etc., by TOB, and reorganized it into a consolidated subsidiary in Jun. 2018. The Belluna Group had been seeking an opportunity to acquire a Japanese clothing-related company, which has a certain business scale and a customer base related to Japanese clothing, and can be expected to develop a mutually complementary relation with the Japanese clothing-related business, in order to expand the Japanese clothing domain further. "Sagami Group Holdings" judged that the best choice is to become a fully owned subsidiary of the Belluna Group in order to enhance its corporate value. At the session for briefing the financial results of the Belluna Group for the first quarter of the term ending Mar. 2019 held on Aug. 6, 2018, the president Katabe of BANKAN Wamonoya Co., Ltd., which engages in the Japanese clothing business of the Belluna Group, explained the corporate profile, the market environment, the strengths and visions of BANKAN Wamonoya, etc. This company operates two types of shops: "BANKAN" and "Wamonoya." For the term ended Mar. 2018, sales were 8.64 billion yen and operating income was 900 million yen. Between 2011 and 2018, the compound annual growth rate (CAGR) of sales was 14.3%, and that of operating income was 21.5%, indicating rapid growth. (Market environment) The kimono market has been shrinking since its peak in 1980, and its scale declined from about 500 billion yen in 2006, in which Belluna was established, to 271 billion yen in 2017. It is said that it has already bottomed out, but there is a possibility that it will shrink further. Amid this shrinking market, the company made efforts to create "a market for enjoying kimono" from a new perspective and a new approach, rather than just broadening the conventional viewpoint, and achieved the above-mentioned rapid growth. (Strengths of BANKAN Wamonoya) Belluna, which is rapidly growing by creating new markets, implements a variety of measures for promoting customers to enjoy wearing kimono, under the theme of "providing those who do not wear kimono with opportunities to wear kimono and maintenance services," and these efforts enhance the competitive advantage of the company. ◎ Positioning Belluna first provides beginners who have never put on kimono with affordable easy-to-handle products, such as yukata and washable kimono, improves shops so that customers can enter a shop without hesitation, conveys the pleasure in wearing kimono to customers, and "cultivate" potential customers. Next, the company holds events, etc. every month, to stir the interest in kimono and "develop" customers so that they will purchase more expensive products. ◎ Differentiation strategy In order to offer opportunities to wear kimono casually, Belluna deals in casual private brand (PB) products, including yukata, plain komon (one kind of traditional Japanese clothes), and washable kimono. In 2017, the company sold 32,426 sets of washable kimono, the largest number in Japan and much larger than the second largest (26,000). The company established shops mainly in the Tokyo Metropolitan Area and the Chukyo region. For improving shops so that customers can enter a shop without hesitation, the company opens shops mainly in shopping centers rather than downtown, and does not hold events. Accordingly, rents are inexpensive, so low-cost management is possible. As it is essential to develop excellent staff in order to develop and nurture customers, the company has recruited, educated, and trained personnel, including new graduates, over the past several years. (Regarding Sagami Group Holdings) Sagami Group Holdings runs shops under the two brand names: "Sagami" and "Tokyo Masuiwaya." It possesses plenty of knowledge and know-how about the kimono culture and how to handle them, and excels at helping customers get dressed. As the strengths of this company, there are many veteran employees who are experienced and reliable, and cost can be reduced through concentrated procurement. Amid the shrinking kimono market, it posted sales of 16 billion yen and an operating loss of 70 million yen in the term ended Feb. 2018. (Medium and long-term visions for the Japanese clothing business) The sales of the Japanese clothing-related business of Belluna, including those of Maimu Co., Ltd., which leases kimono, were 27 billion yen in the term ended Mar. 2018. In five years after the reorganization of Sagami Group Holdings into a subsidiary, the company aims to achieve sales of 50 billion yen and an operating income rate of 10%.

 

 

Considering the current business environment, Belluna plans to take the following measures for each business. (1) Management policy (External environment) Belluna produced management plans for flexibly responding to the changes in external environments, including consumer sentiment, the advance of the Internet, and logistics, through the improvement of the internal environment, including "the maturing of portfolio management focused on specialized mail-order sale, in which the sales of nursing goods, cosmetics, etc. are growing steadily," "the maturing of organizational structures," and "the rejuvenation of business." (Summary of the previous term, and positioning of this term) In the previous term, the company posted record-high sales and operating income, achieving the target sales in the third management plan earlier than the plan. The company self-evaluated that it was able to grow by taking advantage of the significant changes in the external environments. This term is the final fiscal year of the third management plan, and positioned as the one year for laying the groundwork for the fourth management plan while achieving the goals of this term. (2) Measures for each business Belluna will expand and strengthen its major 4 business by achieving "the stable growth of General Mail Order Business," "expanding Specialty Mail Order Business," "Expanding Retail Store Sales Business and improving its revenue," and "strengthening Property Business for maturing the portfolio." In addition, the company will concentrate on the operation of its new business. ① Stable growth of the General Mail Order Business In the term ended Mar. 2018, profit declined due to the increase in the fees of package delivery services. This term, the company will lay the groundwork by expanding catalog retail and upgrading online shops while improving product competitiveness. In detail, the company will pursue (1) the enhancement of product competitiveness, (2) the upgrading of online shops, (3) the improvement of Ryu-Ryu (targeted at young customers), and (4) synergetic effects among catalogs, the Internet, and real shops. 【Expansion of catalog retail】 Belluna will make efforts to increase standard products, improve Ryu-Ryu targeted at customers in their 20s and 30s, upgrade Ranan targeted at customers in their 40s, and enrich online shops, including shopping malls. 【Upgrading of online shops】 The company is upgrading its online shops by improving conversion rate (CVR*) and reeling in more customers. For increasing CRV, it is considered essential to "release products available only at online shops" in addition to the improvement of its user interface (UI) and the streamlining of processes for reeling in customers. For attracting more customers, the company holds online sales and CM-linked campaigns, distributes coupons, and so on. *CVR: an indicator of ratio of the number of conversions, such as purchases and membership registrations, to the number of accesses to a website or page views As a result of these efforts, CVR increased 1.1% and the number of accesses to the website rose 11.5%, while online sales (order receipt via the Internet) rose year on year in all seasons, that is, the summer, autumn, winter, and spring. ◎ Release of products available only through the Internet In the case of catalog retail, it is necessary to prepare for product planning at least six months prior to the publication of catalogs, and so it is difficult to commercialize trendy items in a timely manner. Meanwhile, in the case of online sale, it is possible to develop products in a short period of time, so it is possible to plan, develop, and release products that can meet the needs of customers. The ratio of orders for products available only through the Internet in the term ended Mar. 2018 was 14%, exceeding the target ratio 12%. This term, too, the company will strive to expand its business, mainly by enriching standard products. ◎ Synergetic effects among catalogs, the Internet, and shops The synergetic effects due to the collection and utilization of the lists of users would increase response in the mail-order business, improve CVR in the online business, and boost sales at real shops. Through sales growth, it is possible to disperse the burden of expenses for effective TV commercials. As for shops, the company plans to increase the number of shops from 59 in the previous term to 90 this term. ② Expansion of the Specialty Mail Order Business In the previous term, the efforts to develop new products and increase customers via the Internet paid off, and sales increased considerably. Especially, the sales of nursing goods, food products, wine, etc. increased considerably thanks to the release of new products and the utilization of the Internet. This term, the company will strive to maximize customer LTV* to increase profitability, while actively increasing customers. Cosmetics containing eggshell contributed to the growth of the company, and the cross-border EC in Taiwan moved into the black on a monthly basis. The company aims to grow considerably. *LTV Life Time Value. Profit brought by a customer to an enterprise in his/her lifetime. In general, an enterprise whose customers have a strong attachment to its products and services (customer loyalty) has a higher LTV. ③ Expansion of Retail Store Sales Business and increase in revenue *Japanese clothing shops In the previous term, both sales and profit exceeded the respective estimates. This term, Belluna aims to increase the number of shops by 13 and earn sales of 10 billion yen. The company will release affordable products, including yukata, to increase customers. In order to increase the scale of this business, Belluna acquired "Sagami Group Holdings Co., Ltd." (1st section of Tokyo Stock Exchange; securities code: 8201), which sells kimono, jewelry, etc., by TOB, and reorganized it into a consolidated subsidiary in Jun. 2018. The Belluna Group had been seeking an opportunity to acquire a Japanese clothing-related company, which has a certain business scale and a customer base related to Japanese clothing, and can be expected to develop a mutually complementary relation with the Japanese clothing-related business, in order to expand the Japanese clothing domain of this Retail Store Sales Business further. "Sagami Group Holdings" judged that the best choice was to become a fully owned subsidiary of the Belluna Group in order to enhance its corporate value. The TOB price was about 5.3 billion yen. *Apparel shops In the previous term, the sales of existing shops grew 31.8%, and both sales and profit exceeded the respective estimates due to the reform of its cost structure, etc. This term, the company will increase shops and keep sales growing. ④ Property Business For maturing its portfolio management, Belluna will strengthen the "housing" and "leisure" business domains. In the previous term, Kyoto Granbell Hotel was opened in June 2017, realizing a three-hotel structure. This term, Le Grand Karuizawa Hotel & Resort was opened in July 2018, and some hotels are to be opened in Sri Lanka and Maldives. As existing hotels got on track, both sales and profit are estimated to keep growing. ⑤ New Business Belluna is developing "Online Shopping Mall," "Nursing Business," and "Mini Belluna." Online Shopping Mall, which has just been launched, still has room for improvement, but the company is first laying the groundwork while improving product competitiveness, system performance, and marketing capability for stable operation. As for the nursing business, the company is preparing for the dispatch of nurses and other workers by utilizing the database accumulated through the thriving mail-order businesses targeted at nurses: "Nursery" and "infirmiere." They said that customers' response is favorable. As for the overseas expansion of Mini Belluna, the company will concentrate on cosmetics, healthy food products, nursing business, and property business, and develop a Belluna model suited for the local situation, first considering Taiwan.

 

 

As the increase of customers is sluggish due to the rising of shipping charges caused by the augmentation of distribution costs, the General Mail Order Business, which is the mainstay and has so far grown steadily, is somewhat stagnant. This was assumed at the beginning of the term, and the operating income for the first quarter exceeds the estimate. With the aim of increasing new customers and promoting existing customers to buy more products, the company takes various measures in online mail-order business, including the pursuit of an appropriate product lineup with longtime sellers and products available only via the Internet. The company can strive to derive such an optimum solution for expanding the General Mail Order Business further, thanks to its stable management base and plentiful know-how. We would like to pay attention to the business performance from the second quarter in the short term, the ideal state set in the fourth mid-term plan, including the Japanese clothing business, in the mid/long term, and also its share price, which has been soft since June.

 

◎ Corporate Governance Report Last Update: June 28, 2018. <Basic policy> Our basic policy for corporate governance is to streamline business operation by allowing operating officers to have the authority and responsibility for their businesses under the policy determined by the board of directors, and establish compliance systems and effective management systems by enhancing the fairness and transparency of business administration. In addition, we organized a compliance committee inviting outside intellectuals, granting it authority, so that a third party’s viewpoint would be reflected in management decisions. <Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)> <Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>