Bridge Report:（9997）Belluna Second Quarter of Fiscal Year ending March 2022

President & CEO Kiyoshi Yasuno	Belluna Co., Ltd. (9997)

Company Information

Stock Information

*The share price is the closing price on January 4. Shares outstanding, DPS and EPS are from the financial report of second quarter of FY 3/22. ROE and BPS are from the financial report of the previous term.

Earning trends

* Unit: Million yen, yen.
*Net income is profit attributable to owners of parent. Hereinafter the same shall apply.

This report outlines Belluna, the financial results for the second quarter of fiscal year ending March 2022 etc.

Table of Contents

Key Points
1. Company Overview
2. The Second Quarter of Fiscal Year ending March 2022 Earnings Results
3. Fiscal Year ending March 2022 Earnings Estimates
4. Management Policy and Activities
5. Conclusions
<Reference: Regarding corporate governance>

Key Points

• The sales in the second quarter of the term ending March 2022 were 105.8 billion yen, up 16.1% year on year. Sales grew in the General Mail Order Business, the Gourmet Food Business, the Nurse-related Business, etc. Sales declined in the Cosmetics and Health Foods Business and Other Business. Gross profit rose 14.2% year on year. Operating income grew 4.2% year on year to 4.7 billion yen, as SG&A, including media and distribution costs, augmented 15.2% year on year, but it was offset. Ordinary income declined 0.5% year on year to 5.1 billion yen, due to the rise in commission fee. Sales and profit fell below the initial forecasts.

   

• There is no change in the earnings forecasts. In the term ending March 2022, sales are projected to rise 19.1% year on year to 246 billion yen and operating income is forecast to grow 11.2% year on year to 17.5 billion yen. The mail-order industry is expected to see the continuous growth of demand due to the changes in consumers’ lifestyles and purchase behavior amid the COVID-19 pandemic. The General Mail Order Business is expected to see a significant sales growth this term, too. The kimono-related business and the property business are projected to recover. The company plans to pay a dividend of 19.00 yen/share, up 2.5 yen from the previous term, showing an increase for the fourth consecutive term. The expected payout ratio is 14.7%. The current term is the final fiscal year of the fourth management plan, and the company will establish a foothold for the fifth management plan.

   

• The progress rate for the first half was 43.0% for net sales and 27.2% for operating income. Both rates are slightly lower than the previous several fiscal years. While there is a rebound from the nest egg demand, the mutant stock Omicron has started to expand, and the business environment is still uncertain. In this circumstance, we are looking forward to the increase of sales and profits in the third and fourth quarters as the company continues to establish a foothold for the fifth management plan.

   

• In the kimono store sales business, which is expected to see high growth in the future, structural reforms will be completed this fiscal year. We will keep a close eye on the speed at which this business will start up in the next fiscal year.

   

   

1.Company Overview

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 on the first section of the Tokyo Stock Exchange. Belluna actively conducts M&As to fortify the 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. “Basic Mind” 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,” while “Basic Action” is composed of “1. Collecting information,” “2. Case studies,” “3. Utilizing data,” “4. Testing theories,” “5. Use of others,” “6. Intellectual understanding,” “7. Discussion” and “8. Reporting, contacting, and consulting.” These are what the employees of Belluna should return to when facing a challenging problem.
In addition, the company considered “CCBSKKKS” (C: Change, C: Challenge, B: Brushing up, S: Speed, K: (Kizuki) Awareness, K: (Kaizen) Improvement, K: (Kyakushikou / Kyakumichaku) Customers’ perspective and getting closer to customers, S: Case studies of SA class corporations) as a common factor in growing corporations and recognizes it as a milestone for its own growth.

1-3 Market Environment・Competitors in the same business

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.
Promoting further understanding of the growth strategy will be necessary for an increase in PER and PBR.

◎Comparison of major mail-order companies

* Unit: Million-yen, yen, x.
*Sales and operating income are the values estimated by the company for this term.
*ROE is the actual result of the previous term.
*Market Cap, PER and PBR are the values calculated from the closing prices on December 2, 2021.

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. The General Mail Order and Specialty Mail Order businesses account for about 70% of total sales.
In order to further clarify business content, Belluna has classified its business into eight segments: General Mail Order Business, Cosmetics and Health Foods Business, Gourmet Business (including wine and Japanese sake), NursesBusiness, Database Use Business, Kimono-related Business, Property Business, and Other Business in the fiscal year ending March 2022.

(Produced by Investment Bridge with reference to the material of Belluna.)

(Produced by Investment Bridge with reference to the material of Belluna.)

①General Mail Order Business
◎Outline
The company receives orders and sells apparel goods, fashion goods, interior accessories, etc. mainly via e-commerce (via PCs and smartphones), catalogues and flyers.

(E-commerce, smartphone application)

(Major catalogs)

(Taken from the website of Belluna)

◎Attributes of subscribers
As of the end of March 2021, the number of subscribers is about 21.4 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 36.1 % of the population of this age group in Japan, indicating an overwhelming market share.

(Taken from the reference material of the company)
The number of loyal subscribers, who are defined as subscribers who have purchased products within 2 years after registration, was 5.59 million in the term ended March 2021.
It is steadily increasing.

(Produced by Investment Bridge with reference to the material of Belluna)

Belluna employs about 70 merchandisers, and offers more fashionable products than leading supermarkets and women’s apparel shops. Particularly, designs focusing on hiding Mrs’s figures which change with age are well-received by its user.
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 “ GeeRA(former Ryu-Ryu)” for customers in their 30s. The company offers products tailored for the preferences and needs of each age group.

(Produced by Investment Bridge with reference to the material of Belluna.)

◎Efforts for developing e-commerce
As a result of the efforts, online shopping has become the main driving force in attracting new customers.
In the term ended March 2021, the ratio of e-commerce increased significantly, meeting the demand from housebound consumers amid the spread of COVID-19.

(Produced by Investment Bridge with reference to the material of Belluna)

②Specialty 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.

(Produced by Investment Bridge with reference to the material of Belluna)

◎ Efforts for the shift to e-commerce
In each category, e-commerce ratio has increased remarkably. The majority of new customers were acquired through online shopping.

(Produced by Investment Bridge with reference to the material of Belluna)

➂Retail Store Sales Business
Aiming for a synergistic effect between the mail-order, online, and physical store sales channels, the company is targeting customers who are unreachable by mail-order by placing kimono and apparel stores in shopping centers and shopping malls.

In Japanese clothing field, the company operates “BANKAN” and “Wamonoya,” which sell kimono and Japanese clothing-related products. In addition to them, Sagami Group Holdings Co., Ltd. was reorganized into a consolidated subsidiary in Jun. 2018.
Sagami Group Holdings runs stores under the two brand names “Sagami" and “Tokyo Masuiwaya.” They possess abundant knowledge and know-how about kimono culture and how to handle kimono, and excel in helping customers get dressed
The traditional Japanese apparel stores "BANKAN" and "Wamonoya," which has a high average spending per customer, can be characterized by high profitability they have improved, and presently, the company is working to permeate the market with their “Sagami” brand. It is also endeavoring to cultivate future customers among young women who do not currently own kimonos through promotional campaigns.

Apparel stores BELLUNA offer casual clothes at low prices, targeted mainly at women in their 40s and 50s.
As of the end of March 2021, there are 91 Japanese clothing stores ("BANKAN" and "Wamonoya,") and 86 apparel stores. The total number of stores is 177.

(Produced by Investment Bridge with reference to the material of Belluna)

④Solution 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 receiving, shipping, and storing products at distribution centers and operating call centers (managing both inbound and outbound calls).
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.

⑤Finance 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.

(Produced by Investment Bridge with reference to the material of Belluna)

⑥Property Business
The company leases real estate, such as office buildings, operates hotels, and so on.

⑦Other Business
The company operates the wholesale business targeted at department stores and co-op shops, and the insurance business.

1-5 Characteristics and Strengths

➀Customer 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 20 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 36.1% of the population, 1 in 3 people 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.

②Building a new successful business model and challenges
Within a corporate culture that values endeavors, Belluna is working to construct a new successful business model and establishing a track record rather than maintaining the status quo.

In the General Mail Order Business, the fashion e-commerce mall "RyuRyumall" targeted at young people launched in 2018 continues to grow in terms of order receipt and total distribution amount. In the Specialty Mail Order Business, the "Eggshell Membrane Beauty Serum: Beauty Opener" has grown to achieve the largest domestic sales, beginning to contribute to the profit of new products.

In addition to strengthening the mail order business targeted at men and handling more champagne, Belluna will begin focusing on the online sales of products targeted at nurses and caregivers, which is a large market.
Moreover, the company will actively engage in M&A to further strengthen online sales.

③Stable 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(FY3/22), the company plans to pay 19 yen/share, up 2.5yen/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

In the term ended March 2021, due to the increase of net income margin, ROE recovered to the double-digit level. The goal of the fourth management plan is to achieve ROE of 10.5% by the end of the final year of the plan in the term ending March 2022. If the company can improve total asset turnover rate, it will be able to achieve a higher ROE.

2. The Second Quarter of Fiscal Year ending March 2022 Earnings Results

2-1 Consolidated Business Results

*Unit: Million yen. Gross profit is gross profit - net. Quarterly net income is quarterly net income attributable to owners of parent.

Sales and Profit increased. But both sales and profit fall below the initial plan.
The sales in the second quarter of the term ending March 2022 were 105.8 billion yen, up 16.1% year on year. Sales grew in the General Mail Order Business, the Gourmet Food Business, the Nurse-related Business, etc. Sales declined in the Cosmetics and Health Foods Business and Other Business. Gross profit rose 14.2% year on year. Operating income grew 4.2% year on year to 4.7 billion yen, as SG&A, including media and distribution costs, augmented 15.2% year on year, but it was offset. Ordinary income declined 0.5% year on year to 5.1 billion yen, due to the rise in commission fee. Sales and profit fell below the initial forecasts.

2-2 Trend of each segment

*Unit: Million yen. The composition ratio of income means the ratio of income to sales.

◎ General Mail Order Business
Sales grew, but an operating loss was posted.
As the number of mail-order customers increased, the company advertised its products actively like in the previous term. Meanwhile, the demand from housebound consumers due to the spread of COVID-19 subsided, so the response from existing customers weakened from the same period of the previous year. The ratios of media, distribution costs, and personnel expenses rose.

◎ Cosmetics & Healthy Food Business
Sales declined, but profit grew.
Sales declined, because the cosmetics sale business saw the sluggish overseas business performance of OZIO Inc. due to the spread of COVID-19 in Taiwan and the health food mail-order business saw a decline in response from new customers of Refre Co., Ltd.
On the other hand, the advertisement cost for increasing new customers shrank, resulting in a rise in profit.
◎ Gourmet Business
Sales grew, but profit declined.
As the number of mail-order customers increased, the company advertised its products actively like in the previous term. Meanwhile, the demand from housebound consumers due to the spread of COVID-19 subsided, so the response from existing customers weakened from the same period of the previous year.

◎ Nurse Business
Sales grew, but profit declined.
While the company advertised its products actively through TV commercials, etc., the demand from housebound consumers due to the spread of COVID-19 subsided. The demand for medical goods and supplies, including face masks and pulse oxymeters, which was in high demand in the same period of the previous year, weakened.

◎ Database Business
Sales and profit grew.
Sales of mail-order agency services and enclosing and package delivery services were strong.

◎ Kimono store sales Business
Sales grew, but an operating loss was posted.
The company shortened business hours and temporarily closed shops, following the policies of developers of department stores including the shops to prevent the spread of COVID-19, but their impact was weaker than that in the same period of the previous year.

◎ Property Business
Sales grew, and the business moved into the black.
The hotel business was affected by the restrictions on travel and foreign people’s entry to Japan imposed by the Japanese government to prevent the spread of COVID-19, but their impact was weaker than that in the same period of the previous year, and overseas real estate was sold.

◎ Other Business
Sales declined, and an operating loss was posted.
Due to the spread of COVID-19, the restaurant business, the accommodation booking business, etc. struggled, but the impact of COVID-19 weakened from the same period of the previous year.

2-3 Financial Condition and Cash Flows

◎Main BS

*Unit: Million yen

Total assets increased 8.9 billion yen year on year to 249.1 billion yen, as cash and deposits declined, but inventory assets and tangible fixed assets rose. Total liabilities rose 5.5 billion yen to 132.5 billion yen due to the increase in trade payables, short and long-term interest-bearing debts and etc. As retained earnings grew etc., net assets increased 3.3 billion yen to 116.5 billion yen. As a result, capital-to-asset ratio decreased 0.4 points from the end of the previous term to 46.5%.

◎Cash Flows

*Unit: Million yen

Operating CF decreased due to the increases in inventory assets and payment of income taxes, etc. The deficits of investing CF and free CF augmented due to the rise in purchase of property, plant and equipment, etc.
Financing CF turned positive due to the increase in short and long-term debts, etc. The cash position improved.

3.Fiscal Year ending March 2022 Earnings Estimates

3-1 Full-year Earnings Estimates

*Unit: Million yen. The estimated values are those announced by the Company. Net income is profit attributable to owners of parent

No change in the earnings forecasts. Sales and profit are estimated to increase
There is no change in the earnings forecasts. Sales are projected to rise 19.1% year on year to 246 billion yen and operating income is forecast to grow 11.2% year on year to 17.5 billion yen. The mail-order industry is expected to see the continuous growth of demand due to the changes in consumers’ lifestyles and purchase behavior amid the COVID-19 pandemic. The General Mail Order Business is expected to see a significant sales growth this term, too. The kimono store sales business and the property business are projected to recover. The company plans to pay a dividend of 19.00 yen/share, up 2.5 yen from the previous term, showing an increase for the fourth consecutive term. The expected payout ratio is 14.7%. The current term is the final fiscal year of the fourth management plan, and the company will establish a foothold for the fifth management plan.

3-2 Trends of each segment

*Unit: 100 million yen. The composition ratio of income means the ratio of income to sales.

The kimono store sales and property businesses are expected to contribute to profit growth. The progress rate of operating income is low, but the company plans to operate business while putting importance on profit in the second half.

4. Management Policy and Activities

Belluna’s mid/long-term policy is to aim for the maturation as a general trading company for online shops with 300 billion yen in sales and 30 billion yen in operating income as a benchmark.

【4-1 Regarding the business environment】

The company will pay attention to “the intensification of competition,” “lingering deflationary mindsets,” “weakening of demand from housebound consumers,” “growth of the Internet,” and “diversification of consumption” in the external environment and “business administration in response to the change of the times,” “mature organizational structures,” and “initiatives for new business” in the internal environment, and cope with changes.

【4-2 Fifth Management Plan】

The company’s goals for the final fiscal year of its Fifth Management Plan for three years from the fiscal year ending March 2023 to the fiscal year ending March 2025 are as follows.

Goal of fiscal year ending March 2025

In order to establish a foothold for the Fifth Management Plan, Belluna intends to meet this fiscal year's budget, which is the final year of the Fourth Management Plan.

(1) The current term and Fifth Management Plan

*Unit: 100 million yen.

In the term ending March 2023, the company plans to reorganize the 8 business segments into 4 segments: the mail order business, the kimono-related business, the property business, and other business. The mail order business will be composed of 5 sub-segments: mail order business for apparel and miscellaneous goods (former title: general mail order), cosmetics and health foods, gourmet food, nurse-related, and database-related businesses. The company will provide investors with more understandable information on business segments.

(2) Concept of the Fifth Management Plan
The company will focus on the following five points.

1. Achieving each segment goal
2. Implementation of e-commercialization (including SNS)
3. Maturation of the portfolio (by widening and strengthening business pillars)
4. Training and enhancing practical human resources
5. Promoting M&A aimed at synergy effect

【4-3 Activities in each business segment】

(1) Mail Order Business
①Overall Mail Order Business

*Unit: 100 million yen.

(Recent situation, outlook for the current term, and measures)

As shown in the graph, the ratio of e-commerce is increasing in each business. The shift to e-commerce is progressing in all kinds of businesses for all generations.

(Taken from the reference material of the company)

② Apparel & Furniture, Goods Business (previous General Mail Order Business)

*Unit: 100 million yen.

(Recent situation, outlook for the current term, and measures)

③ Cosmetics & Healthy Food Business

*Unit: 100 million yen.

(Recent situation, outlook for the current term, and measures)

④ Gourmet Business (including wine and sake)

*Unit: 100 million yen.

(Recent situation, outlook for the current term, and measures)

⑤ Nurse Business

*Unit: 100 million yen.

(Recent situation, outlook for the current term, and measures)

⑥ Kimono store sales Business

*Unit: 100 million yen.
(Recent situation, outlook for the current term, and measures)

Regarding Sagami, the company strives to “enrich products” for increasing new customers, holds sessions for wearing kimono and teaching how to get on kimono for increasing repeat customers, and is shifting from large-scale events to in-store events for reducing the ratio of costs.
In addition, the company educates sales staff for selling products at stores, closes unprofitable stores, and takes comprehensive measures for cost reduction. The company aims to raise the earning ratio per store from 2-3% to 10%.

Structural reform will be completed this term, and the business is expected to move into the black next term. The company aims to earn sales of 33.5 billion yen and a profit of 2.1 billion yen in the fifth management plan (the end of the term ending March 2025) and occupy a 20% share of the kimono market (with a scale of 230 billion yen), becoming the largest company in this market, in the sixth management plan (the end of the term ending March 2028).

⑦ Property Business

*Unit: 100 million yen.

(Recent situation, outlook for the current term, and measures)

5.Conclusions

The progress rate for the first half was 43.0% for sales and 27.2% for operating income. Both rates are slightly lower than the previous several fiscal years. While there is a rebound from the nest egg demand, the mutant stock Omicron has started to expand, and the business environment is still uncertain. In this circumstance, we are looking forward to the increase of sales and profits in the third and fourth quarters as the company continues to establish a foothold for the fifth management plan.
In the kimono-related business, which is expected to see high growth in the future, structural reforms will be completed this fiscal year. We will keep a close eye on the speed at which this business will start up in the next fiscal year.

<Reference: Regarding corporate governance>

◎Organization type, and the composition of directors and auditors

◎Corporate Governance Report
Last Update: June 30, 2021.

<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.

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
We disclose the compliance with each principle of the corporate governance code under “Our Efforts Towards the Corporate Governance Code” at the following company website (corporate governance).