Senshukai : 〔Delayed〕Summary of Financial Results for the First Quarter of Fiscal Year 2022

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SENSHUKAI CO.,LTD. (8165) Financial Results for the First Quarter of Fiscal Year 2022

1. Qualitative Information on Quarterly Consolidated Financial Performance

(1) Explanation of Results of Operations

Beginning with the first quarter of 2022, Senshukai has applied Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020). As a result, the explanation of results of operations for the first quarter of 2022 does not show the amount of increase or decrease compared with the same period of 2021.

In the first quarter (January 1 to March 31) of 2022, there were restrictions on economic activity in some areas of Japan and consumer spending remained sluggish as the omicron variant sparked a rapid increase in COVID-19 cases. Restrictions were eased by the end of March due to pandemic safety measures and progress with vaccinations. However, the outlook for the economy is uncertain because the end of the pandemic is still not in sight and there are concerns about the possibility of the appearance of a new variant. In addition, consumer sentiment in Japan is declining because of growing geopolitical risk involving the Ukraine crisis and other events, the high price of crude oil, rising U.S. interest rates, exchange rate volatility and the increasing cost of household necessities.

In Japan's retail industry, competition became even more intense due to a growing number of new competitors in the mail-order and online shopping business as e-commerce are firmly established as shopping channels among customers. Furthermore, a full-scale recovery of Japan's retail sector is unlikely to happen soon because of the decline in demand linked to staying home for safety during the pandemic and the low level of consumer motivation to make purchases.

In January 2022, the replacement of the core IT system was completed as planned. Replacement activities included revisions and business process reengineering for systems and business processes that had b ecome complicated. The purpose was to better enable Senshukai to adapt to a variety of changes in the business climate. Although a long time and many measures were used to prepare for the new IT system, there were problems after the system became operational. For example, some orders were not properly received and some merchandise could not be delivered on schedule. Furthermore, the impact of these problems broadened for several reasons, including a large volume of calls at the call center, and it became difficult to conduct normal business operations. The new system is currently operating properly. However, sales at Belle Maison business in the core mail -order and online shopping business have been far below the level of the same period of 2021. Furthermore, first quarter sales in 2021 include sales of the bridal business, which was subsequently excluded from the consolidated financial statements. As a result, net sales in the first quarter of 2022 were 12,009 million yen (compared with 18,655 million yen in the first quarter of 2021), operating loss was 2,794 million yen (compared with a loss of 388 million yen in the first quarter of 2021), ordinary loss was 2,727 million yen (compared with a loss of 373 million yen in the first quarter of 2021). Loss attributable to owners of parent was 2,728 million yen (compared with a loss of 290 million yen in the first quarter of 2021).

Business segment performance was as follows.

Consolidated subsidiaries Dears Brain Inc. and PLANETWORK CO., LTD., and WONDERSTAGE Co., Ltd., a wholly owned subsidiary of Dears Brain and a sub-subsidiary of Senshukai, were excluded from the scope of consolidation following the sales of all shares of Dears Brain and PLANETWORK on March 31, 2021 . The Group had withdrawn from these businesses. Consequently, there is no longer business segment information for the bridal business beginning with the first quarter of 2022.

(Mail-order and Online Shopping Business)

Consolidated sales in the mail-order and online shopping business, which is primarily the catalog and the Internet businesses, was 10,309 million yen in the first quarter of 2022 compared with 15,337 million yen in the first quarter of 2021. There was an operating loss of 2,879 million yen compared with a profit of 531 million yen in the first quarter of 2021.

In the first quarter, there were problems involving the launch of the new core IT system following the completion of the replacement of the previous system in January 2022. To deal with these problems, marketing activities were suspended and the level of normal business activities was reduced in order to focus on handling inquiries from customers. Due to this situation, sales of Belle Maison in this segment were far below sales one year earlier, resulting in lower segment sales and earnings.

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SENSHUKAI CO.,LTD. (8165) Financial Results for the First Quarter of Fiscal Year 2022

(Corporates Business)

Consolidated sales in the corporates business, which provides products and services to corporations, were 1,131 million yen compared with 1,065 million yen in the first quarter of 2021. Operating profit was 55 million yen compared with a profit of 109 million yen in the first quarter of 2021 .

In the first quarter, as the omicron variant made the pandemic worse in Japan, sales increased because of strong sales of COVID-19 testing kits and other products involving the pandemic as people used them as novelties. Earnings were lower because of the higher sales volume of products with a low gross margin.

(Insurance Business)

This business provides support, mainly to Belle Maison members, for choosing the most suitable insurance policies. Consolidated sales were 87 million yen compared with 71 million yen in the first quarter of 2021 and operating profit was 26 million yen compared with a profit of 13 million yen in the first quarter of 2021.

(Others)

Consolidated sales in other businesses, which include childcare support business and manufacturing and sales of cosmetics, were 481 million yen compared with 447 million yen in the first quarter of 2021. Operating profit was 3 million yen compared with a profit of 3 million yen in the first quarter of 2021.

(2) Explanation of Financial Position

(Balance sheet position)

Assets totaled 48,673 million yen at the end of the first quarter of 2022, a decrease of 3,803 million yen from the end of 2021.

Current assets decreased 3,926 million yen to 30,536 million yen. The factors included a decrease of 5,552 million yen in cash and deposits, while there were increases of 1,194 million yen in merchandise and finished good s and 477 million yen in other. Non-current assets increased 123 million yen to 18,136 million yen. The factors included an increase of 318 million yen in intangible assets, while there were decreases of 82 million yen in property, plant and equipment and 111 million yen in investments and other assets.

Current liabilities decreased 964 million yen to 15,001 million yen. The factors included decreases of 1,559 million yen in electronically recorded obligations-operating, 272 million yen in other and 220 million yen in provision for sales promotion expenses, while there were increases of 591 million yen in contract liabilities and 399 million yen in accounts payable-trade.Non-current liabilities decreased 54 million yen to 3,253 million yen. The main factors included a decrease of 105 million yen in long-term borrowings.

Net assets decreased 2,784 million yen to 30,418 million yen. The factors included booking of loss attributable to owners of parent of 2,728 million yen. As a result, the equity ratio was 62.5%.

(3) Explanation of Consolidated Forecasts and Other Forward-looking Statements

In response to problems that began after the January 2022 completion of the replacement of the core IT system, Senshukai has suspended marketing activities and reduced the level of normal business activities in order to place priority on handling inquiries from customers. Due to this situation, sales of Belle Maison in the core mail -order and online shopping business were far below sales one year earlier. Currently, marketing activities have resumed, the volume of business activities is increasing and there are new actions for achieving a sales recovery. The entire Senshukai Group is firmly committed to restoring the trust of customers and achieving a recovery in the volume of orders. The forecast for 2022 reflects these issues and activities.

More information is in "Notice of Revisions to Consolidated Outlook and Dividends (Dividend Suspension)" (Japanese version only) that was announced on May 13, 2022.

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