TKLF - Yoshitsu Co. Ltd Reports Fiscal Year 2022 Financial Results

Tokyo, Japan, Aug. 15, 2022 (GLOBE NEWSWIRE) -- Yoshitsu Co., Ltd (“Yoshitsu” or the “Company”) (Nasdaq: TKLF), a retailer and wholesaler of Japanese beauty and health products, as well as sundry products and other products in Japan, today announced its financial results for the fiscal year ended March 31, 2022.

Mr. Mei Kanayama, the Principal Executive Officer of Yoshitsu, commented, “We are pleased that our full-year results were in line with our expectations as we closed out a successful year with a revenue increase of 3.1%, despite the challenging environment. As expected, our businesses were significantly affected by the travel restrictions and delays in overseas exporting and importing related to the COVID-19 pandemic. Although the global economy has been filled with uncertainties, we are satisfied with the accomplishments achieved in our key strategic initiatives, including the completion of our initial public offering in January 2022 and the expansion of our market coverage with new stores and wholesale customers. We continued to invest in extending the online marketplace to seize the opportunities of the increasing popularity of online shopping. As we look to the next fiscal year, we remain focused on expanding our global footprint, optimizing our international warehouse operations in North America, diversifying our products, and growing our customer base. We believe that we are capable of mitigating the near-term turbulence and expect to continue to build strong momentum with our flexible and resilient business model. We are confident that our strategic initiatives will drive Yoshitsu to achieve long-term growth and generate more value for our shareholders.”

Mr. Youichiro Haga, Principal Accounting and Financial Officer of Yoshitsu, stated, “While the uncertain market conditions disrupted our business during fiscal year 2022, our business fundamentals remained strong and the market demand for our products continued to grow. During fiscal year 2022, we generated record revenue of $228.4 million, demonstrating our efforts and reflecting the successful execution of our strategic development plan. We remain committed to delivering high-quality products, improving customer experience, and expanding our market share. Looking forward, we will continue to monitor the potential impact of the COVID-19 pandemic on our business activities. In the meantime, we will focus on leveraging the strengths of our market position and improving operating efficiency. We expect to achieve solid financial and operating results and continue to expand our business to align with our strategic growth initiatives.”

Fiscal Year 2022 Financial and Operational Highlights

* Notes: pp represents percentage points

• Revenue was $228.4 million, an increase of 3.1% from $221.5 million for fiscal year 2021.
• Gross profit was $39.1 million, a slight decrease of 2.3% from $40.0 million for fiscal year 2021.
• Gross margin was 17.1%, compared with 18.0% for fiscal year 2021.
• Net income was $3.3 million, a decrease of 40.7% from $5.5 million for fiscal year 2021.
• Basic and diluted earnings per share were $0.10, compared with $0.21 for the same period of last year.
• As of August 15, 2022, the Company’s distribution channels consisted of (i) 11 directly-operated physical stores in Japan and five directly-operated physical stores in Hong Kong, (ii) 25 online stores through the Company’s websites and various e-commerce marketplaces in Japan, China, and Korea, and (iii) eight franchise stores in the U.S., four franchise stores in Canada, one franchise store in the U.K., and approximately 151 wholesale customers in Japan and other countries, including China, the U.S., and Canada.

Fiscal Year 2022 Financial Results

Revenue

Revenue increased by $6.9 million, or 3.1%, to $228.4 million for fiscal year 2022, from $221.5 million for fiscal year 2021. The increase in revenue was primarily due to increased revenue from online stores, franchise stores, and wholesale customers, which was partially offset by a decrease in revenue from directly-operated physical stores.

Revenue from directly-operated physical stores decreased by $18.7 million, or 63.3%, to $10.8 million for fiscal year 2022, from $29.5 million for fiscal year 2021. The decrease was mainly attributable to the state of emergency declared by the Japanese government in April 2021 in response to the COVID-19 pandemic. Due to this state of emergency, almost all of the Company’s physical stores were temporarily closed during the period between late April 2021 and the end of May 2021. After the Company’s physical stores resumed their business in June 2021, most of the Company’s physical stores remained closed on Saturdays or Sundays, and the opening hours were reduced by two to four hours to eight to nine hours per weekday. From July 2021 to the present, most of the Company’s physical stores resumed their nearly normal business with working hours reduced by one to three hours every day. However, due to the restriction imposed by the local government and a lack of international tourists, the Company’s business was still negatively affected. Hence, revenue from directly-operated physical stores decreased significantly during the fiscal year ended March 31, 2022.

Revenue from online stores increased by $9.7 million, or 8.7%, to $121.2 million for fiscal year 2022, from $111.4 million for fiscal year 2021. The increase was mainly attributable to the growing popularity of online shopping, given that the e-commerce industry has been rapidly expanding in recent years. In order to seize the opportunities, the Company expanded its online store network by opening new stores on multiple popular and reputable third-party e-commerce marketplaces in overseas regions, while improving the efficiency of its supply chain and storage and inventory management. In order to reduce the Company’s operating expenses and credit risk, the Company outsourced the entire operations of some of its online stores to third-party companies, and sold products to these third-party companies instead of to individual customers. Revenue from overseas online sales increased during the first three quarters of the fiscal year ended March 31, 2022; however, it deceased during the last quarter of the fiscal year ended March 31, 2022, due to the resurgence of COVID-19 in China. During the last quarter of the fiscal year 2022, shipments and customer clearance for overseas exports and imports were delayed due to a shipping container shortage and the stricter border control protocols, and the Company’s online sales in China were significantly constrained due to the inability to deliver the products to its customers as a consequence of mobility restrictions and lockdowns imposed in many provinces across China. Therefore, revenue from overseas online sales increased by $11.7 million during the fiscal year ended March 31, 2022, as compared to the same period last year. The increase was partially offset by the decreased revenue from Japanese domestic online sales of $2.0 million, which was mainly due to the closing of three unprofitable domestic online stores. Hence, revenue from online stores only increased by 8.7% during the fiscal year ended March 31, 2022, as compared to last year.

Revenue from franchise stores and wholesale customers increased by $15.9 million, or 19.7%, to $96.4 million for fiscal year 2022, from $80.6 million for fiscal year 2021. With the improvement of the Company’s supply chain and storage and logistic capacity, it added five new franchise stores and increased its sales to overseas wholesale customers on a per customer basis during the fiscal year ended March 31, 2022. Although the Company’s overseas franchise stores and wholesale customers sales during the last quarter of the fiscal year ended March 31, 2022 declined due to the shipping container shortage caused by the COVID-19 pandemic and soaring shipping charges, its sales to overseas franchise stores and wholesale customers during the fiscal year ended March 31, 2022 increased by $16.2 million as compared to last year. The increase was partially offset by a slight decrease of $0.3 million in the Company’s Japanese domestic wholesale.

Gross Profit and Gross Margin

Total cost of revenue increased by $7.8 million, or 4.3%, to $189.4 million for fiscal year 2022, from $181.6 million for fiscal year 2021.

Gross profit decreased slightly by $0.9 million, or 2.3%, to $39.1 million for fiscal year 2022, from $40.0 million for fiscal year 2021. Overall gross margin decreased slightly by 0.9 percentage points to 17.1% for fiscal year 2022, from 18.0% for fiscal year 2021.

Gross margin for directly-operated physical stores, online stores, and franchise stores and wholesale customers was 11.4%, 18.8%, and 15.5%, respectively, for fiscal year 2022, compared to 16.6%, 20.2%, and 15.5%, respectively, for fiscal year 2021.

Operating Expenses

Operating expenses consist of selling and marketing expenses and general and administrative expenses, which primarily include payroll, employee benefit expenses and bonus expenses, shipping expenses, promotion and advertising expenses, and other facility-related costs, such as store rent, utilities, and depreciation.

Operating expenses increased by $3.4 million, or 11.5%, to $32.7 million for fiscal year 2022, from $29.3 million for fiscal year 2021. The increase was primarily due to an increase in shipping expenses, transaction commissions paid to third-party e-commerce marketplace operators, consulting and professional service fees, payroll, employee benefit expenses, and bonus expenses.

Interest Expense s , net

Interest expenses, net include interest expenses calculated at interest rate per loan agreements and loan service costs, which are directly incremental to the loan agreements and amortized over the loan periods. Interest expenses, net increased by $0.7 million, or 37.8%, to $2.7 million for fiscal year 2022, from $2.0 million for fiscal year 2021.

Other Income, net

Other income, net primarily includes tax refunds, disposal gain or loss from property and equipment, government subsidies, and other immaterial income and expense items. Other income, net increased by $0.4 million, or 101.7%, to $0.7 million for fiscal year 2022, from $0.4 million for fiscal year 2021. The increase was mainly due to an increase in other income, such as increased receipt of government subsidies as the financial support during the COVID-19 pandemic, as well as an increase in royalty fees collected from the Company’s franchisees during the fiscal year ended March 31, 2022.

Provision for Income Taxes

Provision for income taxes decreased by $1.1 million, to $2.2 million for fiscal year 2022, from $3.3 million for fiscal year 2021. The decrease in provision for income taxes was mainly due to the decreased taxable income for the fiscal year ended March 31, 2022.

Net Income

Net income was $3.3 million, or $0.10 per basic and diluted share for fiscal year 2022, compared to $5.5 million, or $0.21 per basic and diluted share for fiscal year 2021.

Financial Condition

As of March 31, 2022, the Company had cash of $17.7 million, compared to $16.4 million as of March 31, 2021. As of March 31, 2022, the Company had accounts receivable balances due from third parties and related parties of $34.8 million and $6.3 million, respectively, compared to $43.7 million and $3.5 million as of March 31, 2021. Approximately 52.1% of the balance as of March 31, 2022 had been subsequently collected and the remaining balance is expected to be fully collected by September 30, 2022. The collected balances of such receivables provide cash available for use in the Company’s operations as working capital, if necessary. As of March 31, 2022, the Company had merchandise inventories of $30.2 million, which the Company believes can be sold quickly, based on its analysis of the current trend in demand for its products, compared to $27.1 million as of March 31, 2021.

Net cash used in operating activities was $12.3 million for fiscal year 2022, mainly derived from net income of $3.3 million for the year, and net changes in the Company’s operating assets and liabilities, which mainly included an increase in merchandise inventories of $6.1 million as the Company increased the stockpile of inventories in anticipation of increased sales in the coming months. Net cash used in operating activities was $3.4 million for fiscal year 2021, mainly derived from net income of $5.5 million for the year, and net changes in the Company’s operating assets and liabilities, which mainly included an increase in accounts receivable from third parties and related parties of $10.3 million in line with the increase in revenue.

Net cash used in investing activities was $2.9 million for fiscal year 2022, mainly due to the purchases of property and equipment of $2.8 million. Net cash provided by investing activities was $1.8 million for fiscal year 2021, mainly due to the collection of a long-term loan made to a related party of $3.8 million and repayments from related parties of $0.9 million, partially offset by purchases of property and equipment in the aggregate amount of $2.9 million.

Net cash provided by financing activities was $18.3 million for fiscal year 2022, which primarily consisted of net proceeds from the Company’s IPO of $22.1 million, proceeds from short-term borrowings of $282.2 million, and proceeds from long-term borrowings of $16.6 million, partially offset by repayments of short-term borrowings of $302.5 million. Net cash provided by financing activities was $11.1 million for fiscal year 2021, which primarily consisted of proceeds from short-term borrowings of $424.2 million, proceeds from long-term borrowings of $2.8 million, and capital contributions of $1.4 million, partially offset by repayments of short-term borrowings of $415.8 million and repayments of long-term borrowings of $1.5 million.

Conference Call Information

The Company will host an earnings conference call at 8:30 am U.S. Eastern Time (9:30 pm Japan Standard Time) on August 15, 2022. Dial-in details for the conference call are as follows:

Please dial in at least 15 minutes before the commencement of the call to ensure timely participation.

For those unable to participate, an audio replay of the conference call will be available from approximately one hour after the end of the live call until August 22, 2022. The dial-in for the replay is +1-877-344-7529 within the United States or +1-412-317-0088 internationally. The replay access code is No. 2599619.

A live and archived webcast of the conference call will also be available at the Company’s investor relations website at https://www.ystbek.co.jp/irlibrary/ .

About Yoshitsu Co., Ltd

Headquartered in Tokyo, Japan, Yoshitsu Co., Ltd is a retailer and wholesaler of Japanese beauty and health products, as well as sundry products and other products. The Company offers various beauty products (including cosmetics, skin care, fragrance, and body care products), health products (including over-the-counter drugs, nutritional supplements, and medical supplies and devices), sundry products (including home goods), and other products (including food and alcoholic beverages). The Company currently sells its products through directly-operated physical stores, through online stores, and to franchise stores and wholesale customers. For more information, please visit the Company’s website at https://www.ystbek.co.jp/irlibrary/ .

Forward-Looking Statements

All statements other than statements of historical fact in this press release are forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations and projections about future events and financial trends that the Company believes may affect its financial condition, results of operations, business strategy, and financial needs. In addition, there is uncertainty about the further spread of the COVID-19 virus or the occurrence of another wave of cases and the impact it may have on the Company’s operations, the demand for the Company’s products, global supply chains , and economic activity in general. Investors can identify these forward-looking statements by words or phrases such as “ may ,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to,” or other similar expressions. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company’s registration statement and in its other filings with the SEC.

For more information, please contact:

Yoshitsu Co., Ltd
Investor Relations Department
Email: ir@ystbek.co.jp

Ascent Investors Relations LLC
Tina Xiao
President
Phone: +1-917-609-0333
Email: tina.xiao@ascent-ir.com

YOSHITSU CO., LTD
CONSOLIDATED BALANCE SHEETS

YOSHITSU CO., LTD
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ( LOSS )

YOSHITSU CO., LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS