MiiS LIFT BRUSH and bet Consolidation to Return to Positive Operating Income in 2H; M&A Criteria Redesigned Around Growth Markets and Cross-Channel Synergies

Summary

Operating losses widened in 1H. The main drivers were the cancellation of a large transaction with a major beauty brand and weakness at WinC and the clinic business. Extraordinary losses added to the damage and shrank net assets. Management framed 1H as the earnings trough and laid out a two-pronged 2H recovery plan. The first lever is monthly profitability at WinC, driven by MiiS LIFT BRUSH, launched in August. The second is a new earnings pillar from the acquisition of luxury reuse business bet. Following the MOVE impairment, the company has reset its core M&A criteria around market growth and cross-channel synergies. Management said it is more confident of achieving VISION2029 than it was at 1Q results.

Key Points

• Management Strategy and Market View
  • Management dropped its earlier view that a brand can grow in a mature market as long as the brand itself is expanding. It now holds that the underlying market must also be growing.
  • The beauty appliance market grew +8.4%, outpacing cosmetics at +2.7%. Management concluded that LIFT BRUSH's growth reflects this backdrop rather than luck.
  • Management defines a brand as a collection of values. On that basis, the reuse business, which serves the aspirations of both sellers and buyers, sits within brand production.
  • Niche leaders that are not themselves growing will remain M&A targets if they offer a credible path into growth markets.
• Current Business Progress and Drivers
  • WinC's standalone monthly operating income moved from -JPY 45M in August to -JPY 2M in September, with +JPY 10M expected in October.
  • LIFT BRUSH is a high-ticket product whose unit economics can absorb its CPA. That makes advertising spend viable and is the key driver of the recovery.
  • The large transaction was cancelled after management judged it to carry transaction risk. Management said it pulled out before the issues escalated into a bigger problem.
  • CPA spiked at one cosmetic dentistry clinic, but the clinic business has since recovered and is expected to be profitable on a monthly basis in November.
  • Matsumura Shoten's ROCO NAILS and anilet+ brands generated 2Q revenue of JPY 65M. They are the main driver of the subsidiary's margin improvement, and the company plans to disclose their figures going forward.
• Key Strategic Initiatives and Inflection Points
  • The company acquired bet (trading as watch7) for JPY 1B, with consolidation from December.
  • watch7 will be rebranded as GINZA SEVEN, broadening from a watch specialist into reuse across all luxury categories.
  • GINZA SEVEN will build a distinctive brand world, including store interiors, to give customers a reason to buy and sell there.
  • The company booked an impairment on MOVE but is not exiting the brand. It is continuing the KLab alliance while acknowledging problems with synergy creation and entry timing.
  • Post-merger integration at bet will rely fully on AI, with no additional back-office hires.

Outlook and Strategy

• Full-year guidance was revised as follows:
  • Revenue of JPY 15,444M (previously JPY 6,602M)
  • Operating income of -JPY 211M (previously +JPY 50M)
  • Adjusted EBITDA of JPY 75M
• The plan calls for 2H operating income of +JPY 88M, improving from -JPY 30M in 3Q to +JPY 118M in 4Q. Existing businesses alone are expected to contribute +JPY 29M in 4Q.
• The 2H plan for WinC extrapolates September–October actuals, and management described it as achievable rather than aspirational.
• Kanarabo is seasonally weaker in 2H, and the plan conservatively factors in returns of pre-acquisition inventory. Fixing the seasonality issue is a task for next fiscal year onward.
• LIFT BRUSH is targeting revenue of over JPY 500M this fiscal year and JPY 4B in FY3/30.
• VISION2029 targets operating income of JPY 1.5B in FY29/3. bet's FY29/2 business profit target of JPY 740M would cover roughly 40% of the required business profit.
• Management admitted the downturn was deeper than expected but positioned 4Q as the launchpad for next fiscal year. A VISION2029 update is scheduled for May 2027.

Positive Factors

• bet posted revenue of JPY 11.2B and business profit of JPY 150M for March–August 2026. In six months, it earned roughly 90% of its prior full-year profit.
• bet plans to raise retail gross margin from 6–7% to 10–12% and grow retail revenue from JPY 500M to JPY 2B by FY29/2.
• The reuse market has expanded for 15 consecutive years, with branded goods up +19.4%, giving the company a foothold in a growth market.
• AI-driven decision-making lifted Matsumura Shoten's 1H gross margin to 45.8%, ahead of the 41.9% plan.
• Kanarabo continues to benefit from Best Cosmetics awards, and sales of b idol's Magic Eyebrow Powder grew to approximately 230%.
• The remaining major goodwill balances show no signs of impairment, and goodwill amortization for the MOVE business will cease from 2H onward.

Concerns and Risks

• Financial headroom is thin, with an equity ratio of 9.3% and goodwill at 417% of net assets. Because operating cash flow remains negative, the company has disclosed events or conditions that could raise doubts about its ability to continue as a going concern.
• The company has not yet decided how to fund the remaining JPY 950M of the bet purchase price. Depending on the terms, the financing could be dilutive.
• If JPY 500M is not paid by March 31, 2027, the seller can reclaim the shares at no cost. The JPY 50M advance payment would also be forfeited.
• bet operates on low gross margins. Its earnings are exposed to price swings in watches and bags, shifts in inbound tourist demand, and key-person departures.
• The valuation loss on KLab shares may change with the period-end market price. The bet acquisition will also add further goodwill.
• M&A-related borrowings will double interest expense from JPY 21M to JPY 42M. Weaker LIFT BRUSH ad efficiency and inventory shortages are further downside risks.

Performance Highlights

Consolidating Kanarabo, the clinic business, and HaD drove a sharp increase in revenue. However, operating losses widened due to WinC's weak performance, higher clinic CPA, and increases in goodwill amortization and corporate expenses. Extraordinary losses totaled JPY 323M, including a JPY 133M valuation loss on KLab shares and a JPY 183M impairment on MOVE. As a result, the interim net loss attributable to owners of the parent company came to -JPY 691M (vs. -JPY 186M in the prior-year period). Adjusted EBITDA was -JPY 148M (vs. -JPY 109M in the prior-year period), and net assets fell from JPY 1,086M to JPY 508M.

Segment Performance

• Gross Profit Margin: 49.9% (vs. 55.4% in the prior-year period, -5.5pt)
• Fujiko 2Q Revenue: JPY 724M (+40.1% QoQ)
• MiiS 2Q Revenue: JPY 273M (+46.8% YoY, our estimate)
• b idol 2Q Revenue: JPY 180M (+JPY 39M QoQ)
• bialne 2Q Revenue: JPY 80M (subscription retention rate of 94.7%)
• Fujiko Focus Product Repeat Rate: 81.7% (repeat revenue of JPY 109M)

Q&A List

• Q

  With the equity ratio declining, is the balance sheet sound? Are there any going-concern issues?

  A

  Because operating cash flow remains negative, events or conditions that could raise going-concern doubts do exist. However, cash and deposits of around JPY 300M secure near-term funding, so we have concluded that there is no material uncertainty.