Health food portfolio exceeds JPY 1B in combined 1Q revenue across three brands; BOTANIST's US Costco rollout drives +395% overseas growth; company targets return to double-digit growth backed by over JPY 3B in strategic investment

Summary

Consolidated 1Q revenue recovered to double-digit growth at JPY 12.49B (+12.4% YoY), while full-year operating income guidance was disclosed as a range of JPY -0.5B to +1.0B, reflecting approximately JPY 3B in incremental advertising investment. Management candidly acknowledged that two years of ad spend restraint had slowed growth at BOTANIST/YOLU/SALONIA, and explicitly positioned FY2026 as an investment phase. Health food brands (Teaflex/Befas/Collatein) surged to a combined ~JPY 1B in 1Q, emerging as a fourth pillar of the business. The earnings call opened with an apology regarding receipt of the Special Investigation Committee's report, with remedial measures disclosed on the same day.

Key Points (Earnings Takeaways and Growth Actions)

• Business Strategy and Market Assessment
  • Highlighted ample room for growth in core markets: shampoo in the JPY 1,000 price range at a +7.1% CAGR and mid-price hair dryers at a +7.8% CAGR
  • Concluded that two years of ad spend restraint was the primary driver of deceleration across three flagship brands; FY2026 is positioned as a deliberate investment phase that will compress margins
  • While specific figures for the JPY 100B revenue target by 2030 were not disclosed, management reaffirmed its commitment to sustaining double-digit growth
• Current Business Progress and Drivers
  • BOTANIST 1Q revenue +63.1%, driven by the US Costco rollout across ~250 stores, contributing ~JPY 400M in incremental global revenue
  • YOLU posted a YoY revenue decline in 1Q, but the new "Mellow Repair" variant drove the brand to #1 weekly POS share in the drugstore channel
  • Skincare & other +44.9%; health food brands recorded a combined ~JPY 1B in 1Q revenue, accelerating growth in new categories
  • COGS ratio improved to 40.1% (-3.7pt YoY), marking five consecutive periods of improvement, driven by favorable category mix and elimination of intermediary margins through Artemis's distribution infrastructure
• Strategic Initiatives and Inflection Points
  • Confirmed normalization of IPTOS following organizational restructuring; a new haircare brand developed under the new structure is slated for launch in 2H FY2026
  • Disclosed that product awareness of SALONIA's mid-price tier remains low; initiatives to boost awareness and expand offline experiential touchpoints are underway
  • High-price tier to be addressed via new standalone brands, including oral care brand "BEAURAL" and other new brands spanning new categories and premium price points
  • In response to the Special Investigation Committee's report, remedial measures were disclosed on the same day; approximately JPY 100M in investigation costs were booked as extraordinary losses in 1Q

Outlook and Strategy

• Full-year revenue guidance of JPY 52.0–54.0B (+5–10% YoY), operating income of JPY -0.5–+1.0B, EBITDA of JPY 1.2–2.7B. Incorporates JPY 700–800M negative impact from Strait of Hormuz risk on raw materials
• ~JPY 3B incremental investment governed by a ~3-year payback discipline; further upside investment may be considered depending on revenue trajectory
• FY2027 is expected to see earnings recovery, but full payback is not anticipated until FY2028 onward, implying a prolonged timeline for profit normalization
• By category: haircare to grow modestly, beauty appliances targeting double-digit full-year growth, skincare & other expected to deliver substantial revenue gains
• JPY 400–600M allocated to global operations, with US Costco and Korean OLIVE YOUNG expansion as launchpads for accelerated overseas growth
• Annual dividend of JPY 15/share split into two payments (interim JPY 7.0 + year-end JPY 8.0); shareholder benefits also shifted to semi-annual, increasing return frequency

Positive Factors

• 76% of BOTANIST purchasers have bought the brand three or more times, the highest repeat rate in the category. A resumption of ad investment to acquire new users should carry high probability of revenue re-acceleration
• Health food brands scaling rapidly: Teaflex at JPY 260M monthly revenue and Befas at JPY 110M monthly revenue (as of March 2026), with each brand expected to reach at least JPY 1B in revenue during FY2026
• COGS ratio improved for the fifth consecutive period (1Q: 40.1%), structurally supported by rising skincare & other mix and utilization of Artemis's distribution infrastructure
• SALONIA mid-to-high price tier products grew +18.3% YoY, with Glossy Care Dryer +25.0% and Air Treatment Dryer +53.5%, demonstrating ongoing product mix improvement
• YOLU surpassed 100 million cumulative units sold (announced May 2026), confirming strong brand equity
• AI × JBIST (IPTOS 2.0) enhancing reproducibility of hit creation and accelerating development speed

Concerns and Risks

• Full-year operating income guidance of JPY -0.5–+1.0B represents a sharp decline from JPY 3.88B in the prior year. If incremental investment is slow to translate into revenue, earnings recovery could be pushed back
• Geopolitical risk in the Strait of Hormuz estimated to have a JPY 700–800M negative impact on raw materials and packaging (calculated as of end-April); potential for additional impact under a deterioration scenario remains unclear
• While remedial measures have been disclosed following receipt of the Special Investigation Committee's report, restoring governance credibility will take time. No shareholder derivative suits have been filed to date, but the matter is being monitored carefully
• President Onishi's co-ownership stake is gradually declining from ~60% to ~57% through 2025, warranting attention to potential supply/demand implications
• Deferral of specific numerical disclosure for the JPY 100B revenue target by 2030 has reduced visibility on the medium- to long-term growth roadmap

Performance Highlights

Consolidated 1Q FY12/2026 revenue came in at JPY 12.49B (+12.4% YoY), returning to double-digit top-line growth. However, approximately JPY 700M in incremental advertising and promotional investment deployed in 1Q compressed consolidated operating income to JPY 760M (-13.8% YoY) and consolidated EBITDA to JPY 1.19B (-8.9% YoY). COGS ratio improved to 40.1% (-3.7pt YoY), marking the fifth consecutive period of improvement.

• BOTANIST 1Q Revenue: JPY 3,109M (+63.1% YoY)
• YOLU 1Q Revenue: JPY 3,510M (-8.4% YoY)
• Global 1Q Revenue: JPY 587M (+226.1% YoY)
• COGS Ratio: 40.1% (-3.7pt YoY)
• Advertising & Promotion Expense Ratio: 21.3% (+5.5pt YoY)
• Consolidated EBITDA: JPY 1,199M (-8.9% YoY)
• EBITDA Margin: 9.6% (prior year 1Q: 11.8%)