Descente Ltd. reported that revenues for the 2022 full fiscal year ended March 31, 2023 rose 10.8 percent to ¥120.61 billion ($922.3 million), exceeding the company’s November forecast for sales of ¥118.0 billion for the year. Still, the company missed their forecast on the profits side as operating income and ordinary income came up short of the November outlook. Net profit exceeded expectations.
Due to the increase in sales, gross profit rose 14.2 percent year-over-year to ¥69.19 billion ($529.0 million), or 57.4 percent of sales. Sales administrative expenses rose 10.7 percent from the prior year to ¥61.40 billion ($469.5 million) due to increased sales commissions linked to sales and advertising promotion costs for branding. On the other hand, the increase in gross profit exceeded the increase in sales administrative expenses, and operating profit increased significantly year-on-year to ¥7.79 billion ($59.6 million), up 51.7 percent from the prior year.
In addition to the increase in operating profit, due to the growth of the company’s equity-method affiliate companies, Arena KoreaLTD. (AK) and Descente China Holding Ltd. (DCH), ordinary profit increased 54.4 percent year-over-year to a record-high ¥11.66 billion ($89.2 million) for the year.
The company said that for the year, due to the relaxation of restrictions and the normalization of economic activities which were affected by COVID-19, net profit was a record high, growing 69.4 percent year-over-year to ¥10.55 billion ($80.7 million).
The fiscal year end of major overseas subsidiaries is December, and the business results for each segment do not include figures for equity method affiliates.
In Japan, with the aim of strengthening the direct-to-consumer (DTC) business, Descente said it is making changes to clarify the company’s corporate brand Descente as a premium sports brand. Descente is driving sales, in addition, Japan business maintained the return and discount rates at low levels, and so the profits have reportedly increased significantly. Descente said it is making company-wide reforms to improve profitability. They said they strictly assess the quantity of products and keep them to the appropriate standard, and maintain the return or refund rate, discount rate, and inventory levels low from the previous year. As a brand, Descente continues to grow in Japan. In fiscal 2022, especially supported by the revitalization of the sports market, team businesses have exceeded sales year-over-year. The collaboration items with brand ambassador Elaiza Ikeda are doing well in Le Coq Sportif, and golfwear such as Rijoume, which utilizes the company’s sportswear manufacturing capabilities, is said to growing “vigorously.” The Arena brand is also said to be doing well, and sales of products for top swimmers continue to grow. The share of players wearing the the company’s brand was highest at major domestic competitions.
Japan region sales rose 6.4 percent year-over-year to ¥52.75 billion ($403.4 million) for fiscal 2022. In addition to increased revenue, the company continued to curb sales losses, resulting in increased gross profit in the region. In terms of sales administration costs, advertising promotion costs for branding and payment fees to improve customer experience in e-commerce are increasing, but total sales profit increased more than sales administration costs. As a result, Japan region income increased 71.1 percent year-on-year to ¥4.54 billion ($34.7 million) for the year.
Descente is aiming for stable growth in Korea. With the strong growth of Umbro, the South Korea business produced increases in both revenue and profits. The first quarter saw an large increase in the number of people affected by COVID-19, which also affected economic activity, but the impact was said to be subsequently mitigated.
At the Descente brand, which is driving sales, the company is trying to renew the company’s stores by changing coloring from black to gray with the intention of creating stores that are easy for young people to enter, and this has led to an increase in the number of new customers visiting the stores. In the fiscal year under review, sales of Le Coq Sportif grew, with particularly strong sales of tennis wear and light down jackets. Umbro continues to grow strongly, street fashion category gaining popularity. The company said it has strengthened branding for the younger generation for Umbro, such as launching a collaboration with Kanghyuk, an apparel brand characterized by innovative designs, and received a major response in social media. Golf wear is said to be struggling with the stabilization of the golf boom in Korea, but athletic wear apparently performed well.
Korea region net sales increased 7.7 percent year-over-year to ¥57.87 billion ($442.5 million) for the year. Region income increased 196.9 percent compared with previous year to ¥4,38 billion ($33.5 million) as a result of the increase in net sales, a higher sales rate of full-price items, and optimizing inventory levels.
Although not included in segment income, the Arena brand, which is operated by AK, an equity-method affiliate, posted significant growth in results due to increased demand for swimsuits as a result of a higher entry rate at pools.
In China, to expand its business, the company has incorporated Arena (Shanghai) Industrial Co., Ltd. (ASH) and Le Coq Sportif (Ningbo) Co., Ltd. (NLCS) as consolidated subsidiaries, which resulted in increases in revenue.
In China, segment net sales increased 90.1 percent year-over-year to ¥7.66 billion ($59.6 million) due to higher revenues from the consolidation of ASH and NLCS. To expand the size of the China business, Descente is re-branding Le Coq Sportif and Munsingwear.
In order to rebuild the image of Le Coq Sportif as a sports brand, there said it has switched, from the 2023 autumn/winter product category to product planning with a core category of tennis, golf, cycling and training. In addition, Descente is actively implementing rebranding initiatives, such as rebuilding communications in distribution strategies and streamlining inventory. The China region operating loss was ¥632 million ($4.8 million), a decrease of 1,017 million yen compared with previous year, due to higher sales administrative expenses, inventory write-downs, local store shutdowns associated with the spread of COVID-19 and distribution disruptions. Although not included in segment earnings, DCH, an equity-method affiliate that launched Descente in China, continues to increase strongly due to increased recognition through aggressive marketing, the growing size of its stores and the growing number of loyal customers.
In the Athletic Wear segment, Descente reportedly drove sales in Japan, South Korea and China, while street fashion merchandise contributed to sales in Umbro in South Korea. Arena also gained a larger share of the major athletic wear in Japan.
Net sales of Athletic Wear category increased 17.0 percent year-over-year to ¥74.82 billion ($572.1 million) for fiscal 2022.
In the Golf Wear segment, Descente and Le Coq Sportif were said to be strong in Japan, especially in the Descente Golf Complex Ginza, the company’s golf flagship store that opened in Tokyo on March 2022. Inbound demand increased and sales grew. In South Korea, The comp[any said it struggled with the stabilization of the golf boom. However, net sales in the golf wear category increased 3.7 percent versus the prior year to ¥35.52 billion ($271.6 million) for fiscal 2022.
Looking ahead, Descente sees fiscal 2023 net sales reaching ¥127.0 billion, a 5.3 percent increase over the 2022 results. Operating income is forecast at ¥8.5 billion, a 9.1 percent increase versus the 2022 level. Net profit is forecast and ¥11.0 billion for the year, a 4.3 percent increase versus the 2022 fiscal year result. Net profit excluding non-recurring gains is expected to increase 19.7 percent for the year.
