Descente, Ltd. reported that revenues for the fiscal nine-month period ended December 31 (Q3 YTD) rose 4.6 percent to ¥90.1 billion from ¥86.1 billion in the 2022 corresponding period. Gains from the incorporation of Le Coq Sportif (Ningbo) Co. Ltd. (NLCS) and an increase of sales in the athleticwear category were larger than the decrease of sales in the golfwear category, increasing net sales (including FX of +¥2.2 billion).
In addition to incorporating NLCS, which has a relatively high gross profit margin, Japan’s direct-to-consumer (DTC) business reportedly “performed well,” improving the gross margin by 240 basis points to 60 percent of sales for the Q3 YTD period.
“In Japan, we are focusing on strengthening DTC business, one of our key strategies,” the company wrote in its YTD finance statement. “Sales were strong at directly managed stores in Descente, and pop-up stores opened for a limited time. In South Korea, sales of Descente’s T-shirts and thinner jackets were strong, and sales at full-priced stores were strong. In China, including NLCS in consolidated results from the fourth quarter of the prior fiscal year contributed to the increase in net sales. Sales in the golfwear category reportedly declined year-over-year (YoY) due to the continued impact of the rebound of the golf boom.”
Gross profit increased 9.0 percent YoY to ¥54.1 billion due to increased sales and improved gross margin of DTC business in Japan.
Gross margins increased 240 basis points to 60.0 percent of sales from 57.6 percent in the 2022 Q3 YTD period.
SG&A expenses increased by 12.6 percent YoY to ¥47.6 billion yen, primarily due to the consolidation of NLCS and aggressive advertising and sales promotions to promote branding.
As a percent of sales, SG&A expenses were lowered to 49.6 percent from 52.9 percent a year ago.
Operating income decreased 11.9 percent YoY to ¥6.4 billion in the Q3 YTD period. Operating margin declined 130 basis points YoY to 7.1 percent of sales in the fiscal Q3 YTD period.
Ordinary income increased by 11.7 percent YoY to ¥11.7 billion due to an increase in equity in earnings of affiliates in line with growth in the performance of Descente China Holding Ltd. (DCH); this marked a record high for the cumulative third quarter.
Net income fell 18.0 percent YoY to ¥8.3 billion, or 9.3 percent of sales, in the fiscal Q3 YTD period, compared to ¥10.2 billion, or 11.8 percent of sales, in the 2022 Q3 YTD period. The company said it was mainly due to the rebound of an extraordinary income of ¥2.1 billion, including a purchase on step acquisitions associated with the consolidation of NLCS in the 2022 Q3 YTD period, in contrast to an extraordinary loss of ¥358 million yen due to the restructuring charges of NLCS in the third quarter of the fiscal year under review, despite an increase in ordinary income.
The impact of the termination of the Marmot brand license agreement in December 2022 and a decrease in sales in the golfwear category was largely responsible for the 5.1 percent YoY net sales decline to ¥37.9 billion. Those factors were said to be partially offset by sales of high-value-added products such as Mizusawa Down and the Descente brand hardshell jacket Creas were said to be strong in the Q3 YTD period, and sales in the athleticwear category increased YoY.
Japan DTC net sales rose by 290 basis points YoY as a percentage of total net sales, and gross margin also improved. These and other initiatives to strengthen the DTC business are reportedly showing steady results.
Japan segment income decreased by 24.7 period YoY to ¥3.3 billion due to a rebound of a one-time gain of approximately ¥470 million that occurred during the 2022 Q3 YTD period, as well as the impact of the rebound of the golf boom and increased advertising expenses associated with branding.
In the athletic wear category, sales increased mainly due to growth in sales at full-priced stores of the Descente brand and strong sales of Umbro, but net sales decreased by 2.1 percent YoY to
¥40.1 billion, and segment income decreased by 8.8 percent YoY to ¥2.96 billion due to a rebound of the golf boom. Although not included in segment income, AKL, an equity method affiliate that operates its Arena brand in South Korea, reportedly showed steady sales of leisure swimsuits in line with the rise in overseas travelers.
Net sales increased by 186.0 percent year on year to ¥10.4 billion due to increased sales from the consolidation of Arena(Shanghai)Industrial Co., Ltd. (ASH) and NLCS as consolidated subsidiaries, as well as the impact of a recovery in personal flows. Segment income decreased by 83.7 percent YoY to ¥42 million yen due to an increase in SG&A expenses associated with the strategic implementation of store renovations and the renewal of exhibitions for rebranding in NLCS, as well as the recording of depreciation of goodwill related to NLCS. Although not included in segment income, DCH, an equity-method affiliate that operates the Descente brand in China, remains strong.
Athleticwear and Accessories
In the Descente brand, sales were reportedly strong in Japan and South Korea, while Umbro brand local marketing strategies were said to be proceeding steadily as sales of products for kids, which the company is focused on in Japan, grew, and sales of street fashion product for the Gen Z consumer continues to be strong in South Korea.
Arena brand sales were robust due to the brand’s exposure at the World Aquatics Championships Fukuoka 2023 held in July 2023 and from marketing activities commemorating the brand’s 50th anniversary in Japan, South Korea and China. In addition, due to the consolidation of ASH and NLCS, net sales in this category increased 16.3 percent YoY to ¥62.19 billion.
Golfwear and Accessories
In Japan, Descente Golf Complex Ginza, the company’s golf-complex store in Tokyo (Ginza), increased sales due to the launch of DSG, a new collection that combines functionality and design and captures demand from foreign tourists. On the other hand, net sales in this category decreased 12.2 percent YoY to ¥22.78 billion, which is approximately the level before the pandemic, due to the rebound of the golf boom in Japan and South Korea.
Image courtesy Descente