Descente, Ltd. reported that revenues for the fiscal six months ended September 30 rose 4.9 percent to ¥59.9 billion ($396 mm) from ¥57.2 billion a year ago. Gains from the incorporation of Le Coq Sportif (Ningbo) Co. Ltd. (NLCS) into China’s consolidated results and growth in activewear overall offset decreased sales in golfwear.
The Japan-based company noted that ordinary income and net profit attributable reached record highs in the six months, continuing from the record levels in the first quarter.
Descente said in its financial statement, “In Japan, we are focusing on strengthening DTC business, which is one of our priority strategies. In particular, sales at directly managed stores were strong. In China, the incorporation Of Le Coq Sportif (Ningbo)Co., Ltd (NLCS) into consolidated results from the fourth quarter of the previous year greatly contributed to the increase in sales compared to the same quarter of the previous year. In addition, the athletic wear category of each segment grew, and although sales of the golf wear category decreased compared with the same quarter of the previous fiscal year.”
Gross profit increased 7.9 percent year on year to ¥35,897 million due to the increase in sales and the improvement in gross margin of DTC business in Japan. Gross margins decreased to 58.2 percent from 59.8 percent.
SG&A expenses increased 11.9 percent year on year to ¥31,745 million due to increased advertising and promotional expenses associated with branding and the incorporation of Chinese affiliates. As a percent of sales, SG&A expenses were lowered to 49.6 percent from 52.9 percent a year ago.
Operating income decreased 15.2 percent to ¥4,151 million.
Equity in earnings of affiliates increased due to growth in the performance of Descente China Holding Ltd (Dch) and Arena Korea Ltd (Ak), resulting in an 18.8 percent increase in ordinary income from the same quarter of the previous fiscal year to ¥8,007 million.
Quarterly net income increased 10.5 percent year-on-year to ¥5,672 million, despite ¥303 million of restructuring charges for NLCS as an extraordinary loss resulting from higher ordinary income.
Japan: Sales decreased 6.7 percent from the same quarter of the previous fiscal year to ¥23,957 million. The decline was attributed to the impact of the termination of the “Marmot” licensing contract in December 2022 and a decline in sales of golf wear categories. Japan’s income decreased 35.9 percent to ¥2,054 million due to the absence of the one-time gain of approximately ¥470 million that occurred during the first quarter of the previous fiscal year, as well as increased expenses associated with the branding, such as refurbishment of directly managed stores and the new brand ambassador contracts, etc.
Descente said of the Japan region, “Gross margin is steadily rising, as the items were sold well in the proper price, especially in the renovated “Descente” directly managed stores. In addition, inbound demand remained strong from the first quarter, resulting in a 3 points increase in DTC ratio compared to the same quarter of the previous year.”
South Korea: Sales decreased 1.7 percent from the same quarter of the previous year to ¥27,751 million. Sales of athletic wear categories such as “Descente” and “Umbro” were strong, but performance in the golf wear category was weak because of the decline in the golf boom. Segment income decreased 12.9 percent to ¥1,740 million due to a decrease in sales and an increase in SG&A expenses such as advertising expenses. Arena Korea Ltd, which is not included in segment income but is an equity-method affiliate, posted strong sales of leisure swimsuits in line with an increase in overseas travelers, and its results grew.
China: Sales increased 221.9 percent year-on-year to ¥7,099 million, primarily due to higher revenues from the incorporation of NLCS and an increase in travelers from China in Hong Kong. Segment income jumped 85.3 percent compared with the same quarter of the previous fiscal year to ¥241 million despite the recording of amortization of goodwill, due to the above-mentioned sales increase. DCH, an equity-method affiliate developing “Descente” remains strong
Athletic wear: Sales increased 17.3 percent year on year to ¥41,914 million. Descente said, “In Japan, sales of Mizusawa Down at “Descente ” directly managed stores and our own e-commerce were robust, and sales of “Arena,” which benefited from the ripple effects of the World Aquatics Championships Fukuoka 2023, grew. In South Korea, sales of “Umbro” remained strong for the younger generation. Sales in China increased significantly due to the incorporation of NLCS.”
Golfwear: Sales declined 14.2 percent to ¥15,281 million, “affected by the stabilization of the golf boom in Japan and South Korea, despite the launch of hit products such as the Stretch Forcer, a sportswear that combines original cutting and stretch fabric from “Le Coq Sportif”, and Condor, a golf shoes in South Korea for “Descente.”
Descente maintained its forecast for the year. Sales are expected to reach ¥127,000 million, up 5.3 percent year over year. Operating income is expected to reach ¥8,500 million, up 9.1 percent; ordinary income, ¥13,000, up 11.4 percent; and net income, ¥11,000 million, ahead 4.3 percent.
Photo courtesy Descente/Le Coq Sportif