Casio Computer Co Ltd

TSE:6952

Earnings Call Analysis

Casio Q1 Performance: Sales Up Despite Challenges

Casio reported Q1 net sales of JPY 65.2 billion, up 4% year-on-year, with net income surging 79% to JPY 6.2 billion. Although operating profit rose 5%, ordinary income dropped 9%, and the operating profit margin stood at 6.9%. The Timepieces segment saw a 3% decline in net sales due to a 31% dip in the Chinese market, partially offset by gains elsewhere. The company is focusing on launching new G-SHOCK models and expanding in high-growth markets like India and ASEAN. While Casio predicts no change in its full-year forecast, strong performance is expected in its high-end metal models and e-commerce channel.

Introduction to Company Performance

In the first quarter of the fiscal year ending March 2025, the company reported solid growth in certain areas while facing challenges in others. Net sales increased to JPY 65.2 billion, up 4% year-on-year. Operating profit also grew by 5% to JPY 4.5 billion, resulting in an operating profit margin of 6.9%. Notably, net income saw a significant increase of 79%, reaching JPY 6.2 billion, reflecting a strong earnings performance despite some segments facing downturns.

Segment Analysis: Timepieces

The Timepieces segment was a mixed bag, experiencing a local currency decline of 3% in net sales largely due to a steep 31% drop in sales from China. While the overall G-SHOCK sales slipped, Casio brand watches showed resilience, particularly in Europe. The segment’s operating profit margin stood at 14.4%, showcasing the strength in specific product lines. The company noted that G-SHOCK models remained stagnant in market share at about 49%, but low product availability impacted sales of entry-level offerings.

Regional Insights and Sales Strategies

Geographically, excluding China, overall sales improved by approximately 1.5% on a local currency basis. The rising inbound demand in Japan and steady e-commerce growth in North America were positive signals. The company is actively promoting high-end models and Casio brand watches while expanding its market reach through localized strategies in India and the ASEAN regions. These areas are being prioritized for growth with dedicated stores and tailored marketing approaches, emphasizing brand ambassadors and region-centric promotions.

EdTech and Other Segments

The EdTech segment aligns closely with expectations, although it is grappling with sluggish demand influenced by inflation in Europe and the U.S., leading to a cautious outlook. The sound business is targeting improved profitability by focusing on higher-margin products while implementing cost-reduction strategies. The company is taking a measured approach to adjust its operations in less profitable areas, including potential downsizing in certain product lines.

Strategic Innovations and Product Launches

As part of its growth strategy, the company is preparing to launch several compelling new products, especially within the popular G-SHOCK lines. For the 50th anniversary of Casio watches, the company plans to leverage this milestone for marketing while also enhancing their product offerings across various price segments. This includes introducing new models that balance affordability with quality, especially to regain market share in entry-level products.

Cost Management and Structural Reforms

The company is seeking efficiency through structural reforms aimed at reducing fixed costs by approximately JPY 5 billion in the upcoming fiscal year. These reforms have primarily targeted sluggish markets such as China and are set to streamline operations across regions while ensuring they can adapt to local market conditions.

Looking Ahead: Financial Guidance

The company provided guidance that remains consistent with previous outlooks, signaling stability amid challenges. Investors can expect continued focus on profitability improvements, particularly through enhanced sales strategies and innovation in product development, despite fluctuating regional performances. With the goal of cementing its brand reputation and renewing focus on growth areas, the company shows commitment to navigating the current economic landscape effectively.

Earnings Call Transcript 2025-Q1

[Seiji Tamura, executive]

Hi. I am Tamura. Thank you for watching, taking time out of your business schedule today. I'd like to take this opportunity to thank you very much for your continued guidance and support to our company.

Now let's get right into the explanation of our results in the first quarter of the fiscal year ending March 2025. The table on the left shows the consolidated results of the first quarter for the whole company. Net sales were JPY 65.2 billion, up 4% year-on-year. Operating profit was JPY 4.5 billion, up 5%. And operating profit margin was 6.9%. Ordinary income was JPY 5.6 billion, down 9%. And net income was JPY 6.2 billion, up 79% year-on-year. EPS was JPY 26.74. ROE was 10.7%.

The table on the right shows the results by segment. In the Timepieces segment, both net sales and operating profit increased with operating profit margin of 14.4%. In the Consumer segment, both net sales and operating profit increased with operating profit margin of 5.3%. In the System Equipment segment, both net sales and operating profit went down and operating loss was JPY 0.4 billion. For your information, from the first quarter of this fiscal year, the handheld terminal and electronic cash register businesses, which had been included in the Systems Equipment segment before, have been shifted to the Others segment as discontinued businesses. The same classification is used for the result of the previous fiscal year. Corporate adjustments amounted to minus JPY 1.5 billion.

Let me next explain the forecast for this fiscal year. There is no change from the previous forecast.

Next, I'd like to explain the first quarter results by business segment. Starting off with the segment of Timepieces. Net sales declined 3% on a local currency basis year-on-year due to a significant sales decline in China. The number of G-SHOCK units sold was down, although sales of Casio brands remains strong. Sales mix by region is as shown in the pie chart on the right.

Next, I'd like to present the results and overview of the Timepieces business by product. Among G-SHOCK metal models, the full-metal version, which is a square design of the original model, continued to sell well in Asia. The new top-of-the-line MR-G series also performed well in Japan. Among G-SHOCK resin series, the octagonal 2100 series continued to perform well globally. The new Baby-G series, which can be freely customized, are also popular in Asia. As for the sports line, the high-end model with a heart rate monitor and a GPS functionality performed well in North America. With regards to models other than G-SHOCK, the EDIFICE with colored dials and Casio brand watches remained strong, especially in Europe.

G-SHOCK mix was 49% in the first quarter. The most recent G-SHOCK mix in the fourth quarter of the previous fiscal year was also 49%, so the G-SHOCK mix remained flat. However, from year-on-year perspectives, the G-SHOCK mix is down. This is mainly due to a decline in the sales competition of China where the G-SHOCK mix is high. On the other hand, Casio brand watches have been performing well in Europe and other regions. As a result, the sales composition of G-SHOCK as a percentage of total sales has been declining.

I would like to continue with the results and overview of the Timepieces segment by region. Overall consolidated sales in Q1 were down 3% on a local currency basis compared to the same period last year. The sales decline by 31% in China had a negative impact on overall watch sales, which resulted in the decline in net sales as a total of the Timepieces segment. However, if you look at all regions, excluding China, net sales increased by approximately 1.5% on a local currency basis. In Japan, inbound demand is on the rise as the number for foreign visitors to Japan increases. High-end metal models are also performing well. In North America, the impact of the decrease in the number of store accounts continues, but e-commerce is driving sales of new products and sales are recovering moderately. In addition, sales of high-end products and [ Duras ] are also strong. In Europe, we are horizontally expanding the successful practices in France to Spain and Italy. Sales of Casio brand watches also remained strong.

In other regions, there was a significant year-on-year decline in sales in Hong Kong. Therefore, the overall sales in other regions were down from the previous year. However, in the forecast regions such as India and others, both online and offline sales continued to be strong. In the ASEAN regions, taxation varies from country to country. In Singapore and Thailand, sales trended somewhat sluggish.

Next, the EdTech business. It is currently performing almost in line with the plan. Regarding the sound business, even though inventory adjustment is progressing in some regions, it is taking time for demand to recover. Therefore, we continue to face a difficult situation. In Europe and the U.S., we are seeing sluggish demand due to the impact of inflation.

With regards to the System Equipment business, what we are doing in the HR solutions business, CHS business, and the management support for small and medium businesses, SMB business, is to continue promoting the placement in the recruiting business to existing customers. This concludes the explanation on the first quarter results and overview by business segment.

Next, let me explain the strategy for return to growth for the Timepieces. With the 50th anniversary of Casio watches, while we position G-SHOCK as our main access, we also focus on Casio watches using these 2 powerful access to drive regrowth. Our policy to strengthen high-end models centering on G-SHOCK metal versions remain unchanged. Also, in the low end of G-SHOCK, we are facing the issue of price increase or basic models that we need to address. This is due to the price hikes of components and materials and the depreciation of local currencies against the U.S. dollar especially in emerging markets, which has resulted in price increases in the real terms. There has been a price increase in this relatively low-priced entry-level model of G-SHOCK. As a result, we were not able to offer products that met this entry-level demand. This is one of the reasons why G-SHOCK ratio declined. Therefore, for the entry price range, we need to introduce powerful new products in the future. We are going to launch new products that match the price points in this price range.

In the mid- to high-end price ranges of G-SHOCK, we also plan to introduce powerful new products, including the 2100 series, which are popular in the current fiscal year. In the India and ASEAN regions, which are our forecast markets, we will accelerate the development of G-SHOCK specialty stores.

Please take a look at the bottom row. These are Casio watches sold under the Casio brand. We have been promoting Casio's brand history in parallel with the brand for G-SHOCK. In addition, we have been promoting measures to expand sales such as setting up dedicated store front spaces. As a result, we were able to increase sales significantly, not only in terms of volume but also in terms of unit price. They are still maintaining the momentum. We will continue to make efforts to rapidly expand Casio watch specialty stores.

Next, I will take you through the strategy by region for the Timepiece business. Let me first explain the growth strategy in the forecast areas of India and ASEAN regions. Starting off with India. Currently, we are working with 2 major brand ambassadors for our marketing activities. We have also launched TEAM G-SHOCK, exclusive to India, in order to increase brand recognition. We are promoting localization in product planning to have more locally produced model lineup.

With regards to our strategy for ASEAN, we prioritize countries with high growth potential and increase store counts and strengthen local marketing actions. We will have shared models focused for ASEAN area and expand sales in full swing. We will plan localized promotions deeply rooted in the region across the countries. We will accelerate the opening of G-SHOCK stores and the stores dedicated to Casio brand watches to expand the sales scale of the Casio brand. In Japan, the scale of the MR-G and G-SHOCK premium lines is expanding. We will also focus on this area. We also roll out marketing activities utilizing the TEAM G-SHOCK, consisting of famous athletes.

Lastly, we are working on measures to increase direct-to-consumer D2C sales mix, especially in North America and Europe. We are strengthening directly managed e-commerce shops through measures such as limited edition models offered only in direct stores. We are also in the process of expanding the loyalty point program, which has been already introduced in North America, to other regions.

Although I mentioned this at the last financial results meeting, I'd like to explain again how we are addressing unprofitable businesses. Regarding the electronic dictionaries business, we will carefully assess the direction for the future, assuming the scale of the business will move toward a shrinking equilibrium in the future, while working simultaneously on income structure reform and fixed-cost reductions.

In the sound business, we will improve profitability by increasing the sales mix of highly value-added products having high margin in the high-end, mid-price range such as the slim and smart model of Privia and the new CELVIANO. At the same time, we will work to optimize the profit structure by reducing fixed costs and improving the cost of sales ratio. There is no change in our policy of making timely revisions to the direction of our business in accordance with the progress of KPIs.

Now let me continue with the progress on the structural reforms that we have been carrying out this fiscal year. In China, where the business remains sluggish, we implemented the structural reforms in the first quarter ahead of other countries. We are also implementing structural reforms in other regions as planned. As a result, we'll be able to reduce fixed costs by approximately JPY 5 billion from the next fiscal year onward as a benefit from the reform.

From this page onward, the supplemental materials. Let me briefly touch upon some of the key topics from there. 2024 is the 50th anniversary for Casio watches. Casio entered the Timepiece business in 1974 with the release of Casiotron, the world's first digital watch with automatic calendar function. Celebrating the 50th anniversary, we have released the cross-brand Casio watch, Sky and Sea models on June 7.

The topic from the EdTech business is a presentation we made on the scientific calculator for the Nigerian market on June 27. This scientific calculator was created to meet their educational needs. It is certified by the Lagos State Ministry of Education of Nigeria. We hope that the scale of the custom-made model will help to prevent counterfeit products. Please take a look at the following pages for your reference data. This completes my explanation. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]