Onward Holdings Co Ltd (8016)

Transcription

SR Research Report
2014/7/4
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is
to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an
accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and
findings. We will always present opinions from company management as such. Our views are ours where stated.
We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at
[email protected] or find us on Bloomberg.
SR Research Report
2014/7/4
Contents
Recent Updates .......................................................................................................4
Highlights ............................................................................................................4
Trends & Outlook .................................................................................................5
Business ............................................................................................................... 17
Business Description ........................................................................................... 17
Market and Value Chain ...................................................................................... 29
Strategy ............................................................................................................ 31
Historical Financial Statements................................................................................ 35
Summary .......................................................................................................... 35
Income Statement.............................................................................................. 51
Balance Sheet .................................................................................................... 53
Cash Flow Statement .......................................................................................... 55
Other Information ................................................................................................. 57
History .............................................................................................................. 57
News & Topics ................................................................................................... 57
Top Management ............................................................................................... 59
Employees ......................................................................................................... 59
Major Shareholders ............................................................................................ 59
Dividends .......................................................................................................... 60
Investor Relations .............................................................................................. 60
By The Way ....................................................................................................... 60
Company Profile ................................................................................................. 61
About Shared Research Inc. ................................................................................... 62
Disclaimer............................................................................................................. 62
http://www.sharedresearch.jp/
Copyright (C) 2013 Shared Research Inc. All Rights Reserved
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Income Statement
(JPYmn)
Total Sales
YoY
Gross Profit
YoY
GPM
FY02/10
Cons.
248,634
FY02/11
Cons.
244,550
FY02/12
Cons.
242,402
FY02/13
Cons.
258,369
FY02/14
Cons.
279,073
FY02/15
Est.
290,700
-4.7%
-1.6%
-0.9%
6.6%
8.0%
4.2%
114,176
115,825
115,113
124,490
129,959
137,500
-3.5%
45.9%
1.4%
47.4%
-0.6%
47.5%
8.1%
48.2%
4.4%
46.6%
5.8%
47.3%
4,383
8,928
10,953
11,192
9,422
12,300
-51.8%
1.8%
103.7%
3.7%
22.7%
4.5%
2.2%
4.3%
-15.8%
3.4%
30.5%
4.2%
Recurring Profit
6,120
10,497
13,329
13,405
12,211
13,700
YoY
RPM
-2.6%
2.5%
71.5%
4.3%
27.0%
5.5%
0.6%
5.2%
-8.9%
4.4%
12.2%
4.7%
Net Income
2,187
2,722
3,529
4,503
4,658
5,400
0.9%
24.5%
1.1%
29.6%
1.5%
27.6%
1.7%
3.5%
1.7%
15.9%
1.9%
172,922
29.7
24.0
1,103.0
34.4
24.0
Operating Profit
YoY
OPM
YoY
Net Margin
Per Share Data
172,922
172,922
172,922
172,922
Number of Shares (Thousand)
28.7
22.5
17.4
14.0
EPS
24.0
24.0
24.0
24.0
Dividend Per Share
1,043.6
995.1
1,002.3
999.0
Book Value Per Share
Balance Sheet (JPYmn)
24,677
33,192
30,939
34,330
Cash and Equivalents
98,895 100,321
95,544
100,680
Total Current Assets
86,861
82,987
86,622
89,741
Tangible Fixed Assets, net
64,138
51,561
52,729
51,335
Other Fixed Assets
35,457
43,495
46,745
50,811
Intangible Assets
191,888 186,097 178,044 186,458
Total Fixed Assets
292,568 281,642 276,939 286,779
Total Assets
33,512
33,238
32,703
35,961
Accounts Payable
47,581
29,865
30,886
35,697
Short-Term Debt
84,091 100,740
82,677
90,929
Total Current Liabilities
1,573
19,730
22,665
24,571
Long-Term Debt
20,666
35,545
40,220
43,475
Total Fixed Liabilities
134,404 122,898 119,636 121,407
Total Liabilities
158,164 158,744 157,302 165,372
Net Assets
49,154
49,595
53,551
60,268
Interest-Bearing Debt
Cash Flow Statement (JPYmn)
10,137
13,180
11,206
14,057
Operating Cash Flow
-10,682
-1,961
-5,151
-25
Investment Cash Flow
-7,848
-7,449
-9,271
-4,889
Financing Cash Flow
Financial Ratios
1.6%
1.3%
0.9%
0.7%
ROA
2.8%
2.2%
1.7%
1.4%
ROE
57.7%
56.8%
56.4%
54.1%
Equity Ratio
Figures may differ from company materials due to differences in rounding methods.
Source: Company data, SR Inc. Research
27,375
110,349
102,878
65,926
34,276
203,081
313,430
38,305
44,956
101,009
14,051
37,391
138,401
175,028
59,007
13,361
-14,300
2,121
1.6%
2.8%
55.8%
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Recent Updates
Highlights
On July 4, 2014, Onward Holdings Co Ltd. announced Q1 FY02/15 results; please see the results section
for further details.
On May 8, 2014, SR Inc. updated the company’s report.
On May 7, 2014, the company released April monthly sales data: please see the monthly trends section
for further details.
For corporate releases and developments more than three months old, please refer to the
News & Topics section.
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Trends & Outlook
Monthly Trends
Onward Kashiyama Monthly Sales
FY02/15 (YoY)
Mar
Apr
Men's
16%
-7%
Women's
9%
-9%
Children's
10%
1%
Kimonos
-17% -49%
Other
8%
-7%
Total
10% -8%
FY02/14 (YoY)
Mar
Apr
Men's
2%
-8%
Women's
10%
1%
Children's
9%
-7%
Kimonos
-11% -11%
Other
-1%
-8%
Total
7% -2%
May
6%
0%
6%
36%
-7%
2%
Jun
-3%
-1%
1%
-2%
3%
-2%
Jul
Aug
Sep
Oct
May
1%
6%
-3%
19%
-9%
4%
Jun
1%
10%
4%
-12%
2%
7%
Jul
-11%
0%
2%
-23%
0%
3%
Aug
7%
8%
9%
-6%
11%
8%
Sep
4%
2%
2%
-14%
-1%
2%
Oct
-3%
-5%
-2%
-23%
-11%
-5%
Nov
Dec
Jan
Feb
FY
3%
0%
4%
-8%
2%
1%
Nov Dec
Jan
0%
8%
3%
0%
5%
7%
0%
4% -1%
-14% -17% -15%
0%
5% -1%
0% 5% 5%
Feb
3%
0%
0%
-17%
-3%
1%
FY
0%
3%
1%
-12%
-2%
2%
Quarterly Trends & Results
(JPYmn)
Sales
Q1
SG&A
YoY
RP
YoY
RPM
NI
YoY
Q4
FY02/14(*)
Q1
FY02/15
Q1
FY02/15
1H Est.
% of 1H
FY02/15
FY Est.
% of FY
53.9% 136,500
25.3% 290,700
1.9%
2.8%
3.8%
33,886 23,863 36,649 30,092 35,561 26,884 36,413 31,101 35,719
36,541
50.1% 44.8% 52.0% 44.9% 49.3% 44.7% 49.8% 42.2% 49.4%
49.7%
27,669 26,923 29,102 29,604 29,170 29,943 29,621 31,803 29,170
30,577
40.9% 50.5% 41.3% 44.2% 40.4% 49.8% 40.5% 43.2% 40.3%
41.6%
6,216 -3,059 7,547
- -22.8%
9.2%
- 10.7%
5,963
4,000
48.5% 12,300
7.5%
SG&A / Sales
OPM
FY02/14
Q2
Q3
73,561
11.4%
GPM
YoY
Q1
6.8%
10.1%
YoY
OP
Q4
67,581 53,305 70,479 67,004 72,174 60,145 73,122 73,632 72,361
YoY
GP
FY02/13
Q2
Q3
1.9%
3.2%
2.5% 11.8%
1.4% 18.3%
2.8% 10.3% 14.5%
32.9%
6.8% 12.8%
4.9% 12.7%
5.4% 11.2%
3.8%
-0.6%
1.8%
488 6,390 -3,059 6,792
- 2.8%
- -10.0%
0.7% 8.9%
- 9.3%
9.9%
3.4%
7.4%
-
5.4%
-701 6,548
2.8%
4.8%
149.1%
-
3.3%
-
9.0%
8.1%
6,029 -2,307 8,038 1,645 7,184 -2,413 7,100
340 7,184
12.2%
- -17.4% 45.3% 19.2%
- -11.7% -79.3% 19.2%
8.9%
- 11.4% 2.5% 10.0%
- 9.7% 0.5% 10.0%
5,807
-19.2%
7.9%
121.0%
2,815 -2,293 4,114
3,528
207.5%
30.4%
-
-3.9%
-133 3,841 -2,190 4,106 -1,099 3,841
- 36.4%
- -0.2%
- 36.4%
-6.7%
-8.1%
NPM
4.2%
- 5.8%
- 5.3%
- 5.6%
- 5.3%
4.8%
Disclosure methods for sales and CoGS have changed from FY02/15 onward. FY02/14 figures are retroactively restated.
9.6%
20.6%
2.9%
4.2%
4,800
42.4% 13,700
0.6%
12.2%
3.5%
1,700
3.0%
1.2%
4.7%
65.3%
5,400
15.9%
1.9%
Comment on seasonality.
The company’s quarterly sales and profits fluctuate significantly due to seasonal bargain sales. Q1
(March-May) includes March—a peak season. Whereas Q2 (June-August) includes the summer sales
period of July. Therefore the proportion of merchandise sold at normal prices is lower than in Q1 and
profitability is likely to be affected—Q2 operating profit was negative in both FY02/09 and FY02/10. In a
similar manner, Q4 profits are affected by winter bargain sales in January and valuation losses recorded at
the end of the financial year.
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Q1 FY02/15 Results (announced on July 4, 2014; please refer to the preceding
tables)
The company’s full-year earnings estimates for FY02/15 remain unchanged.
Exchange rate assumptions for Q1 FY02/15 were as follows:
 EUR/JPY140 (EUR/JPY122 during Q1 FY02/14; company estimate of EUR/JPY138 for 1H FY02/15)
 GBP/JPY170 (GBP/JPY140; GBP/JPY170)
 USD/JPY103 (USD/JPY94; USD/JPY100)
 RMB/JPY16.6 (RMB/JPY15.2; RMB/JPY16.5)
Changes to disclosure of sales and CoGS
From Q1 FY02/15, Onward modified the disclosure of figures for sales and CoGS. Royalties received
(JPY187mn in Q1 FY02/14), which had previously been recorded under non-operating revenue, is now
booked under sales. Additionally, royalty payments (JPY29mn), which had previously been recorded
under non-operating expenses, are now booked under CoGS.
Market environment
In the apparel and fashion industry, rush demand prior to the consumption tax increase was a significant
factor in creating demand for luxury products. However, a pullback in demand from April onward and
reduced consumer spending have created uncertainty for the immediate future. Onward focused on
selecting and concentrating strategies in both its domestic and overseas operations, and made
investments as necessary into key businesses and brands. The company also worked to expand
operations of stable, profitable businesses, while developing new businesses in categories with potential
for growth.
Results for key subsidiaries are as follows:
Sales
FY02/14 FY02/15
(JPYmn)
HD + Onward Kashiyama
Q1
Q1
YoY
A mount
YoY
(%)
Operating profit
YoY
Q1
Q1 A mount
FY02/14 FY02/15
OPM
YoY
(%)
FY02/14 FY02/15
Q1
YoY
Q1 Change
42,081
42,784
703
1.7%
5,808
5,976
168
2.9%
13.8%
14.0% 0.2ppt
Onward Trading
4,737
4,392
-345
-7.3%
475
459
-16
-3.4%
10.0%
10.5% 0.4ppt
Chacott
2,619
2,714
95
3.6%
68
74
6
8.8%
2.6%
2.7% 0.1ppt
Creative Yoko
1,594
1,647
53
3.3%
54
22
-32 -59.3%
3.4%
1.3% -2.1ppt
Island
2,105
2,048
-57
-2.7%
319
276
-43 -13.5%
15.2%
13.5% -1.7ppt
Across Transport
3,060
3,063
3
0.1%
233
197
-36 -15.5%
7.6%
6.4% -1.2ppt
Onward Creative Center
1,881
1,267
-614 -32.6%
59
18
-41 -69.5%
3.1%
1.4% -1.7ppt
JOSEPH
2,814
3,360
546 19.4%
-78
-170
-92
-
-2.8%
-5.1% -2.3ppt
Onward Luxury Group
Consolidated total
8,253
8,565
312
3.8%
214
-162
-376
-
2.6%
-1.9% -4.5ppt
72,361
73,561
1,200
1.7%
6,548
5,963
-585
-8.9%
9.0%
8.1% -0.9ppt
Source: Company materials, SR Inc. research
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Apparel businesses
Domestic
By concentrating on Onward Kashiyama and providing high quality products, services, and shopping
environments, key brands demonstrated a steady increase in revenue. Strength in men’s apparel and the
internet business also contributed to both higher sales and profits. Although recovery in some subsidiaries
was delayed, results for domestic subsidiaries overall improved YoY.
Results for sales at key Onward Kashiyama brands were as follows:
 Nijyusanku: unchanged YoY
 Kumikyoku:
+2.3%
 ICB:
-6.0%
 Jiyuku:
+1.6%
Overseas
Sales in Europe are not expected to recover until Q2 or later, and recovery in Asia is requiring more time
than initial company forecasts, leading to harsh business conditions.
For details on previous quarterly and annual results, please refer to the Historical Financial
Statements section.
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Full-Year (FY02/15) Outlook
FY02/15 Forecast
(million yen)
Sales
1H Act.
132,319
FY02/14
2H Act.
146,754
FY Act.
279,073
1H Est.
136,500
FY02/15
2H Est.
154,200
FY Est.
290,700
YoY
9.5%
6.7%
8.0%
3.2%
5.1%
4.2%
CoGS
69,874
79,240
149,113
71,600
81,600
153,200
10.7%
12.0%
11.4%
2.5%
3.0%
2.7%
62,445
67,514
129,959
64,900
72,600
137,500
YoY
GPM %
8.1%
47.2%
1.2%
46.0%
4.4%
46.6%
3.9%
47.5%
7.5%
47.1%
5.8%
47.3%
SG&A
59,113
61,424
120,537
60,900
64,300
125,200
YoY
SG&A/Sales
8.3%
44.7%
4.6%
41.9%
6.4%
43.2%
3.0%
44.6%
4.7%
41.7%
3.9%
43.1%
Operating Profit
3,331
6,091
9,422
4,000
8,300
12,300
5.5%
2.5%
-24.2%
4.2%
-15.8%
3.4%
20.1%
2.9%
36.3%
5.4%
30.5%
4.2%
YoY
Gross Profit
YoY
OPM %
Recurring Profit
4,771
7,440
12,211
4,800
8,900
13,700
YoY
28.2%
-23.2%
-8.9%
0.6%
19.6%
12.2%
Net Income
1,651
3,007
4,658
1,700
3,700
5,400
216.3%
-24.5%
3.4%
3.0%
23.0%
15.9%
YoY
In FY02/15, the company forecasts full-year sales of 290.7 billion yen (+4.2% YoY), operating profit of
12.3 billion yen (+30.5%), recurring profit of 13.7 billion yen (+12.2%), and net income of 5.4 billion yen
(+15.9%). The company forecasts capex of 28.2 billion yen (16.8 billion yen in FY02/14) and depreciation
and amortization costs of 6.5 billion yen (3.3 billion yen in FY02/14).
On April 9, 2012, the company announced its New Medium-Term Three-Year Plan (from FY02/13 to
FY02/15). This plan called for operating profit of 26.5 billion yen in its final year, FY02/15. However, the
company’s full-year operating profit forecast for FY02/15—12.3 billion yen—undercuts the figure in the
new mid-term plan by 14.2 billion yen.
Few domestic M&A deals and sluggish results overseas are the main factors delaying the company’s
achievement of the targets set out in its mid-term plan. According to the company, it is extremely unlikely
it will be involved in any large-scale M&A deals in FY02/15, although one or more small-scale deals are a
possibility. It will fortify its existing businesses, particularly overseas. The company will focus on
improving profitability now, in order to be confident of achieving its FY02/15 targets, with an eye to
drawing up its next mid-term plan.
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Estimates by Segment
(million yen)
Total
YoY
Domestic Total
YoY
Onward Kashiyama
YoY
Others
YoY
Overseas Total
YoY
Europe
YoY
Asia
YoY
US
YoY
FY02/14 Actual
Sales
OP
295,627
12,909
7.9%
-15.1%
233,718
13,850
2.9%
-7.3%
159,723
11,543
2.2%
4.5%
73,995
2,307
4.3%
-40.8%
61,909
-941
32.1%
48,057
-235
36.1%
8,697
-224
14.7%
5,155
-482
29.3%
-
FY02/15 CE
Sales
OP
309,905
17,904
4.8%
38.7%
248,917
16,530
6.5%
19.4%
163,500
12,800
2.4%
10.9%
85,417
3,730
15.4%
61.7%
60,988
1,374
-1.5%
48,823
1,438
1.6%
7,377
68
-15.2%
4,788
-132
-7.1%
-
*Above figures are simple aggregate totals (before eliminations).
Estimates for Consolidated Subsidiaries
(million yen)
HD+Onward Kashiyama
YoY
Onward Trading
YoY
Chacott
YoY
Creative Yoko
YoY
Island
YoY
Birz Group
YoY
Across Transport
YoY
Onward Creative Center
YoY
JOSEPH
YoY
GIBO'Co
YoY
Jil Sander
YoY
FY02/14 Actual
Sales
OP
159,723
11,543
2.2%
4.5%
15,470
1,070
5.0%
4.3%
10,715
573
1.7%
-23.1%
7,005
307
-5.2%
-55.9%
8,405
1,208
-0.9%
-17.5%
6,136
-684
21.3%
11,781
181
2.6%
-6.7%
4,783
12
20.5%
-60.0%
11,822
97
34.1%
21,031
932
42.3%
16.4%
13,521
-1,285
29.6%
-
FY02/15 CE
Sales
163,500
2.4%
15,770
1.9%
11,500
7.3%
7,130
1.8%
9,000
7.1%
5,730
-6.6%
11,874
0.8%
4,800
0.4%
13,340
12.8%
*33,779
-2.2%
OP
12,800
10.9%
1,251
16.9%
762
33.0%
660
115.0%
1,385
14.7%
-213
187
3.3%
77
541.7%
266
174.2%
*1,069
-
*GIBO'Co and Jil Sander will be combined to make Onward Luxury Group in FY02/15.
Domestic
The company forecasts sales of 248.9 billion yen (+6.5% YoY) and operating profit of 16.5 billion yen
(+19.4%).
At Onward Holdings and Onward Kashiyama, the company forecasts sales of 163.5 billion yen (+2.4%
YoY) and operating profit of 12.8 billion yen (+10.9%). At other domestic subsidiaries the company
forecasts sales of 85.4 billion yen (+15.4%) and operating profit of 3.7 billion yen (+61.7%).
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Onward Holdings and Onward Kashiyama
In FY02/15, the company plans to open 43 new stores, refurbish 91 stores, and close 73 stores (including
23 stores that will close due to department store and shopping center closures).
Sales forecasts by channel are as follows (YoY comparisons are based on FY02/14 figures with luxury
brand business results excluded):
 Department stores: +1.6% YoY
 New channels: +14.2%
 Specialty: +13.9%.
The company forecasts a YoY increase in sales at department stores, marking three consecutive years of
positive forecasts for this channel since FY02/13, when YoY results began to show growth. Fortifying new
channels will be at the center of the company’s domestic strategy in FY02/15. Marketing research has
shown that brand recognition of the company’s core brands is low in these channels. Therefore the
company plans to spend on advertising and marketing to remedy this. In March 2014, the company
launched Share Park, a new brand for new channels. The company plans to open large-scale Share Park
stores, with a product line-up ranging from Japanese and foreign fashion and accessories to health and
beauty items, and stationery.
The company is targeting a YoY increase of 5% in sales of core brands. Sales growth forecasts in
individual brands are as follows:
 Nijyusanku: +5% YoY
 Kumikyoku: +4%
 ICB: +5%
 Jiyuku: +5%.
The company expects growth to improve in these brands, given that standards set the previous year were
low, particularly in 2H. In department store brands, the company is targeting an increase of 15% in sales
of its core menswear brand, Gotairiku, which it focused on improving in the latter half of FY02/14. The
company’s forecast for Calvin Klein is cautious, at just 1% growth in sales. This is largely due to the fact
that sales in this brand leaped up 18% in FY02/14. The company forecasts YoY growth of 11% in sales of
core brands at new distribution channels, as it rapidly expands its business in this area (+6% in FY02/14).
The company expects an increase in gross profit margin, thanks to contributions from high-margin core
brands and increased e-commerce sales (+30% YoY), in addition to a fall in losses on valuation of
inventory. Operating expenses are forecast to fall slightly, to 43.1% of sales (43.2% in FY02/14).
Although the company will spend on advertising and marketing for core brands at new channels, it will
also continue deploying business outlays more efficiently. Thus the company is targeting double digit
growth in operating profit, at +10.9%.
Domestic subsidiaries
(+61.7%).
At mainstay subsidiary Onward Trading, the company forecasts sales to increase by 1.9% and operating
profit to increase by 16.9%. The company expects robust sales in Q1, given large shipments in March in
the uniforms business. From 2H onward the company will move to develop relationships with new clients,
in the hope of securing large orders. The company also hopes to push up gross profit margin as it presses
ahead with manufacturing and materials procurement in the ASEAN region.
At Island, the company forecasts 7.1% growth in sales and 14.7% growth in operating profit. Sales have
faltered since the brand’s freshness wore off, but the company plans to increase its appeal by focusing on
new products outside apparel, such as accessories and jewelry.
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At Chacott, the company forecasts 7.3% growth in sales and 33.0% growth in operating profit. Sales in
the new innerwear business, launched in FY02/14, have proceeded according to plan, and the company
plans to open small-scale stores in the shopping areas of railway stations. Also, FY02/15 will see a
reduction of about 100 million yen booked in depreciation and other expenses as a result of the launch of
the new business in FY02/14.
At Birz Group, the company forecasts a 6.6% fall in sales. However, the company forecasts that operating
loss will be significantly reduced. The company has been focusing on products to be sold at full
price—such as reviewing product quality and pricing—and plans for improvements from the 2014
spring/summer collection. The company will also close unprofitable stores, cease selling unprofitable
brands in 1H (from seven brands to two), and cut personnel by a third. Thus, the company aims to reduce
its operating loss to about 200 million yen in FY02/15 (against 700 million yen in FY02/14), as it lays the
foundations for profitability in FY02/16.
Onward Kashiyama
FY02/10 FY02/11
Sales Floor Area
Act.
Act.
Department Stores
Sales (million yen)
119,663
119,051
YoY
-11.4%
-0.5%
Sales Floor Area (sq.m)
165,800
162,105
YoY
-4.4%
-2.2%
New Distribution Channels
Sales (million yen)
28,218
27,160
YoY
-12.0%
-3.7%
Sales Floor Area (sq.m)
86,900
85,567
YoY
-6.0%
-1.5%
FY02/12
Act.
FY02/13
Act.
FY02/14 FY02/15
Act.
Est.
115,579
-2.9%
159,682
-1.5%
119,376
3.3%
155,986
-2.3%
119,828 119,292
0.4%
1.6%
150,099 147,702
-3.8%
1.0%
26,361
-2.9%
84,500
-1.2%
29,564
12.2%
86,449
2.3%
33,395
13.0%
88,829
2.8%
37,878
14.2%
85,590
1.6%
FY02/15 forecasts are compared with FY02/14 forecasts, exclusive of the Import Business.
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Sales Forecasts at Onward Kashiyama and Core/Main Brands
(million yen)
Nijyusanku (women's)
YoY
Kumikyoku (women's)
YoY
ICB (women's)
YoY
Jiyuku (women's)
YoY
Total (Core Brands)
YoY
J.Press (men's, women's, children's)
YoY
CK Clavin Klein (men's, women's)
YoY
Gotairiku (men's)
YoY
Sonia by Sonia Rykiel (women's)
YoY
Daks (men's, golf)
YoY
Paul Smith (women's)
YoY
JOSEPH (men's, women's)
YoY
Jane More (women's)
YoY
Total (Department Store Brands)
YoY
anyFAM (women's, children's)
YoY
anySiS (women's)
YoY
field/dream (men's, women's)
YoY
Total (New Channels)
YoY
Total (Core/Main Brands)
YoY
FY02/14
FY02/15
Act.
CE
27,284
28,596
2.5%
4.8%
11,545
11,968
9.4%
3.7%
9,090
9,509
1.0%
4.6%
9,296
9,757
3.4%
5.0%
57,215
59,830
3.7%
4.6%
9,676
10,190
5.2%
5.3%
5,357
5,410
18.1%
1.0%
4,459
5,110
0.8%
14.6%
4,023
4,277
-2.6%
6.3%
3,190
3,230
-2.3%
1.3%
4,462
4,670
3.8%
4.7%
4,542
5,070
9.3%
11.6%
2,935
3,060
-0.7%
4.3%
95,859
100,847
4.1%
5.2%
8,548
9,170
1.3%
7.3%
8,537
9,620
11.3%
12.7%
3,677
4,250
3.9%
15.6%
20,762
23,040
5.7%
11.0%
116,621
123,887
4.4%
6.2%
Source: Company data
The company established Onward Global Fashion in FY02/15, as a means to bolster the domestic luxury
brand business. GIBO’Co and Jil Sander (excluding the Japanese business), along with the luxury brand
business of Onward Kashiyama, will be combined into Onward Global Fashion.
Overseas
The company targets sales of 61.0 billion yen (-1.5% YoY) and operating profit of 1.4 billion yen
(operating loss of 941 million yen in FY02/14).
Europe
(operating loss of 235 million yen in FY02/14). The company is aiming for increases of 1.4 billion yen and
169 million yen in operating profit at Jil Sander/GIBO’Co and JOSEPH respectively.
In FY02/15, the company will combine GIBO’Co and Jil Sander to form Onward Luxury Group (excluding
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the Japanese operations of Jil Sander). Both brands will remain, but the company hopes thereby to cut
annual costs by between 200 and 300 million yen, by aggregating the subsidiaries’ European
manufacturing, management, planning and production, and showroom resources. Also, by transferring
the Japanese business to Onward Global Fashion, a Japanese subsidiary, the company aims to cut
operating costs by a further 200 to 300 million yen.
According to the company, the forecast increase of 1.4 billion yen in operating profit at Jil Sander and
GIBO’Co is a realistic target, calculated as the sum of different cuts to expenses. This includes reductions
in costs related to designers, and savings brought about by the unification of these companies.
At Jil Sander the company will focus on Jil Sander Navy accessories—such as bags and shoes—in FY02/15.
The company will also prepare for the launch of the menswear business, which will take place
simultaneously in Milan, Japan, and Asia in fall 2015. Ms. Jil Sander, the founder of the brand, stepped
down from her post as creative director in October 2013. According to the company, it is negotiating the
appointment of a new creative director (as of April 2014). The company will see a reduction in costs for
designers of about one billion yen per year (the reduction in FY02/15 will be for half a year). Product
development will incur expenses such as designer hire, manufacturing, and sample costs. The company
plans to take advantage of the domestic expertise of Onward Kashiyama to curb these costs.
At JOSEPH, the company invested in FY02/14 on store refurbishments, advertising and marketing, and
hiring initiatives. In addition, the company narrowed its product line-up to “essential products”. Thus
profits improved. The company plans to steadily continue with these policies in FY02/15 as it expands the
wholesale and e-commerce businesses. Also, it will combine JOSEPH with the Onward Luxury Group in
FY02/16. Unification will allow the company to streamline its operations. For example, it will be able to
amalgamate its JOSEPH design houses in Paris and London into the GIBO’Co design house in Florence,
Italy.
Asia
The company forecasts sales of 7.4 billion yen (-15.2% YoY) and operating profit of 68 million yen
As growth in the Chinese economy slows, the company will close unprofitable stores and streamline its
personnel. It appears the company will continue developing manufacturing bases in the ASEAN region,
with an eye to lowering expenses across the group. It will work with strong local companies to open
large-scale stores across Taiwan, Hong Kong, Vietnam, and other locations.
The US
The company forecasts sales of 4.8 billion yen (-7.1% YoY) and an operating loss of 132 million yen
The company forecasts an operating loss of just under 300 million yen across brands in the US business.
The company forecasts operating losses to continue until FY02/16, due to restructuring costs such as
those related to expanding ICB and the refurbishment of directly managed stores at J.Press.
In the resort business (Guam), the company aims to attract Korean and American tourists, and will make
inroads into the local market, in light of the effect of the weak yen on Japanese tourists.
Forex assumptions for the forecasts above are as follows (FY02/14 averages in parentheses):
▪
USD1=JPY100 (FY02/14 average of JPY105)
▪
EUR1=JPY140 (JPY139)
▪
GBP1=JPY170 (JPY167)
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▪
RMB1=JPY17 (JPY17).
A weak yen is a positive factor on profits in the overseas business (excluding any losses reported); in the
domestic business it drives up procurement costs and therefore hampers profits. At Onward Kashiyama, the
company opts not to pass on these increased costs to customers. Instead, the company aims to handle the
impact of yen depreciation by streamlining operations—for example, by shifting manufacturing bases to the
ASEAN region. In addition, the company will increase value added to products, thereby making them more
competitive for their price (thus far the company’s strategy has been to sell high-value-added products).
Future Outlook
Medium-Term Plan
FY02/12
FY02/15 Targets
(million yen)
(% of Total)
(% of Total) Vs. FY02/12
Sales
242,402
350,000
+44%
Existing Business Total
257,685
100% 346,000
100%
+34%
Domestic Total
213,730
83% 261,000
75%
+22%
Onward Kashiyama
149,985
58%
180,000
52%
+20%
Other Domestic
63,745
25%
81,000
23%
+27%
Overseas Total
43,955
17%
85,000
25%
+93%
Europe
34,170
13%
59,000
17%
+73%
Asia
6,895
3%
21,000
6%
+205%
US
2,890
1%
5,000
1%
+73%
New Business + M&A
35,000
Intercompany Eliminations
-15,283
-31,000
Recurring Profit
13,329
28,000
+110%
Existing Business Total
100%
29,200
100%
+81%
Domestic Total
92%
22,000
75%
+49%
Onward Kashiyama
16,000
55%
+42%
Other Domestic
6,000
21%
+74%
Overseas Total
8%
7,200
25%
+433%
Europe
5,000
17%
+350%
Asia
1,700
6%
+343%
US
500
2%
↑
New Business + M&A
2,800
Intercompany Eliminations
-4,000
ROE
2.3%
8.0%
FY02/15 is the final year of Onward’s mid-term plan. However, SR thinks it will be difficult for the company
to achieve the targets set out in this plan, given results in FY02/14. The main reasons for the delay in
achieving these targets were few successful M&A deals, and setbacks to progress overseas. The company
aims to safely meet its forecasts in FY02/15, with an eye to the formulation of its next medium term
management plan.
The comments below are based on the initial mid-term plan.
On April 9, 2012, the company announced its New Medium-Term Three-Year Plan (from FY02/13 to
FY02/15). In its final year, FY02/15, the plan calls for sales of 350.0 billion yen (up 43% on FY02/12),
operating profit of 26.5 billion yen (up 99%), recurring profit of 28.0 billion yen (up 110%), and ROE of
8% (compared to 2.3% in FY02/12).
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Based on the company’s forecasts for FY02/14, SR believes it is realistic to expect the company to achieve
its targets one year later than planned. It appears that the company will strengthen its financial base
through investment and other methods in FY02/13 and FY02/14, particularly in overseas markets, with
the aim of reaping the rewards in FY02/15 and beyond.
The company plans to increase the sales contribution from overseas operations from 17% in FY02/12 to
24% in FY02/15 for sales (from 8% to 25% [before eliminations] for recurring profit), by growing
earnings there. In addition, the plan calls for sales of 35.0 billion yen and recurring profit of 2.8 billion yen
by the end of FY02/15 from new businesses and acquisitions. The goodwill charges during the plan’s
period are assumed in the region of 4.0 billion yen per year.
The strategy to achieve these goals is as follows. (See also the Strategy section of this report).
Onward Kashiyama
 Shift personnel from existing businesses to new businesses, allowing for lower cost expansion and
more efficient existing cost structure. As the Japanese companies are generally reluctant to lay off
people, this would serve as a soft restructuring.
 Develop channels other than the traditional department store channel and build a customer-oriented
retail business. In the department store channel Onward depends on the department stores for
point-of-sale information, substantially reducing its ability to respond to quickly shifting customer
needs. “Stepping out” of this problem should allow incorporating consumer feedback and developing
new dynamic brands, growing a true retail business.
 Step up the brand-focused management—accelerate the shift to larger brands (as opposed to a
dispersed portfolio of many dozens of small “brandlets”), develop new brands, liquidate brands with
little growth potential.
Europe
 Seek to create an intermediate holding company, Onward Luxury Group, centered around GIBO’Co.
This would be a catch-all apparel maker, manufacturing and selling European-style high-quality goods.
Integrate the headquarters functions of GIBO’Co, JOSEPH, and Jil Sander and enhance GIBO’Co’s role
as the group’s manufacturing platform. At the same time, expand wholesale sales through new license
acquisitions and develop retail operations through new businesses.
 Focus investment in Jil Sander to boost the brand’s growth. Perfect the Collection line—which bears the
name of the brand’s founder, Jil Sander—and develop the Jil Sander Navy line into a standalone brand.
Open flagship stores to expand both retail and wholesale sales.
 Pursue more aggressive worldwide expansion at JOSEPH through new retail shop openings in Europe
and North America and channel growth (wholesale and franchise network) in Europe, Russia, the
Middle East, and Asia.
North America
 From 2013, the company plans to develop its new J.Press USA line for both wholesale and retail
operations.
 ICB has established an operations (planning) base for its Collection line in NY. In addition to opening
specialty stores in department stores all over the U.S., particularly in Barney’s, it is also planning to
open NY road-side stores.
Asia
 In manufacturing, establish a profitable production system, continuously working to develop in-house
manufacturing and development capabilities, and lowering manufacturing costs, with an eye to
expanding production in the ASEAN region.
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 In sales, increase the size of existing stores and thus grow sales per store. At the same time,
aggressively expand both geographically and by developing new brands.
 Make new businesses such as wholesale and e-commerce into material earnings contributors.
In summary, SR Inc. understands that the strategies consists of two main components—grow new
channels while maintaining the core domestic department store channel and grow overseas.
Domestically, Onward wants to redeploy its personnel where its growth focus is—in “new distribution” and
specialty store channels outside of department stores. The company is aware that it has not been terribly
successful growing new brands outside its core department store apparel competence. It is therefore both
serious about reassessing and reinforcing its existing business practices and keen to acquire companies
that own brands with the established track record in shopping center and similar non department store
channels.
Overseas, the focus is on Europe and Asia. In Europe, the company wants, in a way, to build an upscale
version of Onward Kashiyama—a successful integrated up-market apparel manufacturer/retailer. In Asia,
it aims to primarily market its European and Japanese brands. Expanding manufacturing capability is
another important component. In China, the company’s subsidiaries manufacture and sell apparel; the
retail network counted over 250 stores at the end of FY02/12. Also, a locally designed brand is sold
wholesale through distributors. In the near future the plan is to start selling European brands such as Jil
Sander Navy.
The company has commented that it is aware that achieving its new mid-term plan targets may not look
easy but explained that the numbers were put together after careful deliberations and are seen internally
as realistic.
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Business
Business Description
Sales by Type
(million yen)
Men's
YoY
Women's
YoY
Children's
YoY
Other
YoY
Apparel Total
YoY
Total
YoY
FY02/09
Cons.
58,259
-13.9%
143,976
-9.8%
7,150
-7.1%
36,035
4.8%
245,421
-8.9%
261,005
-9.1%
FY02/10
Cons.
53,460
-8.2%
137,707
-4.4%
6,505
-9.0%
36,508
1.3%
234,181
-4.6%
248,634
-4.7%
FY02/11
Cons.
49,478
-7.4%
137,664
0.0%
6,417
-1.4%
36,178
-0.9%
229,738
-1.9%
244,550
-1.6%
FY02/12
Cons.
48,124
-2.7%
137,126
-0.4%
6,369
-0.7%
35,912
-0.7%
227,532
-1.0%
242,402
-0.9%
FY02/13
Cons.
49,631
3.1%
148,950
8.6%
6,691
5.1%
37,402
4.1%
242,675
6.7%
258,369
6.6%
The company’s core business is manufacturing and sales of fashion apparel. It derives the bulk (about
79% in FY02/14) of revenues from Japan but has a growing worldwide presence. Onward has started
focusing on overseas operations from FY02/10, particularly in Europe but also increasingly in Asia.
Domestically, the main channel is department stores, which comprised 75% of Onward Kashiyama’s
overall sales in FY02/14 (about 43% of the group’s overall sales). Onward Kashiyama sells most of its
fashion brands (menswear and womenswear with smaller lines for kids and fashion accessories) at such
stores. The company defines itself as an apparel manufacturer with strength in high-quality,
high-value-added apparel.
The company reports results across two segments: Apparel and Other. The Apparel segment is the most
important for Onward, generating 93.9% of consolidated sales and over 100% of OP in FY02/13.
The company is organized as a holding structure—Onward Holdings Co., Ltd. (Onward HD) is the
reporting entity that controls about 90 subsidiaries (FY02/14). By far the most important is Onward
Kashiyama Co., Ltd., responsible for apparel sales in Japan. See Group Companies for more.
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Onward Kashiyama/Sales by Type, Channel
(million yen)
By Apparel Type
Men's
YoY
Women's
YoY
Children's
YoY
Kimonos
YoY
Other
YoY
Total
YoY
By Distribution Channel
Department Stores
YoY
YoY
Specialty Stores
YoY
Chain Stores
YoY
Others
YoY
Total
YoY
FY02/09
FY02/10
FY02/11
FY02/12
FY02/13
44,386
-12.3%
120,749
-7.1%
7,150
-7.1%
2,980
-7.7%
5,566
-7.8%
180,831
-8.5%
38,048
-14.3%
105,041
-13.0%
6,505
-9.0%
2,436
-18.3%
4,800
-13.8%
156,830
-13.3%
36,828
-3.2%
104,590
-0.4%
6,417
-1.4%
2,006
-17.7%
4,475
-6.8%
154,316
-1.6%
36,316
-1.4%
101,490
-3.0%
6,369
-0.7%
1,595
-20.5%
4,215
-5.8%
149,985
-2.8%
36,986
1.8%
106,859
5.3%
6,691
5.1%
1,610
0.9%
4,134
-1.9%
156,280
4.2%
135,031
-9.1%
32,066
-3.6%
5,486
-8.8%
2,084
-19.8%
6,164
-12.6%
180,831
-8.5%
119,663
-11.4%
28,218
-12.0%
4,460
-18.7%
1,247
-40.2%
3,242
-47.4%
156,830
-13.3%
119,051
-0.5%
27,160
-3.7%
4,061
-8.9%
1,073
-14.0%
2,971
-8.4%
154,316
-1.6%
115,579
-2.9%
26,361
-2.9%
4,337
6.8%
772
-28.1%
2,936
-1.2%
149,985
-2.8%
119,376
3.3%
29,564
12.2%
4,247
-2.1%
641
-17.0%
2,452
-16.5%
156,280
4.2%
Main Segments
Apparel (93.9% of sales, 11.6 billion yen operating profit in FY02/14)
Womenswear has historically been the larger contributor to apparel sales (61.4% of FY02/13 sales);
menswear has typically been less (20.5%).
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Kumikyoku
Nijyusanku
Womenswear
Womenswear focuses on upscale brand and fashion clothing. The target market in womenswear is
working women in their 20s and to 40s. The core domestic labels are Nijyusanku, Kumikyoku, ICB, and
Jiyuku (Kashiyama). JOSEPH and Jil Sander are the main international brands. Grace Continental—an
important brand for new distribution, department store, and directly managed store channels—has been
added through the acquisition of Island Co., Ltd. (See Brand Strategy for more.)
Main brands:
 Nijyusanku (est. 1993): Onward Kashiyama’s largest brand. Targeting mainly career women in their
30s, the company calls the brand “Tokyo real clothes,” simple basic lines nuanced by recent fashion
trends. FY02/14 sales were 27.3 billion yen.
 Kumikyoku (est. 1992): Casual lines with elements of today’s style, “standard clothing that does not
stand still” for young working women in their late 20s who prefer luxurious but natural looking apparel.
FY02/14 sales were 11.5 billion yen.
 ICB (est. 1995): Business formal line targeted for career women in their 30s. Offering good balance of
quality, fashion, and price for various scenes of a working woman’s life. FY02/14 sales were 9.1 billion
yen.
 Jiyuku (est. 2000): The brand for women in their late 30s and early 40s. Simple but luxurious clothing
based on concepts of “sophisticated,” “high quality,” and “daily wear.” FY02/14 sales of 9.3 billion yen.
 any FAM (est. 2005): Brand for new distribution channels such as shopping centers. Styling for women
in their 30s with kids. High-quality and easy-to-wear apparel at affordable prices. FY02/14 sales were
8.5 billion yen.
 any SiS (est. 2005): Brand for new distribution channels such as shopping centers. Basic clothing for
working women in their 20s. Basic items incorporating the essence of the recent fashion trends.
“Natural and feminine” casual brand with marine motives incorporating the essence of seasonal
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fashion trends. FY02/14 sales were 8.5 billion yen.
 Grace Continental (from 2009): Brand managed by Island. Highly popular among sophisticated,
urbane women. The brand and its sub-brands offer a collection of wide-ranging items not only at new
distribution channels (e.g., inside train station buildings, fashion malls) but also at department stores
and directly managed stores. Island’s FY02/14 sales were 8.4 billion yen.
Menswear
Onward entered the apparel business by producing men’s suits and coats in 1950s. The company’s main
products are suits, coats, and jackets, targeted mainly toward businessmen above 30.
Main brands:
 Gotairiku (est. 1992): Clothing for urban businesspeople blending “cosmopolitan” and “relevant” under
the concept of “apparel from Tokyo for the world.” FY02/14 sales were 4.5 billion yen.
 J.Press (from 1974): Targeting traditionally minded conservative 30-40-year olds. “Evolving tradition”
of New York’s Madison Avenue. FY02/14 sales were 9.7 billion yen.
Overseas brands
The company owns the brand businesses of JOSEPH and Jil Sander after acquiring JOSEPH Group in 2005
and Jil Sander Group in 2008. These brands form the core of the global strategy push of the company.
 JOSEPH (from 2005): High quality and easy-to-wear casual clothing based on the concept of “sleek &
chic” targeting sophisticated urban men and women. Global brand with stores in major cities of the
world starting with London. FY02/14 sales were 11.8 billion yen.
 Jil Sander (from 2008): Luxury brand born in Germany in 1973, known worldwide for its simple and
minimalistic but at the same time sharp tailoring and high level of sewing technology. FY02/14 sales
were 13.5 billion yen.
JIL SANDER NAVY Aoyama store
Other (6.1% of sales, 289 million yen operating profit in FY02/14)
Includes logistics business, sports facilities, and resort operations; negligible impact on the company’s
performance.
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Business Model
The company’s business model (manufacture and sale of apparel) is executed differently in Japan vs.
internationally.
Domestically, Onward develops/designs apparel (for any of its multiple brands), manufactures at partner
factories or through trading companies, and sells it (primarily in department stores). In case of
department store sales, although the company bears risk from conception to final sale, the retail
transaction is recorded as a sale by the department store; Onward books only a wholesale price. Any
returns or unsold inventory are the company’s responsibility, and it makes final decisions about
merchandise price (full or discounted). The department store mark-up is a predetermined percentage of
the price as discussed in more detail below.
Internationally (predominantly in Europe), the company owns two core brands, JOSEPH and Jil Sander,
and sells to department stores and other merchants, as well as in directly managed stores. A part of
manufacturing is handled by GIBO’Co., an Italian manufacturing subsidiary.
Domestic Business
While Onward defines itself as an apparel manufacturer, it bears most characteristics of an SPA retailer
(Specialty Store Retailer of Private Label Apparel). The company has multiple brands and directs
manufacturing (done by partner factories or trading companies) of apparel and accessories under those
brands, rather than using its own factories. The key difference between Onward and other SPA
retailers—such as Fast Retailing (UNIQLO) (TSE1: 9983), Inditex (ZARA), and Hennes & Mauritz
(H&M)—is that in the majority of cases, Onward doesn’t own directly managed stores. Instead the stores
belong to department stores.
While in the past the company was a manufacturer (wholesaling to department stores), during the ’90s
and 2000s it transitioned into a retailer by all measures but technical details of who books sales and who
owns stores.
When selling through the department stores, the company owns most fixtures, displays, and the
inventory at stores. It also supplies sales staff. The store space itself is owned by a department store and
items sold are booked as department store sales (going through its POS and accounting systems; Onward
manages sales and inventory using its own store information system in parallel). Technically, Onward
recognizes these as wholesale sales. The reality is that Onward acts as a retailer, taking inventory and
other operational risks. Department stores provide store space, and as such are little different from
landlords. The wholesale price is determined using a ratio called “buritsu.” “Buritsu” is a department
store’s gross profit margin and is essentially a variable rent calculated as a percentage of sales. The ratios
are determined in negotiations and differ by the product category, brand, and company involved. A typical
“buritsu” rate for apparel is in the 30%-40% range.
A note on the terminology employed in the apparel manufacturer vs. Japanese department store
relationship. The Japanese term for the main transaction method is “shouka” (“purchase-as-sold”),
generally translated as “consignment sales.” Confusion can arise from the second method employed in the
relationship, “itaku hanbai,” also translated as “consignment sales.” Despite common translation, the
two methods have different accounting treatments. The former (“purchase-as-sold”) presumes that the
title is not transferred to a department store until actual sale, i.e. never booked as department store
inventory; the latter (“consignment sales”) implies the goods become department store inventory
(returnable to the manufacturer if unsold).
The outright purchase method popular in the U.S. (department stores purchase inventory and assume
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inventory risk) also exists in Japan, and is called “kaitori” (“outright purchase”). This method is
uncommon in Japan and represents a negligible part of Onward’s department store business.
Currently over 90% of all sales made by Onward are “purchase-as-sold” type. That means that the
company is effectively acting as an SPA retailer in terms of inventory risk, even when selling at the
department stores.
In other channels the model is different. In shopping centers and similar facilities, a retailer (and Onward
would act as a retailer selling there) pays a fixed minimal rent and a percentage of sales on top of it for
sales exceeding a predetermined minimum. SR Inc. understands that, in practice, the fixed rent portion
dominates, with the overall rental payments typically being about 10% relative to the sales volume. In
case of standalone stores, the company would typically pay a fixed rent.
Product Development Process and Cycle at Onward Kashiyama
The process of product development is run by two main groups—sales (internal buyer) teams and
planning (brand) teams. Production is driven by decisions of people who put product in stores—internal
buyers (called “sales staff” by the company, they belong to one of eight domestic sales offices (branches)
and internally source apparel for stores; customers are the end buyers of apparel). Their decisions are
driven by performance and feedback from shops.
The company is seeking to reorganize its corporate restructure by introducing a branch office system.
Each branch, which previously served as an outpost of Onward Kashiyama, will be integrated into the
group for its branding strategy. The traditional sales office (branch office) structure is optimal when
servicing department stores where securing the sales floor space is more easily done on a company
(Onward Kashiyama) rather than a brand level. For sales in other channels however it is better to manage
by brand on a nationwide level.
In general, there are four main fashion seasons. For each of them, planning teams develop collection
samples which are presented at internal exhibitions. An example of such an exhibition (typically twice a
year) is an Autumn-Winter one, normally held in May. Among the samples shown at the exhibition, the
patterns are selected and altered based on the opinions of internal buyers and clients. Then, items
selected as a result of this process are ordered by the internal buyers and produced in initial quantities.
Additional orders are made based on smaller interim exhibitions mid-season (4-6 per year) and viewings.
Planning teams are responsible for making sure that items that are more likely to be reordered can be
manufactured. That means securing materials early and keeping them in stock.
In terms of the additional production response, 30 days turnaround is the shortest possible cycle. If fabric
and accessory parts are available, the order is dispatched to a domestic or overseas factory (in China and
in the future likely in ASEAN countries) and a ready garment is shipped (mostly by sea). If fabric needs to
be bought or patterns altered, this adds at least another 1-2 weeks to production.
The company sources fabric and accessory parts (including lining and interlining materials) in advance,
which are kept at factories or warehouses of firms that actually “assemble” the apparel. It doesn’t own or
operate production facilities but rather provides guidance to its subcontractors.
Each collection or merchandising mix for a particular period consists of both items that would not be
reordered when sold and items that are likely to be reordered. Normally around 20%-30% of the
collection is designed with reorders and continuous production in mind. Those items (examples may
include light casual tops, shirts, casual jackets, etc.) are generally responsible for about 70% of total sales.
At the same time, one-off items create the collection’s unique signature and add zest that increases the
fashion statement of the brand. In a nutshell, the customer will most likely buy a pair of gray pants but
she will remember that bold coat design in purple and associate her purchase at least partly with that
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design.
How much to allocate to each individual store is a complex decision based on a number of factors. As a
manufacturer, the company has to guess which styles will sell. The management decides on how
aggressive it wants to be in terms of the amount of inventory and the number of new items, based on
current status of sales and achievement vs. forecasts as well as current economic conditions and future
market outlook.
When selling at the department stores, discounting is done at the end of each season, during seasonal
sales. The characteristic feature of Japanese department store’s seasonal sales is that discounting tends
to be lower and start earlier than in the U.S. or Europe.
However, since FY02/13, the company has delayed its summer sales season and adopted a stance of
providing appropriate products at reasonable prices at the right time. Despite a decline in sales during the
seasonal sales period, sales of full priced items have increased, gross profit margin have improved, and
the company has been successful in achieving its earnings targets.
While discounts of 50%-70% are common during European bargain sales, in Japan 30%-50% are more
prevalent. In a way, the Japanese model provides a relatively shorter window for early season full-price
customers, instead offering items at 30% lower prices in the middle of the season and selling items at
higher markdown levels early on without having to discount further at the end of each season. The net
result is a somewhat smoother distribution of seasonal performance. In the recent years, the seasonal
sales at the department stores have been affected by the changing patterns and growing influence of
other channels and business models. Examples include the timing of seasonal bargain sales at the
retailers selling apparel at railway station complexes and “fashion buildings” (an urban shopping center
inside a multi-story building), weekend sales campaigns, and limited time sales at the “fast fashion”
retailers.
Onward is a conservative company in SR Inc.’s view, and its business seems experience-driven rather than
systems-driven. This conservatism allowed the company to stay profitable despite struggling sales and its
relative performance vis-à-vis peers has been respectable (see Competition). One problem however, was
that relatively stable gross profit margins were set against declining sales in the department store channel.
At the same time, the company found it hard to cut SG&A costs sufficiently, leading to OPM deterioration.
The new strategy highlighted in the new FY02/13-FY02/15 mid-term plan is to make existing businesses
more efficient and allocate more sales personnel to new operations to improve overall profitability.
Store Staffing and Sales Practices
The company’s hiring trends have been changing—new hires have been mostly on more flexible
term-based contracts, as well as part-time employees. It generally means benefits similar to permanent
employees but makes termination easier. The issues, however, have been that as a result of this shift
fewer young staff fill senior positions, as promotions are generally reserved for permanent employees.
This may have created a situation where upper middle management is dominated by males in their 50s.
While this means a wealth of experience, it can also mean conservatism and slower decision making.
Senior management is aware of the problem and admits that changes are needed. One way to add “new
blood” is M&A. The “rejuvenation” at the head office may take time however.
Salespeople at company stores are full-time employees (contract sales employees). Staff report sales and
inventory data directly to the headquarters using proprietary store information system. This enables
timely additional orders and manufacturing of popular items.
Store sizes and efficiency vary substantially by store location, channel, and the specific brand strategy.
The merchandise mix is allocated by its sales organization. Individual stores have some freedom in terms
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of item placement and display inside the store.
The company sees new channels (“new distribution” in company’s parlance) as the key to domestic
growth. FY02/14 sales in new channels (shopping centers, train station complexes, urban fashion malls,
standalone stores, and E-commerce) were 33.4 billion yen, or about 21% of total domestic sales at
Onward Kashiyama (about 11% of the group’s overall sales). This figure somewhat overstates the real
sales through the channel as the bulk of department store sales are recorded at wholesale prices (i.e.
after deducting department store margin; so called “gedai” price) while in the new channels the sales are
booked at final retail prices (so called “jodai” prices). Nevertheless, new channel sales are large and rising.
Furthermore, while the company does not disclose the profitability of new channels, it seems likely
(particularly for internet sales) that ultimate profitability can be higher than for the core department store
channel.
The shopping center channel has shown mixed performance over the past few years (FY02/08 to
FY02/14). While Onward has brands specifically for this channel, their contribution has been limited, with
three main brands (anyFAM, anySiS, field/dream) contributing less than 20% of total sales (with the same
caveat as mentioned above).
VIA BUS STOP Daikanyama store
(directly managed)
OPENING CEREMONY LUMINE
SHINJUKU store
An interesting development has been Island Co., Ltd., operating Grace Continental stores in “fashion
buildings,” or urban-type commercial facilities such as Parco or Lumine, as well as in department stores.
In early 2012, the company acquired Birz Group, another small SPA retailer. Birz Group also has direct
manufacturing capabilities in Asia and experience in selling to young consumers, a know-how that
Onward is keen to leverage for the benefit of the entire group. Onward wants to make further acquisitions
and build a brand portfolio that could be expanded both domestically and in the rest of Asia. The company
established Onward Global Fashion in FY02/15, in order to fortify its luxury import business. The import
brand business of Onward Kashiyama and the Japanese business of Jil Sander will be combined in Onward
Global Fashion.
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Birz Association Ltd. brand Language shop
Currently, earnings contribution from e-commerce is gradually increasing, and the company is targeting
e-commerce sales of 7 billion yen in FY02/15 (versus sales of 5.4 billion yen in FY02/14).
Overseas Business
Although the company operates in Europe, Asia and the U.S., Europe accounts for the majority of
overseas business (approximately 16% FY02/14 sales). European operations use GIBO’Co (Italian apparel
company Onward acquired in 1990) as manufacturing platform. It has grown in strategic importance for
Onward following acquisitions of JOSEPH Group (2005) and Jil Sander (2008). Onward owns close to
100% of GIBO’Co (management has a small stake).
JIL SANDER Munich store (directly managed)
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The European fashion business is characterized by widespread outsourcing. Design houses rarely have
planning and manufacturing capability—this is provided by GIBO’Co. The company develops samples,
produces and sells the product, in exchange for a license payment to the designer. To further GIBO’Co’s
manufacturing capabilities a number of specialty manufacturing firms were added over time.
 ERIKA s.r.l. in 2004 (luxury knitwear)
 IRIS S.p.A. in 2005 (luxury shoe manufacturer)
 FRASSINETI s.r.l. in 2007 (handmade leather bags)
One of the issues GIBO’Co had over the years is that it was essentially a production and distribution
purveyor for up-and-coming independent apparel labels. Arguably therefore, acquisitions of JOSEPH and
particularly Jil Sander were game changing events and a real start for Onward’s global expansion
ambitions.
GIBO’Co is aiming to increase sales by signing new licensing agreements with companies outside the
group while also working with group companies such as Jil Sander, on their production and wholesale
channels to improve production efficiency.
In Europe, the company will combine GIBO’Co and Jil Sander to form Onward Luxury Group (excluding
the Japanese operations of Jil Sander) in FY02/15. Both brands will remain, but the company aims to cut
costs by aggregating the subsidiaries’ European manufacturing, management, planning and production,
and showrooms. Also, by transferring the Japanese business to Onward Global Fashion, a Japanese
subsidiary, the company aims to cut operating costs. The company will combine JOSEPH with the Onward
Luxury Group in FY02/16. Unification will allow the company to streamline its operations. For example, it
will be able to amalgamate its JOSEPH design houses in Paris and London into the GIBO’Co design house
in Florence, Italy.
Cost Structure
SG&A Breakdown
(million yen)
Advertising
Provision for Bad Debt
Labor
Accrued Bonuses
Provision for Director Bonuses
Retirement Benefit Expense
Provision for Director Retirement
Rent
Depreciation
Amortization of Goodwill
Other
Total
FY02/09
Cons.
6,183
417
50,640
1,666
133
1,664
318
11,188
5,451
2,400
29,179
109,245
FY02/10
Cons.
5,484
446
49,212
1,271
262
2,822
15
13,606
73,118
3,405
28,178
109,793
FY02/11
Cons.
5,376
0
48,154
1,282
299
2,678
22
13,323
71,134
3,637
27,177
106,896
FY02/12
Cons.
5,127
0
46,391
1,005
267
2,619
23
12,974
4,803
3,664
27,281
104,154
FY02/13
Cons.
6,312
0
49,392
1,070
252
2,316
27
15,925
4,953
3,937
29,112
113,296
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The two main cost components for Onward have been costs of goods sold and labor. Onward’s gross profit
margins have typically been stable at approximately 45.8% (FY02/02-FY02/13). One of the key risks for
apparel manufacturers is inventory risk; if products don’t sell as expected, excess inventory must be
either sold or written off. Onward utilizes the approach whereas the inventory unsold by the end of a
season is marked down by 70%. The company commented that their policy is to aggressively liquidate
unsold inventory at special sales and similar events to avoid having to incur inventory disposal losses.
Inventory losses reported in cost of goods sold for FY02/10 and FY02/11 were negligible.
Historically, the SG&A-to-sales ratio has been about 38.2% (FY02/02-FY02/13). In terms of cost
budgeting, the company allocates as much cost as they feel is necessary to achieve sales targets under
certain profitability constraints. Labor is a constant that the company chose to work with; no
restructuring-like labor cuts were ever performed. Advertising is treated as semi-fixed expense, typically
about 2.0 billion yen is spent each year with cuts performed in difficult environments like the financial
crisis of 2008-2009.
Profitability Snapshot, Financial Ratios
Profit Margins
(million yen)
Gross Profit
Gross Profit Margin
Operating Profit
OP Margin
EBITDA
EBITDA Margin
Financial Ratios
ROA
ROE
Total Asset Turnover
Inventory Turnover
Days of Inventory
Working Capital Requirement
Current Ratio
Quick Ratio
OCF / Current Liabilities
Net Debt / Equity
OCF / Total Liabilities
Cash Cycle (days)
Changes in Working Capital
FY02/10
Cons.
114,176
45.9%
4,383
1.8%
13,532
5.4%
FY02/11
Cons.
115,825
47.4%
8,928
3.7%
18,207
7.4%
FY02/12
Cons.
115,113
47.5%
10,953
4.5%
20,095
8.3%
FY02/13
Cons.
124,490
48.2%
11,192
4.3%
20,850
8.1%
FY02/14
Cons.
129,959
46.6%
9,422
3.4%
19,535
7.0%
0.7%
1.4%
84.4%
416.0%
87.8
19,800
110.7%
66.1%
15.3%
16.4%
10.3%
22.7
-596
0.9%
1.7%
85.2%
420.3%
87
23,052
115.6%
72.2%
12.9%
14.2%
9.1%
28
3,252
1.3%
2.2%
86.8%
411.9%
89
23,461
117.6%
73.6%
15.8%
10.4%
11.0%
32
409
1.6%
2.8%
91.7%
406.2%
90
26,827
99.6%
57.6%
11.0%
14.8%
8.3%
35
3,366
1.6%
2.8%
93.0%
396.8%
92
30,623
109.2%
59.5%
13.2%
18.1%
9.7%
39
3,796
The company’s stable gross profit margins mean that operating profit is thus a function of SG&A spending
(the largest component being labor, see Business Model for more). In comparison to peers, Onward’s
gross profit has been lower than the median (typically several percentage points); however the
company’s OPM has been substantially higher than other firms (see Competition). One possible reason is
that although Onward’s direct costs are higher (the company suggests that it uses high-quality
components which can reduce GPM), management controls over expenses compensate for lower GPM.
The company’s asset base has been relatively productive in terms of turnover (averaging about 86.6%
from FY02/02 through FY02/14). The company’s M&A activity has added notable goodwill to the balance
sheet.
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Strengths, Weaknesses
Strengths
 Strong presence in the department store channel: While the department store market is
shrinking, the channel will continue to be a major source of cash flow and brand exposure. The
expertise acquired in this channel is also likely to contribute to long-term growth in the Asian market.
 Strong financial position: Onward is cash and asset rich.
 Overseas, strong potential in Europe and opportunity to leverage JOSEPH and Jil Sander
throughout Asia: Onward owns internationally recognized brands with substantial growth potential.
It also has a manufacturing base in Europe allowing it to make high-quality merchandise, ranging from
clothing to bags to shoes. Despite past mixed record (with financial crises aggravating the challenges),
this represents a substantial growth opportunity.
Weaknesses
 Dependence on department store channel: The shrinking main channel and lack of retailing
experience in other channels. Rigid organizational structure optimized for the department stores.
 Dependence on economically sensitive high-end apparel: Deflation hurts.
 Dependence on shrinking Japanese market: The company has been slow in developing a
successful strategy and executing overseas. The new mid-term plan calls for that to change but given
the poor track record investors are likely to be skeptical until the company starts delivering.
Group Companies
About 90 group companies (as of end February 2014)
The main subsidiaries are:
 Onward Kashiyama Co. Ltd. (Japan): Core company of the group.
 Onward Trading (Japan): Uniforms and sales promotion goods.
 Chacott (Japan): Dancing wear, costumes and cosmetics.
 Creative Yoko (Japan): Pet fashion, character accessories etc.
 Bus Stop (Japan): Multi-brand store operation.
 Birz Group (Japan): Youth apparel and cost efficient manufacturing in Asia.
 Charles & Keith Japan Co. Ltd.: Manufacturer and sale of shoes and bags
 Project Sloan (UK): Holding company of Joseph group companies.
 Joseph Ltd. (UK): Manufacture and sale of apparel, shoes, and bags.
 GIBO’Co S.P.A. (Italy): Production platform in Europe with following subsidiaries:
IRIS (shoes)
CORPORATE (apparel; Antonio Berardi label)
ERIKA (knitwear)
FRASSINETI (leather bags)
 Violine S.a.r.l. (Luxemburg): Holding company of Jil Sander group companies. Includes 15 subsidiaries.
 Jil Sander Italia S.P.A.: Manufactures and sales of apparel (knit and woven), shoes and bags.
 Island Co., Ltd.: Grace Continental manufacturing and sales operations.
 Candela International Co., Ltd. (Japan): Operation of CROON A SONG select shops.
 Onward Fashion Trading (China) CO., LTD.: Sales of apparel.
 J. Press Inc.: Apparel sales in the US.
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



Across Transport: logistics and processing of apparel.
Onward Beach Resort Guam, Inc. (Guam): Hotels and resort facilities.
Onward Resort & Golf: Golf club
Market and Value Chain
Market and Value Chain
Market Overview
Domestic apparel market has been heavily impacted by the declining and aging population. Furthermore,
the economic situation of the past several years has changed apparel shopping patterns—more people
feel it is fine to buy cheap apparel and fewer people can afford expensive one. While the womenswear
market is facing challenges but is still robust, the high-end menswear market shrank dramatically both in
term of volume and spending (down 20.2% from 2008-2012, data according to the Japan Department
Stores Association). For all practical purposes, the market worth analyzing when assessing future growth
domestically is womenswear.
The casual apparel revolution led by Fast Retailing’s UNIQLO brand and furthered by domestic and
overseas “fast fashion” brands has had profound implications for the entire apparel market, including the
high-end market. The consumers came to believe that buying very cheap clothing is not embarrassing. As
for first fashion brands, these brands have super short production and reordering cycle (sometimes only a
week), and low prices at acceptable quality allowed the consumer to follow trends and buy multiple items
without spending much money. In many ways, this contributed to hollowing out of the upscale apparel
and created a substantial challenge for such apparel’s main channel, department stores.
Customers
Although the company’s main customer is department stores, the end customers (who buy apparel) have
most bargaining power in the value chain. Customers can shop easily in different channels (stores, online,
etc.). In this sense, the consumer is clearly the most important. In a way, the biggest problem for Onward
over the past 10-15 years has been its inability to change with the consumer. Indeed, for the company
“consumer” and “customer” were not the same—its customers are to a great extent the department
stores. The company obviously sells to the end consumer. However, it has been constrained by the
demands of its dominant channel and that slowed down the reform.
Suppliers
Onward doesn’t own factories and its key suppliers are overseas factories (90% of manufacturing is done
outside Japan, of which 70%-80% is done in China). The Japanese trading houses play an important role
in the supply chain. They handle parts of the production process, connecting the company with
manufacturing plants and suppliers, and taking on some risks. They generally guarantee prices for
materials and produced items in Japanese yen, i.e. take on the currency fluctuation risks. The main
partners for the company are Mitsubishi Corporation (TSE1: 8058), Mitsui Corporation (TSE1: 8031), and
Sumikin Bussan Corporation (TSE1: 9938). Onward has been also looking to develop its own
manufacturing capabilities and the acquisition of Birz Group (a retailer with direct links to production
factories in Asia) in early 2012 was a small step in that direction.
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Competition
Performance vs. Peers
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
261,005
133,089
111,817
62,683
342,758
79,665
248,634
114,231
100,333
52,196
314,117
83,504
244,550
112,057
N/A
55,890
305,541
90,571
242,402
104,614
N/A
N/A
329,894
102,052
258,369
107,630
N/A
N/A
336,480
115,041
279,073
45.3%
47.2%
50.0%
49.1%
60.9%
51.0%
45.9%
42.7%
51.5%
49.3%
60.4%
51.3%
47.4%
46.8%
N/A
47.7%
59.8%
53.0%
47.5%
47.4%
N/A
N/A
57.8%
54.5%
48.2%
48.1%
N/A
N/A
56.3%
54.4%
46.6%
50.0%
49.6%
51.3%
50.3%
50.3%
47.7%
54.5%
51.0%
54.4%
51.3%
3.5%
3.6%
0.0%
4.2%
5.2%
5.4%
1.8%
-4.6%
0.9%
0.8%
3.6%
5.9%
3.7%
2.2%
N/A
0.8%
2.9%
8.2%
4.5%
2.0%
N/A
N/A
3.6%
10.0%
4.3%
5.4%
N/A
N/A
2.1%
10.9%
Median ex Onward
Median OP
4.2%
3.9%
0.9%
1.3%
2.6%
2.9%
3.6%
4.0%
5.4%
4.9%
Net Profit Margin
Onward Kashiyama
Sanyo Shokai
Sanei International
Tokyo Style
World
United Arrows
-11.8%
1.7%
-3.3%
-15.0%
1.5%
1.6%
0.9%
-3.6%
-1.4%
1.4%
0.7%
1.7%
1.1%
0.7%
N/A
-18.6%
0.1%
4.0%
1.5%
-1.1%
N/A
N/A
0.8%
4.9%
1.7%
2.0%
N/A
N/A
-0.2%
6.4%
Median ex Onward
Median NP
1.5%
-0.9%
0.7%
0.8%
0.4%
0.7%
0.8%
1.1%
2.0%
1.9%
Sales
Onward Kashiyama
Sanyo Shokai
Sanei International
Tokyo Style
World
United Arrows
Gross Profit Margin
Onward Kashiyama
Sanyo Shokai
Sanei International
Tokyo Style
World
United Arrows
Median ex Onward
Median GP
Operating Profit Margin
Onward Kashiyama
Sanyo Shokai
Sanei International
Tokyo Style
World
United Arrows
N/A
N/A
N/A
N/A
3.4%
N/A
N/A
1.7%
N/A
N/A
Note: Data was not adjusted for differences in the month of fiscal year end.
Note: Sanei was acquired by Tokyo Style and delisted in 2010.
Note: Tokyo Style was delisted after MBO in 2011.
In a larger sense the company competes with any apparel company, but World Co., Ltd. (unlisted) and
Sanyo Shokai Ltd. (TSE1: 8011) are direct competitors that merit mentioning in SR Inc.’s view.
World operates wholesale and retail apparel business both in Japan and overseas. Sanyo Shokai is a large
apparel company selling largely in the department stores, a significant (undisclosed) component of
revenues being Burberry license sales in Japan.
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Strategy
The high level strategy stated by the company is to offer highly fashionable, high quality products selling
at prices appropriate to their value. In addition, the company aims to enhance profits by improving the
brand value of its core brands through its basic strategy of "brand-based management." It also aims to
establish a worldwide presence, focusing on its experience with high-end apparel.
In order to achieve its strategic goals, the company also states that it has been shifting the focus towards
a “product-oriented” approach as opposed to a “market-oriented” approach. The difference between the
two is that the “market-oriented” approach is mostly about trying to understand current trends and
respond with an adequate product. The “product-oriented” approach is more about thinking up and
creating a product by taking advantage of an apparel makers strength, offering consumers some unique
value; proactive vs. reactive.
It appears to SR Inc. that despite the common theme, Onward’s domestic and overseas strategies are
markedly different. Therefore, they are discussed separately in this report after a brief discussion about
fashion brand building in general (more pertinent to the domestic business).
Brand Strategy
While some U.S. and European companies have won with multiple brands, this typically was via
acquisitions. Japanese firms tend to have many smaller domestically-oriented brands, developed
in-house.
One explanation for this has been the historic focus on specific channels. To some extent all major
Japanese apparel firms defined their businesses first by sales channel and then by the target consumer.
Onward and some peers mentioned in Competition have historically focused on department stores. The
company calls itself a “general apparel company,” making all sorts of apparel including uniforms and pet
wear. However both investors and consumers probably recognized it as a high-end apparel producer
which sells in department stores.
While seemingly irrelevant to casual observers, SR Inc. believes that the channels dictated business and
brand strategies for many Japanese manufacturers. Furthermore, it is likely that preferences and needs of
core channel clients, especially powerful department stores, promoted independence of individual
operators and proliferation of multiple smaller brands.
Independence here means the remarkable absence of major domestic M&A in the apparel sector. Each
manufacturer, especially those selling in department stores, had brands which were replaceable and of
limited uniqueness. Buying a competitor would not necessarily guarantee an increase in the sales space
allocated by a department store. Developing brands in-house and mastering the relationship with the
channel has been the smartest choice. Onward is one of the smartest if not the smartest when it comes to
department stores. Hence Onward’s more than 70 brands, and deep but historically profitable
dependence on department store sales.
Conveniently, the multi-brand approach also reduces risk. Japanese consumers in particular have
relatively short-lived preferences and the Japanese fashion cycle is notoriously short and volatile; brands
that become too popular too fast often face violent downturns as customers grow weary and flock
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elsewhere. This is why large overseas apparel companies (excluding sportswear) are multi-brand
conglomerates (who buy brands, not create them). Therefore, in SR Inc.’s view, it is reasonable to
conclude that developing multiple brands has been and probably remains the optimal strategy in Japan.
While it doesn’t create household names that carry on through generations, it allows apparel companies
to manage their business in a manner not dissimilar from diversified asset management companies—a
little bit of everything for a stable portfolio.
Some brands have distinct items which not only sell well but also distinguish the brand. Theory and
Onward’s own JOSEPH achieved that in women’s pants. Similarly, mentioning Ralph Lauren invokes
images of polo shirts, and Burberry, checkered pattern scarves and coats. Onward commented that selling
such items is extremely easy and profitable, but finding the right balance between core and new items is
one of the hardest parts of brand management.
Developing such brands requires bold vision and initial risk-taking. It’s possible that Onward’s (and other
large and successful companies) relatively bureaucratic and consensus-based organization doesn’t easily
lend itself to individual risk-taking. It’s therefore hard for Onward to repeat the success of acquired brands
(JOSEPH, Jil Sander) domestically. This is probably why the company seems to prefer developing
overseas brands as a separate group, using its Italian subsidiary GIBO’Co as a manufacturing platform.
This seems the optimal choice for the worldwide expansion (see discussion below).
SR Inc. believes that Onward is a product-oriented company. It’s less about fashion per se, but more
about building a product portfolio uniquely suited to its main department store channel. Rather, the focus
is on generating constant flow of apparel corresponding to individual styles of relatively narrowly defined
brands.
Sales for higher-priced brands, even quite successful ones, typically range between 20-30 billion yen (the
biggest rarely reaching 50 billion yen). They are different from mass-market brands bought by tens of
millions of people. As prices increase so does fashion, i.e. the ability of the brand to respond to the unique
needs of a particular group of customers.
Domestic Strategy
Domestically, the company aims to grow by increasing the profitability of the existing business through
the structural reform (but not a full-blown “restructuring”) while expanding new businesses and acquiring
existing ones. The idea is to continue to see the department store channel as a core one but at the same
time pursue growth through other channels.
(SR Inc. notes that this commitment to department stores could be one reason why the declining sales do
not automatically lead to restructurings across-the-board. Furthermore, the company argues that given
low flexibility of the Japanese labor market and high costs associated with the restructurings (one time
pay-offs), it is not clear whether a drastic cost reduction would produce any long-lived benefits.)
SR Inc. estimates that the department store sales will likely move in-line with the general demographic
trends, the economic cycle and be a function of total sales floor space of major department stores. It
seems reasonable to assume that given strong core brands, Onward’s share in the channel remains stable
or slowly increases. The retail space of Onward in the department stores is set to increase in FY02/15
(+1.0% YoY). The company expects department store sales to grow by 1.6%—a third consecutive year of
growth.
Further domestic expansion would without doubt involve other distribution channels such as shopping
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centers, fashion buildings, multi-brand standalone stores, and the internet. The company sees growth in
these “new distribution” channels as strategically important and expects its sales space there to increase
1.6% YoY in FY02/15 bringing sales of 37.9 billion yen (+14.2% YoY). Marketing research has shown that
brand recognition of the company’s core brands is low in these channels (as of FY02/15). Therefore the
company plans to spend on advertising and marketing to remedy this. In March 2014, the company
launched Share Park, a new brand for new channels. The company plans to open large-scale Share Park
stores, with a product line-up ranging from Japanese and foreign fashion and accessories to health and
beauty items, and stationery.
The domestic brand strategy is twofold. The main part is to concentrate resources in core brands. At the
same time Onward will seek to add new unconventional looks and styles (either create brands or, more
likely, acquire existing brands). A good example of what the company is trying to do is the acquisition of
Island Co. Ltd in December 2009, with its Grace Continental store brand. Such initiatives outside of the
traditional “comfort zone” are the key to domestic growth. The company is planning to continue growing
Island, make further acquisitions (such as the acquisition of Birz Group in early 2012), and use those
assets as a leverage of expansion both domestically and in new emerging markets.
Overseas Strategy
The overseas strategy in recent years is something that the market has not been giving Onward much
credit for (as of early 2014). The company made two large acquisitions in 2005 and 2008. Unfortunately,
from the moment of acquisition and through FY02/13, both overseas subsidiaries, JOSEPH and Jil Sander,
failed to generate economic returns and were detractors of earnings.
The company may have a right to an excuse or two. First, the timing of the acquisitions was unfortunate
as the financial crisis of 2007-2009 suddenly pushed the luxury apparel business from the fast growth
lane off the road. That should be remembered when assessing earnings of the company’s two high-end
European brands, both of which relied on purely clothing sales over that period. Furthermore, the
currency trends were not necessarily favorable at the consolidated level. Finally, brand businesses are
notoriously hard to turn around.
The European business may finally be turning the corner. While it is way early to draw conclusions, the
crown jewel in the overall strategy is Jil Sander with its new Navy line. Launched in 2011, it was initially
marketed as an extension of the main Jil Sander Collection line. However, the approach backfired, as the
new line was not what the existing Collection customers were expecting and at the same time failed to
attract a sufficient number of new ones (however, the line has received a favorable following in Japan
marketed as an individual brand). The company quickly changed the course and will try to build new line
Jil Sander Navy into a strategically important separate brand. This means a separate marketing, more
retailing opportunities, and a larger market.
The opportunity for Jil Sander Navy seems significant. First, the original brand, a truly luxury one, had a
somewhat limited market. Navy should have a wider appeal. The company opened the world-first flagship
Jil Sander Navy store in Aoyama, Tokyo, in September 2012. With a full apparel and accessories lineup, it
could go from the established retail markets to new dynamic markets of Russia, Middle East, and Asia.
At Jil Sander, the company will prepare for the launch of the menswear business, which will take place
simultaneously in Milan, Japan, and Asia in fall 2015. The company plans to take advantage of the
domestic expertise of Onward Kashiyama to curb costs as its grows this business.
GIBO’Co will provide key support on the manufacturing side, particularly for Jil Sander. It will also likely
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play a quasi-headquarters role for the Onward group in Europe, helping coordinate the management of
the European operations and set the group-level agenda. SR Inc. is also intrigued by direct forays into
retail by GIBO’Co—selling apparel and accessories on a consignment basis in select European department
stores.
JOSEPH is more of a wildcard. FY02/13 failed to bring clarity about what needs to be done to restore
profitability and growth. However, conceptually JOSEPH is a highly marketable brand with its clean lines,
broad luxury appeal and item flexibility. The company is looking to focus on expanding the retail presence
in outside of the main UK and Japanese markets into North America, Russia, Germany, and Asia both
through direct stores and franchising relationships.
In Asia, over the short term Onward plans to close unprofitable stores and streamline personnel in China,
in light of a slowdown in economic growth there. However, over the long term it seems logical that Asia
should become the second largest revenue generator for Onward thanks to its sheer market size and the
opportunity for the company to leverage both its Japanese and European brand assets. Onward will open
more new stores, increase the size of its existing stores, experiment with e-commerce, and expand
wholesale sales through distributors. The company plans to collaborate with powerful local companies to
open large stores in Taiwan, Hong Kong, and Vietnam.
While the existing brands are likely to play the key role in Asian expansion, locally developed brands also
hold great potential. The company would leverage its branding and manufacturing capabilities, and the
retail know-how to start purely local brands. Doing this through locally established companies with fewer
visible links to Onward, or acting only as a wholesaler, allows better pricing flexibility (going down market
without hurting the perception of the existing brands). It also lowers the risk of being seen as “Japanese,”
something that may be of value in such sometimes sensitive markets as China, especially dealing with the
mass consumer.
The potential of Asia doesn’t end there. Onward has stated that it would pursue developing independent
production capabilities in China and ASEAN. This means developing direct links with factories in the region,
bypassing such helpers as trading companies. While using the trading houses does bring about large
benefits as discussed elsewhere in the report, they are also increasingly becoming competitors. The
independent manufacturing capability will give Onward better cost controls and more flexibility.
The U.S. contribution will remain minor although things like the re-launch of ICB as a truly international
brand and efforts to grow J.Press warrant some attention. Onward plans to further boost its North
American presence by opening new offices and showrooms in the U.S.
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Historical Financial Statements
Summary
Earnings Results Discussion for the Year Preceding Current Financial Year (For
Reference Purposes)
FY02/14 Results (announced on April 4, 2014; please refer to the preceding tables)
For the full year, sales were 279.1 billion yen (+8.0% YoY), operating profit was 9.4 billion yen (-15.8%
YoY), and recurring profit was 12.2 billion yen (-8.9% YoY). Net income was 4.7 billion yen (+3.5% YoY),
thanks to the reduction of impairment losses suffered the previous year (6.9 billion yen).
Performance at the company’s mainstay business, Onward Kashiyama and domestic subsidiaries
underperformed full-year targets due to poor weather and because the rush to beat the consumption tax
hike fell below the company’s expectations. Consolidated operating profit in the overseas segment also
underperformed the forecast by 3.5 billion yen, due to sluggish demand in Asia and delayed sales of Jil
Sander in Europe.
Estimates by Segment
(million yen)
Total
YoY
Domestic Total
YoY
Onward Kashiyama
YoY
Others
YoY
Overseas Total
YoY
Europe
YoY
Asia
YoY
US
YoY
FY02/14 Actual
Sales
OP
295,627
12,909
7.9%
-15.1%
233,718
13,850
2.9%
-7.3%
159,723
11,543
2.2%
4.5%
73,995
2,307
4.3%
-40.8%
61,909
-941
32.1%
48,057
-235
36.1%
8,697
-224
14.7%
5,155
-482
29.3%
-
FY02/14 CE
Sales
290,072
5.8%
235,653
3.7%
162,000
3.7%
73,653
3.8%
54,419
16.2%
40,847
15.7%
8,777
16.4%
4,795
20.3%
OP
17,614
25.6%
17,481
16.8%
12,400
12.2%
5,081
29.7%
133
1
347
-215
-
*Above figures are simple aggregate totals (before eliminations).
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Results and Forecasts at Subsidiaries
(million yen)
HD+Onward Kashiyama
YoY
Result vs. CE
Onward Trading
YoY
Result vs. CE
Chacott
YoY
Result vs. CE
Creative Yoko
YoY
Result vs. CE
Island
YoY
Result vs. CE
Birz Group
YoY
Result vs. CE
Across Transport
YoY
Result vs. CE
JOSEPH
YoY
Result vs. CE
GIBO'Co
YoY
Result vs. CE
Jil Sander
YoY
Result vs. CE
FY02/14 Actual
OP
Sales
11,543
159,723
4.5%
2.2%
93.1%
98.6%
1,070
15,470
4.3%
5.0%
95.5%
100.3%
573
10,715
-23.1%
1.7%
76.5%
99.2%
307
7,005
-55.9%
-5.2%
47.9%
96.1%
1,208
8,405
-17.5%
-0.9%
80.1%
96.7%
-684
6,136
21.3%
181
11,781
-6.7%
2.6%
87.4%
101.4%
97
11,822
34.1%
111.6%
932
21,031
16.4%
42.3%
88.3%
109.0%
-1,285
13,521
29.6%
102.3%
-
FY02/14 Targets
OP
Sales
12,400
162,000
12.2%
3.7%
1,121
15,417
9.3%
4.7%
749
10,803
0.5%
2.5%
641
7,291
-7.9%
-1.4%
1,508
8,696
3.0%
2.5%
207
11,613
6.7%
1.1%
-180
10,593
20.1%
1,055
19,303
31.7%
30.6%
-1,101
13,217
26.7%
-
-
Source: Company data
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Onward Holdings—Sales Breakdown
Domestic (% of sales)
Cons. Domestic Onward Kashiyama
Domestic subsidiaries
FY02/13
83%
57%
FY02/14
79%
54%
17%
21%
13%
5%
4%
3%
Less than 1%
3%
1%
16%
7%
4%
5%
Less than 1%
3%
2%
Total (Onward Kashiyama)
By channel
Department stores
44%
41%
New channels
11%
11%
(Includes e-commerce, 1%) (Includes e-commerce, 2%)
Specialty
2%
1%
Chain
Less than 1%
Less than 1%
Other
1%
1%
By product
Men's
14%
13%
Women's
39%
37%
Children's
2%
2%
Kimonos
Less than 1%
1%未満
Other
2%
2%
Total (domestic subsidiaries)
26%
25%
Onward Trading
5%
5%
Chacott
4%
4%
Creative Yoko
3%
2%
Island
3%
3%
Other
11%
11%
Overseas (% of sales)
Overseas Europe
Asia
The US
Total (Europe)
GIBO'Co
Jil Sander
JOSEPH
Other
Onward Kashiyama Brands—Sales Breakdown
(Brands with sales over 3 billion yen)
Total (main brands)
Total (core brands)
Nijyusanku
Kumikyoku
ICB
Jiyuku
Department store brands
New distribution channels
73%
35%
17%
7%
6%
6%
25%
13%
73%
36%
17%
7%
6%
6%
24%
13%
Source: Company materials
Domestic (sales of 233.7 billion yen [+2.9% YoY]; operating profit of 13.9 billion yen
[-7.3%])
Domestic: Onward Kashiyama
At Onward Kashiyama and Onward Holdings, full-year sales were up 2.2% and operating profit was up
4.5%. The company reported strong sales in 1H, but sales were down 1.1% YoY in Q3
(September-November), due to poor weather in October. Consumer appetites also declined due to
economic uncertainty following the decision to raise the consumption tax. Full-year sales came out just
2.2% higher YoY (against a target of +3.7%), after the rush to beat the consumption tax hike fell below
expectations in Q4 (December-February).
Gross profit margin (full-year) fell by 0.7 percentage points YoY, to 49.9%. The company increased
inventories, but losses on inventory valuation also increased in Q4. However, operating profit was up
4.5% to 11.5 billion yen, thanks to cost-cutting efforts across the company, mainly in 2H. Operating profit
margin was 7.2%, almost unchanged from the previous year (7.1%).
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Core brand sales (full-year) at Onward Kashiyama were up 3.7%. The breakdown is as follows (targets in
parentheses):
 Nijyusanku: +2.5% (+3%)
 ICB: +1.0% (+3%)
 Jiyuku: +3.4% (+6%)
 Kumikyoku: 9.4% (+7%).
According to the company, results at core brands were roughly in line with forecasts when October is
excluded. Sales slumped in October due to poor weather and other factors.
Full-year sales of department store brands were up 4.1% YoY. Sales of mainstay brand J.Press were up
5% and Calvin Klein sales were up 18%. Full-year sales of mainstay menswear brand Gotairiku increased
just 1%. However, the company renewed the brand for the autumn/winter collection. Sales were up 9%
YoY in 2H as the company strived to improve promotions and product line-up, with quality suits focusing
on materials and style, aimed at men in their 40s. Sales in the final week of March—in the new financial
year—appeared to be up about 30%, partly as a result of the rush to beat the consumption tax hike.
Sales were up 6% YoY at brands for new distribution channels such as shopping centers (anyFAM, anySiS,
field/dream). These brands’ share of sales remained small, at 13%. According to the company, low brand
recognition is an issue for these brands, and it will spend on advertising and marketing to remedy this.
Full year e-commerce sales were up 42% to 5.4 billion yen—thereby outperforming the company’s
estimate of 5 billion yen—in line with increases in customer count and average spend per customer. Going
into FY02/15, it appears that the active shopping of some frequent customers is continuing to push up the
overall average spend per customer.
Domestic: other subsidiaries
Onward Trading (planning, manufacturing, and sales of uniforms and sales promotion goods) faced rising
procurement costs caused by the weak yen. However, orders recovered in Q4, with the result that sales
were up 5.0% YoY to 15.5 billion yen and operating profit was up 4.3% to 1.1 billion yen.
The Birz Group (brands targeting women in their 20s and 30s) struggled as the improvement of quality
and delivery controls at in-house factories in Asia were prolonged. As a result, this subsidiary recorded an
operating loss of 684 million yen.
Other domestic subsidiaries struggled, with operating profit as follows:
 Chacott (dancewear): -23.1% YoY
 Creative Yoko (pet clothing and accessories): -55.9%
 Island (production and sales of the Grace Continental brand, which targets women in their 20s and
30s): -17.5%.
Results at each of these three subsidiaries continued in the same vein as Q3 performance. Unseasonable
weather hit sales, and personnel and marketing costs increased at Chacott, as this subsidiary launched a
new innerwear business. Profits also fell at Island, due to sluggish sales as the brand’s freshness wore off.
Overseas (sales of 61.9 billion yen [+32.1% YoY] and operating loss of 941 million yen [an
operating loss of 982 million yen the previous year])
Europe
Sales were 48.1 billion yen (+36.1% YoY) and the company made an operating loss of 235 million yen
(against an operating loss of 628 million yen the previous year).
Sales at GIBO’Co were 21.0 billion yen (+42.3% YoY), partly thanks to the contribution of new bag and
shoe brands. Operating profit rose 16.4% to 932 million yen, as investment to improve manufacturing
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capacity and increase hiring was completed. In addition, the cost of new brands’ samples fell from 2H
onward.
Operating loss grew to 1.3 billion yen at Jil Sander (operating profit of 141 million yen in FY02/13;
operating loss of 1.1 billion forecast for FY02/14)—the result of forex movements and the fact that sales
at key sales driver Jil Sander Navy underperformed targets. Ms. Jil Sander—the founder of the
brand—reassumed the role of creative director from the 2013 spring/summer collection onward. However,
according to the company, Ms. Sander’s meticulousness meant products lacked freshness, and therefore
results did not meet expectations.
Sales at JOSEPH were 11.8 billion (+34.1% YoY). This brand became profitable, booking an operating
profit of 97 million yen (against an operating loss of 342 million yen the previous year). Investment in
store renewals, advertising and marketing, and hiring initiatives bore fruit. In addition, sales of “essential
products” improved thanks to the company’s “back-to-basics” merchandizing strategy.
Asia and the US
Sales in Asia were 8.7 billion yen (+14.7% YoY); the company made an operating loss of 224 million yen
(against an operating loss of 147 million yen the previous year). Sales in the US were 5.2 billion yen
(+29.3% YoY); the company made an operating loss of 482 million yen (against an operating loss of 191
million yen the previous year).
Operating loss grew in Asia as Chinese consumers’ appetite for high-end goods waned. The company
expects operating losses to continue until FY02/16 in the North American business due to preliminary
costs connected with personnel increases at ICB and refurbishment expenses at J.Press directly managed
stores.
Q3 FY02/14 Results (announced on January 10, 2014)
In cumulative Q3, sales were 205.4 billion yen (+7.4% YoY), operating profit was 10.1 billion yen (-5.4%),
and recurring profit was 11.9 billion yen (+0.9%). Net income was 5.8 billion yen (+24.2%), pushed up
by extraordinary gains, including a gain on the sale of investment securities (887 million yen).
SR Inc. estimates that cumulative Q3 operating profit was more than 1.0 billion yen short of the
company’s forecast (consolidated basis). Sales of Onward Kashiyama’s products for the fall season
struggled due to unfavorable weather, and some of the domestic subsidiaries came in under expectations.
December monthly sales of Onward Kashiyama were up 5% YoY and there is likely to be a surge in
demand in Q4 to beat the consumption tax hike. However, this is unlikely to make up for the shortfall in
Q3, and there is some downside risk to the full-year FY02/14 forecasts.
For Onward Kashiyama (96.1% of forecast FY02/14 operating profit), Q3 (September-November only)
was tough. Unfavorable weather such as typhoons in October and a temporary downturn in consumer
sentiment due to the decision to go ahead with the consumption tax hike dampened sales. In Q3
(September-November) sales change for the core brands (36% of Onward Kashiyama’s total sales) was
-0.5% YoY: Nijyusanku, -1.1%; ICB, -4.6%; and Jiyuku, -2.8%. Kumikyoku grew sales by 5.4% YoY,
thanks to ongoing promotional activities featuring Satomi Ishihara, a popular actress. For Onward
Kashiyama’s core brands, cumulative Q3 sales growth was: Nijyusanku, +2.3% YoY; Kumikyoku, +8.8%;
ICB, +1.3%; and Jiyuku, +4.2%.
In the core menswear brand, Gotairiku, which struggled through 1H, from 2H the company boosted its
high-quality suits, which are differentiated by materials and styling, and target men in their 40s
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(second-generation baby boomers). In Q3 (September-November only), Gotairiku’s sales rose 6.0% YoY.
While poor weather hit sales in October, they grew by a robust 15% in the month of December, in line
with forecasts. The company said that the menswear market overall was recovering, with suit sales
especially brisk.
Among core brands sold through new distribution channels (13% of Onward Kashiyama’s total sales), Q3
(September-November only) sales were +0.9% for anyFam (-5.2% YoY), impacted by the poor weather
in October. (anySis grew by 7.7% and field/dream rose by 0.6%.) For cumulative Q3, sales for anyFam
grew by 2.0%, anySis by 9.9%, and field/dream by 0.2%. anyFam recovered to post 6.5% growth in
December. In e-commerce, Onward is likely to exceed its full-year 5.0 billion yen sales target (+30% YoY)
with sales of over 5.3 billion yen, thanks to a growing membership and higher sales per customer. It
appears that the increase in sales per customers is partly due to the active shopping of some frequent
customers.
As a result of the growth of e-commerce and good sales of highly profitable products, Onward
Kashiyama’s gross profit margin in Q3 (September-November), rose from 54.7% the previous year to
55.1%; in cumulative Q3, it rose from 51.6% in the previous corresponding period to 52.0%. Due to poor
sales, the company made efforts to constrain costs by more than called for in the company’s forecasts.
The selling, general and administration expense ratio in Q3 (September-November) was 39.5% (steady
YoY), and for cumulative Q3 it was 42.8% versus 43.3% the previous year. However, it appears that the
decrease in expenses is not enough to cover the slide in sales, and operating profit has fallen somewhat
below the company’s target.
Domestic: other subsidiaries
Onward trading (uniform and sales promotion goods) is still being affected by rising raw material costs
due to yen weakness; profits fell both in Q3 and cumulative Q3. In Q4 it should be able to get back on
track to meet its full-year forecast of 1.1 billion yen, due to a recovery in orders, a review of materials
procurement, and progress on price pass-through.
Profits fell at Chacott (dancewear) as existing-store sales slumped due to poor weather, and the brand
also incurred personnel and marketing costs associated with the launch of the innerwear business.
However, the company expected these increases in costs, and had already incorporated them into its plan.
Thus, at the end of Q3, this brand looked, for the most part, to be progressing according to plan.
Creative Yoko (pet clothing and character goods) suffered from poor weather and sales opportunity loss
caused by the late delivery of some products manufactured in China. It seems that the business will have
difficulty meeting FY02/14 forecasts. The shipping from China took longer than usual to clear customs
due to stricter inspections of exports to Japan. To attract customers, the company planned to open large
stores covering 100 tsubo (330m2) in urban areas in FY02/15.
At Island (production and sales of the Grace Continental brand, which targets women in their 20s and
30s), sales and profits fell YoY, due to poor weather and because the popularity of the brand is starting to
wane a little. From FY02/15, the company plans to boost customer appeal by introducing new concept
stores, such as a store focusing on fashion accessories (jewelries).
Birz, the new subsidiary, requires some time to improve delivery and quality controls at its own factories in
Asia. Sales therefore struggled as the result of late deliveries and uncompetitive products. Due to costs
associated with laying the foundations for improvement, it appears the business will post operating losses
of around 5.0 billion yen in FY02/14. The company is reviewing the product value and price setting, and
plans to improve the 2014 spring/summer collection. In addition, the company plans to scrap unprofitable
stores to reduce operating losses to a few hundred million yen in FY02/15, and lay the groundwork for a
move into the black.
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Overseas
GIBO’Co posted a rise in profit as it booked sales of new bags and shoes brands and completed the
necessary investments to improve its production capability—such as expanding factories and hiring more
workers. In FY02/15, as the cost of the new brand’s samples falls, a further improvement in profits is in
prospect.
At Jil Sander, Q3 cumulative operating losses expanded to around 1.3 billion yen (from around 1.1 billion
yen in cumulative Q2). Despite upfront investment in restructuring the business, sales at Jil Sander
Navy—a key sales driver—were not growing as much as expected. In addition, the impact of forex
fluctuation widened the profit loss. Ms. Jil Sander will step down as creative director after showing the
2014 spring/summer collection. According to Onward, the design team of Jil Sander has been improved
(in menswear, womenswear, and accessories) and the departure of the creative director should not cause
a problem with regard to product creation. Also, the company will see a reduction in costs related to the
designer herself of several hundred million yen in FY02/15, followed by further reduction of a similar scale
in FY02/16.
In JOSEPH, following on from the first half, sales grew, driven by improvements in its “essential products”
line-up. The company indicated that recurring profit would likely return to the black as expected in
FY02/14. The company planned to focus on growing sales per store in FY02/15 rather than expanding the
number of the store, and as a result boost profits by around 150 million to 200 million yen.
In North America, the company was incurring upfront costs—increased personnel numbers of ICB
business and the renovation of J.Press flag ship store. It seems that operating losses will be around
400-500 million yen from this year to FY02/16.
1H FY02/14 Results (announced on October 4, 2013)
In 1H FY02/14, sales were 132.3 billion yen (+9.5% YoY) and operating profit was 3.3 billion yen (+5.5%
YoY). Recurring profit was 4.8 billion yen (+28.2% YoY), reflecting an improvement in non-operating
income and expenses (the company booked a foreign exchange loss of 505 million yen in 1H FY02/13).
Net income for 1H FY02/14 was 1.7 billion yen (+216.0% YoY), which included extraordinary gains, such
as an 887 million yen gain on the sale of investments in securities.
Results exceeded the company’s plan (consolidated basis) by the following percentages: sales 4.2%,
operating profit 4.1%, recurring profit 25.6%, and net income 175.2%. Although results at some
domestic subsidiaries fell short of plan, core domestic brands were the main performance driver. In
overseas operations, despite a slow recovery in sales in Asia, results were largely in line with plan in
Europe.
Based on performance in 1H and foreign exchange trends, the company reviewed its pricing policy for 2H.
As a result, it raised the full-year sales forecast from 273.0 billion yen to 277.0 billion yen. Profit forecasts
were unchanged.
At Onward Kashiyama, which accounts for 74% of the company’s domestic business (based on operating
profit, including Onward Holdings), sales of the four core brands (Nijyusanku, ICB, Jiyuku and Kumikyoku),
together with other main brands sold through department stores, surpassed the forecast.
Specifically, consumer sentiment improved on the back of economic recovery, and the company
implemented measures to enhance differentiation, such as strengthened product planning and
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merchandising. Sales increased YoY by the following percentages: Nijyusanku 4.5%, ICB 4.1%, Jiyuku
8.7%, and Kumikyoku 10.9%. The strong performance by Kumikyoku was underpinned by an aggressive
TV advertising campaign. Based on 1H performance, the company raised its full-year sales forecasts.
Kumikyoku sales are expected to grow 7% YoY (5% under the initial plan), while Jiyuku sales are forecast
to increase 6% YoY (4% under the initial plan).
Although core men’s brand Gotairiku recorded a 5.1% decline in sales YoY in 1H, the company plans to
target customers in their 40s (second-generation baby boomers) in 2H, centering on the sale of
high-quality suits (materials and styling). To minimize opportunity-loss, the plan calls for a full lineup of
products in terms of both price points and volumes. The company will work to revitalize the men’s apparel
business by through an aggressive advertising strategy and by appointing the director of CK Calvin Klein
operations to concurrently oversee Gotairiku. The company forecasts 2H sales to increase 16% YoY.
Regarding strategy for department store brands in FY02/15 and beyond, the company plans to focus
resources on core brands while reviewing unprofitable stores and brands. The company says it will aim to
maintain YoY sales growth at around 5% for core women’s brands, and is targeting 30% YoY sales growth
in FY02/15 for Gotairiku.
Regarding performance in new channels (non-department store) in 1H, sales at core brand anyFAM were
up 5.9% YoY, anySiS was up 11.1% YoY and field/dream was unchanged YoY. From FY02/15, the
company plans to use advertising to drive further sales growth. By building a solid sales track record and
enhancing its relationship with retail developers, the company aims to cultivate advantages for future
store openings. In e-commerce channels, the company achieved an increase in site membership and
expanded the number of brands on offer. As a result, 1H sales were up approximately 50% YoY, to 2.4
billion yen. Progress toward the company’s full-year sales target of 5.0 billion yen (+30% YoY) was ahead
of forecast. The company says it is aiming for e-commerce sales of around 7.0 billion yen in FY02/15, and
10.0 billion yen in FY02/16.
Gross profit margin in 1H at Onward Kashiyama was 50.2% (1H FY02/13: 49.7%), driven by robust
performances by high-margin core brands and e-commerce. From FY02/13, the company has focused on
improving sales of full-price items by delaying the start of seasonal bargain sales. In Q2, the company
sold summer items at full prices up to early-July, which resulted in higher sales of full-price items,
centering on core brands. Hence, the strategy appears to have succeeded largely as planned. The
SG&A-to-sales ratio improved to 44.7% (1H FY02/13: 45.7%) through a continuing tight rein on expenses.
This contributed to double-digit growth in operating profit, surpassing the company’s forecast.
Domestic: Other Subsidiaries
Operating profit at other domestic subsidiaries was down approximately 500 million yen YoY, falling
several hundred million yen short of forecast. At main subsidiaries, centered on Onward Trading, the rapid
depreciation of the yen had a negative impact on gross profit, as measures to overhaul the production
structure as well as responses in price negotiations were unable to make up for forex impact. In addition,
a lag in recovery at new subsidiaries contributed to the decrease in operating profit. The company
anticipates an improvement in earnings in 2H at Onward Trading and other subsidiaries based on an
overhaul of materials procurement and measures to pass on cost increases in product pricing.
Although orders—including those from new clients—are on a recovery trend at Onward Trading, as
previously mentioned, results were affected by the weakening of the yen.
Chacott grew sales at standalone stores, achieving higher sales and operating profit. However, the
company expects profit to decrease in 2H due to labor and marketing expenses related to a new business.
At Creative Yoko, which sells pet fashion and character goods, comparable store sales declined, reflecting
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the impact of severe midsummer heat and intensified competition.
Island increased its store count and aggressively rolled out high-end products to build the brand. However,
in 1H these measures only made a limited contribution to earnings.
Overseas
According to the company, in 1H although sales recovery lagged in Asia, in the overseas business’ core
European operations, GIBO’Co and Jil Sander achieved progress in line with plan and JOSEPH was on a
recovery path. Yen depreciation led to a fall of approximately 300 million yen in operating income.
GIBO’Co grew OEM and wholesale sales, however, due to such factors as sample-production costs for a
new brand of OEM shoes, there was an overall increase in sales but decrease in operating income.
According to the company, in 2H sample costs are expected to decline and shipments of autumn/winter
items and 2014 spring shoes are forecast to increase. Based on such factors, the company forecasts
operating profit to rise 73.3% YoY.
At Jil Sander, operating loss increased by approximately 1.1 billion yen due to upfront expenses relating to
rebuilding of the business and the impact of foreign exchange. However, results were largely in line with
the company’s initial plan, which anticipated a deterioration of approximately 400 million yen YoY in 1H
earnings. To increase sales especially for Jil Sander Navy, the company plans to open more standalone
stores and stores within retail complexes, and will also work to expand wholesale sales. There have been
several media reports (as of November 2013) suggesting that Ms. Jil Sander will resign from her position
as creative director following the showing of the Spring/Summer 2014 collection. According to the
company, an organizational structure is being put in place that will facilitate a smooth shift in the role of
Ms. Jil Sander, and there is no other official comment on the matter. SR Inc. does not expect these
developments to have a large impact.
At JOSEPH, in recent years unsuccessful product design and merchandising have seen an ongoing decline
in sales of the Essential Line. The company is working to remedy this situation through merchandising
aimed at returning the brand to its roots. This resulted in an increase in sales YoY in 1H as Essential Line
sales improved. Operating loss was reduced YoY, from 498 million yen in 1H FY02/13 to 315 million yen in
1H FY02/14. This reflected a decrease in depreciation expenses relating to new store openings and store
refurbishments as well as progress in sales of items from previous years (inventory write-downs were
booked in FY02/13).
In North American operations, although performance of the apparel business fell short of plan, the resort
business performed strongly. While operating loss came in at 169 million yen (versus operating profit of 0
million yen in 1H FY02/13), North American operations as a whole were slightly ahead of forecast.
Q1 FY02/14 Results (announced on July 5, 2013)
In Q1 FY02/14, sales were 72.2 billion yen (+6.8% YoY) and operating profit was 6.4 billion yen (+2.8%
YoY). Recurring profit was 7.2 billion yen (+19.2% YoY), reflecting an improvement in non-operating
income and expenses (the company booked a foreign exchange gain of 302 million yen compared with a
foreign exchange loss of 443 million yen in Q1 FY02/13). During Q1, Onward booked extraordinary gains,
including an 887 million yen gain on the sale of investments in securities, which contributed to net income
of 3.8 billion yen (+36.5% YoY).
According to the company, Q1 performance highlights were as follows.
Consolidated operating profit was up 174 million yen YoY. Operating profit YoY on an individual subsidiary
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basis was down 204 million yen at GIBO’Co, Jil Sander was down 206 million yen and down 90 million yen
in Asia. In contrast, YoY operating profit at Onward Holdings and Onward Kashiyama rose by 787 million
yen and at JOSEPH improved 152 million yen, thereby underpinning the consolidated operating profit
increase.
At the subsidiary level:
 Onward Holdings and Onward Kashiyama
Sales of 42.1 billion yen (up 2.9% YoY); operating profit of 5.8 billion yen (up 15.8% YoY)
 Onward Trading
Sales of 4.7 billion yen (up 7.8% YoY); operating profit of 475 million yen (down 3.1% YoY)
 Chacott
 Creative Yoko
Sales of 1.6 billion yen (down 9.1% YoY); operating profit of 54 million yen (down50.5% YoY)
 Island
 Across Transport
Sales of 3.1 billion yen (up 3.1% YoY); operating profit of 233 million yen (up 7.4% YoY)
 JOSEPH
Sales of 2.7 billion yen (up 16.8% YoY); operating loss of 148 million yen (vs. an operating loss of 300
million yen in Q1 FY02/13)
 GIBO’Co
 Jil Sander
Sales of 3.4 billion yen (up 15.0% YoY); operating loss of 155 million yen (vs. an operating profit of 51
million yen in Q1 FY02/13)
 Asia
Sales of 1.9 billion yen (up 14.6% YoY); operating loss of 164 million yen (down 35.4%)
Domestic
Centering on Onward Kashiyama, the Company implemented measures to boost product appeal and
enhance store management capabilities. As a result, core brands and other main brands achieved sales
surpassing the company’s forecasts. In addition, the company pursued structural reforms and improved
cost efficiency through efforts to enhance productivity. With regard to YoY sales performance at Onward
Kashiyama’s core brands, Nijyusanku was +4.2%, Kumikyoku was +11.6%, ICB was +5.3% and Jiyuku
was +8.5%.
Results at other subsidiaries were largely in line with company forecasts.
Overseas
Although sales recovery is lagging in the Asia region, sales grew at the European operations—the core of
the overseas business—and the company’s efforts to improve business management were progressing
according to plan.
FY02/13 Results (announced on April 5, 2013)
For the full year, sales were 258.4 billion yen (+6.6% YoY), operating profit was 11.2 billion yen (+2.2%
YoY), and recurring profit was 13.4 billion yen (+0.6% YoY). For the period, Onward booked 7.6 billion
yen extraordinary losses (3.4 billion yen in FY02/12) due to 6.9 billion yen impairment losses including 6.7
billion yen goodwill impairment at subsidiary Project Sloane Limited and fixed asset impairment losses.
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However, higher deferred income tax YoY reduced income tax charges, resulting in net income of 4.5
billion yen (+27.6% YoY).
Sales, operating profit, and recurring profit fell short of company forecasts by 3.1%, 18.9%, and 13.0%.
Domestic businesses posted an earnings increase YoY even though they failed to meet target. The
company’s overseas operations, on the other hand, had a significant earnings decline YoY and missed
target by a wide margin, presenting an issue that will linger through FY02/14 and beyond.
According to the company, full-year performance highlights were as follows.
Consolidated operating profit was down by 239 million yen YoY and breaking this down at the subsidiary
level:
 Operating profit at JOSEPH dropped by 787 million yen YoY; by 498 million yen at GIBO’Co; by 264
million yen at Jil Sander; and by 480 million yen in Asia.
 Operating profit at Onward Holdings and Onward Kashiyama rose by 1.5 billion yen; and by 316
million yen at Onward Trading.
 Onward Trading
 Chacott
 Creative Yoko
Sales of 7.4 billion yen (down 4.0% YoY); operating profit of 696 million yen (down 4.0% YoY)
 Island
Sales of 8.5 billion yen (up 3.6% YoY); operating profit of 1.5 billion yen (down 5.1% YoY)
 Across Transport
 JOSEPH
million yen in FY02/12)
 GIBO’Co
 Jil Sander
 Asia
Domestic
Onward Kashiyama undershot its full-year sales estimate. The company struggled in Q3 because of
lingering summer heat. Although sales began to pick up toward the end of FY02/13, the recovery was not
strong enough to enable the company to achieve its sales target. However, sales of high-margin core
brands and those through new distribution channels (e.g., e-commerce) were robust. The gross profit
margin consequently increased to 50.6%, up 1.4 percentage points from FY02/12, and the company’s
domestic profitability improved largely as planned due to sales-linked cost controls. Operating profit was
in line with forecast after the company reduced its operating expenses by 1.6 billion yen from an initial
plan.
Sales in FY02/13 at core brands were as follows: +7.8% YoY for Nijyusanku; +5.0% for Kumikyoku;
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+0.8% for ICB; and +6.7% for Jiyuku. Among the new distribution channels, sales at anyFAM rose 9.7%
YoY, anySiS rose 9.3% YoY, and field/deram rose 12.8% YoY. The company’s e-business generated sales
of 3.8 billion yen (+69.4% YoY), exceeding its target. The six main brands (JOSEPH, Paul Smith, TOCCA,
BEIGE, field/dream, and OPENING CEREMONY), which operated a “retail brand business system,” may
have had a double-digit sales increase. (The retail brand business system, unlike the previous
branch-based system, integrates the management of planning, production, marketing, and sales on a per
brand basis.)
Operating profit rose 1.2 billion yen and 100 million yen during Q1 and Q2 of FY02/13, respectively.
Operating profit fell 1.2 billion yen in Q3 and rose 1.5 billion yen in Q4.
In Q1, sales of core-brand products, including spring costs and Cool Biz items, were brisk. The company
benefitted from an increase in sales of full-price items. During Q2, sales of full-price summer items
expanded significantly, raising the company’s gross profit margin more than expected. However, inventory
valuation losses increased after discount sales fell. Sales of autumn items were also sluggish because of
lingering summer heat in August.
In Q3, sales of autumn products were slow to take off. The start of a “family sale” event was delayed until
December (For FY02/12, the event took place in November). The company also made investments in
sales floors and increased advertising expenses. However, gross profit margin improved significantly in Q4
thanks to strong sales of full-price cold-weather items, mostly womens’ brands. This, along with a
reduction in operating expenses, contributed to a significant profit increase YoY.
Other subsidiaries’ performance was largely in line with company estimates. While Creative Yoko Co. and
Island Co. had some difficulty meeting their targets, Onward Trading Co. and Across Transport Co. had
strong showing. Creative Yoko was affected by its decision to scrap directly run shops inside shopping
centers. Island failed to meet its sales target and its gross profit margin declined as a result of an
inventory increase. Onward Trading benefitted from a large-scale order and a cost reduction achieved
through an expansion of production in Asia. Profitability at its uniform and sales-promotion operations
improved. Across Transport, meanwhile, increased sales after adding customers.
Overseas
The company accelerated investments and production in Europe and Asia in accordance with its
aggressive expansion strategy. However, worsening economies, political instability, etc. in these regions
led to substantially lower-than-expected overseas sales for the year. Overseas profitability accordingly fell
YoY with certain operational issues lingering.
Sales and profits fell at GIBO'Co. Sales fell because it had fewer orders for 2012 autumn and winter
collection. Shipments of 2013 spring collection were also delayed.* Profit fell because of upfront costs
involving the production of sample products, advertising, and the expansion of showrooms.
The company’s European units end their financial year in November. For GIBCO’Co at the parent level, this
means shipments of some products scheduled for FY11/12 have been delayed until FY11/13. The European
units’ sales and profits for the December-February period (Q1) are included in the March-May period (Q1) of
the consolidated earnings.
Retail sales expanded at Jil Sander thanks to a rollout of full-scale operations of Jil Sander Navy.
However, there was a delay in the planning of the Collection Line. As a result, shipments of some products
scheduled for FY02/13 were delayed until FY02/14. Thus, the unit posted a recurring loss, instead of a
profit as planned.
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At JOSEPH, sales of Essential Line items fell as a result of economic stagnation in Europe and
merchandising failures. Despite aggressive efforts, sales declined and valuation losses increased. The
unit’s profits plunged.
In Asia, the company sought to expand China operations by increasing production. However, a
deterioration of Japan-China relations and economic conditions led to substantially lower sales.
Despite a 0.9% decline in sales YoY to 242.4 billion yen, the company’s operating profit was up 22.7%, to
11.0 billion yen. This partly due to better cost controls, with the SG&A-to-sales ratio improving by 0.6%
YoY. The recurring profit came in at 13.3 billion yen (27.0% up YoY). The company booked 1.0 billion yen
in extraordinary profit for the period (due to sales of fixed assets); however, it also posted a 3.4 billion yen
extraordinary loss stemming primarily from asset retirement obligation accounting provisions (1.1 billion
yen) and the rebuilding and renovation of company headquarters (1.3 billion yen). As a result of all of
these factors, net income was up 29.6% YoY, to 3.5 billion yen.
The loss related to headquarters rebuilding and renovation was booked in FY02/12 although the actual
construction work takes place over three years. The company will rebuild its head office in Nihombashi in
central Tokyo. After the new building is complete, a part of it will be rented out to third-party tenants.
Looking at the 1H and 2H numbers, in the 1H when the results were affected by the earthquake, sales fell
2.3% but profits rose 1.9%. In 2H, aggressive merchandising and marketing allowed to grow both sales
(+0.4% YoY) and operating profit (+27.1% YoY).
The full year sales were approximately 1% below the company forecast, but operating profit was 7.4%
higher than anticipated, principally thanks to improved cost controls.
The group’s main subsidiaries performed as follows (the sales and operating profit totals shown below are
simple aggregate totals calculated prior to eliminations).
Sales of 150.0 billion yen (down 2.8% YoY); operating profit of 9.5 billion yen (up 28.7% YoY)
 Onward Trading
 Chacott
 Island
 Creative Yoko
Sales of 7.7 billion yen (down 3.6% YoY); operating profit of 725 million yen (up 2.4% YoY)
 Onward Resort Group
Sales of 3.1 billion yen (down 7.0% YoY); operating loss of 122 million yen (vs. an operating loss of 3
million yen)
 JOSEPH
Sales of 10.3 billion yen (down 7.8% YoY); operating loss of 444 million yen (vs. an operating loss of 352
million yen)
 GIBO’Co
Sales of 14.9 billion yen (up 19.8% YoY); operating profit of 1.2 billion yen (vs. an operating profit of 585
million yen)
 Jil Sander
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million yen)
Consolidated operating profit was up 2.0 billion yen YoY. Breaking this down at the subsidiary level,
operating profit at Onward Trading fell by 222 million yen and by 119 million yen at Onward Resort Group;
conversely, it rose 2.1 billion yen at Onward HD (the legal entity at the top of the Onward group of
companies) and Onward Kashiyama, and 605 million yen at GIBO’Co.
Domestic: sales of 213.7 billion yen (down 1.9% YoY); operating profit of 13.0 billion yen
(up 16.9% YoY)
Onward HD and Onward Kashiyama
Onward Kashiyama registered a significant rise in profitability, led by its core brands. It absorbed the
impact from the earthquake in 1H (which caused an estimated decrease in sales of about 3.0 billion yen
due to store closures and reduced opening hours in the Tohoku and the Kanto regions) by bolstering its
product offerings and store sales and improving its costs controls, including for labor and advertising costs.
This resulted in improved profits.
Sales of core brands were as follows: Nijyusanku +0.3% YoY, Kumikyoku +11.6%, Jiyuku +0.7%, and
ICB +0.6%.
By quarters, the operating profit grew by about 100 million yen, 200 million yen, and 1.8 billion yen, in Q1,
Q2, and Q3 respectively, and roughly flat YoY in Q4.
In Q1-Q2, the earthquake, early start of seasonal sales by competitors, and weak performance of the fall
apparel amid unseasonably hot weather hurt profitability. At the same time, gross profit margins
benefited from lower minimum royalty guarantees on licensed brands and higher weight of apparel sold
at full prices (benefiting from Cool Biz casual business wear trend). The company also controlled SG&A
costs.
In Q3, sales were strong, driven by the original merchandise under the Cross-Brand Strategy umbrella
(unified theme items represented across the brand portfolio) such as MIRA SHAWL items (“mirror shawl”)
and Warm Biz merchandise. The profitability improved as gross profit margins further benefited from less
discounting and successful cold-weather outerwear offering and SG&A costs were controlled tightly. In Q4
however, profits were practically unchanged YoY despite cost reductions as sales fell by 1.0bn yen YoY,
hurt by weakness of spring apparel affected by the unusually long and cold winter.
Onward Trading
The recovery of the sales promotion unit was not sufficient to compensate for the decline in orders for
both school and work uniforms due to the earthquake. In addition, the company was not immediately
able to transfer the increased production costs it incurred in China onto product prices. As a result of
these factors, operating profit in 1H fell and there was a decline in both sales and profits for the full
financial year.
Chacott
The dancewear subsidiary steadily increased customer numbers, led by its flagship store and its
e-business, and achieved an increase in both sales and profits.
Island
Aggressive merchandising strategy and corresponding efforts to carry broader inventory meant lower
gross profit margins (offering an aggressively wider variety of items means that more items won’t sell at
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full prices). However, the strategy paid off as it also meant more customers and more items sold, resulting
in stronger top line and better operating profitability (both beating forecast).
Creative Yoko
Sales fell in the aftermath of the earthquake, but the pet wear subsidiary managed to grow profits as
spend per customer and gross profit margins increased driven by strong new product offering.
Overseas: sales of 44.0 billion yen (up 5.9% YoY); operating profit of 323 million yen
(previous year, an operating loss of 99 million yen)
Operations in Europe recorded a significant improvement in financial results, with an increase in both
sales and profits.
 Europe: sales of 34.2 billion yen (up 6.6% YoY); operating profit of 197 million yen (previous year, an
operating loss of 363 million yen)
JOSEPH
Despite efforts to refresh the brand image, sales came in below plan as the European retail business failed
to recover.
GIBO’Co
Orders from Jil Sander and other brands (both from the inside and outside of the Onward group
companies) increased, leading to a strong apparel and shoes wholesale business. Operating profit
increased approximately 600 million yen YoY and was also about 3 million yen above the company’s
forecast.
Jil Sander
The gross profit margins improved by using GIBO’Co’s production platform. Sales of its new line, Jil
Sander Navy, did not reach the company’s ambitious forecast. On the other hand, wholesale sales trended
according to forecasts.
 Asia: sales of 6.9 billion yen (up 6.7% YoY); operating profit of 333 million yen (down 19.0% YoY)
Sales in Asia, centered on China, trended strongly until Q3, but consumer confidence deteriorated in Q4
due to anxiety about the economic environment, and full-year sales were below the company’s forecast.
 United States: sales of 2.9 billion yen (down 3.5% YoY); operating loss of 207 million yen (previous
year, an operating loss of 147 million yen)
Retail (J.Press) sales were slightly down, but the gross profit margin improved because of an increase in
sales of full-price items, and, as a result, the size of the deficit decreased. Profitability for the resort unit
recovered in 2H. However, the unit was unable to offset the decrease in sales in 1H caused by the
substantial decline in customer numbers as a result of cancellations following the earthquake.
Consequently, the company recorded a deficit in this region for the full financial year.
Sales, operating and recurring profit all came in above company forecasts driven by its robust
performance of its main brands. Nonetheless, net income came in below the company’s forecast. The
company said a 1.3 billion yen write-down on marketable securities was the main cause behind this.
Operating income for FY02/11 was up 103.7% YoY at 8.9 billion yen of which Onward Kashiyama
(including HD) generated 7.4 billion yen in operating profit (a 24.2% YoY increase) and Island—which
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became a consolidated subsidiary in December 2009—generated 1.5 billion yen in operating profit.
Among its overseas subsidiaries Joseph posted an operating loss of 352 million yen (vs. a 746 million
operating loss in the previous year); Jil Sander a 664 million yen operating loss (vs. a 1.9 billion yen
operating loss in the previous year), and GIBO’Co recorded an operating profit of 585 million yen (up
13.4%YoY).
On the other hand, operating profit at Onward Trading fell 24.7% YoY to 932 million yen, and was down
a sharp 71.7% YoY at 80 million yen at Across Transport.
Domestic
Both sales and operating profit at Onward Kashiyama came in above the company’s projections. The
company cited three main drivers for the better-than-forecast results were:
 Solid performance at core brands (sales at Nijyusanku up 7% YoY, ICB up 5% YoY, Jiyuku also up 5%
YoY)
 Strong sales for its Air Jacket menswear product
 Expansion of its e-commerce business.
Negatives were an 8% YoY decrease in sales at Kumikyoku (one of its core brands) and an unseasonably
hot weather that delayed sales of seasonal autumn items.
As for other domestic subsidiaries, the company made the following comments:
Island: sales and operating profit hit record highs.
Onward Trading: profitability declined as the business was hit by lower orders for sales promotion goods
and higher production costs in China.
Chacott: operating profit was up despite sales not growing as planned.
Across Transport: profitability hit by higher costs and oil prices.
Overseas
Sales were down 8.9% YoY mainly due to currency headwinds but still managed to beat the company’s
forecast. The company recorded an operating loss of 100 million yen for its overseas subsidiaries; a
significant improvement on the previous year’s 2.1 billion yen operating loss, and better than forecast.
Exchange rates negatively impacted the sales performance of foreign subsidiaries to the tune of 5.9 billion
yen, adjusting for currency effects sales would have risen 4.1% YoY.
In Europe results beat forecasts as the company strengthened its operating base there and consequently
improved business performance resulting in a far smaller operating loss. Asia on the other hand was
affected by higher Chinese production costs pulling operating income lower and below plans.
Regarding its European subsidiaries the company made the following comments:
Jil Sander: by shifting production to GIBO’Co there was a significant improvement in gross margin at the
label.
JOSEPH: a renovation of its flagship store helped boost sales.
GIBO’Co: Profitability improved driven by its expanded wholesale business and taking on business from Jil
Sander.
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Income Statement
Income Statement
(million yen)
Total Sales
FY02/10
Cons.
248,634
YoY
CoGS
Gross Profit
FY02/11
Cons.
244,550
FY02/12
Cons.
242,402
FY02/13
Cons.
258,369
FY02/14
Cons.
279,073
FY02/15
Est.
290,700
4.2%
-4.7%
-1.6%
-0.9%
6.6%
8.0%
134,458
114,176
128,725
115,825
127,288
115,113
133,878
124,490
149,113
129,959
GPM
45.9%
47.4%
47.5%
48.2%
46.6%
109,793
106,896
104,159
113,298
120,537
SG&A / Sales
44.2%
43.7%
43.0%
43.9%
43.2%
Operating Profit
4,383
8,928
10,953
11,192
9,422
12,300
-51.8%
1.8%
103.7%
3.7%
22.7%
4.5%
2.2%
4.3%
-15.8%
3.4%
30.5%
4.2%
4,667
2,929
6,120
4,165
2,597
10,497
3,860
1,484
13,329
3,726
1,514
13,405
4,209
12,211
13,700
-2.6%
2.5%
71.5%
4.3%
27.0%
5.5%
0.6%
5.2%
-8.9%
4.4%
12.2%
4.7%
2,419
2,150
4,174
65.3%
27
2,187
486
2,431
5,708
66.7%
120
2,722
1,094
3,353
7,450
67.3%
90
3,529
1,967
7,623
3,188
41.1%
56
4,503
1,129
3,866
4,781
50.5%
34
4,658
5,400
-107.1%
0.9%
24.5%
1.1%
29.6%
1.5%
27.6%
1.7%
3.5%
1.7%
15.9%
1.9%
SG&A
YoY
OPM
Non-Operating Income
Non-Operating Expenses
Recurring Profit
YoY
RPM
Extraordinary Gains
Extraordinary Losses
Tax Charges
Implied Tax Rate
Minority
Net Income
YoY
Net Margin
The company’s sales rose at approximately 4.5% per year from FY02/02 through FY02/07 (peaking at
approximately 319 billion yen in FY02/07) before declining about 22.0% into FY02/10.
Gross profit margins have been largely stable (a median of 46.0% GPM within a tight range between
43.4% and 48.2%, FY02/02-FY02/14). Operating profit margins peaked at 8.9% in FY02/05 before
declining to 1.8% in FY02/10. The largest factor impacting them has been sales given that the SG&A costs
stayed largely unchanged over the period (with labor costs the biggest fixed component).
Onward has typically recognized net non-operating profit such as rent and royalties. The large
non-operating expense in FY02/09 was due to a FX loss (subsidiary loans arranged in yen to lower the
interest costs, backfiring when the yen exchange rate trend suddenly reversed from mid 2007; the
practice was officially terminated following the losses).
Recurring profit margins have generally tracked changes in operating profit margins.
The company has recognized extraordinary losses in the past. The 22.2 billion yen loss in FY02/02 was
related to a change in accounting convention (related to retirement benefit obligations). The 17.8 billion
yen loss in FY02/07 was partially related to asset impairment charges of the resort business in Guam
(approximately 6.1 billion yen). The company recognized a 37.8 billion yen extraordinary loss in FY02/09
largely due to a valuation charge on investment securities (approximately 22.6 billion yen) and
impairment losses on goodwill of a UK subsidiary (approximately 11.6 billion yen).
Net profit margin peaked in FY02/04 when an accounting change related to pension liabilities provided a
10.5 billion yen extraordinary gain boosting the net income. The net loss in FY02/09 (30.9 billion yen) was
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due to extraordinary items discussed above.
DuPont ROE Analysis
FY02/09
Cons.
-11.8%
86.2%
1.70
-17.4%
Net Profit Margin
Asset Turnover
Leverage Factor
ROE
FY02/10
Cons.
0.9%
84.4%
1.86
1.4%
FY02/11
Cons.
1.1%
85.2%
1.81
1.7%
FY02/12
Cons.
1.5%
86.8%
1.77
2.2%
FY02/13
Cons.
1.7%
91.7%
1.75
2.8%
Historical Performance vs. Estimates
Initial CE vs. Results
(million yen)
Sales (Initial CE)
Sales (Results)
Operating Profit (Initial CE)
Operating Profit (Results)
Recurring Profit (Initial CE)
Recurring Profit (Results)
Net Profit (Initial CE)
Net Profit (Results)
FY02/09
Cons.
291,000
261,005
-10.3%
20,600
9,084
-55.9%
24,200
6,285
-74.0%
12,400
-30,895
-
FY02/10
Cons.
252,600
248,634
-1.6%
8,000
4,383
-45.2%
10,000
6,120
-38.8%
3,600
2,187
-39.3%
FY02/11
Cons.
250,000
244,550
-2.2%
6,600
8,928
35.3%
9,000
10,497
16.6%
3,500
2,722
-22.2%
FY02/12
Cons.
244,800
242,402
-1.0%
10,200
10,953
7.4%
11,600
13,329
14.9%
3,500
3,529
0.8%
FY02/13
Cons.
266,600
258,369
-3.1%
13,800
11,192
-18.9%
15,400
13,405
-13.0%
5,000
4,503
-9.9%
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Balance Sheet
Balance Sheet
(million yen)
ASSETS
Cash and Equivalents
Accounts Receivable
Allowance for Doubtful
Inventories
Prepaid Expenses
Other Current Assets
Total Current Assets
Buildings, Land
Acc. Depreciation
Other Fixed
Acc. Depreciation
Total Tangible Assets
Investments
LT Loans
LT Prepaid Expenses
Deferred Tax Assets
Other
Allowance for Doubtful
Total Other Fixed Assets
Goodwill
Other
Total Intangible Assets
Total Fixed Assets
Total Assets
LIABILITIES
Accounts Payable
Short-Term Debt
Corporate Taxes Payable
Allowance for Loss on Unsold Inventory
Reserve for Bonuses
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Allowance
Valuation-Based Deferred Tax Liabilities
Other Fixed Liabilities
Total Long-Term Liabilities
Total Interest-Bearing Debt
Total Liabilities
Issued Capital
Reserves
Retained Earnings
Treasury Stock
Valuation and Translation Adjustments
Share-Purchase Warrants
Minority Interests
Total Shareholder Equity (Net Assets)
Working Capital
Interest-Bearing Debt
Net Debt
FY02/10
Cons.
FY02/11
Cons.
FY02/12
Cons.
FY02/13
Cons.
FY02/14
Cons.
34,330
25,730
-862
30,893
4,238
6,348
100,680
131,920
50,294
26,340
18,225
89,741
31,193
4,969
881
5,529
12,001
-3,240
51,335
47,417
3,393
50,811
191,888
292,568
30,939
25,399
-723
30,356
4,074
5,499
95,544
129,380
50,748
25,827
17,836
86,622
34,592
4,839
750
5,627
9,273
-2,354
52,729
43,731
3,014
46,745
186,097
281,642
33,192
25,256
-387
31,443
3,820
5,571
98,895
125,904
52,092
27,562
18,386
82,987
35,179
5,028
743
4,495
8,916
-2,801
51,561
40,793
2,701
43,495
178,044
276,939
24,677
25,863
-452
34,476
7,931
7,826
100,321
128,633
52,891
30,797
19,678
86,861
42,730
5,275
1,212
3,600
13,862
-2,541
64,138
32,769
2,688
35,457
186,458
286,779
27,375
28,250
-635
40,678
5,108
9,573
110,349
137,044
52,879
41,161
22,448
102,878
49,161
5,446
1,182
3,079
10,028
-2,971
65,926
29,740
4,535
34,276
203,081
313,430
35,961
35,697
4,085
545
1,830
12,806
90,929
24,571
3,395
5,949
9,558
43,475
60,268
134,404
30,079
50,043
118,816
-23,489
-18,949
412
1,251
158,164
19,800
60,268
25,938
32,703
30,886
4,533
869
1,867
11,819
82,677
22,665
3,587
5,941
8,027
40,220
53,551
122,898
30,079
50,043
117,776
-23,445
-17,405
532
1,163
158,744
23,052
53,551
22,612
33,238
29,865
5,699
513
1,266
13,510
84,091
19,730
4,261
3,966
7,588
35,545
49,595
119,636
30,079
50,043
119,524
-23,326
-20,327
653
656
157,302
23,461
49,595
16,403
33,512
47,581
4,829
528
1,289
13,001
100,740
1,573
3,210
3,966
11,917
20,666
49,154
121,407
30,079
50,043
120,164
-23,146
-13,420
724
926
165,372
26,827
49,154
24,477
38,305
44,956
955
496
1,286
15,011
101,009
14,051
3,556
3,966
15,818
37,391
59,007
138,401
30,079
50,043
121,007
-23,052
-4,981
823
1,109
175,028
30,623
59,007
31,632
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The company’s capital structure has been mostly equity from FY02/02-FY02/14.The company has used
debt financing in the past, typically short term (repaid all long term debt from in FY02/02; used more in
FY02/09). The balance sheet has been highly liquid (current ratio above 100% from FY02/02 through
FY02/14). The company has typically held a high cash balance (exceeding working capital requirements).
Assets
The asset base for the company has historically been dominated by fixed assets (tangible assets related
to sales activities and other fixed assets such as investments and long term loans). The company’s M&A
activity in FY02/06 and FY02/09 has resulted in substantial amounts of goodwill on the balance sheet.
Adjusting (removing) goodwill from the balance sheet reveals a different liquidity profile: current assets
(cash and working capital) are the largest group of assets. Onward does not own manufacturing facilities
(see Business Model), therefore working capital is an important component of the business model.
Liabilities
Liquidity of liabilities mirrors assets; current liabilities have historically been over 70% of total liabilities
(from FY02/02 through FY02/14). Current liabilities have been mostly working capital, however the
company’s use of short term debt has been an increasingly large component in current liabilities. Short
term debt as of FY02/10 was bank loans.
The company seems to have shifted to using all short term debt in FY02/02 (total debt / assets was
similar pre-2002, but the composition of short term debt increased), matching the short-term cycle of the
business model. The company added long term debt in FY02/14, lowering the equity ratio.
Net Assets
Shareholders’ equity has generally increased with net income (net dividend payments) from FY02/02
through FY02/08. A net 11.0 billion in valuation charge in FY02/07 (mostly related to land) offset net
income for the year, and a net 28.5 billion yen charge in FY02/08 (9.7 billion yen related to securities and
18.6 billion yen of minority interest decreases) caused a 27.5 billion yen decline in net assets.
The company has also been a buyer of its own stock: purchasing approximately 5.3 billion yen in FY02/04,
approximately 9.4 billion yen in FY02/06, and approximately 7 billion yen in FY02/08.
Per Share Data
Per Share Data (yen)
No. of Shares (thousand)
Earnings Per Share
EPS (Fully Diluted)
Dividend Per Share
Book Value Per Share
FY02/09
Cons.
172,922
-197.2
-197.2
30.0
1,001.4
FY02/10
Cons.
172,922
14.0
13.9
24.0
999.0
FY02/11
Cons.
172,922
17.4
17.3
24.0
1,002.3
FY02/12
Cons.
172,922
22.5
22.4
24.0
995.1
FY02/13
Cons.
172,922
28.7
28.5
24.0
1,043.6
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Cash Flow Statement
Cash Flow Statement
(million yen)
Operating Cash Flow (1)
Investment Cash Flow (2)
Free Cash Flow (1+2)
Financial Cash Flow
Depreciation & Amortization (A)
Capital Expenditures (B)
Working Capital Changes (C)
Simple FCF (NI + A + B - C)
FY02/09
Cons.
10,839
-40,950
-30,111
17,971
8,386
-2,793
1,081
-26,383
FY02/10
Cons.
14,057
-25
14,032
-4,889
9,149
-2,967
-596
8,965
FY02/11
Cons.
11,206
-5,151
6,055
-9,271
9,279
-2,977
3,252
5,772
FY02/12
Cons.
13,180
-1,961
11,219
-7,449
9,142
590
409
12,852
FY02/13
Cons.
10,137
-10,682
-545
-7,848
9,658
-6,387
3,366
4,408
Operating Cash Flow
The largest component of OCF has historically been net income, illustrating the cash generating nature of
the company’s business model. OCF in FY02/04 was the result of strong net income growth along with a
reduction in working capital (payables increased 4.9 billion, reversing a decrease of 2.4 billion yen the
previous year). OCF in FY02/06 grew YoY due to timing related to FY02/04 taxes (paid in FY02/05),
creating the appearance of volatility which was not due to core earnings.
OCF was positive in FY02/09 despite a net loss of 30.9 billion yen. This was in part due to sizeable
non-cash charges (22.6 billion yen securities write-down, 13.0 billion yen impairment losses).
Investment Cash Flow
FY02/06 investment cash flow of 37 billion yen was related to the purchase of the JOSEPH Group (16.9
billion yen) and the purchase of investment securities (13.3 billion yen). Investment cash flow in FY02/08
was due in part to the sale of Impact 21 (6.3 billion yen outflow). Investment cash flow in FY02/09 was
largely due to the purchase of Jil Sander (26.6 billion yen) and Creative Yoko (6.7 billion yen).
Financial Cash Flow
The relatively large outflow in FY02/03 was mostly due to paying down debt (approximately 9.4 billion
yen short-term, 2.1 long-term). The outflow in FY02/04 was due to a share buyback (5.3 billion yen) and
repayment of short term debt (3.1 billion yen). Outflows in FY02/06 and FY02/08 were also the result of
buybacks (9.4 and 7.0 billion yen, respectively). The inflow in FY02/09 was the result of a long term credit
facility (approximately 33 billion yen) to finance M&A. The inflow in FY02/14 was due to short (about 10
billion yen) and long term (15.4 billion yen) borrowing.
Simple Cash Flow
In terms of simple free cash flow the company has typically generated relatively large amounts, yielding a
median of 4.0% per year (on average net assets, FY02/02-FY02/14).
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Cash Converison Cycle
Accounts Receivable Turnover
Days in Accounts Receivable
Inventory Turnover
Days in Inventory
Payables Turnover
Days in Payables
Cash Conversion Cycle (days)
FY02/09
Cons.
9.6
38.0
4.3
85.7
3.5
104.5
19.2
FY02/10
Cons.
9.7
37.5
4.2
87.8
3.6
102.6
22.7
FY02/11
Cons.
9.6
38.2
4.2
86.8
3.7
97.3
27.6
FY02/12
Cons.
9.6
38.1
4.1
88.6
3.9
94.5
32.2
FY02/13
Cons.
10.1
36.1
4.1
89.9
4.0
91.0
35.0
The company has typically been efficient with cash conversion. Total days in cash increased from FY02/08
through FY02/14 due to lower inventory turnover.
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Other Information
History
October 1927.
March 1947.
October 1960.
July 1964.
September 1988.
January 1990.
May 2005.
September 2007.
October 2008.
October 2008.
December 2009.
April 2012.
Established as Kashiyama Shoten (Kashiyama Trading) in Osaka.
Company name changed to Kashiyama Kogyo (Kashiyama Co., Ltd.)
Listed on the 2nd Section of the Tokyo, Osaka and Nagoya Stock Exchange
Listed on the 1st Section of the Tokyo, Osaka and Nagoya Stock Exchange
Company Name changed to Onward Kashiyama Co., Ltd.
Acquired GIBO SA
Acquired UK fashion label JOSEPH
Established Onward Holdings Co., Ltd.
Acquired CREATIVE YOKO Co., Ltd.
Acquired Jil Sander S.p.A.
Acquired Island Co., Ltd.
Acquired Birz Association Co., Ltd.
“Kashiyama” comes from its founder Junzo Kashiyama, who initially worked as an unpaid apprentice for
Mitsukoshi kimono mercer (currently department store Mitsukoshi). In 1927, he set up his own apparel
company called Kashiyama Shoten. Shortly after the Second World War, the company started making and
selling ready-to-wear men’s suits. Women’s suits were added in 1960. The company grew together with
the Japanese economy and with fashion tastes (from tailored clothing to readymade). Onward has always
had a main focus on one business: fashion apparel, which has been key in establishing durable
relationships with department stores. In recent years Onward has heavily invested in overseas businesses
by acquiring international labels such as Joseph in 2005, and Jil Sander in 2008.
News & Topics
May 2012
On May 29, 2012, Onward Holdings issued a press release titled “Onward Holdings’ Approach to
Reduction of Minimum Trading Unit for Its Stock.”
According to the release, the company recognizes the importance of measures to maintain high liquidity
in stock trading, encourage long-term stock holdings, and expand shareholder base. In line with such
recognition, the company sees the reduction of stock trading unit as an effective measure. Accordingly,
the company maintained that it would continue to examine the feasibility of the measure with due
consideration given to the price of its stock, shareholder numbers and stock market trends.
March 2012
On March 16, 2012, the company announced that it would acquire all the shares in Birz Association Ltd.,
Birz Village Ltd. and NAIMA Ltd. (collectively referred to as Birz Group hereafter) on April 1, 2012.
Birz Group owns the brands Language, Smork by Language, Libre, AGOSTO and Ylang Ylang, which have
been focused on retailing at commercial buildings in train stations and fashion malls across Japan. The
group is particularly strong in using overseas production (such as through its factories in Vietnam etc.)
and has positioned itself as a vertically integrated, low cost producer of quality apparel.
Onward hoped it would be able to grow Birz Group’s profitability by leveraging its own operational
infrastructure, knowhow and global network. In addition it noted the acquisition should help drive its
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business expansion and reap operational synergies, such as through store locations, product procurement,
overseas factory utilization etc.
February 2012
On February 24, 2012, Onward’s subsidiary Jil Sander Italia SPA announced that its brand founder, Jil
Sander, had returned to the company as creative director.
August 2011
On August 26, 2011, the company announced that its board had passed a resolution to change its
president and directors.
The changes were as follows (effective as of September 1, 2011):
Onward Holdings Co.:
 Takeshi Hirouchi—New Position: Chairman and President; current position: Chairman
 Kentaro Mizuno—New Position: Vice Chairman; current position: President
 Kazuya Baba—New Position: Executive Vice President; current position: Vice President
Onward Kashiyama Co.:
 Akinori Baba—New Position: Representative Director and President; current position: Managing
Executive Director
 Kentaro Mizuno—to step down from current position as Representative Director and President
 Kazuya Baba—to step down from current position as Senior Executive Vice President
The company said it was implementing the new management structure as part of its strategy to promote
its global growth. For further details on Onward Kashiyama’s new president please refer to the Top
Management section.
March 2011
On March 16, 2011, the company made an announcement regarding the March 11 Tohoku earthquake.
Damage situation report:
 A portion of the company’s plants and sales floors sustained damage to their buildings, and some
merchandise fell to the floor and was soiled or otherwise damaged.
 Some areas in Japan were lacking essential utilities, especially in Tohoku (northeastern Japan). The
company didn’t announce plans for refurbishing and reopening affected sales floors, and had
temporarily closed or shortened operating hours of others.
April 2010
On April 12, 2010, the Jil Sander Group announced the launch of a new line called Jil Sander Navy, an
important strategic step in development of the Jil Sander brand.
Jil Sander Navy is an extension of the core Jil Sander brand seeking to approach new types of customers
and expand the appeal for the existing customers by emphasizing sports casual elements and lower price
points.
Characterized by pure and simple line and ease of wear, the product range includes core outerwear, light
jersey, and easy-to-wear knitwear as well as a line of accessories such as handbags, footwear and belts.
The collection was shown on June 2010 and the sales are planned to start simultaneously worldwide in
2011 season. The emphasis of the launch is on the US and Japanese markets.
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Top Management
Onward Holdings
Takeshi Hirouchi, representative director and chairman and president, was born in 1942 and joined the
company in 1965. He became director in 1985, managing director in 1991, senior managing director in
1994 and representative director and president in March 1997. He became representative director and
chairman in March 2005. Due to transition to a holding-company structure in September 2007, he became
chairman and CEO of Onward Holdings Co., Ltd. while continuing to serve as representative director,
chairman of newly established Onward Kashiyama Co., Ltd. Since September 2009 he has served as both
president and chairman of the company.
Onward Kashiyama
Akinori Baba, representative director and president, was born in 1968 and joined the company in 1990. In
2004 he became an executive officer at Onward Kashiyama and the division director of Nijyusanku and in
2005 a corporate executive officer at Onward Kashiyama and the division director of Nijyusanku and ICB.
In 2010 he became managing executive director of the ladies business, division director of Nijyusanku,
ICB, Jiyuku, and Kumikyoku. In September 2011 he gained the current posts while retaining his role as
division director.
Employees
Onward employed 5,224 full-time (11,980 part-time) employees as of FY02/14 on a consolidated basis.
There were 36 employees at the parent level: average age 46.2, with the company for 19.4 years, and
earning a salary of 10.0 million yen.
Major Shareholders
Top Shareholders
Kashiyama Scholarship Foundation
Nippon Life Insurance Company
Isetan Mitsukoshi Ltd.
Northern Trust Company AVFC Account Non Treaty
The Dai-ichi Mutual Life Insurance Company, Ltd.
Japan Trustee Services Bank, Ltd. (Trust account)
Onward Holdings Customers' Shareholding Association
Japan Re Fidelity
The Master Trust Bank of Japan, Ltd. (Trust account)
MARUI GROUP CO., LTD.
Amount
Held
5.03%
3.31%
2.89%
2.44%
2.42%
2.41%
2.15%
2.07%
1.99%
1.97%
(As of February 28, 2014)
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SR Research Report
2014/7/4
Dividends
The company has a stated minimum 35% payout ratio, however the company also paid a dividend in
FY02/09 when EPS was negative.
Investor Relations
Result meetings are held in Tokyo after the announcement of interim and financial year end results. The
company maintains an IR website in both English and Japanese.
By The Way
The name Onward, added in 1962 was derived from a Christian hymn (“Onward Christian Soldiers”) that
Junzo Kashiyama, the founder, liked.
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SR Research Report
2014/7/4
Company Profile
Company Name
Onward Holdings Co., Ltd.
Head Office
Toda Building 4th Floor
1-7-1 Kyobashi Chuo-ku
Tokyo, Japan 104-8329
Listed On
Phone
+81-3-4512-1020
Tokyo Stock Exchange 1st Section
Nagoya Stock Exchange 1st Section
Exchange Listing
October 2, 1961
Financial Year-End
February
IR Web
http://www.onward-hd.co.jp/site/english/ir/message.html
IR Phone
+81-3-4512-1051
Established
September 4, 1947
Website
http://www.onward-hd.co.jp/site/english/
IR Contact
IR Mail
Main Consolidated Segments (% of total sales)
Apparel-related
93.91 %
Others
6.09 %
(as of February 2014)
Directors
Takeshi Hirouchi,
Representative Director, Chairman, and President
Masaaki Yoshizawa, Managing Director
Akinori Baba, Director
Hiroaki Yamada, Director
Michinobu Yasumoto, Director
Hachiro Honjo, Director (Outside)
Yoshihide Nakamura, Director (Outside)
Hitoshi Aoyama, Full-time Corporate Auditor
Kenichiro Tamai, Full-time Corporate Auditor
Others
2 directors
(as of May 2014)
Employees (consol.)
Employees (parent)
Average age (parent)
Average salary (parent)
5,224
36
46.2 years
10.0 million yen
Shares Outstanding (including treasury shares)
172,921,669 shares
Shareholders Capital
30.1 billion yen
Main Subsidiaries
Onward Kashiyama Co., Ltd.
Onward Trading Co., Ltd.
Chacott Co., Ltd.
Creative Yoko Co., Ltd.
ISLAND, Co., Ltd.
Main Banks
Sumitomo Mitsui Banking Corp.
The Banking of Tokyo-Mitsubishi UFJ, Ltd.
Mizuho Bank, Ltd.
Auditors
Ernst & Young ShinNihon LLC
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SR Research Report
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by presenting a continuously updated third-party view of business fundamentals, independent of investment biases. Shared Research
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Onward Holdings Co Ltd (8016)

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