Business context and reporting period
This is Yoshitsu Co., Ltd.’s annual Form 20-F for the fiscal year ended March 31, 2024, with comparisons to fiscal 2023 and 2022; it is not a standalone 2023 Q4 report. The filing identifies Tokyo Lifestyle Co., Ltd. as the former name of wholly owned subsidiary Kaika International, which was sold to a related party in July 2023. Yoshitsu is a Japan-based retailer and wholesaler of beauty, health, luxury, electronics, sundry, and other products. Financial statements are prepared under U.S. GAAP. Amounts below are U.S. dollars.
Financial and operating highlights
| Metric | FY ended March 31, 2024 | FY ended March 31, 2023 |
|---|---|---|
| Revenue | $195.7 million | $169.7 million |
| Gross profit / margin | $23.4 million / 11.9% | $29.4 million / 17.3% |
| Operating income | $5.8 million | $0.8 million |
| Net income (loss), per audited statements | $7.5 million | ($8.0 million) |
| Cash from (used in) operations | $1.9 million | ($25.7 million) |
| Cash at year-end | $2.5 million | $1.8 million |
| Working capital | $28.8 million | $8.6 million |
| Borrowings | $53.2 million short-term; $7.4 million long-term | $60.6 million short-term; $13.1 million long-term |
- Revenue rose 15.3%, but gross profit fell about 20.6% as merchandise costs increased 22.8%. Gross margin fell 5.4 percentage points to 11.9%.
- Franchise and wholesale customers generated 86.9% of FY2024 revenue, versus 81.0% in FY2023. Direct-store revenue rose 28.8%; online stores and services revenue fell 48.3%, partly reflecting the transfer of China online-store operations to third-party operators whose purchases are classified as wholesale revenue.
- Luxury and electronic products contributed $90.2 million and $34.9 million, respectively, in FY2024; neither category had reported revenue in FY2023. Beauty-product revenue declined from $128.8 million to $50.1 million.
- China-market sales were $119.8 million, or 61.2% of revenue, up from 51.1% in FY2023. The filing reports one customer represented 18.8% of FY2024 revenue.
- Operating expenses fell 38.5% to $17.6 million, aided by a net recovery of credit losses, lower shipping and advertising expenses, and cost controls. The net result also included a $3.1 million foreign-exchange gain and gains on disposal of a subsidiary and equity-method investment; a further $0.6 million consumption-tax assessment was recorded.
- Accounts receivable, net, was $105.4 million at year-end, compared with cash of $2.5 million. Management reported that 35.4% of the year-end receivable balance had subsequently been collected and expected most of the remainder by December 31, 2024.
- Current liabilities were $93.4 million and current assets $122.2 million. Short-term borrowings of $53.2 million were due in December 2024 after extensions; loan covenants require specified financial ratios and positive net income. Some loans are guaranteed by the controlling shareholder, and land is pledged for a MUFG loan.
Outlook, commentary, risks, and unusual items
- No formal revenue or earnings guidance is provided. Management says it expects available cash, operating cash flows, and bank facilities to meet working-capital needs for the next 12 months, while noting additional financing may be needed if conditions worsen or growth accelerates.
- Plans include opening 10 additional directly operated Hong Kong stores over three years, with estimated costs of HKD15–20 million ($1.9–2.5 million), and adding 15 franchise stores across several markets. The company also plans a Malaysia distribution center. A mobile shopping app and related logistics investments are estimated at $8–10 million.
- Management cites China-market concentration, customer and receivable concentration, margin pressure from product mix and discounts, reliance on short-term borrowing, supplier concentration, leases, foreign-exchange exposure, and execution risks from international expansion. The company does not hedge foreign-currency exposure.
- A Japanese consumption-tax examination concerned export documentation for transactions from July 2018 through December 2021. At March 31, 2024, $5.5 million of additional consumption tax remained payable and $9.9 million of compensation receivable was outstanding from suppliers and customers. Collection and payment timing are important liquidity sensitivities.
- Management identified material weaknesses in financial reporting controls: insufficient U.S. GAAP/SEC reporting expertise and inadequate IT access, operations, and service-organization controls. Disclosure controls and internal control over financial reporting were deemed ineffective; the independent auditor did not attest to internal-control effectiveness.
- The filing reports a Nasdaq minimum-bid-price deficiency notice, with a cure deadline of December 16, 2024, as of the report’s July 16, 2024 date. The company also issued 5,970,152 ADSs at $0.67 each in January 2024 and warrants for an equal number of ADSs, creating potential dilution.
- The audited statements report a clean opinion on the financial statements. The filing reports no legal claims considered material by management and no material cybersecurity incident during FY2024. No dividends are expected in the foreseeable future.
Important facts for investors to verify
- Net-income inconsistency: the audited statements and MD&A report FY2024 net income of $7.48 million, but an overview passage states $6.44 million. Confirm the correct figure and any subsequent correction; the audited statements support $7.48 million.
- Cash collection progress on the $105.4 million accounts-receivable balance, including exposure to concentrated customers and the reported 18.8% revenue customer.
- Renewal or repayment of the $53.2 million short-term borrowings due in December 2024, compliance with loan covenants, and availability and terms of replacement financing.
- Actual gross margins and profitability of newly emphasized luxury/electronics sales and wholesale accounts, given the FY2024 decline in overall and wholesale gross margins.
- Settlement of the consumption-tax payable and recovery of related compensation receivables; assess any further tax exposure from documentation issues.
- Progress on remediating internal-control weaknesses, Nasdaq bid-price compliance, and potential dilution from outstanding warrants.
- Related-party transactions: FY2024 sales to Seihinkokusai were $5.99 million, and the company sold Kaika International and its Palpito investment to Seihinkokusai in July 2023.