Round One 4680
ラウンドワン
Recent Updates
2022-05-12
2022-05-11
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23F Nanba Skyo 5-1-60 Nanba, Chuo-ku, Osakashi Osaka, Japan 542-0076
Summary
Round One specializes in running amusement complex centers across Japan, with centers in Kansai (southern-central Japan
including Osaka, Kobe, and Kyoto) and Kanto (eastern Japan including Tokyo) regions."
Hotels, Restaurants & Leisure
Key dates
2009-07-07
Coverage initiation
Executive summary
Core business—operation of amusement complex centers
Round One specializes in running amusement complex centers in Japan and North America. At end-March 2021 it operated 145 stores (100 stores in Japan, 44 stores in North America, and one store in Russia). The amusement services include bowling as well as arcade games, karaoke, and SPO-CHA (abbreviation for “Sports Challenge”).
The company’s business segments consist of Japan (which accounted for 87.5% of sales in FY03/21) and the US (12.5%).
In Japan, due to the continuing decline in the market for bowling, owing to a declining population and diversified entertainment choices, the company pressed on with its program of closing unprofitable stores and opening new ones. Through these measures, the company aims to eliminate cannibalization among stores and improve profitability to maintain and improve its current profit level. In the medium-term, the company will continue to close unprofitable stores and open new ones, maintaining approximately 100 stores.
In the US, the company opened its first store in August 2010 and achieved recurring profit in FY03/16. Subsequently, it had gradually increased new store openings while aiming to increase its US store count to 120 over the medium term. However, in FY03/21, the company responded to the spreading COVID-19 pandemic by indicating that it would hold off on further decisions regarding its store openings policy until after it had determined the pandemic’s impact on consumer behavior.
While targeting a network of 120 stores in the US, Round One aims to open stores in China, Russia, and other regions, and concentrate investment in whichever market proves the most cost-effective. The company opened its first store in Russia in December 2020, and in China in May 2021. It views China as the market with the largest amount of potential, and by March 31, 2023, it plans to open a total of eight stores in China and amass expertise regarding store operation in China. Round One anticipates that other companies will enter the same line of business in China. To raise the barrier of entry for these companies, the company will limit its store openings in China to large-scale units equipped with SPO-CHA facilities while leveraging its ability to negotiate prices with amusement machine manufacturers, which has been bolstered through its experience operating more than 100 stores in Japan.
Trends and outlook
For FY03/22, the company reported sales of JPY96.4bn (+58.2% YoY), operating loss of JPY1.7bn (loss of JPY19.3bn in FY03/21), recurring profit of JPY5.4bn (loss of JPY19.8bn in FY03/21), and net income attributable to owners of the parent of JPY3.9bn (loss of JPY18.0bn in FY03/21).
By segment, Japan had sales of JPY63.7bn (+19.5% YoY), operating loss of JPY5.2bn yen (loss of JPY11.4bn in FY03/21), and recurring profit of JPY4.4bn (loss of JPY11.5bn in FY03/21). US had sales of JPY32.1bn (+322.8% YoY), operating profit of JPY4.6bn (loss of JPY7.6bn in FY03/21), and recurring profit of JPY3.2bn (loss of JPY7.7bn in FY03/21). In Japan, the company launched CRE-CHA, an online crane game, in April 2021. In the US, the company opened two stores and reviewed amusement usage fees. External factors such as economic stimulus measures also contributed to US sales.
For FY03/23, the company forecasts sales of JPY129.7bn (+34.5% YoY), operating profit of JPY14.1bn (loss of JPY1.7bn in FY03/22), recurring profit of JPY13.4bn (+150.0% YoY), and net income attributable to owners of the parent of JPY9.0bn (+128.6% YoY). In Japan, the company expects an earnings recovery thanks to factors such as the conversion of stores to Giga Crane Game Stadium. In the US, the company expects sales to remain strong as the economy continues to recover.
Strengths and weaknesses
Shared Research believes that the three main strengths of Round One are its unique business model, strong brand name, and cash-flow generating ability. Weaknesses include its higher risks on new store openings compared with retailers, shrinking market, and slower-than-expected industry shakeout (see Strengths and weaknesses).
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Karaoke includes food/beverages, parties, etc. in the US.
Recent updates
Announcement regarding extraordinary losses
On May 11, 2022, Round One Corporation made an announcement regarding extraordinary losses for FY03/22.
The company examined the recoverability of fixed assets in Japan and the US after observing signs of asset impairment. As a result, the company posted an impairment loss of JPY960mn as an extraordinary loss. In addition, the company also posted an impairment loss of JPY570mn as an extraordinary loss following a decision to shut down the Russian operations of Round One Rus LLC.
The company explains the details of the situation and its impact on earnings in the FY03/22 earnings statement released on May 11, 2022.
Monthly sales data for April
Round One Corporation released monthly sales data for April.
Monthly performance
Withdrawal from businesses operated by subsidiary in Russia
On April 4, 2022, Round One Corporation announced the withdrawal from the businesses operated by its subsidiary in Russia.
The company's board of directors approved the withdrawal from the businesses operated by its subsidiary in Russia, Round One Rus LLC.
Reason for the withdrawal
Through its subsidiary, Round One Rus LLC, the company had been operating a multi-purpose indoor leisure facility in Russia. However, after considering recent operating results and prospects for future growth, it decided to exist the businesses operated by the subsidiary.
Outlook
The company said that it was still in the process of calculating the impact of this decision on its FY03/22 financial results. However, it noted that it expected to book impairment losses on fixed assets associated with the subsidiary (excluding right-of-use assets; book value of around JPY600mn as of end-December 2021).
Revisions to full-year FY03/22 earnings forecast
On February 10, 2022, Round One Corporation announced revisions to its full-year FY03/22 earnings forecast.
Revisions to the full-year FY03/22 earnings forecast
Reasons for revisions
Due to the spread of the new COVID-19 variant, in Japan, business hours have been cut back at the request of regional municipalities based on COVID-19 priority measures from mid-January 2022 onward. The number of visitors to stores in the US in January 2022 was impacted as well. The company calculated its new results forecast for Japan assuming a gradual recovery in sales following a relaxation of business hour restrictions from late February 2022, as well as the recording of non-operating income from subsidies by the government and local municipalities in response to requests for store closures and shortened operating hours. In the US, the forecast was calculated assuming that sales would gradually recover to normal levels from February 2022 onward. As a result, the previously announced results forecasts for sales, operating profit, recurring profit, and net income attributable to owners of the parent have all been revised downward.
Trends and outlook
Quarterly trends and results
Note: Company estimates are the most recent figures.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Other includes business activities by its subsidiary in Russia and other regions.
Note:
Note:
Note: The average hourly wage is based on data for a three-month period.
Note: The average hourly wage is based on data for a three-month period.
Full-year FY03/22 results
Sales increased 58.2% YoY to JPY35.5bn. This is due to a sales increase in Japan and the US.
Recurring profit increased by JPY25.2bn from FY03/21 (returning to profitability). This is due to a profit increase in Japan and the US.
Sales grew 65.8% YoY in cumulative Q3 FY03/22, but growth was slightly slower for FY03/22 at 58.2% YoY.
Recurring profit was JPY186mn in cumulative Q3 FY03/22 (loss of JPY18.5bn in cumulative Q3 FY03/21). Recurring profit increased to JPY5.4bn in FY03/22 (loss of JPY19.8bn in FY03/21).
Sales, recurring profit, and net income attributable to owners of the parent were 100.6%, 106.6%, and 81.9%, respectively, of the company’s FY03/22 forecast. The company posted an operating loss in line with the forecast.
For FY03/23, the company forecasts sales of JPY129.7bn (+34.5% YoY), operating profit of JPY14.1bn (loss of JPY1.7bn in FY03/22), recurring profit of JPY13.4bn (+150.0% YoY), and net income attributable to owners of the parent of JPY9.0bn (+128.6% YoY).
Japan
In Japan, the company carried out projects using ROUND1 LIVE, such as Bowling Gakusei Koshien Online, Karaoke Gakusei Koshien Online, and "fan events," as well as collaborative campaigns with Jujutsu Kaisen. The company launched CRE-CHA, an online crane game, and increased the number of crane game machines in some stores. The company opened the iias Kasugai store (in Kasugai City, Aichi Prefecture) in October 2021. In amusement services, the company continued to convert stores into Giga Crane Game Stadium. The company also introduced its latest amusement machines featuring original music games such as DANCE aROUND, Chrono Circle, and Tetote x Connect.
Comparable store sales were down 25.5% versus times of normal operation. The breakdown of sales by service was as follows:
US
In the US, the company opened a store in Vancouver Mall (Washington) in April 2021 and a store in Quail Springs Mall (Oklahoma) in June 2021 to expand its operating base. The company reviewed its amusement usage fees in light of the recent economic situation. Sales increased because of external factors such as state governments' economic stimulus measures targeting individual residents.
The breakdown of sales by service was as follows:
Full-year company forecast
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Karaoke includes food/beverages, parties, etc. in the US.
For FY03/23, the company forecasts sales of JPY129.7bn (+34.5% YoY), operating profit of JPY14.1bn (loss of JPY1.7bn in FY03/22), recurring profit of JPY13.4bn (+150.0% YoY), and net income attributable to owners of the parent of JPY9.0bn (+128.6% YoY). In Japan, the company expects an earnings recovery thanks to factors such as the conversion of stores to Giga Crane Game Stadium. In the US, the company expects sales to remain strong as the economy continues to recover.
The company will improve its earnings structure, mainly in Japan, by implementing measures to develop a fan base, expand business areas, and improve management efficiency and service quality. Outside Japan, the company will expand its operating base by opening new stores and creating new services.
Results vs. company estimates
Note: Figures may differ from company materials due to differences in rounding methods.
*The company did not disclose estimates for FY03/21, citing insufficient foundation for a forecast due to lack of visibility over when COVID-19 might be contained.
Long-term strategy
Round One has not released a medium-term management plan. However, since before the COVID-19 pandemic, it has been saying that it aims for medium-term growth by focusing on store openings in the US market, and that policy has remained intact even amid the COVID-19 outbreak. Among other measures that impact earnings in the medium term, the company intends to develop and introduce new ROUND1 LIVE bowling machinery in Japan, and promote automation and systemization to reduce total working hours. In addition, in the long term, it aims to develop stores in China in particular, but also in Russia and other Asian regions.
Accelerating store openings in the US, targeting 100 stores in Japan and 120 in the US, for a total of 220
With regard to the domestic market, it plans to press on with closing unprofitable stores and opening new ones as the market continues to shrink owing to a decline in the bowling participation rate caused by a decline in the population and diversified entertainment choices. Through these measures, the company hopes to sustain its current profit level as the elimination of counterproductive intra-company competition leads to higher profitability.
The company is leveraging the lesson it learned from its US stores and is carefully vetting options with an eye to higher profitability. As of end FY03/19, it had 32 stores in the US. The company opened the first US store in August 2010, and it improved the effectiveness of store openings and operations as it accumulated experience operating stores at amusement complex centers in North America. Starting in FY03/17, the company has been gradually increasing the number of new store openings guided by this accumulated operation expertise. In FY03/19, the company opened 11 stores and plans to open 11 more during FY03/20. From FY03/21 onward, it aims to open about 20 stores per year. It plans to shorten the time required for making decisions on store openings by cutting back on management visits to potential sites. However, as of May 2021, the company indicated that it would hold off on decisions regarding its store opening policy until after it had assessed the COVID-19 pandemic’s impact on consumer behavior.
Round One aims to generate the same level of recurring profit there as it did domestically prior to the impact of COVID-19 (Japan segment recurring profit was JPY9.7bn in FY03/19), and its target is to double the consolidated recurring profit through these measures. Further, with the number of stores expanding, the company believes it is possible to ask game machine manufacturers to develop customized game machines.
Out of a total of some 900 shopping malls in the US, there are about 300 locations where Round One could establish a store when considering the populations of various areas and location quality while ignoring possible effects of stores of competitor Dave & Buster’s Entertainment, Inc. Dave & Buster’s Entertainment had 140 stores as of January 2021, and, even when assuming the addition of 10 stores per year, that still leaves ample room for Round One to reach its target of 120 stores by FY03/24. In terms of investment, the company’s basic policy is to conduct business within the limit of its operational cash flow. Financially, it plans to maintain its current level.
The company, when opening a new store in the US, leases amusement equipment worth JPY210mn and amortizes this investment over seven years. As a result, the company’s OPM usually increases from the eighth year as this expense disappears, comparing with first seven years.
Expansion into China, Russia, and other Asian regions
Once Round One reaches its target of 120 stores in the US, it aims to open stores in China, Russia, and other regions, and concentrate investment in whichever market proves the most cost-effective. In China, it plans to erect barriers to new market entry by competitors by opening large SPO-CHA-equipped stores and leveraging its over-100-store-strong domestic operations in price negotiations with amusement equipment suppliers.
As of May 2021, circumstances in Russia and China were as follows:
Round One opened its first Russian store (Kievskaya, Moscow) in December 2020. The COVID-19 outbreak remains an issue in Moscow, so related restrictions have negatively affected progress.
In China, Round One opened its first store in Guangzhou during May 2021 and is currently negotiating lease agreements in preparation for opening four stores (Shanghai, Shenzhen, and Beijing) in FY03/22. By end-FY03/23, the company aims to open a total of eight stores in China and accumulate store management expertise in the region. Round One plans to offer amusement, bowling, and SPO-CHA services at these stores. The initial investment for each store will be about JPY1.0bn (approximately JPY780mn per store in North America), and each store will have floor space of just over 6,610sqm (about 3,970–5,950sqm per store in North America).
US stores: the present and the future
Every May the company reviews the criteria to rate the performance of each of its US stores as above average, average, or below average. Since November 2019, however, it has chosen to forgo these reviews due to the impact of store closures and operating restrictions implemented in response to the COVID-19 pandemic. The last time it revised its rating criteria was in November 2019, when it released its revised full-year forecast for FY03/20. As of that time, to be rated as average under the revised criteria, US stores had to achieve gross sales of USD5.6mn, operating profit in the first year of USD0, operating profit in years 2–7 of USD900,000, and operating profit in year eight and beyond of USD1mn.
(approx. JPY780mn)
account
(approx. JPY780mn)
(approx. JPY610mn)
(approx. JPY370mn)
(first year)
(approx. JPY80mn)
(JPY0)
(approx. -JPY140mn)
(years 2–7)
(approx. JPY170mn)
(approx. JPY100mn)
(approx. -JPY40mn)
(8th year onward)
(approx. JPY200mn)
(approx. JPY110mn)
(approx. -JPY20mn)
(years 2–7)
Note: USD/JPY109. First year operating profit includes store opening costs, with the exception of those of head office.
From FY03/22, Round One has plans to open six stores in the US for which it already has lease agreements in place. It will hold off on decisions regarding its policy on future store openings until after it has determined the COVID-19 pandemic’s impact on consumer behavior.
Introduction of ROUND1 LIVE
In FY03/20, Round One introduced ROUND1 LIVE as a new feature for bowling and karaoke. This facility allows customers to focus on their games without needing to be concerned about customers in neighboring lanes by utilizing many large-scale displays. Through the addition of network (LIVE) functionality, the facility offers customers a variety of ways to use it. Specifically, customers can connect to different lanes using “LIVE de Free Matching,” a video call service. Through use of the facility’s network features, pop idols and comedians can hold “Nationwide LIVE Fan Meet-Ups” and “Nationwide LIVE Offline Fan Meet-Ups,” for which participants are recruited beforehand by connecting people in remote locations with one another.
The company is aiming to expand its customer base and increase customer numbers and sales by offering various services that connect people in remote locations through a combination of large-scale displays and LIVE functionality. These services include both online and offline fan meet-ups. In April 2019, the company raised prices at stores that feature ROUND1 LIVE by about 5% for bowling and about 2% for karaoke. In FY03/21, bowling sales were JPY12.6bn (-42.4% YoY), and comparable-store sales were down 42.2%.
As for cost, total capex, which includes expenses related to automated reception machines (mentioned below), will amount to about JPY7.0bn. Expenditures for the year will rise by JPY1.1–1.2bn, comprising an increase in depreciation cost of about JPY1.0bn and a rise of JPY100–200mn in communication and electricity costs. However, the company may be able to cancel out this increase in expenses by curtailing personnel costs through progress in automation and systematization (explained in detail below).
Automation and systematization aimed at curtailing total working hours
In addition to new bowling machinery, the company put automated reception machines and staff tablets into use in FY03/20. Installing these reception machines automates store reception, while introducing staff tablets will allow customers to see which facilities are in use, confirm device statuses, and view information concerning operational changes more easily. The company devotes about 10 million hours per year to customer services and aims to curtail this figure by 10% through automation and systematization. If the time devoted to customer services is lowered by one million hours per year, this will curtail personnel costs by about JPY1.1bn, assuming total hourly expenses of JPY1,100 per part-time worker (hourly wage plus other expenses).
Launch of CRE-CHA, an Online Crane Game business
The company launched CRE-CHA, an online crane game that allows customers to operate physical crane game machines using their smartphones or PCs in April 2021. The company indicated that the total initial capital investment for crane game machines and systems necessary for online play would be JPY200mn. It aims to install about 900 crane game machines compatible with online play (about 250 amusement machines per store in Japan).
Round One aims to reduce advertising expenses as it attempts to acquire customers for the online crane game through measures such as the distribution of free play tickets at its stores in Japan. Online crane games are typically associated with large shipping costs incurred when sending successfully captured goods to customers. However, the company has implemented a system through which customers either pay shipping costs or pick up their goods at Round One stores nationwide. The company said it will offer benefits such as gameplay discounts to customers who pick up their items at stores in an effort to increase customer convenience and raise its store visitor count.
Round One anticipates that the online crane games will generate sales of JPY500mn in FY03/22. The company will aim to transform this business into a more substantial contributor over the medium term by accumulating expertise related to distribution and customer enticement. Due to the COVID-19 pandemic, performance in both Japan and the US has deteriorated during FY03/21. In response, the company aims to raise the share of its overall sales for which online crane game and other online-related sales account over the long term.
Business summary
Overview
Core business: operation of amusement complex centers
Round One specializes in running amusement complex centers in Japan, North America, and Russia. As of end March 2021, it operated 145 stores (100 stores in Japan, 44 stores in the US, and one store in Russia).
Its reporting segments are Japan (87.5% of sales in FY03/21) and the US (12.5% of sales).
In Japan, services include bowling, amusement (games), karaoke, and SPO-CHA (short for “Sports Challenge”). As the company provides a wide range of services, understanding profit and loss at each service level is difficult. As all services are provided in the same location and for the same customers, it is hard to appropriately allocate direct costs and overhead to each category.
In the US, its main services are bowling, amusement (games), and karaoke. Starting in FY03/21, the company plans to introduce SPO-CHA at new stores as well as some of its existing stores as a means of differentiating itself from competitors.
Bowling has high marginal profitability
Marginal profitability appears to be the highest in bowling, followed by SPO-CHA. For bowling, the marginal profitability is suggested to be over 90% while gaming is relatively lower due to variable costs associated with prizes in redemption type machines etc. Karaoke has a high exposure to variable costs; this service includes foods and beverage sales. SPO-CHA has a marginal profitability structure similar to bowling.
Business description
The company’s amusement centers are divided into “standard” and “stadium.” Bowling, Amusement (games), and Karaoke are the three main revenue pillars at standard facilities, while SPO-CHA is the key feature for the stadium format.
Returning to the standard format from the stadium format
Stadium added SPO-CHA to become the newer format. However, this format requires a large land area. Consequently, excluding certain stores (Sennichimae store), most stadium format stores are standalone. The company’s recent store opening strategy has been limited to tenancies within existing malls and commercial complexes. For this reason, when space sufficient for the stadium format cannot be leased, the company opts for the standard format.
Bowling (21.9% of sales in FY03/21)
Revenues are mainly derived from fees for bowling rounds, bowling shoe rentals, and vending machines sales (such as drinks and snacks). Within the company’s overall sales mix, although Bowling accounts for less than Amusement’s 50.3% (FY03/20), Bowling is the company’s core business and all stores include a bowling alley.
Nearly all of Japan’s existing bowling alleys opened during Japan’s bowling boom from the mid-1960s to the mid-1970s, and have continued to operate in their original style. Round One’s facilities were newly opened long after the boom period and feature a range of innovations, such as moonlight strike games (game rooms illuminated with black lights), which help boost bowling’s leisure appeal and differentiate the facilities from those of competitors. From FY03/09 onward, Round One has grown faster than the market, but it suffered in FY03/13 as competitors drove down prices. Growth was also sluggish in FY03/15, owing to the prolonged effect of the consumption tax hike in April 2014, and poor weather over the year-end holiday season—normally a time of peak demand. The adverse effect of the consumption tax hike lingered on. However, it seemed to be finally bottoming out in FY03/17.
Starting in October 2018, Round One began introducing ROUND1 LIVE as a new feature for bowling and karaoke, and by June 2019, it had fully installed it at all of its stores. This facility allows customers to focus on their games without needing to be concerned about customers in neighboring lanes by utilizing many large-scale displays. Through the addition of network (LIVE) functionality, the facility offers customers a variety of ways to use it. Specifically, customers can connect to different lanes using “LIVE de Free Matching,” a video call service. Management says that, through use of the facility’s network features, pop idols and comedians can hold “Nationwide LIVE Fan Meet-Ups” and “Nationwide LIVE Offline Fan Meet-Ups,” for which participants are recruited beforehand by connecting people in remote locations with one another.
Round One has a membership program that offers discounted rates for its facilities. The annual membership fee is JPY300. The membership discounted rates per game are JPY720 for general members, JPY710 for vocational and university students, JPY630 for middle and high school students, and JPY580 for elementary school and younger members. Standard non-member rates are JPY730, JPY720, JPY640, and JPY590, respectively.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Market data on a calendar year basis.