With strengths in its own Gulliver brand of used car buying network, IDOM buys and conducts wholesale and retail sales of used cars. The company is one of Japan’s largest used car buyer and retail dealer.
Having first established itself as one of Japan’s largest buyers of used cars, IDOM Inc. is now one of Japan’s largest used car sellers as well. Gulliver is the company’s mainstay brand through which it buys used cars from consumers. The used cars the company buys are then resold through its own network of used car dealers, which go under a number of different names including Gulliver, Outlet, and Liberala. The company has also been involved in the car wholesaling business, selling used cars at auction to third-party commercial buyers. In FY02/22, it sold some 140,000 used cars at the retail level (+2.0% YoY) and 97,000 at the wholesale level (+18.0% YoY) and bought a total of 246,000 cars (+9.2% YoY) through its domestic group operations; its domestic chain had a total of 510 outlets (-17 YoY), of which 445 (-15 YoY) were under direct management.
When initially structuring its used car buying operations, the company followed the example of the restaurant chains that operate central kitchens. That is, it let individual outlets handle only those tasks that had to be done on-site (such as customer reception, vehicle inspections, negotiations, and contract signing) while using its head office staff to handle all other tasks (such as marketing, vehicle appraisals, inventory control, transportation, and wholesaling). The company also brought transparency to used car pricing where there had been none previously, establishing fair prices by taking into consideration the auction prices that would have been paid for the same vehicle in open bidding between commercial dealers. With this new business model, the company was able to quickly expand operations, increase its name recognition, and grow earnings.
Since FY02/15, the company has been working to shift from its previous business model of buying used cars primarily for wholesaling to a business model (retail model) in which it increases its retailing ratio. It aimed to maximize its gross profit per vehicle sold by selling cars to consumers (B2C) at higher prices than could be realized through auction sales to other dealers (B2B). However, the company was unable to achieve stable profit growth in the five years from FY02/15 to FY02/19. Thereafter, it implemented measures to address issues encountered during that five-year period, resulting in YoY sales and profit growth from FY02/20 to FY02/22. During those three years, the company boosted sales and profit by replacing medium-sized stores and opening larger ones as it moving to the retail model. Its growth strategy includes opening large stores and entering the maintenance business.
In addition to its existing business models, the company is also actively experimenting with new business models, establishing new businesses such as Gulliver Flea Market (a C2C platform that acts as a broker for used car sales between individuals), NOREL (a subscription car service aimed at the generation of consumers who are not fixated on owning their own car), and Go2Go (a car-sharing service aimed at individuals who own cars). In FY02/22, it added maintenance shops to its large stores and began providing maintenance.
Earnings trends
In FY02/22, sales were JPY459.5bn (+20.8% YoY), operating profit was JPY18.5bn (+74.9% YoY), and net income attributable to owners of the parent was JPY10.8bn (+627.0% YoY). In the Japan segment, retail sales volume at directly managed stores reached a record high, mainly reflecting the operation of large, capital-efficient stores. In the Australia segment, the company achieved a record high profit thanks to an increase in new car sales and continued strong used car sales. The YoY growth rate of net income attributable to owners of the parent outpaced that of recurring profit. The company booked extraordinary loss of JPY6.9bn in FY02/21, which included impairment losses on goodwill of an Australian subsidiary and directly managed stores, as well as pandemic-related losses, while in FY02/22 it booked extraordinary loss of JPY1.9bn, including head office relocation expenses and loss on the sale of shares of subsidiaries and associates.
The company's full-year FY02/23 earnings forecast calls for sales of JPY366.8bn (-20.2% YoY), operating profit of JPY15.5bn (-16.1% YoY), recurring profit of JPY14.8bn (-15.7% YoY), and net income attributable to owners of the parent of JPY11.6bn (+7.5% YoY). The company expects sales, operating profit, and recurring profit to fall YoY as a result of the transfer of all shares in its Australian dealership subsidiaries in FY02/23, which is aimed at improving capital efficiency. A temporary surge in used car prices declined profitability
in FY02/22 and changes to the
revenue recognition standard are expected to have a negative impact on profits
in FY02/23. Even so, the company expects operating profit to rise JPY1.9bn YoY.
In April 2022, the company announced a new medium-term
management plan (FY02/23 to FY02/27). Key strategies are to open 50 large
stores and 50 stores with maintenance shops. During the plan’s period, the
company expects an increase in retail sales volume (170,000 units), growth in
operating profit (JPY21.0bn), higher OPM (5.0% or more), stable or higher ROIC
(10% or more), and targets FCF generation (of around JPY30.0bn over the five
years).
Strengths and weaknesses
Shared Research sees the company as having three main strengths: 1) its position as one of the largest used car buyers in Japan, 2) its strong retail sales network for used cars, and 3) its willingness to experiment with new business models. Major weaknesses include 1) its heavy dependence on the used car market in Japan, which will most likely shrink over time, 2) its vulnerability to potential competitors copying its business model, and 3) the financial stress its business model puts on its balance sheet. (For further details, see the Strengths and Weaknesses section later in this report.)
Key financial data
Income statement
FY02/13
FY02/14
FY02/15
FY02/16
FY02/17
FY02/18
FY02/19
FY02/20
FY02/21
FY02/22
FY02/23
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Est.
Sales
143,417
169,398
155,681
210,085
251,516
276,157
309,410
361,684
380,564
459,532
366,800
YoY
7.9%
18.1%
-8.1%
34.9%
19.7%
9.8%
12.0%
16.9%
5.2%
20.8%
-20.2%
Gross
profit
33,889
36,554
39,075
51,610
61,133
65,859
64,702
73,959
72,810
86,013
71,900
YoY
2.7%
7.9%
6.9%
32.1%
18.5%
7.7%
-1.8%
14.3%
-1.6%
18.1%
-16.4%
Gross profit margin
23.6%
21.6%
25.1%
24.6%
24.3%
23.8%
20.9%
20.4%
19.1%
18.7%
19.6%
Operating
profit
5,077
7,094
5,325
7,542
4,498
6,779
3,400
9,091
10,571
18,485
15,500
YoY
-18.8%
39.7%
-24.9%
41.6%
-40.4%
50.7%
-49.8%
167.4%
16.3%
74.9%
-16.1%
Operatring profit margin
3.5%
4.2%
3.4%
3.6%
1.8%
2.5%
1.1%
2.5%
2.8%
4.0%
4.2%
Recurring
profit
5,252
7,201
5,345
6,835
4,160
5,797
2,072
6,867
9,642
17,561
14,800
YoY
-16.9%
37.1%
-25.8%
27.9%
-39.1%
39.4%
-64.3%
231.4%
40.4%
82.1%
-15.7%
Recurring profit margin
3.7%
4.3%
3.4%
3.3%
1.7%
2.1%
0.7%
1.9%
2.5%
3.8%
4.0%
Net
income
2,980
4,360
3,286
4,111
2,247
3,578
381
3,545
1,484
10,794
11,600
YoY
-21.3%
46.3%
-24.6%
25.1%
-45.3%
59.2%
-89.4%
830.4%
-58.1%
627.4%
7.5%
Net margin
2.1%
2.6%
2.1%
2.0%
0.9%
1.3%
0.1%
1.0%
0.4%
2.3%
3.2%
Per-share
data (JPY)
Shares
issued (year-end; '000)
106,888
106,888
106,888
106,888
106,888
106,888
106,888
106,888
106,888
106,888
EPS
29.4
43.0
32.4
40.6
22.2
35.3
3.8
35.0
14.8
107.5
115.5
Dividend
per share
8.8
13.0
15.0
12.5
12.0
7.0
11.0
1.2
10.6
4.6
32.4
Book
value per share
290.5
324.0
341.5
366.0
381.1
403.7
392.9
415.4
438.2
538.0
Balance
sheet (JPYmn)
Cash and cash equivalents
6,863
14,688
4,897
9,149
14,337
22,763
23,049
37,295
43,179
45,670
Total
current assets
29,555
33,463
29,402
49,074
63,765
76,955
113,941
128,115
126,605
141,146
Tangible
fixed assets
9,609
10,989
16,126
19,743
22,033
23,088
24,738
23,517
21,697
23,663
Intangible
assets
942
1,011
3,349
15,513
16,914
15,597
19,855
17,393
14,412
11,775
Investments
and other assets
13,146
7,315
8,274
9,879
11,334
14,539
16,392
14,756
14,506
13,181
Total
assets
53,253
52,779
57,153
94,211
114,047
130,181
173,851
183,783
177,222
189,766
Accounts payable
3,439
2,852
5,100
14,102
12,317
14,327
20,026
21,002
20,940
23,618
Short-term debt
5,000
-
5,292
2,124
3,408
1,201
21,031
12,014
1,459
11,101
Total
current liabilities
17,357
13,525
19,847
28,600
29,483
31,901
60,642
56,299
47,534
61,085
Long-term debt
4,000
4,000
43
22,851
40,774
52,680
68,023
79,824
79,169
67,523
Total
fixed liabilities
6,445
6,407
2,676
27,365
44,983
56,784
72,852
84,897
84,672
72,972
Total
liabilities
23,802
19,933
22,523
55,965
74,466
88,686
133,494
141,196
132,206
134,057
Total
net assets
29,451
32,846
34,629
38,245
39,581
41,494
40,357
42,586
45,015
55,709
Cash
flow statement (JPYmn)
Cash
flows from operating activities
3,064
10,061
56
4,121
-4,632
6,989
-19,593
13,757
19,508
8,276
Cash
flows from investing activities
-1,348
3,734
-8,540
-17,686
-8,262
-5,315
-11,015
-406
-1,373
-4,500
Cash
flows from financing activities
-2,830
-5,981
-1,721
17,858
18,092
8,731
30,930
1,142
-12,495
-1,332
Financial
ratios
Total
interest-bearing debt
9,000
4,000
5,335
24,975
44,182
53,881
89,054
91,838
80,628
78,624
ROA
(RP-based)
9.7%
13.6%
9.7%
9.0%
4.0%
4.7%
1.4%
3.8%
5.3%
9.6%
ROE
10.5%
14.0%
9.7%
11.5%
5.9%
9.0%
0.9%
8.6%
3.4%
22.0%
Equity
ratio
55.3%
62.2%
60.6%
39.4%
33.9%
31.4%
22.9%
22.9%
24.8%
28.5%
Source: Shared Research based on company data Note: The company initiated a 10-for-1 stock split on May 1, 2013. Per share data calculated as though the split occurred at the beginning of FY02/14.
Recent updates
Announcement of the transfer of shares in its consplidatee subsidiaries and the recording of an extroadinary profit.
2022-04-15
On April 14, 2022, IDOM Inc. announced the transfer of shares in its consolidated subsidiaries and the recording of an extraordinary profit.
The company has decided to transfer all shares of its consolidated subsidiaries, IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd. IDOM Automotive Group Pty Ltd. controls and manages operating companies in Australia and Gulliver Australia Pty Ltd. sells new and used cars and conducts related business in Victoria, Australia.
Reasons for the sale
The company makes management decisions on priority investments or withdrawals from each business using a business portfolio that emphasizes capital efficiency (ROIC) and growth potential. The company plans to concentrate management resources on its retail business (with maintenance shops) through large shops in Japan over the medium to long term, as the business has a track record of delivering high capital efficiency and the company believes it has strong potential for future growth.
Based on this belief, the company withdrew from the domestic new car dealer business for BMW and Mini in September 2021. It has also decided to withdraw from the new car dealer business in Australia.
Operating results and financial position for the most recent three years of the subsidiaries to be transferred
(JPYmn)
FY02/2020
FY02/2021
FY02/2022
Sales
84,277
88,310
139,364
Operating profit
76
2,999
4,935
Total assets
20,960
28,324
33,486
*The figures above show the results of the company’s reporting segment (regional) as the consolidated results for all subsidiaries to be transferred (IDOM Automotive Group Pty Ltd. and its subsidiaries Buick Holdings Pty Ltd. and 13 other companies, IDOM Automotive Essendon Pty Ltd. and 5 other companies, Karmo Cars Pty Ltd. and 5 other companies, and Gulliver Australia Pty Ltd.). Items other than those listed above are not disclosed based on the buyer's intention.
Overview of the transferee
Company name: Swift Holdings Investments Pty Ltd.
Location: Docklands VIC, Australia
Business description: Investment business
Number of shares to be sold, sale price and status of shares held before and after sale
IDOM Automotive Group Pty Ltd.
Number of shares held before the sale: 1,217,810 shares (voting rights ownership ratio: 100%)
Number of shares to be sold: 1,217,810 shares (plan)
Sale price: Undisclosed at the request of the transferee
Number of shares to be held after the sale: 0 shares (voting rights ownership ratio: 0%)
Gulliver Australia Pty Ltd.
Number of shares held before the sale: 50,001 shares (voting rights ownership ratio: 100%)
Number of shares to be sold: 50,001 shares (plan)
Sale price: Undisclosed at the request of the transferee
Number of shares to be held after the sale: 0 shares (voting rights ownership ratio: 0%)
Schedule
Date of board resolution: April 14, 2022
Date of contract signing: April 14, 2022
Execution date of share transfer: To be determined
Outlook
The business results of IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd. spanning from March to the following February of the following year are included in the company’s consolidated results. Although the date of share transfer is yet to be determined, based on the assumption that it takes place at the end of June 2022, the earnings forecast for FY02/23 takes into account earnings for the four-month period from March 2022 to June 2022.
The sale would negatively affect both sales and profits, and the company projects sales to fall by JPY85.0bn, operating profit by JPY3.0bn, and recurring profit by JPY2.8bn YoY in FY02/23. With the sale, the company expects to record an extraordinary gain of about JPY800mn on a consolidated basis and about JPY2.9bn on a non consolidated basis on the sale of shares in affiliated companies in Q2 FY02/23 (June–August 2022). It also expects capital efficiency (ROIC and other indicators) to improve.
These estimates are based on current calculations and are subject to change depending on the exchange rate of the Australian dollar and other factors.
With regard to business developments in Australia, the company will continue to leverage the know-how and network it has accumulated through the management of new car dealerships. The company intends to continue its business in Australia through its wholly owned subsidiary, IDOM Innovations Pty Ltd, which has been operating in Australia since 2020. The company will continue to pursue transparency and fairness in automobile transactions through new technologies and innovations, and continue its platform business to help auto dealers solve their issues. The company plans to invest in this new business within a certain scope with a set maximum amount.
Trends and outlook
Monthly trends
Total car sales at directly managed stores (units)
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Total
FY02/17
24,396
17,994
12,825
13,986
15,082
13,015
16,782
18,628
16,407
14,042
15,086
21,119
199,362
YoY
2.9%
-4.0%
-6.5%
-1.5%
4.4%
-2.3%
22.7%
1.6%
14.8%
26.4%
7.2%
5.4%
5.1%
FY02/18
29,461
19,230
15,649
16,994
17,356
15,551
17,250
18,351
16,400
14,057
16,932
23,658
220,889
YoY
20.8%
6.9%
22.0%
21.5%
15.1%
19.5%
2.8%
-1.5%
-0.0%
0.1%
12.2%
12.0%
10.8%
FY02/19
29,738
18,753
14,627
15,455
16,127
15,805
16,614
19,688
18,348
14,384
16,550
21,146
217,235
YoY
0.9%
-2.5%
-6.5%
-9.1%
-7.1%
1.6%
-3.7%
7.3%
11.9%
2.3%
-2.3%
-10.6%
-1.7%
FY02/20
25,016
17,927
15,110
16,768
17,170
16,170
19,433
17,480
16,883
13,084
17,207
23,252
215,500
YoY
-15.9%
-4.4%
3.3%
8.5%
6.5%
2.3%
17.0%
-11.2%
-8.0%
-9.0%
4.0%
10.0%
-0.8%
FY02/21
26,747
17,895
12,678
15,182
18,538
18,913
16,916
21,911
17,920
16,128
16,273
20,813
219,914
YoY
6.9%
-0.2%
-16.1%
-9.5%
8.0%
17.0%
-13.0%
25.3%
6.1%
23.3%
-5.4%
-10.5%
2.0%
FY02/22
27,039
27,039
YoY
1.1%
-
-
-
-
-
-
-
-
-
-
-
1.1%
Retail sales at directly managed stores (units)
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Total
FY02/17
9,868
7,014
6,514
6,976
8,131
6,918
8,259
8,856
7,719
7,068
7,473
10,537
95,333
YoY
24.2%
31.4%
26.9%
38.7%
51.4%
32.9%
48.4%
23.6%
36.0%
42.6%
50.6%
25.9%
34.8%
FY02/18
14,055
8,914
9,978
9,952
10,777
9,303
9,990
10,509
9,636
9,209
9,555
13,283
125,161
YoY
42.4%
27.1%
53.2%
42.7%
32.5%
34.5%
21.0%
18.7%
24.8%
30.3%
27.9%
26.1%
31.3%
FY02/19
13,612
9,361
8,952
9,336
10,515
9,347
10,172
12,203
10,376
8,974
9,536
12,143
124,527
YoY
-3.2%
5.0%
-10.3%
-6.2%
-2.4%
0.5%
1.8%
16.1%
7.7%
-2.6%
-0.2%
-8.6%
-0.5%
FY02/20
14,269
10,300
9,545
10,741
11,878
11,098
13,741
10,099
9,905
8,265
9,747
13,405
132,993
YoY
4.8%
10.0%
6.6%
15.0%
13.0%
18.7%
35.1%
-17.2%
-4.5%
-7.9%
2.2%
10.4%
6.8%
FY02/21
15,300
10,562
8,907
10,784
12,383
12,654
10,449
12,995
10,796
10,271
9,938
12,343
137,382
YoY
7.2%
2.5%
-6.7%
0.4%
4.3%
14.0%
-24.0%
28.7%
9.0%
24.3%
2.0%
-7.9%
3.3%
FY02/22
16,313
16,313
YoY
6.6%
-
-
-
-
-
-
-
-
-
-
-
6.6%
Wholesale sales at directly managed stores (units)
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Total
FY02/17
14,528
10,980
6,311
7,010
6,951
6,097
8,523
9,772
8,688
6,974
7,613
10,582
104,029
YoY
-7.9%
-18.1%
-26.4%
-23.6%
-23.4%
-24.9%
5.1%
-12.5%
0.8%
13.3%
-16.5%
-9.3%
-12.6%
FY02/18
15,406
10,316
5,671
7,042
6,579
6,248
7,260
7,842
6,764
4,848
7,377
10,375
95,728
YoY
6.0%
-6.0%
-10.1%
0.5%
-0.9%
2.5%
-14.8%
-19.8%
-22.1%
-30.5%
-3.1%
-2.0%
-8.0%
FY02/19
16,126
9,392
5,675
6,119
5,612
6,458
6,442
7,485
7,972
5,410
7,014
9,003
92,708
YoY
4.7%
-9.0%
0.1%
-13.1%
-14.7%
3.4%
-11.3%
-4.6%
17.9%
11.6%
-4.9%
-13.2%
-3.2%
FY02/20
10,747
7,627
5,565
6,027
5,292
5,072
5,692
7,381
6,978
4,819
7,460
9,847
82,507
YoY
-33.4%
-18.8%
-1.9%
-1.5%
-5.7%
-21.5%
-11.6%
-1.4%
-12.5%
-10.9%
6.4%
9.4%
-11.0%
FY02/21
11,447
7,333
3,771
4,398
6,155
6,259
6,467
8,916
7,124
5,857
6,335
8,470
82,532
YoY
6.5%
-3.9%
-32.2%
-27.0%
16.3%
23.4%
13.6%
20.8%
2.1%
21.5%
-15.1%
-14.0%
0.0%
FY02/22
10,726
-
-
-
-
-
-
-
-
-
-
-
10,726
YoY
-6.3%
-
-
-
-
-
-
-
-
-
-
-
-6.3%
Store count
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Year end
FY02/17
506
509
511
515
520
521
524
530
533
535
536
543
543
Directly managed
419
422
424
427
432
433
437
444
448
450
452
459
459
Franchisee
87
87
87
88
88
88
87
86
85
85
84
84
84
Directly managed YoY change
+60
+60
+57
+61
+61
+54
+56
+52
+54
+55
+48
+45
+45
FY02/18
545
553
554
556
553
551
553
554
555
556
558
558
558
Directly managed
461
473
474
476
478
479
481
481
482
483
487
488
488
Franchisee
84
80
80
80
75
72
72
73
73
73
71
70
70
Directly managed YoY change
+42
+51
+50
+49
+46
+46
+44
+37
+34
+33
+35
+29
+29
FY02/19
564
568
569
569
571
575
577
580
581
579
583
588
588
Directly managed
494
498
500
500
502
506
508
511
512
510
514
519
519
Franchisee
70
70
69
69
69
69
69
69
69
69
69
69
69
Directly managed YoY change
+33
+25
+26
+24
+24
+27
+27
+30
+30
+27
+27
+31
+31
FY02/20
586
574
571
571
571
563
563
547
547
546
546
546
546
Directly managed
517
509
508
508
508
499
497
482
480
479
479
480
480
Franchisee
69
65
63
63
63
64
66
65
67
67
67
66
66
Directly managed YoY change
+23
+11
+8
+8
+6
-7
-11
-29
-32
-31
-35
-39
-39
FY02/21
547
541
541
534
534
526
527
527
528
527
527
527
527
Directly managed
481
476
476
469
469
461
462
462
462
461
460
460
460
Franchisee
66
65
65
65
65
65
65
65
66
66
67
67
67
Directly managed YoY change
-36
-33
-32
-39
-39
-38
-35
-20
-18
-18
-19
-20
-20
FY02/22
527
Directly managed
460
Franchisee
67
Directly managed YoY change
-21
Source: Shared Research based on company data
Note: Total vehicle sales at directly managed stores = the sum of direct retail sales to customers and wholesale sales at auctions
Note: Retail sales at directly managed stores = direct retail sales to customers, only
Quarterly trends and results
Cons.
FY02/21
FY02/22
FY02/22
Cumulative (JPYmn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
% of Est.
FY Est.
Sales
83,724
178,109
282,082
380,564
117,013
227,775
344,620
459,532
102.1%
450,000
YoY
-7.2%
-0.7%
3.5%
5.2%
39.8%
27.9%
22.2%
20.8%
18.2%
Gross profit
14,722
33,963
54,096
72,810
21,748
42,466
64,371
86,013
103.3%
83,300
YoY
-16.8%
-7.7%
-3.6%
-1.6%
47.7%
25.0%
19.0%
18.1%
14.4%
Gross profit margin
17.6%
19.1%
19.2%
19.1%
18.6%
18.6%
18.7%
18.7%
18.5%
SG&A expenses
14,875
29,910
45,480
62,239
16,663
33,025
49,610
67,528
102.8%
65,700
YoY
-8.0%
-7.0%
-6.0%
-4.1%
12.0%
10.4%
9.1%
8.5%
5.6%
SG&A ratio
17.8%
16.8%
16.1%
16.4%
14.2%
14.5%
14.4%
14.7%
14.6%
Operating profit
-153
4,053
8,616
10,571
5,084
9,440
14,760
18,485
108.7%
17,000
YoY
-
-12.3%
11.5%
16.3%
-
132.9%
71.3%
74.9%
60.8%
Operating profit margin
-
2.3%
3.1%
2.8%
4.3%
4.1%
4.3%
4.0%
3.8%
Recurring profit
-552
3,147
7,849
9,642
4,911
9,011
14,046
17,561
110.4%
15,900
YoY
-
-13.4%
22.0%
40.4%
-
186.3%
79.0%
82.1%
64.9%
Recurring profit margin
-
1.8%
2.8%
2.5%
4.2%
4.0%
4.1%
3.8%
3.5%
Net income
-914
1,375
5,226
1,484
2,752
5,311
8,738
10,794
117.3%
9,200
YoY
-
-35.3%
45.3%
-58.1%
-
286.3%
67.2%
627.4%
519.9%
Net margin
-
0.8%
1.9%
0.4%
2.4%
2.3%
2.5%
2.3%
2.0%
Cons.
FY02/21
FY02/22
Quarterly (JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Sales
83,724
94,385
103,973
98,482
117,013
110,762
116,845
114,912
YoY
-7.2%
6.0%
11.4%
10.5%
39.8%
17.4%
12.4%
16.7%
Gross profit
14,722
19,241
20,133
18,714
21,748
20,718
21,905
21,642
YoY
-16.8%
0.7%
4.3%
4.7%
47.7%
7.7%
8.8%
15.6%
Gross profit margin
17.6%
20.4%
19.4%
19.0%
18.6%
18.7%
18.7%
18.8%
SG&A expenses
14,875
15,035
15,570
16,759
16,663
16,362
16,585
17,918
YoY
-8.0%
-6.0%
-3.8%
1.5%
12.0%
8.8%
6.5%
6.9%
SG&A ratio
17.8%
15.9%
15.0%
17.0%
14.2%
14.8%
14.2%
15.6%
Operating profit
-153
4,206
4,563
1,955
5,084
4,356
5,320
3,725
YoY
-
35.1%
47.0%
43.4%
-
3.6%
16.6%
90.5%
Operating profit margin
-
4.5%
4.4%
2.0%
4.3%
3.9%
4.6%
3.2%
Recurring profit
-552
3,699
4,702
1,793
4,911
4,100
5,035
3,515
YoY
-
38.3%
68.0%
312.2%
-
10.8%
7.1%
96.0%
Recurring profit margin
-
3.9%
4.5%
1.8%
4.2%
3.7%
4.3%
3.1%
Net income
-914
2,289
3,851
-3,742
2,752
2,559
3,427
2,056
YoY
-
36.5%
161.4%
-
-
11.8%
-11.0%
-
Net margin
-
2.4%
3.7%
-
2.4%
2.3%
2.9%
1.8%
Source: Shared Research based on company data
IDOM’s quarterly gross profit margin (GPM) fluctuates due to seasonal factors. The peak period for auctions is the end of the fiscal year in February and March, and April is a quiet period. Consequently, the GPM tends to be high in Q4 and low in Q1. Wholesale prices fall when the auctions are quiet, but the company’s gross profit per unit is steady, and GPM tends to rise.
Quarterly results by segment
By segment
FY02/21
FY02/22
Cumulative (JPYmn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Sales
83,724
178,109
282,082
380,564
117,013
227,775
344,620
459,532
YoY
-7.2%
-0.7%
3.5%
5.2%
39.8%
27.9%
22.2%
20.8%
Japan
68,031
138,963
216,733
290,551
82,459
157,192
239,812
318,135
YoY
-4.1%
0.5%
4.2%
5.8%
21.2%
13.1%
10.6%
9.5%
Australia
15,216
38,289
63,987
88,310
34,028
69,499
103,123
139,364
YoY
-19.2%
-3.8%
2.4%
4.8%
123.6%
81.5%
61.2%
57.8%
Other
487
877
1,394
1,701
526
1,083
1,684
2,032
YoY
11.4%
-30.6%
-33.4%
-36.3%
8.0%
23.5%
20.8%
19.5%
Eliminations
-10
-21
-32
-
-
-
-
-
Operating profit
-153
4,053
8,616
10,571
5,084
9,440
14,760
18,485
YoY
-
-12.3%
11.5%
16.3%
-
132.9%
71.3%
74.9%
Operating profit margin
-0.2%
2.3%
3.1%
2.8%
4.3%
4.1%
4.3%
4.0%
Japan
-136
3,578
7,314
8,316
3,936
7,113
11,313
13,771
YoY
-
-29.2%
-10.4%
-13.2%
-
98.8%
54.7%
65.6%
Operating profit margin
-0.2%
2.6%
3.4%
2.9%
4.8%
4.5%
4.7%
4.3%
Australia
172
900
1,861
2,999
1,169
2,401
3,565
4,935
YoY
-
-
-
-
579.7%
166.8%
91.6%
64.6%
Operating profit margin
1.1%
2.4%
2.9%
3.4%
3.4%
3.5%
3.5%
3.5%
Other
-10
-53
-10
-2
46
125
213
222
YoY
-
-
-
-
-
-
-
-
Operating profit margin
-2.1%
-6.0%
-0.7%
-0.1%
8.7%
11.5%
12.6%
10.9%
Adjustments
-178
-371
-548
-743
-67
-200
-331
-444
Eliminations
-20
-41
-45
-58
53
39
27
10
Goodwill amortization
-158
-330
-503
-684
-121
-239
-358
-454
By segment
FY02/21
FY02/22
Quarterly (JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Sales
83,724
94,385
103,973
98,482
117,013
110,762
116,845
114,912
YoY
-7.2%
6.0%
11.4%
10.5%
39.8%
17.4%
12.4%
16.7%
Japan
68,031
70,932
77,770
73,818
82,459
74,733
82,620
78,323
YoY
-4.1%
5.4%
11.4%
10.7%
21.2%
5.4%
6.2%
6.1%
Australia
15,216
23,073
25,698
24,323
34,028
35,471
33,624
36,241
YoY
-19.2%
9.9%
13.3%
11.6%
123.6%
53.7%
30.8%
49.0%
Other
487
390
517
307
526
557
601
348
YoY
11.4%
-52.8%
-37.6%
-46.8%
8.0%
42.8%
16.2%
13.4%
Eliminations
-10
-11
-11
32
-
-
-
-
Operating profit
-153
4,206
4,563
1,955
5,084
4,356
5,320
3,725
YoY
-
35.1%
47.0%
43.4%
-
3.6%
16.6%
90.5%
Operating profit margin
-0.2%
4.5%
4.4%
2.0%
4.3%
3.9%
4.6%
3.2%
Japan
-136
3,714
3,736
1,002
3,936
3,177
4,200
2,458
YoY
-
15.2%
20.1%
-29.2%
-
-14.5%
12.4%
145.3%
Operating profit margin
-0.2%
5.2%
4.8%
1.4%
4.8%
4.3%
5.1%
3.1%
Australia
172
728
961
1,138
1,169
1,232
1,164
1,370
YoY
-
-
880.6%
557.8%
579.7%
69.2%
21.1%
20.4%
Operating profit margin
1.1%
3.2%
3.7%
4.7%
3.4%
3.5%
3.5%
3.8%
Other
-10
-43
43
8
46
79
88
9
YoY
-
-
-35.8%
-
-
-
104.7%
12.5%
Operating profit margin
-2.1%
-11.0%
8.3%
2.6%
8.7%
14.2%
14.6%
2.6%
Adjustments
-178
-193
-177
-195
-67
-133
-131
-113
Eliminations
-20
-21
-4
-13
53
-14
-12
-17
Goodwill amortization
-158
-172
-173
-181
-121
-118
-119
-96
Source: Shared Research based on company data
Parent company results
Parent, cumulative
FY02/21
FY02/22
(JPYmn)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Sales
64,991
134,150
207,448
275,710
78,540
150,239
229,492
306,733
YoY
-0.5%
3.3%
6.4%
6.9%
20.8%
12.0%
10.6%
11.3%
Gross profit
11,529
27,003
42,298
56,451
15,557
30,092
45,479
61,071
YoY
-19.2%
-9.1%
-6.3%
-3.7%
34.9%
11.4%
7.5%
8.2%
Gross profit margin
17.7%
20.1%
20.4%
20.5%
19.8%
20.0%
19.8%
19.9%
SG&A expenses
11,988
23,735
35,759
48,593
12,283
23,983
35,680
49,164
YoY
-6.2%
-6.6%
-6.0%
-4.5%
2.5%
1.0%
-0.2%
1.2%
% of sales
18.4%
17.7%
17.2%
17.6%
15.6%
16.0%
15.5%
16.0%
Personnel expenses
4,596
9,492
14,446
19,462
5,127
10,070
14,775
20,575
YoY
-0.3%
2.4%
4.3%
6.1%
11.6%
6.1%
2.3%
5.7%
% of sales
7.1%
7.1%
7.0%
7.1%
6.5%
6.7%
6.4%
6.7%
Advertising expenses
1,520
2,962
4,480
6,685
1,471
2,764
4,227
5,952
YoY
-19.6%
-20.3%
-22.1%
-17.3%
-3.2%
-6.7%
-5.6%
-11.0%
% of sales
2.3%
2.2%
2.2%
2.4%
1.9%
1.8%
1.8%
1.9%
Rents
2,523
4,976
7,459
9,969
2,535
5,069
7,667
10,210
YoY
-3.8%
-4.5%
-4.2%
-3.7%
0.5%
1.9%
2.8%
2.4%
% of sales
3.9%
3.7%
3.6%
3.6%
3.2%
3.4%
3.3%
3.3%
Other
1,432
2,838
4,318
5,801
1,426
2,763
4,092
5,910
YoY
-20.6%
-16.5%
-17.4%
-17.2%
-0.4%
-2.6%
-5.2%
1.9%
% of sales
2.2%
2.1%
2.1%
2.1%
1.8%
1.8%
1.8%
1.9%
Operating profit
-459
3,268
6,554
7,858
3,273
6,108
9,798
11,907
YoY
-
-23.7%
-7.7%
1.6%
-
86.9%
49.5%
51.5%
Operating profit margin
-0.7%
2.4%
3.2%
2.9%
4.2%
4.1%
4.3%
3.9%
Parent, quarterly
FY02/21
FY02/22
(JPYmn)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Sales
64,991
69,159
73,298
68,262
78,540
71,699
79,253
77,241
YoY
-0.5%
7.3%
12.5%
8.3%
20.8%
3.7%
8.1%
13.2%
Gross profit
11,529
15,474
15,295
14,153
15,557
14,535
15,387
15,592
YoY
-19.2%
0.3%
-0.9%
5.1%
34.9%
-6.1%
0.6%
10.2%
Gross profit margin
17.7%
22.4%
20.9%
20.7%
19.8%
20.3%
19.4%
20.2%
SG&A expenses
11,988
11,747
12,024
12,834
12,283
11,700
11,697
13,484
YoY
-6.2%
-7.1%
-4.6%
0.0%
2.5%
-0.4%
-2.7%
5.1%
% of sales
18.4%
17.0%
16.4%
18.8%
15.6%
16.3%
14.8%
17.5%
Personnel expenses
4,596
4,896
4,954
5,016
5,127
4,943
4,705
5,800
YoY
-0.3%
5.0%
8.4%
11.6%
11.6%
1.0%
-5.0%
15.6%
% of sales
7.1%
7.1%
6.8%
7.3%
6.5%
6.9%
5.9%
7.5%
Advertising expenses
1,520
1,442
1,518
2,205
1,471
1,293
1,463
1,725
YoY
-19.6%
-21.1%
-25.3%
-5.4%
-3.2%
-10.3%
-3.6%
-21.8%
% of sales
2.3%
2.1%
2.1%
3.2%
1.9%
1.8%
1.8%
2.2%
Rents
2,523
2,453
2,483
2,510
2,535
2,534
2,598
2,543
YoY
-3.8%
-5.3%
-3.4%
-2.1%
0.5%
3.3%
4.6%
1.3%
% of sales
3.9%
3.5%
3.4%
3.7%
3.2%
3.5%
3.3%
3.3%
Other
1,432
1,406
1,480
1,483
1,426
1,337
1,329
1,818
YoY
-20.6%
-11.8%
-19.2%
-16.5%
-0.4%
-4.9%
-10.2%
22.6%
% of sales
2.2%
2.0%
2.0%
2.2%
1.8%
1.9%
1.7%
2.4%
Operating profit
-459
3,727
3,286
1,304
3,273
2,835
3,690
2,109
YoY
-
33.4%
16.6%
105.7%
-
-23.9%
12.3%
61.7%
Operating profit margin
-0.7%
5.4%
4.5%
1.9%
4.2%
4.0%
4.7%
2.7%
Source: Shared Research based on company data
Performance indicators
Indicators
FY02/21
FY02/22
Cumulative (stores, units)
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Store count: Directly managed
476
461
462
460
458
452
453
445
YoY
-6.3%
-7.6%
-3.8%
-4.2%
-3.8%
-2.0%
-1.9%
-3.3%
Store count: Franchisees
65
65
66
67
65
65
66
65
Vehicles sold: Directly managed stores (units)
57,320
109,953
166,700
219,914
65,288
120,474
179,686
237,489
YoY
-1.3%
4.3%
2.9%
2.1%
13.9%
9.6%
7.8%
8.0%
Retail (units)
34,769
70,590
104,830
137,382
38,808
72,694
107,636
140,119
YoY
1.9%
4.1%
3.2%
3.3%
11.6%
3.0%
2.7%
2.0%
Retail ratio
60.7%
64.2%
62.9%
62.5%
59.4%
60.3%
59.9%
59.0%
Wholesale (units)
22,551
39,363
61,870
82,532
26,480
47,780
72,050
97,370
YoY
-5.8%
-2.4%
2.5%
0.0%
17.4%
21.4%
16.5%
18.0%
Retail units per directly managed store
73
151
227
298
85
160
238
312
YoY
9.5%
11.8%
9.5%
7.6%
16.2%
6.0%
4.7%
4.7%
Sales per vehicle sold: Parent
1,134
1,220
1,244
1,254
1,203
1,247
1,277
1,292
YoY
0.7%
-0.9%
3.4%
4.7%
6.1%
2.2%
2.6%
3.0%
Gross profit per vehicle sold: Parent
201
246
254
257
238
250
253
257
YoY
-18.2%
-12.8%
-9.0%
-5.6%
18.5%
1.7%
-0.3%
0.2%
No. of employees: Parent
3,550
3,447
3,357
3,310
3,422
3,291
3,202
3,072
No. of employees per store
7.5
7.5
7.3
7.2
7.5
7.3
7.1
6.9
YoY
9.9%
12.3%
8.6%
5.8%
0.2%
-2.6%
-2.7%
-4.1%
Capital expenditures
409
617
889
1,429
523
1,007
2,972
4,074
Indicators
FY02/21
FY02/22
(stores, units)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Vehicles sold: Directly managed stores
57,320
52,633
56,747
53,214
65,288
55,186
59,212
57,803
YoY
-1.3%
5.0%
5.5%
-0.6%
13.9%
4.9%
4.3%
8.6%
Retail
34,769
35,821
34,240
32,552
38,808
33,886
34,942
32,483
YoY
1.9%
6.2%
1.5%
3.6%
11.6%
-5.4%
2.1%
-0.2%
Retail ratio
60.7%
68.1%
60.3%
61.2%
59.4%
61.4%
59.0%
56.2%
Wholesale
22,551
16,812
22,507
20,662
26,480
21,300
24,270
25,320
YoY
-5.8%
2.6%
12.2%
-6.6%
17.4%
26.7%
7.8%
22.5%
Retail units per directly managed store
73
76
74
71
85
74
77
72
YoY
9.5%
14.2%
7.6%
7.9%
16.2%
-2.6%
4.1%
2.5%
Sales per vehicle sold: Parent
1,134
1,314
1,292
1,283
1,203
1,299
1,338
1,336
YoY
0.7%
2.1%
6.6%
9.0%
6.1%
-1.1%
3.6%
4.2%
Gross profit per vehicle sold: Parent
201
294
270
266
238
263
260
270
YoY
-18.2%
-4.5%
-6.0%
5.7%
18.5%
-10.4%
-3.6%
1.4%
Source: Shared Research based on company data
Note: Retail units sold per directly managed store is the number of vehicles sold at retail by directly managed stores ÷ store count (average of the number of stores at the beginning and end of the fiscal year)
Note: Sales (parent) per vehicle sold are parent company sales ÷ number of vehicles sold by directly managed stores
Note: Gross profit (parent) per vehicle sold is parent company gross profit ÷ number of vehicles sold by directly managed stores
Reference: Used car registrations
FY02/21
FY02/22
Cumulative
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Q1
Q1–Q2
Q1–Q3
Q1–Q4
Used car registrations
859,868
1,715,275
2,570,634
3,341,053
938,183
1,714,169
2,499,054
3,245,779
YoY
-10.0%
-3.2%
-1.0%
-0.2%
9.1%
-0.1%
-2.8%
-2.9%
FY02/21
FY02/22
Quarterly
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Used car registrations
859,868
855,407
855,359
770,419
938,183
775,986
784,885
746,725
YoY
-10.0%
4.7%
3.8%
2.5%
9.1%
-9.3%
-8.2%
-3.1%
Source: Shared Research based on Japan Automobile Dealers Association data
Full-year FY02/22 results (out April 14, 2022)
Sales: JPY459.5bn (+20.8% YoY)
Operating profit: JPY18.5bn (+74.9% YoY)
Recurring profit: JPY17.6bn (+82.1% YoY)
Net income attributable to owners of the parent: JPY10.8bn (+627.4% YoY)
In FY02/22, sales grew YoY. In Japan, the number of customers visiting stores grew as a result of the operation of large stores opened in FY02/21 and FY02/22, which led to higher retail sales volume. The Australian subsidiary recorded sales volume growth of new and used cars.
Profit items from the operating level and below rose YoY because of higher sales. SG&A expenses increased due to the yen depreciation in addition to lower SG&A expenses in FY02/21 when the company booked pandemic-related losses under extraordinary losses rather than as part of SG&A expenses. Meanwhile, advertising expenses fell due to more efficient use of the internet to attract customers, even as retail sales volume at directly managed stores in Japan reached record highs.
In addition to the rise in operating profit and
recurring profit, a decline in extraordinary losses was behind the sharp
increase in net income attributable to owners of the parent. In FY02/21, the
company recorded extraordinary losses of JPY6.9bn, which included JPY4.0bn in
impairment losses on business in Australia. In FY02/22, extraordinary losses came
to JPY1.9bn.
Q4 FY02/22 results (December 2021–February 2022)
In Q4 (December 2021–February 2022), sales were JPY114.9bn (+16.7% YoY), operating profit
was JPY3.7bn (+90.5% YoY), recurring profit was JPY3.5bn (+96.0% YoY), and net
income attributable to owners of the parent was JPY2.1bn (loss of JPY3.7bn in Q4 FY02/21).
In the Japan segment, sales were JPY78.3bn (+6.1%
YoY) and operating profit was JPY2.4bn (+145.3% YoY). Sales grew,
reflecting higher sales volume. Higher parent company sales drove up sales YoY on a consolidated basis. Income rose, at both the parent and subsidiaries.
The parent company generated sales of JPY77.2bn (+13.2% YoY)
and operating profit of JPY2.1bn (+61.7%). Sales
grew due to a rise in wholesale sales. A lower percentage of retail sales
(which has a relatively high gross margin) caused parent-company GPM to fall
YoY, but gross profit grew to JPY15.6bn (+10.2% YoY), owing to higher sales.
Parent-company SG&A expenses increased to JPY13.5bn
(+5.1% YoY), mainly because a rise in performance-linked incentives caused
personnel expenses to increase. Despite the higher SG&A expenses, operating
profit rose thanks to the growth in gross profit.
Disparities
between performance in the Japan segment and at the parent company were
JPY1.1bn for sales (-80.5% YoY) and JPY349mn for operating profit (operating
loss of JPY302mn in Q4 FY02/21). As the company sold subsidiary new car dealers
in Japan that sell BMW and MINI models, this business was excluded from the
scope of consolidation, leading to lower sales YoY. Profitability improved,
however, from an operating loss in Q4 FY02/21.
In the Australia segment, sales were JPY36.2bn
(+49.0% YoY) and operating profit was JPY1.4bn (+20.4% YoY). Higher sales volume of new
and used vehicles contributed to the rise in sales and profit..
Progress vs. company forecast
The company announced revisions to its full-year FY02/22 forecast along with Q3 results. The revised full-year forecast calls for sales of JPY450.0bn (+18.2% YoY), operating profit of JPY17.0bn (+41.9% YoY), and net income attributable to owners of the parent of JPY9.2bn (+519.6% YoY).
Versus the previous forecast (announced October 2021), targets have been revised up by JPY44.6bn for sales, JPY2.0bn for operating profit, JPY2.0bn for recurring profit, and JPY1.2bn for net income attributable to owners of the parent. This
reflects the fact that actual results for cumulative Q3 FY02/22 have progressed beyond the previous forecast assumption.
Specifically, wholesale vehicle sales volume at directly managed stores in Japan, new car
sales volume at Australian subsidiaries, and the depreciation of the yen
against the Australian dollar were factors in the revision.
The company achieved 102.1% of its revised FY02/22 forecast
figure for sales and 108.7% for operating profit. Higher iron ore prices pushed
up the new car sales volume at Australian subsidiaries, exceeding forecasts. In
addition, the yen weakened against the Australian dollar, and profit on
domestic operations was higher than expected.
Segment results
Results by segment were as follows.
Japan
Sales were JPY318.1bn (+9.5% YoY), and segment profit (operating profit) was JPY13.8bn (+65.6% YoY).
The Japan segment mainly consists of the parent
company's used car sales and ancillary businesses. Other subsidiaries include
Gulliver Insurance Co., Ltd. and Tokyo My Car Co., Ltd., a used car dealership.
Parent company results
The parent company reported sales of JPY306.7bn (+11.3% YoY), gross profit of JPY61.0bn (+8.2% YoY), and operating profit of JPY11.9bn (+51.5% YoY). Directly managed stores sold 237,489 vehicles (+8.0% YoY), comprising 140,119 at the retail level (+2.0% YoY), and 97,370 at the wholesale level (+18.0% YoY). Retail vehicle sales volume increased thanks to the new large stores that opened in FY02/22, as well as a rise in the number of customers visiting existing stores. A higher retail sales volume pushed up trade-ins, which in turn boosted sales volume at the wholesale level, as well as the number of vehicles purchased.
Store count
During FY02/22, the company opened five new stores and closed 13 stores, bringing the total number of directly managed stores to 455 (down 3.3% or eight stores YoY). Even as the store count fell, the volume of vehicles sold at retail and volume purchased both grew. IDOM’s efficiency-focused store strategy involves closing medium-sized stores with low sales efficiency and opening large ones in favorable locations with prospects of good sales efficiency.
IDOM’s strategy involves opening large stores with sophisticated
designs that are roughly 8,260sqm in area (or three times that of regular
stores). They are capable of displaying some 300 used cars (as opposed to about
100 in regular stores), giving customers more options and improving the
company’s sales efficiency. In FY02/22, the company opened five large stores
and added maintenance shops to eight. This makes 29 large stores, and 8 maintenance shops of its 445 directly
managed stores shops.
Number of vehicles sold
The number of vehicles sold rose 8.0% YoY, with retail sales volume up 2.0% YoY and wholesale sales volume up 18.0% YoY.
Retail sales volume grew as store visitors increased thanks to the recovering used car market, large stores opened in the previous fiscal year and FY02/22 started operating. Directly managed stores in Japan sold 140,119 vehicles (+2.0% YoY), a record high.
According to the Japan Automobile Dealers Association, 3,214,000 used (passenger) cars (-3.8% YoY) were registered from March 2021 to February 2022. During the same period, growth in the number of vehicles sold at retail by IDOM’s directly managed stores indicated an increase in the company’s market share.
The parent company moved fewer vehicles through wholesale than the previous year from April through June 2020, but performance was strong afterward. In FY02/22, a higher retail sales volume pushed up the number of trade-ins. Accordingly, the number of vehicles purchased grew versus the pandemic-affected FY02/21, and wholesale sales volume also rose YoY.
Gross profit
Gross profit came to JPY61.1bn (+8.2% YoY), and GPM was 19.9% (-0.6pp YoY).
GPM fell 0.6pp YoY. The percentage of the volume of retail vehicle sales, which has a relatively high GPM, declined to 59.0% (62.5% in FY02/21), as the percentage of wholesale vehicle sales volume increased.
Average gross profit per vehicle was JPY257,000 (+0.2% YoY). As noted above, GPM was down YoY, but sales per vehicle increased 3.0% YoY to JPY1.3mn as used car prices rose. In Q1 FY02/22, a semiconductor shortage suppressed new-car
production. This caused a spike in used-car auction prices and increased the
unit sales price for the company. In addition to rising market prices, higher
gross profit from ancillary services such as insurance, warranties, and auto
loans also contributed to an increase in gross profit per unit.
SG&A expenses
Parent company SG&A expenses came to JPY49.2bn (+1.2% YoY), comprising personnel expenses of JPY20.6bn (+5.7% YoY), advertising expenses of JPY6.0bn (-11.0% YoY), rents of JPY10.2bn (+2.4% YoY), and other expenses of JPY5.9bn (+1.9% YoY).
The parent company reclassified about JPY389mn in personnel expenses as extraordinary losses when stores were closed during the state of emergency in 1H FY02/21, but booked them as SG&A expenses in FY02/22. Performance-linked incentives also pushed up expenses.
Advertising expenses fell YoY despite the rise in vehicle sales volume, and the decline in advertising expenses has continued since FY02/2021. This was partly due to an increase in large stores leading to streamlined advertising costs; larger stores have a larger site area than smaller stores, and the stores themselves tend to receive more publicity and naturally attract customers, making them more efficient from an advertising standpoint. The company is analyzing, verifying, and improving the
response effect of advertising to attract customers online more efficiently.
An increase in store site area led to higher cost of rent. The number of stores decreased YoY, but the opening of large stores led to an increase in store site area. The large store has a
sophisticated store design, a site area of around 8,260sqm, or three times the area of regular stores. They are also capable of displaying some 300 used cars (as opposed to about 100 at conventional
stores), giving customers more choices and improving the company's sales efficiency.
Operating profit
The parent reported operating profit of JPY11.9bn (+51.5% YoY).
Difference between the Japan segment and the parent
The differences between the Japan segment and the parent were JPY11.4bn (-23.2% YoY) in sales and JPY1.9bn (+307.0% YoY) in operating profit. The performance of new car dealer subsidiaries recovered. In
cumulative Q3 FY02/22, performance at subsidiary new car dealers in Japan that
sell BMW and MINI models recovered to previous-year levels. In Q4, the company
sold these subsidiaries, excluding the business from the scope of consolidation
and leading to lower sales YoY. Profitability improved, however, from an
operating loss in Q4 FY02/21.
Australia
Sales were JPY139.4bn (+57.8% YoY), and segment profit (operating profit) was JPY4.9bn (+64.6% YoY).
In Australia, the company has a 67% stake in Buick Holdings Pty Ltd, which operates multibrand new car dealerships in Perth, Western Australia, and a 100% stake in the Andrews & Wallis Motor Group (AMW, five companies), which operates new car dealerships in Melbourne. Buick Holdings Pty Ltd accounts for about 70% of the units sold in Australia, while the AWM Group accounts for about 30%. The units sold by Buick Holdings Pty Ltd are half used and half new, while the AWM Group sells primarily new cars.
Buick Holdings Pty Ltd achieved higher sales and profits, as a buoyant economy (helped by higher iron ore prices) pushed up as sales volume. Used car sales, which the company has been working to strengthen, also increased. Sales and profits also increased at the AWM Group.
The Australian dollar appreciated against the yen YoY, adding currency translation gains from subsidiaries.
In April 2022, the company made the decision to
sell all its shares in new-car-dealing subsidiaries in Australia and withdraw
from this business. The company plans to sell IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty
Ltd. in June 2022, so the business in Australia will be included in the
consolidated accounts for a four-month period in FY02/23.
Company forecast for FY02/23
Cons.
FY02/21
FY02/22
FY02/23 Est.
(JPYmn)
1H
2H
FY
1H
2H
FY
1H Est.
2H Est.
FY Est.
Sales
178,109
202,455
380,564
227,775
231,757
459,532
206,800
160,000
366,800
YoY
-0.7%
11.0%
5.2%
27.9%
14.5%
20.8%
-9.2%
-31.0%
-20.2%
Cost of sales
144,145
163,609
307,754
185,308
188,211
373,519
166,900
128,000
294,900
Gross profit
33,963
38,847
72,810
42,466
43,547
86,013
39,900
32,000
71,900
YoY
-7.7%
4.5%
-1.6%
25.0%
12.1%
18.1%
-6.0%
-26.5%
-16.4%
Gross profit margin
19.1%
19.2%
19.1%
18.6%
18.8%
18.7%
19.3%
20.0%
19.6%
SG&A expenses
29,910
32,329
62,239
33,025
34,503
67,528
31,300
25,100
56,400
YoY
-7.0%
-1.1%
-4.1%
10.4%
6.7%
8.5%
-5.2%
-27.3%
-16.5%
SG&A ratio
16.8%
16.0%
16.4%
14.5%
14.9%
14.7%
15.1%
15.7%
15.4%
Operating profit
4,053
6,518
10,571
9,440
9,045
18,485
8,600
6,900
15,500
YoY
-12.3%
45.9%
16.3%
132.9%
38.8%
74.9%
-8.9%
-23.7%
-16.1%
Operating profit margin
2.3%
3.2%
2.8%
4.1%
3.9%
4.0%
4.2%
4.3%
4.2%
Non-operating income (expenses)
-906
-23
-929
-429
-495
-924
-450
-250
-700
Recurring profit
3,147
6,495
9,642
9,011
8,550
17,561
8,150
6,650
14,800
YoY
-13.4%
100.9%
40.4%
186.3%
31.6%
82.1%
-9.6%
-22.2%
-15.7%
Recurring profit margin
1.8%
3.2%
2.5%
4.0%
3.7%
3.8%
3.9%
4.2%
4.0%
Net income
1,375
109
1,484
5,311
5,483
10,794
7,200
4,400
11,600
YoY
-35.3%
-92.3%
-58.1%
286.3%
-
627.4%
35.6%
-19.8%
7.5%
Net margin
0.8%
0.1%
0.4%
2.3%
2.4%
2.3%
3.5%
2.8%
3.2%
Depreciation
2,951
2,797
Capital expenditures
1,844
5,424
Parent
FY02/21
FY02/22
FY02/23 Est.
(JPYmn)
1H
2H
FY
1H
2H
FY
1H Est.
2H Est.
FY Est.
Sales
134,150
141,560
275,710
150,239
156,494
306,733
154,500
154,500
309,000
YoY
3.3%
10.4%
6.9%
12.0%
10.5%
11.3%
2.8%
-1.3%
0.7%
Cost of sales
107,145
112,113
219,258
120,147
125,514
245,661
123,500
123,500
247,000
Gross profit
27,003
29,448
56,451
30,092
30,979
61,071
31,000
31,000
62,000
YoY
-9.1%
1.9%
-3.7%
11.4%
5.2%
8.2%
3.0%
0.1%
1.5%
Gross profit margin
20.1%
20.8%
20.5%
20.0%
19.8%
19.9%
20.1%
20.1%
20.1%
SG&A expenses
23,735
24,858
48,593
23,983
25,181
49,164
25,000
25,000
50,000
YoY
-6.6%
-2.3%
-4.5%
1.0%
1.3%
1.2%
4.2%
-0.7%
1.7%
SG&A ratio
17.7%
17.6%
17.6%
16.0%
16.1%
16.0%
16.2%
16.2%
16.2%
Operating profit
3,268
4,590
7,858
6,108
5,799
11,907
6,000
6,000
12,000
YoY
-23.7%
32.9%
1.6%
86.9%
26.3%
51.5%
-1.8%
3.5%
0.8%
Operating profit margin
2.4%
3.2%
2.9%
4.1%
3.7%
3.9%
3.9%
3.9%
3.9%
Non-operating income (expenses)
-167
-49
-216
-169
-165
-334
-250
-250
-500
Recurring profit
3,101
4,541
7,642
5,939
5,634
11,573
5,750
5,750
11,500
Cons.-Parent difference
FY02/21
FY02/22
FY02/23 Est.
(JPYmn)
1H
2H
FY
1H
2H
FY
1H Est.
2H Est.
FY Est.
Sales
43,959
60,895
104,854
77,536
75,263
152,799
52,300
5,500
57,800
YoY
-11.1%
12.3%
1.1%
76.4%
23.6%
45.7%
-32.5%
-92.7%
-62.2%
Cost of sales
37,000
51,496
88,496
65,161
62,697
127,858
43,400
4,500
47,900
Gross profit
6,960
9,399
16,359
12,374
12,568
24,942
8,900
1,000
9,900
YoY
-1.8%
13.7%
6.5%
77.8%
33.7%
52.5%
-28.1%
-92.0%
-60.3%
Gross profit margin
15.8%
15.4%
15.6%
16.0%
16.7%
16.3%
17.0%
18.2%
17.1%
SG&A expenses
6,175
7,471
13,646
9,042
9,322
18,364
6,300
100
6,400
YoY
-8.5%
3.0%
-2.5%
46.4%
24.8%
34.6%
-30.3%
-98.9%
-65.1%
SG&A ratio
14.0%
12.3%
13.0%
11.7%
12.4%
12.0%
12.0%
1.8%
11.1%
Operating profit
785
1,928
2,713
3,332
3,246
6,578
2,600
900
3,500
YoY
129.5%
90.1%
100.1%
324.5%
68.4%
142.5%
-22.0%
-72.3%
-46.8%
Operating profit margin
1.8%
3.2%
2.6%
4.3%
4.3%
4.3%
5.0%
16.4%
6.1%
Non-operating income (expenses)
-739
26
-713
-260
-330
-590
-200
-
-200
Recurring profit
46
1,954
2,000
3,072
2,916
5,988
2,400
900
3,300
Source: Shared Research based on company data
The company's full-year FY02/23 earnings forecast calls for sales of JPY366.8bn (-20.2% YoY), operating profit of JPY15.5bn (-16.1% YoY), recurring profit of JPY14.8bn (-15.7% YoY), and net income attributable to owners of the parent of JPY11.6bn (+7.5% YoY).
The company expects sales to decline YoY. This is due in
part to a withdrawal from the business of operating new
car dealers in Australia (described later), which will lower revenue by
approximately JPY85.0bn. In addition, in September 2021 subsidiary new
car dealers in Japan that sell BMW and MINI models were excluded from the scope
of consolidation, reducing revenue by a further JPY10.0bn. The company expects
revenue to increase in its mainstay domestic used car business.
The company forecasts a JPY3.0bn YoY decline in operating
profit. Withdrawing from the business of operating new
car dealers in Australia will have a JPY3.0bn downward impact. In addition, the
easing of a spike in used-car auction prices in Q1 FY02/22 is expected
to have a JPY1.0bn negative impact, and a change in revenue recognition
standards is expected to lower profit by a further JPY900mn. Offsetting this
combined JPY4.9bn in negative factors, the company anticipates JPY1.9bn in
positive factors. Specifically, the company anticipates an increase in unit car
sales due to the opening of large stores (five in FY02/22 and seven in
FY02/23).
The company expects net income attributable to owners
of the parent to rise YoY,
due to a gain on the sales of shares in subsidiaries operating
new car dealers in Australia and a decrease in taxes owing to tax-effect
accounting.
In April 2022, the company decided to transfer all shares of its consolidated subsidiaries, IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd. As a result of the transfer, the company projects sales to fall by JPY85.0bn, operating profit by JPY3.0bn, and recurring profit by JPY2.8bn YoY in FY02/23.
Parent company forecast
The full-year forecast for the parent company calls for sales of JPY309.0bn (+0.7% YoY) and operating profit of JPY12.0bn (+0.8% YoY).
Main KPIs
Assumptions for main KPIs are that retail and
wholesale sales volume will rise YoY, while gross
profit per unit is expected to fall YoY. Higher sales volume will be the driver behind increased sales
and gross profit. The company expects operating profit to be essentially flat, while SG&A expenses rise.
In Q1 FY02/22, a semiconductor shortage suppressed new-car
production. This caused a spike in used-car auction prices and have a JPY1.0bn negative impact on operating profit in FY 02/23. A change in revenue recognition standards will cause sales of warranty
services to be divided into periods, lowering profit by a further JPY900mn. The
company forecasts that, excluding these temporary negative factors, operating
profit would be up JPY2.0bn YoY.
Retail sales volume
The company expects to sell 244,000 cars (+2.7% YoY), with retail accounting for 144,000 units (+2.8% YoY), and wholesale accounting for 100,000 (+2.7% YoY). The
company aims to maintain the number of directly managed stores at the previous
year’s level of 445, but to close medium-sized stores and open large ones,
leading a rise in sales volume. The company plans to open seven large stores
(29 large stores as of end-FY02/22). In line with its medium-term growth
strategy for the domestic business, the company plans to open maintenance shops
at seven large stores (eight as of end-FY02/22).
IDOM’s strategy for stores involves closing medium-sized stores that have low sales efficiency and opening large stores in favorable locations it believes will have good sales efficiency. These large stores are roughly 8,260sqm, or three times the area of regular stores. They feature refined designs and are capable of displaying some 300 used cars (as opposed to about 100 in regular stores), giving customers more options and improving the company’s sales efficiency. As of end-FY02/22, 29 of its 445 directly managed stores use the large format.
Due to an increase in the number of large stores, from FY02/19 to FY02/21 the number of directly managed stores
declined from 519 to 460 (-59 stores), but display space grew from 106,000sqm
to 165,000sqm (+59,000sqm), while rents rose only slightly from JPY9.8bn to
JPY10.0bn. However, the number of vehicles sold at retail grew from 124,527 to
137,382 (+12,855 vehicles, +10.3%).
The company anticipates sales per vehicle of JPY1.3mn
(-1.9% YoY). This decrease is the result of the spike in used-car prices at
auction in Q1 FY02/22, described above, which will disappear in FY02/23.
IDOM forecasts gross profit per vehicle of JPY254,000
(-1.2% YoY), with the gross profit margin rising while sales per vehicle falls.
Projected parent company gross profit
As a result of the aforementioned factors, the parent company expects gross profit of JPY62.0bn (+1.5% YoY) and GPM of 20.1% (+0.2pp YoY).
Projected parent company SG&A expenses
The parent company projects SG&A expenses of JPY50.0bn (+1.7% YoY). As it opens large-format stores and maintenance shops, the company expects personnel expenses and rents to increase.
Despite an increase in SG&A expenses, higher gross profit should more than compensate, so the company expects operating profit to rise by 0.8% or JPY93mn YoY.
Difference between consolidated and non-consolidated projections
Core domestic business
In core domestic business (the parent company, Gulliver Insurance, and Tokyo My Car), the company
forecasts sales of JPY308.0bn (flat YoY) and operating profit
of JPY13.5bn (flat YoY). It also expects the difference in operating profit
between the parent company and the core domestic business to be flat YoY.
Australia segment
For this segment, the company forecasts sales of
approximately JPY5.4bn (-61% YoY) and operating profit of around JPY1.9bn (-61%
YoY). (These figures are Shared Research estimates, based on disclosure
materials.)
As is described above, in April 2022 the
company made the decision to sell all its shares in new-car-dealing
subsidiaries in Australia (IDOM
Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd.)
and withdraw from this business. The company plans to sell these companies
in June 2022, so the business in Australia will be included in the consolidated
accounts for a four-month period in FY02/23 (March–June 2022). The company
expects this move to reduce sales by around JPY85.0bn in FY02/23, lower
operating profit by approximately JPY3.0bn, and decrease recurring
profit by some JPY2.8bn.
IDOM plans to put the expertise and networks it has built
up by managing new car dealers in Australia to use in further business
developments in the country. The company plans to maintain its business in
Australia through IDOM Innovations Pty Ltd., a wholly owned subsidiary it
established in 2020. IDOM plans to build platform businesses (such as a used
car inventory management solution) to support automobile sales, applying new
technologies and innovations to promote transparency and fairness in used car transactions.
The company will set an investment ceiling for new business investment in
Australia. IDOM plans to invest up to JPY1.0bn over a two- to three-year period
from FY02/23. In the future, the company says it will consider business
development in Asia, Europe, and the United States.
Dividends
The company’s policy is to pay total dividends equal to 30% of the previous fiscal year’s net income, so FY02/23 dividends are based on FY02/22 net income attributable to owners of the parent. The projected FY02/23 dividend is therefore JPY32.4 per share (versus JPY4.6 in FY02/22).
Medium- to long-term outlook
The company had not announced a new medium-term plan since April 2016 when it announced its previous medium-term plan (FY02/17–FY02/20). However, in April 2022 the company unveiled a new plan covering the period from FY02/23 to FY02/27.
Since FY02/15, IDOM has been working to shift from its previous business model of buying used cars simply for wholesaling to a business model (retail model) in which it increases its retailing ratio. However, it was unable to achieve stable profit growth in the five years from FY02/15 to FY02/19.
Thereafter, it implemented measures to address issues encountered during the five-year period, resulting in YoY sales and profit growth during the three years from FY02/20 to FY02/22. Based on these results, the company says it has transitioned from a buyback retail model to a retail model. The company has decided to completely exit the new car dealer business (both in Japan and Australia).
One of the key strategies of the medium-term management
plan from FY02/23 is to open large stores and stores with maintenance shops in
Japan. During the plan’s period, the company expects an increase in retail
sales volume (170,000 units), growth in operating profit (JPY21.0bn), higher
OPM (5.0% or more), stable or higher ROIC (10% or more), and targets FCF
generation (of around JPY30.0bn over the five years).
State of the used-car market
Used car retail market is large with potential for growth and room for IDOM to expand its market share further
According to a Yano Research Institute report, Automotive Aftermarket 2018, the used car retail market in Japan has a value of approximately JPY3.7tn. IDOM believes the market is likely to expand even further, based on the fact that the sales ratio of new cars to used cars is 3:7 in the US, but 7:3 in Japan, and Japanese people are becoming less reluctant to buy used cars.
The company conducted online surveys of 1,000 consumers in
December 2020 and March 2022, asking about their reluctance to purchase used
cars compared with the past (from 10 years ago to a few years ago). The percentage
of respondents who answered that their reluctance has decreased or who never
were reluctant rose from 61.4% in December 2020 to 65.2% in March 2022. From
these results, the company deduces that consumer resistance to used cars is
waning and that the number of consumers who choose used cars may increase in
the future.
The company’s share of the retail market for used cars rose
from 1% in FY02/12 to 5% in FY02/22. Even though IDOM counts as one of the
largest companies in Japan in terms of used car retailing, it still has a
market share of only 5%, suggesting it has ample room for growth.
Impact of increasing EV prevalence
The Tokyo Metropolitan Government has set a goal of increasing the ratio of zero-emission vehicles to total new vehicle sales in Tokyo to 50% by 2030.
Zero-emission vehicle (ZEV) refers to an electric vehicle (EV), fuel cell vehicle (FCV), or plug-in hybrid vehicle (PHV) that emits no carbon dioxide or other exhaust gases during operation.
IDOM buys and sells used cars, which is part of the car ownership cycle, and believes that more and more people will replace their cars as electric vehicles become more popular, creating business opportunities. In addition, the company’s rule of thumb is to hold inventory for no more than two weeks, so Shared Research believes that it will not be particularly vulnerable to reductions in the value of combustion engine vehicle inventory as the popularity of electric vehicles increases.
Initiatives from establishment in 1994 to FY02/22
Evolution
of the company’s business model breaks down roughly into three phases. During
the first phase, from establishment in 1994 to FY02/14, the company adopted a
wholesale model. It moved to a buyback-retail model from FY02/15 to FY02/19. The third phase, from FY02/20
to FY02/22, was characterized by a retail model.
Establishment and move from wholesale model to buyback-retail model
Founded in 1994, the company built a business model specializing in car buying under the Gulliver brand. This business model enabled the company to achieve earnings growth in the 2000s, and in FY02/07 it achieved record operating profit of JPY11.1bn.
However, thereafter, a growing number of competitors and intensifying price competition made further earnings growth difficult. Until 2014 or so, the company continued to use the business model of buying and wholesaling used cars, while also shifting to a buyback-retail model in which it put the cars it purchased on display at stores and sold them to retail customers. From about 2015, it began working on a full-scale move to the buyback-retail model.
Performance through FY02/13
FY02/02
FY02/03
FY02/04
FY02/05
FY02/06
FY02/07
FY02/08
FY02/09
FY02/10
FY02/11
FY02/12
FY02/13
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Sales
84,881
94,958
121,885
156,696
182,649
182,166
190,592
163,669
148,853
142,038
132,881
143,417
YoY
43.6%
11.9%
28.4%
28.6%
16.6%
-0.3%
4.6%
-14.1%
-9.1%
-4.6%
-6.4%
7.9%
Operating profit
4,212
5,245
7,648
10,229
9,423
11,123
8,698
3,905
5,281
8,001
6,249
5,077
YoY
-
24.5%
45.8%
33.7%
-7.9%
18.0%
-21.8%
-55.1%
35.2%
51.5%
-21.9%
-18.8%
Operating profit margin
5.0%
5.5%
6.3%
6.5%
5.2%
6.1%
4.6%
2.4%
3.5%
5.6%
4.7%
3.5%
Recurring profit
4,199
5,278
7,700
10,219
9,382
10,998
8,699
2,635
5,008
7,824
6,318
5,252
YoY
61.8%
25.7%
45.9%
32.7%
-8.2%
17.2%
-20.9%
-69.7%
90.1%
56.2%
-19.2%
-16.9%
Recurring profit margin
4.9%
5.6%
6.3%
6.5%
5.1%
6.0%
4.6%
1.6%
3.4%
5.5%
4.8%
3.7%
Source: Shared Research based on company data
FY02/15 to FY02/19 (shift to the buyback-retail model)
During the five years from FY02/15 to FY02/19, IDOM opened more stores in Japan, aiming to grow profits by increasing retail sales volume. As a result, the store count grew from 354 in FY02/15 to 519 in FY02/19, and the number of vehicles sold at retail more than doubled from 52,000 to 124,000. However, despite the increases in store count and retail sales volume, FY02/19 operating profit was just JPY3.4bn, less than the JPY5.3bn it had recorded in FY02/15. In FY02/19, the company curtailed vehicle profits, and aimed to grow profit by cross-selling ancillary services (car insurance and loans), but the salesforce had trouble keeping up with the sudden changes in the business model, selling volume declined, and GPM also fell. Profit also fluctuated wildly during that period, and the company was unable to achieve stable profit growth.
Performance from FY02/14
FY02/14
FY02/15
FY02/16
FY02/17
FY02/18
FY02/19
FY02/20
FY02/21
FY02/22
(JPYmn)
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Cons.
Sales
169,398
155,681
210,085
251,516
276,157
309,410
361,684
380,564
459,532
YoY
18.1%
-8.1%
34.9%
19.7%
9.8%
12.0%
16.9%
5.2%
20.8%
Operating profit
7,094
5,325
7,542
4,498
6,779
3,400
9,091
10,571
18,485
YoY
39.7%
-24.9%
41.6%
-40.4%
50.7%
-49.8%
167.4%
16.3%
74.9%
Operating profit margin
4.2%
3.4%
3.6%
1.8%
2.5%
1.1%
2.5%
2.8%
4.0%
Recurring profit
7,201
5,345
6,835
4,160
5,797
2,072
6,867
9,642
17,561
YoY
37.1%
-25.8%
27.9%
-39.1%
39.4%
-64.3%
231.4%
40.4%
82.1%
Operating profit margin
4.3%
3.4%
3.3%
1.7%
2.1%
0.7%
1.9%
2.5%
3.8%
Source: Shared Research based on company data
Initiatives to address challenges from FY02/20 to FY02/22 (transition to the retail model)
From FY02/20 to FY02/22, IDOM implemented improvement measures to address challenges identified during the previous five-year period, resulting in three consecutive years of increased sales and profits.
Specific challenges from FY02/15 to FY02/19 were establishing a strategy for store openings and attracting customers online. The company implemented the following initiatives in regard to these challenges.
Establishing a strategy for store openings, opening large format stores
IDOM opened many stores in five-year period from FY02/15 to FY02/19, with the store count growing from 354 in FY02/15 to 519 in FY02/19. As a result of its multichannel store development (including stores specializing in low prices, in minicars, and in minivans), the company became its own competition in some regions.
In response, starting in FY02/20, it reviewed its criteria for opening and closing stores and made them stricter, and ranked its stores in terms of profits and capital efficiency. Previously, it would close stores operating in the red, but now, based on the ranking, it will close stores deemed inefficient, even if they are operating in the black. It also became stricter in selecting regions and specific locations for opening stores.
In addition, the company began opening large stores based
on profit and capital-efficiency criteria. As it moved toward the large-store
format, store areas increased and store retail volumes increased. (Large stores are described later.) As it moved from a buyback-retail model (retailing the vehicles it purchased from
customers) to also purchasing used cars at auction, the company transitioned to
a retail model, in which retail sales of used cars became the major source of
earnings. As of April 2022, in addition to the retail model the company was
working to increase earnings by expanding ancillary services.
Store formats and characteristics
Store format
Number
Description
Purchasing outlets
218
These stores specialize in purchasing. They tend to be small, so cannot easily show large numbers of vehicles. These stores are managed with an emphasis on efficiency.
Sales outlets (medium-sized)
198
These stores have showroom spaces where cars the company has purchased are displayed for retail sale. The company began opening these stores in 2014.
Sales outlets (large)
29
This category includes large stores, large stores with maintenance shops, and large stores with maintenance shops and sheet metal shops. Stores in this category have spacious showrooms (about three times that of medium-sized stores) displaying the largest number of models in a specific region.
Source: Shared Research based on company data
Initiatives for attracting customers online
During the five years from FY02/15 to FY02/19, IDOM was unable to effectively attract customers online. Such customers tend to choose stores based on price. The ineffective online efforts resulted in an upward trend in customer acquisition costs.
To deal with this issue, whereas retail prices were previously set uniformly by the head office, the company assigned a merchandising department to each business unit and established a system by which prices can be set by taking into account competition and other local factors. As a result of these initiatives, it was able to reduce its advertising expenses, mainly by reducing its online ad spending as retail sales volume expanded. (On a non-consolidated basis, FY02/22 advertising expenses were down 27% versus FY02/19.)
Medium-term management plan (FY02/23 to FY02/27)
Company announces medium-term management plan
Target
business portfolio over the medium to long term
When deciding where to prioritize investment and which
businesses to withdraw from, the company emphasizes capital efficiency and
growth potential (honing its focus toward businesses that are strong in both
criteria). In FY02/22, the company’s business portfolio included large stores
in Japan, medium-sized stores in Japan, small stores in Japan (purchasing outlets), new car sales
in Australia, new car sales in Japan, and new business. Among large,
medium-sized, and small stores in Japan, large stores have the highest capital
efficiency and offer good growth potential. Accordingly, the company has
decided to concentrate its management resources on large stores for the five
years of the medium-term management plan. Determining that capital efficiency
and growth potential is relatively low for new car sales in Japan and Australia, in September 2021 the company withdrew from the
business of managing new car dealers in Japan that sell
BMW and MINI models. In April 2022, it also decided to move out of (sell) the business of operating new
car dealers in Australia.
Medium-term plan concentrates on a growth strategy focused on capital efficiency (opening large stores that have maintenance shops)
As already described, IDOM implemented improvement measures from FY02/20 to FY02/22 to address challenges identified during the previous five years and achieved three consecutive years of increased sales and profits. Based on these results, the company determined that opening large stores would be an effective way to increase profits and maintain or increase capital efficiency over the medium to long term. From FY02/23, the company will leverage the Gulliver brand's ability to attract customers and concentrate on a growth strategy focused on capital efficiency (opening large stores that have maintenance shops).
KPIs of the medium-term management plan
As the table below indicates, the new plan targets an
increase in retail sales volume (170,000 units), growth in operating profit
(JPY21.0bn), higher OPM (5.0% or more), stable or higher ROIC (10% or more),
and targets FCF generation (of around JPY30.0bn over the five years).
KPIs of the medium-term management plan
FY02/22
FY02/27
Result
Target
Total car sales at directly managed stores (thousands)
140
170
Aim to increase sales volume by
opening large stores
Operating
profit (JPYmn)
18,485
21,000
Work to increase
OP by increasing the retail sales volume and boosting OPM
Operating
profit margin
4%
5%
Strive to boost
OPM by opening large stores and improving efficiencies
ROIC
10%
10% or more
Aim to maintain
margin of 10% or higher, while remaining aware of cost of capital
FCF(JPYmn)
3,776
30,000(five-year
total)
Build FCF over the medium to
long term, remaining cognizant of investment and recovery phases
Source: Shared Research based on company data Notes: ROIC is calculated as operating profit times (1 - effective tax rate) / (weighted average at the beginning and end of the period of inventory + fixed assets).
Operating profit for FY02/22 includes JPY4.9bn in operating profit of businesses in Australia that are scheduled for sale in June 2022.
Free cash flow (FCF) is the sum of cash flows from operating and investing activities.
Cash allocation from FY02/23 to FY02/27
From FY02/23 to FY02/27, the company plans to invest
JPY20.0bn to open 50 large stores and 50 stores with maintenance shops
(capital investment of JPY200mn per large store and JPY200mn per maintenance shop). The company also
expects to invest JPY2.0bn in IT, with DX and AI investments aimed at promoting
efficiency.
Over the five-year period, the company anticipates free
cash flow of around JPY30.0bn, which it will use to pay dividends and repay
borrowings. By repaying borrowings, the company expects to improve its
financial soundness.
Dividends
are linked to results. The company aims to maintain a payout ratio of 30% of
the previous year’s net income attributable to owners of the parent.
Themes of the medium-term management plan
The medium-term management plan’s themes are to
increase the value provided
to customers, leverage the brand, and contribute toward a sustainable society.
By working toward these themes, the company plans to achieve the KPIs mentioned
above.
Increasing the value provided to customers
To increase the value provided to customers, during the
five years from FY02/23 to FY02/27, the company plans to open 50 large stores
and 50 stores with maintenance shops, increasing the total number of large
stores to 80 (29 large stores and eight with maintenance shops as of end-FY02/22).
IDOM will maintain its store count by replacing medium-sized stores with new
ones, but the larger showroom space at larger stores will allow it to display
more used cars, which it expects to raise retail sales volume per store. By
opening maintenance shops within stores, the
number of stores able to provide inspections,
maintenance, and repairs will increase, providing greater opportunities to earn
revenue from ancillary services.
Aiming to increase retail sales volume and grow market share by using a large-store format
The company has traditionally expanded its business using a multichannel store development scheme targeting certain customer bases by offering different vehicle categories (stores have included Gulliver and other branded stores specializing in low prices, in minicars, and in minivans). However, it now plans to make the most of the Gulliver brand (Gulliver and Gulliver Outlet), which enjoys good brand recognition and a reliable ability to draw customers.
The large stores will have 3x the area of its conventional (medium-sized) stores, allowing them to have more vehicles on display. Capital investment will be about JPY200mn, and the company believes it can recoup its investment in three years. It began using the large format in FY02/20, and as of end-FY02/22, 29 of its 445 directly managed stores employ the large format. IDOM says that as a result of the increase in large stores, comparing FY02/19 and FY02/21, the number of directly managed stores fell from 519 to 460 (-59 stores), but display space increased from 106,000sqm to 165,000sqm (+59,000sqm), while rents rose only slightly from JPY9.8bn to JPY10.0bn. However, the number of vehicles sold at retail grew from 124,527 to 137,382 (+12,855 vehicles, +10.3%).
Large
stores tend to concentrate on retail sales, which have a relatively high gross profit margin. Because
retail unit sales per store are high but the company holds down the percentage
of fixed costs, SG&A ratios are low. Consequently, opening more large
stores should raise the operating profit margin.
Entering the maintenance business
It cites four reasons for entering the maintenance business: the large scale of the market, its wish to maximize customer lifetime value (LTV), its aim to improve efficiency by bringing more operations in-house, its goal of differentiating itself from the competition.
Maintenance market scale: According to Automotive Aftermarket 2018 (Yano Research Institute), Japan’s auto maintenance market is worth JPY5.4tn, making it even bigger than the used car retail market.
Maximum customer LTV: By entering the maintenance business, IDOM will be able to complete its transaction menu in the used car retail business to include used car retailing, warranty, auto insurance, vehicle inspection and maintenance, and purchasing. In doing this, the company’s aim is to increase points of contact with customers, attract repeat customers, and turn them into lifelong customers, thus maximizing customer LTV. In addition, having lost out on earnings opportunities from inspections and maintenance in the past because its stores did not have maintenance facilities, the company now hopes to take advantage of such opportunities by entering the maintenance business itself.
Efficiency achieved by bringing maintenance in-house: IDOM has established partnerships with maintenance shops throughout Japan, creating a network to which it outsourced maintenance and inspection operations. The company says it sells some 140,000 cars at retail each year, for a cumulative total of well over a million cars, and there have been customers who purchased a used car from Gulliver and then later requested maintenance or inspection services. By bringing maintenance and inspection functions in-house using its own maintenance shops, the company says it can generate earnings as soon as the shops are in place, and can improve the cost efficiency of its outsourcing (regarding pre-delivery maintenance and inspections).
Differentiation: With legal revisions that came into effect in April 2020, maintenance shops are required to make new capital investments. By entering the maintenance business in FY02/22, IDOM believes it will be able to differentiate itself from existing maintenance providers with the most up-to-date capital investments under the new legal system.
A revision of the Road Vehicles Act in April 2020 has expanded the scope of overhaul operations requiring the removal of engine parts, brakes, and other components. It also renamed such operations “specified maintenance.” The new scope includes “electronic control unit maintenance,” involving the calibration of advanced safety technologies such as collision avoidance systems. Under the revised act, maintenance providers deliver conventional overhaul work only, electronic control unit maintenance only, or both conventional overhaul work and electronic control unit maintenance together.
Capital investment for maintenance shops will come to about JPY200mn and, as with the large stores, the company expects to recoup its investment in about three years.
The company is recruiting and training mechanics, and says it is having no difficulties with recruitment. Draws for jobseekers include the name
recognition of the company's Gulliver brand and state-of-the-art facilities. The
company has expertise to train mechanics, as it operates Kanto Shohinka (commercialization) Center where it has been performing pre-delivery vehicle maintenance for stores in Kanto region since 2011.
Lineup of ancillary services
In addition to increasing retail sales volume
by opening large stores and maintenance shops, the company plans to boost earnings
from ancillary services. These include services the company has offered to date—such
as warranties (available for up to 10 years as a paid option), auto loans, and
insurance—as well as post-purchase services (inspections, maintenance, and
repairs).
Leverage the brand
The company believes that its brand is its strongest asset.
According to a brand awareness survey the company carried out, 94.9% of consumers
said they recognized the Gulliver brand. During the period of the medium-term
management plan, the company plans to leverage the power of the Gulliver brand
to attract more customers.
Brand integration: The company aims to attract customers
efficiently and without advertising by bringing stores under the Gulliver brand
umbrella.
Enhance owned media: The company plans to enhance its
website to attract more customers on its own and boost profitability (by
reducing advertising expenses).
Contribute toward a sustainable society
The company believes that by buying used cars at reasonable prices, it can help consumers maintain the asset value of their cars, thereby providing the funds need to replace them with EVs. By buying and selling used EVs, the company will help to create a market for used EVs. Thus, by facilitating the circulation of used cars, the company believes it can encourage replacement with more environmentally friendly vehicles and contribute toward a carbon-neutral society.
Other: A platform business to support vehicle sales in Australia
In April 2022, the company made the decision to sell all its shares in new-car-dealing subsidiaries in Australia and withdraw from this business. IDOM plans to put the expertise and networks it has built up by managing new car dealers in Australia to use in further business developments in the country. The company plans to maintain its business in Australia through IDOM Innovations Pty Ltd., a wholly owned subsidiary it established in 2020. IDOM plans to build platform businesses (such as a used car inventory management solution) to support automobile sales, applying new technologies and innovations to promote transparency and fairness in used car transactions.
The company will set an investment ceiling for new business investment in Australia. IDOM plans to invest up to JPY1.0bn over a two- to three-year period from FY02/23. In the future, the company says it will consider business development in Asia, Europe, and the United States. The medium-term management plan does not factor in any contribution from new business in Australia.
Business
Used car seller backed by Japan’s largest used car buying network
Having first established itself as one of Japan’s largest buyers of used cars, IDOM is now one of Japan’s largest used car sellers as well. Gulliver is the company’s mainstay brand through which it buys used cars from consumers. The cars that are bought from consumers by Gulliver are resold through its own network of used car dealers, which go under a number of different names including Outlet, Liberala, and Gulliver Minikuru. The company has also been involved in the car wholesaling business, selling used cars at auction to third-party commercial buyers. In FY02/21, it sold some 137,000 used cars at the retail level (+3.3% YoY) and 83,000 at the wholesale level (+0.0% YoY) and bought a total of 225,000 cars (-0.2% YoY) through its domestic group operations. Its domestic chain had a total of 527 outlets (-19 YoY), of which 460 (-20 YoY) were under direct management.
Shift in business model
Evolution
of the company’s business model breaks down roughly into three phases. During
the first phase, from establishment in 1994 to FY02/14, the company adopted a
wholesale model. It moved to a buyback-retail model from FY02/15 to FY02/19. The third phase, from FY02/20
to FY02/22, was characterized by a retail model.
Phase 1: Concentrate management resources on purchasing used cars to capture upstream (purchasing) segment
When IDOM was established back in 1994, the used car market in Japan was distinguished by the absence of any national chains. Multistore operators ran four to five stores at most, and nearly all lacked a dedicated sales staff. Against this backdrop, IDOM first set out to capture the upstream segment of the market and, toward this end, concentrated its management resources on purchasing and building up its used car inventory. Resolving not to stray from this objective (into areas unrelated to the purchasing of used cars) for ten years, the company’s initial objective was to get its market share up to 10% of the vehicles put up for sale by car owners.
When initially structuring its used car buying operations, the company followed the example of the restaurant chains that operate central kitchens. That is, it let individual outlets handle only those tasks that had to be done on-site (vehicle inspections, sales negotiations, etc.) while using head office staff to handle all other tasks (such as how and when the car would be resold, establishing the purchase price, inventory management, etc.). With this new business model the company was able to quickly expand, growing its operations to 500 outlets (including franchising) by 1999, or within four years and nine months of its founding; it followed this with a listing on the stock exchange in the year 2000 (earning the distinction of being fastest-listed company in Japan at that time), and reached the USD1.0bn mark for sales within ten years of its founding, thereby becoming Japan’s first “hyper-growth” company. On its strategic roadmap, the company has designated this period of infrastructure building as Phase 1.
Inventory management
As the company expanded its used car purchasing operations, the issue of inventory management grew in importance. Under Japanese tax law, automobiles are deemed to have a useful life of six years and therefore are considered to have no value as an asset from year seven. In actual practice, though, on the used car auction market the prices bid for the exact same model will differ even if the age of the car differs by as little as one month. This means the value of used cars held in inventory decline very quickly. Another issue is the large amount of money tied up in used car inventories, for even though they are less expensive than new cars, used cars are still expensive. To maintain strict control of inventories, the company decided early on to establish what it calls its “ironclad rule” of holding no car in inventory for more than two weeks—a rule that it continues to observe to this day.
Phase 2: Using used car purchasing operations to build up used car retail sales business
The company moved into what it calls its Phase 2 growth stage in 2014 with its decision to start building up its used car retail sales operations. In contrast to its previous practice of buying used cars at auction and holding them in inventory at its “pool center” until they were resold (in less than two weeks), after entering Phase 2 the company started holding its inventories on the lots of its used car retail outlets. Moving the cars that were formerly held in inventory at its “pool center” to the showrooms of its used car dealers did not change the company’s inventory burden; rather, it merely shifted inventories around to where they could be sold more quickly and at higher prices. The switch to this business model was only possible because the company had first created a strong brand, having established itself as one of the largest used car buyers in Japan and built up strong name recognition.
The company’s move into used car retailing offered the benefit of being able to realize the higher gross margins earned by used car retailers without slowing inventory turnover and increasing its inventory holding period. As a general rule, used cars that are bought from consumers and then resold on the auction market are said to generate some JPY100,000 to JPY150,000 in gross profit per vehicle for the wholesaler. In contrast, by buying used cars at the auction price and then reselling them through its network of used car retailers, IDOM typically earns between JPY150,000 and JPY200,000 in gross profit per vehicle (with the amount varying depending on the type of car and other factors). To facilitate its move into used car retailing, the company began aggressively opening up used car showrooms in 2014 with the expectation that the additional gross profit generated from selling used cars at the retail level would easily allow it to recoup the cost of opening the new showrooms and cover the running cost (mainly personnel costs) of its used car sales business.
Business flow: past (left) and present (right)
Source: Shared Research based on company materials
Phase 3: Establishing a used car retail model by opening large stores
In the three years from FY02/20 to FY02/22, the company revised its criteria for store openings and closures, making them more stringent, and rated each store according to its profit and capital efficiency. Traditionally, the company had closed loss-making stores. Under the new criteria, the company even closed some stores that were profitable, if their efficiency was low. The company also tightened its criteria for new store regions and sites.
The company began opening large stores on the basis of its
profit and capital efficiency. As it promoted the large-store format, stores
became more spacious and retail sales volume per store increased. As it moved
from a buyback-retail model (retailing the vehicles it
purchased from customers) to also purchasing used cars at auction, the company
transitioned to a retail model, in which retail sales of used cars became the
major source of earnings.
The large stores will have larger site areas than its conventional stores (medium-sized purchase/retail stores), allowing them to have more vehicles on display. The company began using the large format in FY02/20, and as of end-FY02/22, 29 of its 445 directly managed stores employ the large format. IDOM says that as a result of the increase in large stores, comparing FY02/19 and FY02/21, the number of directly managed stores fell from 519 to 460 (-59 stores), but display space increased from 106,000sqm to 165,000sqm (+59,000sqm). The number of vehicles sold at retail grew from 124,527 to 137,382 (+12,855 vehicles, +10.3%).
Retail sales volume on a par with medium-sized automakers
In FY02/14, the company sold 50,000 used cars through its retail sales network, accounting for only 28.2% of the total number of vehicles sold through its directly managed outlets. After strengthening its used car retail sales, this figure grew to 137,000 cars by FY02/21 (62.5% of total). Although direct comparisons are not strictly proper, we note that Subaru, the No. 7-ranked domestic brand in terms of new automobile sales, sold some 106,000 vehicles, while No. 8 Mitsubishi Motors sold approximately 70,000. In terms of number of automobiles sold, this puts IDOM ahead of all new auto manufacturers and imported auto dealers from the No. 7 rank down.
Domestic sales of new vehicles by major brands versus used car sales by IDOM (calendar years)
Source: Shared Research based on data from the Japan Automobile Dealers Association and company materials
In 2021, the number of used cars (standard and small passenger cars) registered reached 3,246,000 (+2.9% YoY). IDOM’s share of this used car retail volume was 4.3% (+0.2pp YoY).
Preparation for the next growth stage
Having established itself as the largest used car buyer in the industry and built up a solid track record in used car retail sales, the company is now starting to take steps toward its next growth stage, during which it plans to focus on diversifying sourcing and its product and service lineup. Shared Research believes that 1) since the company’s status as a major used car retailer puts it in a good position to follow the trends in consumer preferences, there is no reason why it should only buy used cars from consumers, as it is now in a position to generate sufficient gross profit on sales even when buying at auction and through other channels that it did not use in the past; and 2) the company understands that consumer needs vis-a-vis cars may shift from “ownership” to “use,” especially among the younger generations, and is taking steps to meet this demand as well.
Toward a new growth stage
Source: Shared Research based on company materials
Specific initiatives on this front include its establishment of NOREL, a subscription car service that makes use of used cars (as well as some new cars such as BMWs and Minis), Gulliver Flea Market, a C2C platform that brokers used car sales between individual consumers, and Go2Go, a C2C car-sharing service launched in August 2019.
Leveraging strengths in purchasing and retail sales to get to the next growth stage
Executive summary
Business overview
Having first established itself as one of Japan’s largest buyers of used cars, IDOM Inc. is now one of Japan’s largest used car sellers as well. Gulliver is the company’s mainstay brand through which it buys used cars from consumers. The used cars the company buys are then resold through its own network of used car dealers, which go under a number of different names including Gulliver, Outlet, and Liberala. The company has also been involved in the car wholesaling business, selling used cars at auction to third-party commercial buyers. In FY02/22, it sold some 140,000 used cars at the retail level (+2.0% YoY) and 97,000 at the wholesale level (+18.0% YoY) and bought a total of 246,000 cars (+9.2% YoY) through its domestic group operations; its domestic chain had a total of 510 outlets (-17 YoY), of which 445 (-15 YoY) were under direct management.
When initially structuring its used car buying operations, the company followed the example of the restaurant chains that operate central kitchens. That is, it let individual outlets handle only those tasks that had to be done on-site (such as customer reception, vehicle inspections, negotiations, and contract signing) while using its head office staff to handle all other tasks (such as marketing, vehicle appraisals, inventory control, transportation, and wholesaling). The company also brought transparency to used car pricing where there had been none previously, establishing fair prices by taking into consideration the auction prices that would have been paid for the same vehicle in open bidding between commercial dealers. With this new business model, the company was able to quickly expand operations, increase its name recognition, and grow earnings.
Since FY02/15, the company has been working to shift from its previous business model of buying used cars primarily for wholesaling to a business model (retail model) in which it increases its retailing ratio. It aimed to maximize its gross profit per vehicle sold by selling cars to consumers (B2C) at higher prices than could be realized through auction sales to other dealers (B2B). However, the company was unable to achieve stable profit growth in the five years from FY02/15 to FY02/19. Thereafter, it implemented measures to address issues encountered during that five-year period, resulting in YoY sales and profit growth from FY02/20 to FY02/22. During those three years, the company boosted sales and profit by replacing medium-sized stores and opening larger ones as it moving to the retail model. Its growth strategy includes opening large stores and entering the maintenance business.
In addition to its existing business models, the company is also actively experimenting with new business models, establishing new businesses such as Gulliver Flea Market (a C2C platform that acts as a broker for used car sales between individuals), NOREL (a subscription car service aimed at the generation of consumers who are not fixated on owning their own car), and Go2Go (a car-sharing service aimed at individuals who own cars). In FY02/22, it added maintenance shops to its large stores and began providing maintenance.
Earnings trends
In FY02/22, sales were JPY459.5bn (+20.8% YoY), operating profit was JPY18.5bn (+74.9% YoY), and net income attributable to owners of the parent was JPY10.8bn (+627.0% YoY). In the Japan segment, retail sales volume at directly managed stores reached a record high, mainly reflecting the operation of large, capital-efficient stores. In the Australia segment, the company achieved a record high profit thanks to an increase in new car sales and continued strong used car sales. The YoY growth rate of net income attributable to owners of the parent outpaced that of recurring profit. The company booked extraordinary loss of JPY6.9bn in FY02/21, which included impairment losses on goodwill of an Australian subsidiary and directly managed stores, as well as pandemic-related losses, while in FY02/22 it booked extraordinary loss of JPY1.9bn, including head office relocation expenses and loss on the sale of shares of subsidiaries and associates.
The company's full-year FY02/23 earnings forecast calls for sales of JPY366.8bn (-20.2% YoY), operating profit of JPY15.5bn (-16.1% YoY), recurring profit of JPY14.8bn (-15.7% YoY), and net income attributable to owners of the parent of JPY11.6bn (+7.5% YoY). The company expects sales, operating profit, and recurring profit to fall YoY as a result of the transfer of all shares in its Australian dealership subsidiaries in FY02/23, which is aimed at improving capital efficiency. A temporary surge in used car prices declined profitability in FY02/22 and changes to the revenue recognition standard are expected to have a negative impact on profits in FY02/23. Even so, the company expects operating profit to rise JPY1.9bn YoY.
In April 2022, the company announced a new medium-term management plan (FY02/23 to FY02/27). Key strategies are to open 50 large stores and 50 stores with maintenance shops. During the plan’s period, the company expects an increase in retail sales volume (170,000 units), growth in operating profit (JPY21.0bn), higher OPM (5.0% or more), stable or higher ROIC (10% or more), and targets FCF generation (of around JPY30.0bn over the five years).
Strengths and weaknesses
Shared Research sees the company as having three main strengths: 1) its position as one of the largest used car buyers in Japan, 2) its strong retail sales network for used cars, and 3) its willingness to experiment with new business models. Major weaknesses include 1) its heavy dependence on the used car market in Japan, which will most likely shrink over time, 2) its vulnerability to potential competitors copying its business model, and 3) the financial stress its business model puts on its balance sheet. (For further details, see the Strengths and Weaknesses section later in this report.)
Key financial data
Note: The company initiated a 10-for-1 stock split on May 1, 2013. Per share data calculated as though the split occurred at the beginning of FY02/14.
Recent updates
Announcement of the transfer of shares in its consplidatee subsidiaries and the recording of an extroadinary profit.
On April 14, 2022, IDOM Inc. announced the transfer of shares in its consolidated subsidiaries and the recording of an extraordinary profit.
The company has decided to transfer all shares of its consolidated subsidiaries, IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd. IDOM Automotive Group Pty Ltd. controls and manages operating companies in Australia and Gulliver Australia Pty Ltd. sells new and used cars and conducts related business in Victoria, Australia.
Reasons for the sale
The company makes management decisions on priority investments or withdrawals from each business using a business portfolio that emphasizes capital efficiency (ROIC) and growth potential. The company plans to concentrate management resources on its retail business (with maintenance shops) through large shops in Japan over the medium to long term, as the business has a track record of delivering high capital efficiency and the company believes it has strong potential for future growth.
Based on this belief, the company withdrew from the domestic new car dealer business for BMW and Mini in September 2021. It has also decided to withdraw from the new car dealer business in Australia.
Operating results and financial position for the most recent three years of the subsidiaries to be transferred
Overview of the transferee
Number of shares to be sold, sale price and status of shares held before and after sale
IDOM Automotive Group Pty Ltd.
Gulliver Australia Pty Ltd.
Schedule
Outlook
The business results of IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd. spanning from March to the following February of the following year are included in the company’s consolidated results. Although the date of share transfer is yet to be determined, based on the assumption that it takes place at the end of June 2022, the earnings forecast for FY02/23 takes into account earnings for the four-month period from March 2022 to June 2022.
The sale would negatively affect both sales and profits, and the company projects sales to fall by JPY85.0bn, operating profit by JPY3.0bn, and recurring profit by JPY2.8bn YoY in FY02/23. With the sale, the company expects to record an extraordinary gain of about JPY800mn on a consolidated basis and about JPY2.9bn on a non consolidated basis on the sale of shares in affiliated companies in Q2 FY02/23 (June–August 2022). It also expects capital efficiency (ROIC and other indicators) to improve.
These estimates are based on current calculations and are subject to change depending on the exchange rate of the Australian dollar and other factors.
With regard to business developments in Australia, the company will continue to leverage the know-how and network it has accumulated through the management of new car dealerships. The company intends to continue its business in Australia through its wholly owned subsidiary, IDOM Innovations Pty Ltd, which has been operating in Australia since 2020. The company will continue to pursue transparency and fairness in automobile transactions through new technologies and innovations, and continue its platform business to help auto dealers solve their issues. The company plans to invest in this new business within a certain scope with a set maximum amount.
Trends and outlook
Monthly trends
Note: Total vehicle sales at directly managed stores = the sum of direct retail sales to customers and wholesale sales at auctions
Note: Retail sales at directly managed stores = direct retail sales to customers, only
Quarterly trends and results
Note: Retail units sold per directly managed store is the number of vehicles sold at retail by directly managed stores ÷ store count (average of the number of stores at the beginning and end of the fiscal year)
Note: Sales (parent) per vehicle sold are parent company sales ÷ number of vehicles sold by directly managed stores
Note: Gross profit (parent) per vehicle sold is parent company gross profit ÷ number of vehicles sold by directly managed stores
Full-year FY02/22 results (out April 14, 2022)
In FY02/22, sales grew YoY. In Japan, the number of customers visiting stores grew as a result of the operation of large stores opened in FY02/21 and FY02/22, which led to higher retail sales volume. The Australian subsidiary recorded sales volume growth of new and used cars.
Profit items from the operating level and below rose YoY because of higher sales. SG&A expenses increased due to the yen depreciation in addition to lower SG&A expenses in FY02/21 when the company booked pandemic-related losses under extraordinary losses rather than as part of SG&A expenses. Meanwhile, advertising expenses fell due to more efficient use of the internet to attract customers, even as retail sales volume at directly managed stores in Japan reached record highs.
In addition to the rise in operating profit and recurring profit, a decline in extraordinary losses was behind the sharp increase in net income attributable to owners of the parent. In FY02/21, the company recorded extraordinary losses of JPY6.9bn, which included JPY4.0bn in impairment losses on business in Australia. In FY02/22, extraordinary losses came to JPY1.9bn.
Q4 FY02/22 results (December 2021–February 2022)
In Q4 (December 2021–February 2022), sales were JPY114.9bn (+16.7% YoY), operating profit was JPY3.7bn (+90.5% YoY), recurring profit was JPY3.5bn (+96.0% YoY), and net income attributable to owners of the parent was JPY2.1bn (loss of JPY3.7bn in Q4 FY02/21).
In the Japan segment, sales were JPY78.3bn (+6.1% YoY) and operating profit was JPY2.4bn (+145.3% YoY). Sales grew, reflecting higher sales volume. Higher parent company sales drove up sales YoY on a consolidated basis. Income rose, at both the parent and subsidiaries.
The parent company generated sales of JPY77.2bn (+13.2% YoY) and operating profit of JPY2.1bn (+61.7%). Sales grew due to a rise in wholesale sales. A lower percentage of retail sales (which has a relatively high gross margin) caused parent-company GPM to fall YoY, but gross profit grew to JPY15.6bn (+10.2% YoY), owing to higher sales. Parent-company SG&A expenses increased to JPY13.5bn (+5.1% YoY), mainly because a rise in performance-linked incentives caused personnel expenses to increase. Despite the higher SG&A expenses, operating profit rose thanks to the growth in gross profit.
Disparities between performance in the Japan segment and at the parent company were JPY1.1bn for sales (-80.5% YoY) and JPY349mn for operating profit (operating loss of JPY302mn in Q4 FY02/21). As the company sold subsidiary new car dealers in Japan that sell BMW and MINI models, this business was excluded from the scope of consolidation, leading to lower sales YoY. Profitability improved, however, from an operating loss in Q4 FY02/21.
In the Australia segment, sales were JPY36.2bn (+49.0% YoY) and operating profit was JPY1.4bn (+20.4% YoY). Higher sales volume of new and used vehicles contributed to the rise in sales and profit..
Progress vs. company forecast
The company announced revisions to its full-year FY02/22 forecast along with Q3 results. The revised full-year forecast calls for sales of JPY450.0bn (+18.2% YoY), operating profit of JPY17.0bn (+41.9% YoY), and net income attributable to owners of the parent of JPY9.2bn (+519.6% YoY).
Versus the previous forecast (announced October 2021), targets have been revised up by JPY44.6bn for sales, JPY2.0bn for operating profit, JPY2.0bn for recurring profit, and JPY1.2bn for net income attributable to owners of the parent. This reflects the fact that actual results for cumulative Q3 FY02/22 have progressed beyond the previous forecast assumption. Specifically, wholesale vehicle sales volume at directly managed stores in Japan, new car sales volume at Australian subsidiaries, and the depreciation of the yen against the Australian dollar were factors in the revision.
The company achieved 102.1% of its revised FY02/22 forecast figure for sales and 108.7% for operating profit. Higher iron ore prices pushed up the new car sales volume at Australian subsidiaries, exceeding forecasts. In addition, the yen weakened against the Australian dollar, and profit on domestic operations was higher than expected.
Segment results
Results by segment were as follows.
Japan
Sales were JPY318.1bn (+9.5% YoY), and segment profit (operating profit) was JPY13.8bn (+65.6% YoY).
The Japan segment mainly consists of the parent company's used car sales and ancillary businesses. Other subsidiaries include Gulliver Insurance Co., Ltd. and Tokyo My Car Co., Ltd., a used car dealership.
Parent company results
The parent company reported sales of JPY306.7bn (+11.3% YoY), gross profit of JPY61.0bn (+8.2% YoY), and operating profit of JPY11.9bn (+51.5% YoY). Directly managed stores sold 237,489 vehicles (+8.0% YoY), comprising 140,119 at the retail level (+2.0% YoY), and 97,370 at the wholesale level (+18.0% YoY). Retail vehicle sales volume increased thanks to the new large stores that opened in FY02/22, as well as a rise in the number of customers visiting existing stores. A higher retail sales volume pushed up trade-ins, which in turn boosted sales volume at the wholesale level, as well as the number of vehicles purchased.
Store count
During FY02/22, the company opened five new stores and closed 13 stores, bringing the total number of directly managed stores to 455 (down 3.3% or eight stores YoY). Even as the store count fell, the volume of vehicles sold at retail and volume purchased both grew. IDOM’s efficiency-focused store strategy involves closing medium-sized stores with low sales efficiency and opening large ones in favorable locations with prospects of good sales efficiency.
IDOM’s strategy involves opening large stores with sophisticated designs that are roughly 8,260sqm in area (or three times that of regular stores). They are capable of displaying some 300 used cars (as opposed to about 100 in regular stores), giving customers more options and improving the company’s sales efficiency. In FY02/22, the company opened five large stores and added maintenance shops to eight. This makes 29 large stores, and 8 maintenance shops of its 445 directly managed stores shops.
Number of vehicles sold
The number of vehicles sold rose 8.0% YoY, with retail sales volume up 2.0% YoY and wholesale sales volume up 18.0% YoY.
Retail sales volume grew as store visitors increased thanks to the recovering used car market, large stores opened in the previous fiscal year and FY02/22 started operating. Directly managed stores in Japan sold 140,119 vehicles (+2.0% YoY), a record high.
According to the Japan Automobile Dealers Association, 3,214,000 used (passenger) cars (-3.8% YoY) were registered from March 2021 to February 2022. During the same period, growth in the number of vehicles sold at retail by IDOM’s directly managed stores indicated an increase in the company’s market share.
The parent company moved fewer vehicles through wholesale than the previous year from April through June 2020, but performance was strong afterward. In FY02/22, a higher retail sales volume pushed up the number of trade-ins. Accordingly, the number of vehicles purchased grew versus the pandemic-affected FY02/21, and wholesale sales volume also rose YoY.
Gross profit
Gross profit came to JPY61.1bn (+8.2% YoY), and GPM was 19.9% (-0.6pp YoY).
GPM fell 0.6pp YoY. The percentage of the volume of retail vehicle sales, which has a relatively high GPM, declined to 59.0% (62.5% in FY02/21), as the percentage of wholesale vehicle sales volume increased.
Average gross profit per vehicle was JPY257,000 (+0.2% YoY). As noted above, GPM was down YoY, but sales per vehicle increased 3.0% YoY to JPY1.3mn as used car prices rose. In Q1 FY02/22, a semiconductor shortage suppressed new-car production. This caused a spike in used-car auction prices and increased the unit sales price for the company. In addition to rising market prices, higher gross profit from ancillary services such as insurance, warranties, and auto loans also contributed to an increase in gross profit per unit.
SG&A expenses
Parent company SG&A expenses came to JPY49.2bn (+1.2% YoY), comprising personnel expenses of JPY20.6bn (+5.7% YoY), advertising expenses of JPY6.0bn (-11.0% YoY), rents of JPY10.2bn (+2.4% YoY), and other expenses of JPY5.9bn (+1.9% YoY).
The parent company reclassified about JPY389mn in personnel expenses as extraordinary losses when stores were closed during the state of emergency in 1H FY02/21, but booked them as SG&A expenses in FY02/22. Performance-linked incentives also pushed up expenses.
Advertising expenses fell YoY despite the rise in vehicle sales volume, and the decline in advertising expenses has continued since FY02/2021. This was partly due to an increase in large stores leading to streamlined advertising costs; larger stores have a larger site area than smaller stores, and the stores themselves tend to receive more publicity and naturally attract customers, making them more efficient from an advertising standpoint. The company is analyzing, verifying, and improving the response effect of advertising to attract customers online more efficiently.
An increase in store site area led to higher cost of rent. The number of stores decreased YoY, but the opening of large stores led to an increase in store site area. The large store has a sophisticated store design, a site area of around 8,260sqm, or three times the area of regular stores. They are also capable of displaying some 300 used cars (as opposed to about 100 at conventional stores), giving customers more choices and improving the company's sales efficiency.
Operating profit
The parent reported operating profit of JPY11.9bn (+51.5% YoY).
Difference between the Japan segment and the parent
The differences between the Japan segment and the parent were JPY11.4bn (-23.2% YoY) in sales and JPY1.9bn (+307.0% YoY) in operating profit. The performance of new car dealer subsidiaries recovered. In cumulative Q3 FY02/22, performance at subsidiary new car dealers in Japan that sell BMW and MINI models recovered to previous-year levels. In Q4, the company sold these subsidiaries, excluding the business from the scope of consolidation and leading to lower sales YoY. Profitability improved, however, from an operating loss in Q4 FY02/21.
Australia
Sales were JPY139.4bn (+57.8% YoY), and segment profit (operating profit) was JPY4.9bn (+64.6% YoY).
In Australia, the company has a 67% stake in Buick Holdings Pty Ltd, which operates multibrand new car dealerships in Perth, Western Australia, and a 100% stake in the Andrews & Wallis Motor Group (AMW, five companies), which operates new car dealerships in Melbourne. Buick Holdings Pty Ltd accounts for about 70% of the units sold in Australia, while the AWM Group accounts for about 30%. The units sold by Buick Holdings Pty Ltd are half used and half new, while the AWM Group sells primarily new cars.
Buick Holdings Pty Ltd achieved higher sales and profits, as a buoyant economy (helped by higher iron ore prices) pushed up as sales volume. Used car sales, which the company has been working to strengthen, also increased. Sales and profits also increased at the AWM Group.
The Australian dollar appreciated against the yen YoY, adding currency translation gains from subsidiaries.
In April 2022, the company made the decision to sell all its shares in new-car-dealing subsidiaries in Australia and withdraw from this business. The company plans to sell IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd. in June 2022, so the business in Australia will be included in the consolidated accounts for a four-month period in FY02/23.
Company forecast for FY02/23
The company's full-year FY02/23 earnings forecast calls for sales of JPY366.8bn (-20.2% YoY), operating profit of JPY15.5bn (-16.1% YoY), recurring profit of JPY14.8bn (-15.7% YoY), and net income attributable to owners of the parent of JPY11.6bn (+7.5% YoY).
The company expects sales to decline YoY. This is due in part to a withdrawal from the business of operating new car dealers in Australia (described later), which will lower revenue by approximately JPY85.0bn. In addition, in September 2021 subsidiary new car dealers in Japan that sell BMW and MINI models were excluded from the scope of consolidation, reducing revenue by a further JPY10.0bn. The company expects revenue to increase in its mainstay domestic used car business.
The company forecasts a JPY3.0bn YoY decline in operating profit. Withdrawing from the business of operating new car dealers in Australia will have a JPY3.0bn downward impact. In addition, the easing of a spike in used-car auction prices in Q1 FY02/22 is expected to have a JPY1.0bn negative impact, and a change in revenue recognition standards is expected to lower profit by a further JPY900mn. Offsetting this combined JPY4.9bn in negative factors, the company anticipates JPY1.9bn in positive factors. Specifically, the company anticipates an increase in unit car sales due to the opening of large stores (five in FY02/22 and seven in FY02/23).
The company expects net income attributable to owners of the parent to rise YoY, due to a gain on the sales of shares in subsidiaries operating new car dealers in Australia and a decrease in taxes owing to tax-effect accounting.
In April 2022, the company decided to transfer all shares of its consolidated subsidiaries, IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd. As a result of the transfer, the company projects sales to fall by JPY85.0bn, operating profit by JPY3.0bn, and recurring profit by JPY2.8bn YoY in FY02/23.
Parent company forecast
The full-year forecast for the parent company calls for sales of JPY309.0bn (+0.7% YoY) and operating profit of JPY12.0bn (+0.8% YoY).
Main KPIs
Assumptions for main KPIs are that retail and wholesale sales volume will rise YoY, while gross profit per unit is expected to fall YoY. Higher sales volume will be the driver behind increased sales and gross profit. The company expects operating profit to be essentially flat, while SG&A expenses rise.
In Q1 FY02/22, a semiconductor shortage suppressed new-car production. This caused a spike in used-car auction prices and have a JPY1.0bn negative impact on operating profit in FY 02/23. A change in revenue recognition standards will cause sales of warranty services to be divided into periods, lowering profit by a further JPY900mn. The company forecasts that, excluding these temporary negative factors, operating profit would be up JPY2.0bn YoY.
Retail sales volume
The company expects to sell 244,000 cars (+2.7% YoY), with retail accounting for 144,000 units (+2.8% YoY), and wholesale accounting for 100,000 (+2.7% YoY). The company aims to maintain the number of directly managed stores at the previous year’s level of 445, but to close medium-sized stores and open large ones, leading a rise in sales volume. The company plans to open seven large stores (29 large stores as of end-FY02/22). In line with its medium-term growth strategy for the domestic business, the company plans to open maintenance shops at seven large stores (eight as of end-FY02/22).
IDOM’s strategy for stores involves closing medium-sized stores that have low sales efficiency and opening large stores in favorable locations it believes will have good sales efficiency. These large stores are roughly 8,260sqm, or three times the area of regular stores. They feature refined designs and are capable of displaying some 300 used cars (as opposed to about 100 in regular stores), giving customers more options and improving the company’s sales efficiency. As of end-FY02/22, 29 of its 445 directly managed stores use the large format.
Due to an increase in the number of large stores, from FY02/19 to FY02/21 the number of directly managed stores declined from 519 to 460 (-59 stores), but display space grew from 106,000sqm to 165,000sqm (+59,000sqm), while rents rose only slightly from JPY9.8bn to JPY10.0bn. However, the number of vehicles sold at retail grew from 124,527 to 137,382 (+12,855 vehicles, +10.3%).
The company anticipates sales per vehicle of JPY1.3mn (-1.9% YoY). This decrease is the result of the spike in used-car prices at auction in Q1 FY02/22, described above, which will disappear in FY02/23.
IDOM forecasts gross profit per vehicle of JPY254,000 (-1.2% YoY), with the gross profit margin rising while sales per vehicle falls.
Projected parent company gross profit
As a result of the aforementioned factors, the parent company expects gross profit of JPY62.0bn (+1.5% YoY) and GPM of 20.1% (+0.2pp YoY).
Projected parent company SG&A expenses
The parent company projects SG&A expenses of JPY50.0bn (+1.7% YoY). As it opens large-format stores and maintenance shops, the company expects personnel expenses and rents to increase.
Despite an increase in SG&A expenses, higher gross profit should more than compensate, so the company expects operating profit to rise by 0.8% or JPY93mn YoY.
Difference between consolidated and non-consolidated projections
Core domestic business
In core domestic business (the parent company, Gulliver Insurance, and Tokyo My Car), the company forecasts sales of JPY308.0bn (flat YoY) and operating profit of JPY13.5bn (flat YoY). It also expects the difference in operating profit between the parent company and the core domestic business to be flat YoY.
Australia segment
For this segment, the company forecasts sales of approximately JPY5.4bn (-61% YoY) and operating profit of around JPY1.9bn (-61% YoY). (These figures are Shared Research estimates, based on disclosure materials.)
As is described above, in April 2022 the company made the decision to sell all its shares in new-car-dealing subsidiaries in Australia (IDOM Automotive Group Pty Ltd. and Gulliver Australia Pty Ltd.) and withdraw from this business. The company plans to sell these companies in June 2022, so the business in Australia will be included in the consolidated accounts for a four-month period in FY02/23 (March–June 2022). The company expects this move to reduce sales by around JPY85.0bn in FY02/23, lower operating profit by approximately JPY3.0bn, and decrease recurring profit by some JPY2.8bn.
IDOM plans to put the expertise and networks it has built up by managing new car dealers in Australia to use in further business developments in the country. The company plans to maintain its business in Australia through IDOM Innovations Pty Ltd., a wholly owned subsidiary it established in 2020. IDOM plans to build platform businesses (such as a used car inventory management solution) to support automobile sales, applying new technologies and innovations to promote transparency and fairness in used car transactions. The company will set an investment ceiling for new business investment in Australia. IDOM plans to invest up to JPY1.0bn over a two- to three-year period from FY02/23. In the future, the company says it will consider business development in Asia, Europe, and the United States.
Dividends
The company’s policy is to pay total dividends equal to 30% of the previous fiscal year’s net income, so FY02/23 dividends are based on FY02/22 net income attributable to owners of the parent. The projected FY02/23 dividend is therefore JPY32.4 per share (versus JPY4.6 in FY02/22).
Medium- to long-term outlook
The company had not announced a new medium-term plan since April 2016 when it announced its previous medium-term plan (FY02/17–FY02/20). However, in April 2022 the company unveiled a new plan covering the period from FY02/23 to FY02/27.
Since FY02/15, IDOM has been working to shift from its previous business model of buying used cars simply for wholesaling to a business model (retail model) in which it increases its retailing ratio. However, it was unable to achieve stable profit growth in the five years from FY02/15 to FY02/19.
Thereafter, it implemented measures to address issues encountered during the five-year period, resulting in YoY sales and profit growth during the three years from FY02/20 to FY02/22. Based on these results, the company says it has transitioned from a buyback retail model to a retail model. The company has decided to completely exit the new car dealer business (both in Japan and Australia).
One of the key strategies of the medium-term management plan from FY02/23 is to open large stores and stores with maintenance shops in Japan. During the plan’s period, the company expects an increase in retail sales volume (170,000 units), growth in operating profit (JPY21.0bn), higher OPM (5.0% or more), stable or higher ROIC (10% or more), and targets FCF generation (of around JPY30.0bn over the five years).
State of the used-car market
Used car retail market is large with potential for growth and room for IDOM to expand its market share further
According to a Yano Research Institute report, Automotive Aftermarket 2018, the used car retail market in Japan has a value of approximately JPY3.7tn. IDOM believes the market is likely to expand even further, based on the fact that the sales ratio of new cars to used cars is 3:7 in the US, but 7:3 in Japan, and Japanese people are becoming less reluctant to buy used cars.
The company conducted online surveys of 1,000 consumers in December 2020 and March 2022, asking about their reluctance to purchase used cars compared with the past (from 10 years ago to a few years ago). The percentage of respondents who answered that their reluctance has decreased or who never were reluctant rose from 61.4% in December 2020 to 65.2% in March 2022. From these results, the company deduces that consumer resistance to used cars is waning and that the number of consumers who choose used cars may increase in the future.
The company’s share of the retail market for used cars rose from 1% in FY02/12 to 5% in FY02/22. Even though IDOM counts as one of the largest companies in Japan in terms of used car retailing, it still has a market share of only 5%, suggesting it has ample room for growth.
Impact of increasing EV prevalence
The Tokyo Metropolitan Government has set a goal of increasing the ratio of zero-emission vehicles to total new vehicle sales in Tokyo to 50% by 2030.
IDOM buys and sells used cars, which is part of the car ownership cycle, and believes that more and more people will replace their cars as electric vehicles become more popular, creating business opportunities. In addition, the company’s rule of thumb is to hold inventory for no more than two weeks, so Shared Research believes that it will not be particularly vulnerable to reductions in the value of combustion engine vehicle inventory as the popularity of electric vehicles increases.
Initiatives from establishment in 1994 to FY02/22
Evolution of the company’s business model breaks down roughly into three phases. During the first phase, from establishment in 1994 to FY02/14, the company adopted a wholesale model. It moved to a buyback-retail model from FY02/15 to FY02/19. The third phase, from FY02/20 to FY02/22, was characterized by a retail model.
Establishment and move from wholesale model to buyback-retail model
Founded in 1994, the company built a business model specializing in car buying under the Gulliver brand. This business model enabled the company to achieve earnings growth in the 2000s, and in FY02/07 it achieved record operating profit of JPY11.1bn.
However, thereafter, a growing number of competitors and intensifying price competition made further earnings growth difficult. Until 2014 or so, the company continued to use the business model of buying and wholesaling used cars, while also shifting to a buyback-retail model in which it put the cars it purchased on display at stores and sold them to retail customers. From about 2015, it began working on a full-scale move to the buyback-retail model.
FY02/15 to FY02/19 (shift to the buyback-retail model)
During the five years from FY02/15 to FY02/19, IDOM opened more stores in Japan, aiming to grow profits by increasing retail sales volume. As a result, the store count grew from 354 in FY02/15 to 519 in FY02/19, and the number of vehicles sold at retail more than doubled from 52,000 to 124,000. However, despite the increases in store count and retail sales volume, FY02/19 operating profit was just JPY3.4bn, less than the JPY5.3bn it had recorded in FY02/15. In FY02/19, the company curtailed vehicle profits, and aimed to grow profit by cross-selling ancillary services (car insurance and loans), but the salesforce had trouble keeping up with the sudden changes in the business model, selling volume declined, and GPM also fell. Profit also fluctuated wildly during that period, and the company was unable to achieve stable profit growth.
Initiatives to address challenges from FY02/20 to FY02/22 (transition to the retail model)
From FY02/20 to FY02/22, IDOM implemented improvement measures to address challenges identified during the previous five-year period, resulting in three consecutive years of increased sales and profits.
Specific challenges from FY02/15 to FY02/19 were establishing a strategy for store openings and attracting customers online. The company implemented the following initiatives in regard to these challenges.
Establishing a strategy for store openings, opening large format stores
IDOM opened many stores in five-year period from FY02/15 to FY02/19, with the store count growing from 354 in FY02/15 to 519 in FY02/19. As a result of its multichannel store development (including stores specializing in low prices, in minicars, and in minivans), the company became its own competition in some regions.
In response, starting in FY02/20, it reviewed its criteria for opening and closing stores and made them stricter, and ranked its stores in terms of profits and capital efficiency. Previously, it would close stores operating in the red, but now, based on the ranking, it will close stores deemed inefficient, even if they are operating in the black. It also became stricter in selecting regions and specific locations for opening stores.
In addition, the company began opening large stores based on profit and capital-efficiency criteria. As it moved toward the large-store format, store areas increased and store retail volumes increased. (Large stores are described later.) As it moved from a buyback-retail model (retailing the vehicles it purchased from customers) to also purchasing used cars at auction, the company transitioned to a retail model, in which retail sales of used cars became the major source of earnings. As of April 2022, in addition to the retail model the company was working to increase earnings by expanding ancillary services.
Initiatives for attracting customers online
During the five years from FY02/15 to FY02/19, IDOM was unable to effectively attract customers online. Such customers tend to choose stores based on price. The ineffective online efforts resulted in an upward trend in customer acquisition costs.
To deal with this issue, whereas retail prices were previously set uniformly by the head office, the company assigned a merchandising department to each business unit and established a system by which prices can be set by taking into account competition and other local factors. As a result of these initiatives, it was able to reduce its advertising expenses, mainly by reducing its online ad spending as retail sales volume expanded. (On a non-consolidated basis, FY02/22 advertising expenses were down 27% versus FY02/19.)
Medium-term management plan (FY02/23 to FY02/27)
Company announces medium-term management plan
Target business portfolio over the medium to long term
When deciding where to prioritize investment and which businesses to withdraw from, the company emphasizes capital efficiency and growth potential (honing its focus toward businesses that are strong in both criteria). In FY02/22, the company’s business portfolio included large stores in Japan, medium-sized stores in Japan, small stores in Japan (purchasing outlets), new car sales in Australia, new car sales in Japan, and new business. Among large, medium-sized, and small stores in Japan, large stores have the highest capital efficiency and offer good growth potential. Accordingly, the company has decided to concentrate its management resources on large stores for the five years of the medium-term management plan. Determining that capital efficiency and growth potential is relatively low for new car sales in Japan and Australia, in September 2021 the company withdrew from the business of managing new car dealers in Japan that sell BMW and MINI models. In April 2022, it also decided to move out of (sell) the business of operating new car dealers in Australia.
Medium-term plan concentrates on a growth strategy focused on capital efficiency (opening large stores that have maintenance shops)
As already described, IDOM implemented improvement measures from FY02/20 to FY02/22 to address challenges identified during the previous five years and achieved three consecutive years of increased sales and profits. Based on these results, the company determined that opening large stores would be an effective way to increase profits and maintain or increase capital efficiency over the medium to long term. From FY02/23, the company will leverage the Gulliver brand's ability to attract customers and concentrate on a growth strategy focused on capital efficiency (opening large stores that have maintenance shops).
KPIs of the medium-term management plan
As the table below indicates, the new plan targets an increase in retail sales volume (170,000 units), growth in operating profit (JPY21.0bn), higher OPM (5.0% or more), stable or higher ROIC (10% or more), and targets FCF generation (of around JPY30.0bn over the five years).
Notes: ROIC is calculated as operating profit times (1 - effective tax rate) / (weighted average at the beginning and end of the period of inventory + fixed assets).
Operating profit for FY02/22 includes JPY4.9bn in operating profit of businesses in Australia that are scheduled for sale in June 2022.
Free cash flow (FCF) is the sum of cash flows from operating and investing activities.
Cash allocation from FY02/23 to FY02/27
From FY02/23 to FY02/27, the company plans to invest JPY20.0bn to open 50 large stores and 50 stores with maintenance shops (capital investment of JPY200mn per large store and JPY200mn per maintenance shop). The company also expects to invest JPY2.0bn in IT, with DX and AI investments aimed at promoting efficiency.
Over the five-year period, the company anticipates free cash flow of around JPY30.0bn, which it will use to pay dividends and repay borrowings. By repaying borrowings, the company expects to improve its financial soundness.
Dividends are linked to results. The company aims to maintain a payout ratio of 30% of the previous year’s net income attributable to owners of the parent.
Themes of the medium-term management plan
The medium-term management plan’s themes are to increase the value provided to customers, leverage the brand, and contribute toward a sustainable society. By working toward these themes, the company plans to achieve the KPIs mentioned above.
Increasing the value provided to customers
To increase the value provided to customers, during the five years from FY02/23 to FY02/27, the company plans to open 50 large stores and 50 stores with maintenance shops, increasing the total number of large stores to 80 (29 large stores and eight with maintenance shops as of end-FY02/22). IDOM will maintain its store count by replacing medium-sized stores with new ones, but the larger showroom space at larger stores will allow it to display more used cars, which it expects to raise retail sales volume per store. By opening maintenance shops within stores, the number of stores able to provide inspections, maintenance, and repairs will increase, providing greater opportunities to earn revenue from ancillary services.
Aiming to increase retail sales volume and grow market share by using a large-store format
The company has traditionally expanded its business using a multichannel store development scheme targeting certain customer bases by offering different vehicle categories (stores have included Gulliver and other branded stores specializing in low prices, in minicars, and in minivans). However, it now plans to make the most of the Gulliver brand (Gulliver and Gulliver Outlet), which enjoys good brand recognition and a reliable ability to draw customers.
The large stores will have 3x the area of its conventional (medium-sized) stores, allowing them to have more vehicles on display. Capital investment will be about JPY200mn, and the company believes it can recoup its investment in three years. It began using the large format in FY02/20, and as of end-FY02/22, 29 of its 445 directly managed stores employ the large format. IDOM says that as a result of the increase in large stores, comparing FY02/19 and FY02/21, the number of directly managed stores fell from 519 to 460 (-59 stores), but display space increased from 106,000sqm to 165,000sqm (+59,000sqm), while rents rose only slightly from JPY9.8bn to JPY10.0bn. However, the number of vehicles sold at retail grew from 124,527 to 137,382 (+12,855 vehicles, +10.3%).
Large stores tend to concentrate on retail sales, which have a relatively high gross profit margin. Because retail unit sales per store are high but the company holds down the percentage of fixed costs, SG&A ratios are low. Consequently, opening more large stores should raise the operating profit margin.
Entering the maintenance business
It cites four reasons for entering the maintenance business: the large scale of the market, its wish to maximize customer lifetime value (LTV), its aim to improve efficiency by bringing more operations in-house, its goal of differentiating itself from the competition.
Maintenance market scale: According to Automotive Aftermarket 2018 (Yano Research Institute), Japan’s auto maintenance market is worth JPY5.4tn, making it even bigger than the used car retail market.
Maximum customer LTV: By entering the maintenance business, IDOM will be able to complete its transaction menu in the used car retail business to include used car retailing, warranty, auto insurance, vehicle inspection and maintenance, and purchasing. In doing this, the company’s aim is to increase points of contact with customers, attract repeat customers, and turn them into lifelong customers, thus maximizing customer LTV. In addition, having lost out on earnings opportunities from inspections and maintenance in the past because its stores did not have maintenance facilities, the company now hopes to take advantage of such opportunities by entering the maintenance business itself.
Efficiency achieved by bringing maintenance in-house: IDOM has established partnerships with maintenance shops throughout Japan, creating a network to which it outsourced maintenance and inspection operations. The company says it sells some 140,000 cars at retail each year, for a cumulative total of well over a million cars, and there have been customers who purchased a used car from Gulliver and then later requested maintenance or inspection services. By bringing maintenance and inspection functions in-house using its own maintenance shops, the company says it can generate earnings as soon as the shops are in place, and can improve the cost efficiency of its outsourcing (regarding pre-delivery maintenance and inspections).
Differentiation: With legal revisions that came into effect in April 2020, maintenance shops are required to make new capital investments. By entering the maintenance business in FY02/22, IDOM believes it will be able to differentiate itself from existing maintenance providers with the most up-to-date capital investments under the new legal system.
Capital investment for maintenance shops will come to about JPY200mn and, as with the large stores, the company expects to recoup its investment in about three years.
The company is recruiting and training mechanics, and says it is having no difficulties with recruitment. Draws for jobseekers include the name recognition of the company's Gulliver brand and state-of-the-art facilities. The company has expertise to train mechanics, as it operates Kanto Shohinka (commercialization) Center where it has been performing pre-delivery vehicle maintenance for stores in Kanto region since 2011.
Lineup of ancillary services
In addition to increasing retail sales volume by opening large stores and maintenance shops, the company plans to boost earnings from ancillary services. These include services the company has offered to date—such as warranties (available for up to 10 years as a paid option), auto loans, and insurance—as well as post-purchase services (inspections, maintenance, and repairs).
Leverage the brand
The company believes that its brand is its strongest asset. According to a brand awareness survey the company carried out, 94.9% of consumers said they recognized the Gulliver brand. During the period of the medium-term management plan, the company plans to leverage the power of the Gulliver brand to attract more customers.
Brand integration: The company aims to attract customers efficiently and without advertising by bringing stores under the Gulliver brand umbrella.
Enhance owned media: The company plans to enhance its website to attract more customers on its own and boost profitability (by reducing advertising expenses).
Contribute toward a sustainable society
The company believes that by buying used cars at reasonable prices, it can help consumers maintain the asset value of their cars, thereby providing the funds need to replace them with EVs. By buying and selling used EVs, the company will help to create a market for used EVs. Thus, by facilitating the circulation of used cars, the company believes it can encourage replacement with more environmentally friendly vehicles and contribute toward a carbon-neutral society.
Other: A platform business to support vehicle sales in Australia
In April 2022, the company made the decision to sell all its shares in new-car-dealing subsidiaries in Australia and withdraw from this business. IDOM plans to put the expertise and networks it has built up by managing new car dealers in Australia to use in further business developments in the country. The company plans to maintain its business in Australia through IDOM Innovations Pty Ltd., a wholly owned subsidiary it established in 2020. IDOM plans to build platform businesses (such as a used car inventory management solution) to support automobile sales, applying new technologies and innovations to promote transparency and fairness in used car transactions.
The company will set an investment ceiling for new business investment in Australia. IDOM plans to invest up to JPY1.0bn over a two- to three-year period from FY02/23. In the future, the company says it will consider business development in Asia, Europe, and the United States. The medium-term management plan does not factor in any contribution from new business in Australia.
Business
Used car seller backed by Japan’s largest used car buying network
Having first established itself as one of Japan’s largest buyers of used cars, IDOM is now one of Japan’s largest used car sellers as well. Gulliver is the company’s mainstay brand through which it buys used cars from consumers. The cars that are bought from consumers by Gulliver are resold through its own network of used car dealers, which go under a number of different names including Outlet, Liberala, and Gulliver Minikuru. The company has also been involved in the car wholesaling business, selling used cars at auction to third-party commercial buyers. In FY02/21, it sold some 137,000 used cars at the retail level (+3.3% YoY) and 83,000 at the wholesale level (+0.0% YoY) and bought a total of 225,000 cars (-0.2% YoY) through its domestic group operations. Its domestic chain had a total of 527 outlets (-19 YoY), of which 460 (-20 YoY) were under direct management.
Shift in business model
Evolution of the company’s business model breaks down roughly into three phases. During the first phase, from establishment in 1994 to FY02/14, the company adopted a wholesale model. It moved to a buyback-retail model from FY02/15 to FY02/19. The third phase, from FY02/20 to FY02/22, was characterized by a retail model.
Phase 1: Concentrate management resources on purchasing used cars to capture upstream (purchasing) segment
When IDOM was established back in 1994, the used car market in Japan was distinguished by the absence of any national chains. Multistore operators ran four to five stores at most, and nearly all lacked a dedicated sales staff. Against this backdrop, IDOM first set out to capture the upstream segment of the market and, toward this end, concentrated its management resources on purchasing and building up its used car inventory. Resolving not to stray from this objective (into areas unrelated to the purchasing of used cars) for ten years, the company’s initial objective was to get its market share up to 10% of the vehicles put up for sale by car owners.
When initially structuring its used car buying operations, the company followed the example of the restaurant chains that operate central kitchens. That is, it let individual outlets handle only those tasks that had to be done on-site (vehicle inspections, sales negotiations, etc.) while using head office staff to handle all other tasks (such as how and when the car would be resold, establishing the purchase price, inventory management, etc.). With this new business model the company was able to quickly expand, growing its operations to 500 outlets (including franchising) by 1999, or within four years and nine months of its founding; it followed this with a listing on the stock exchange in the year 2000 (earning the distinction of being fastest-listed company in Japan at that time), and reached the USD1.0bn mark for sales within ten years of its founding, thereby becoming Japan’s first “hyper-growth” company. On its strategic roadmap, the company has designated this period of infrastructure building as Phase 1.
Inventory management
As the company expanded its used car purchasing operations, the issue of inventory management grew in importance. Under Japanese tax law, automobiles are deemed to have a useful life of six years and therefore are considered to have no value as an asset from year seven. In actual practice, though, on the used car auction market the prices bid for the exact same model will differ even if the age of the car differs by as little as one month. This means the value of used cars held in inventory decline very quickly. Another issue is the large amount of money tied up in used car inventories, for even though they are less expensive than new cars, used cars are still expensive. To maintain strict control of inventories, the company decided early on to establish what it calls its “ironclad rule” of holding no car in inventory for more than two weeks—a rule that it continues to observe to this day.
Phase 2: Using used car purchasing operations to build up used car retail sales business
The company moved into what it calls its Phase 2 growth stage in 2014 with its decision to start building up its used car retail sales operations. In contrast to its previous practice of buying used cars at auction and holding them in inventory at its “pool center” until they were resold (in less than two weeks), after entering Phase 2 the company started holding its inventories on the lots of its used car retail outlets. Moving the cars that were formerly held in inventory at its “pool center” to the showrooms of its used car dealers did not change the company’s inventory burden; rather, it merely shifted inventories around to where they could be sold more quickly and at higher prices. The switch to this business model was only possible because the company had first created a strong brand, having established itself as one of the largest used car buyers in Japan and built up strong name recognition.
The company’s move into used car retailing offered the benefit of being able to realize the higher gross margins earned by used car retailers without slowing inventory turnover and increasing its inventory holding period. As a general rule, used cars that are bought from consumers and then resold on the auction market are said to generate some JPY100,000 to JPY150,000 in gross profit per vehicle for the wholesaler. In contrast, by buying used cars at the auction price and then reselling them through its network of used car retailers, IDOM typically earns between JPY150,000 and JPY200,000 in gross profit per vehicle (with the amount varying depending on the type of car and other factors). To facilitate its move into used car retailing, the company began aggressively opening up used car showrooms in 2014 with the expectation that the additional gross profit generated from selling used cars at the retail level would easily allow it to recoup the cost of opening the new showrooms and cover the running cost (mainly personnel costs) of its used car sales business.
Phase 3: Establishing a used car retail model by opening large stores
In the three years from FY02/20 to FY02/22, the company revised its criteria for store openings and closures, making them more stringent, and rated each store according to its profit and capital efficiency. Traditionally, the company had closed loss-making stores. Under the new criteria, the company even closed some stores that were profitable, if their efficiency was low. The company also tightened its criteria for new store regions and sites.
The company began opening large stores on the basis of its profit and capital efficiency. As it promoted the large-store format, stores became more spacious and retail sales volume per store increased. As it moved from a buyback-retail model (retailing the vehicles it purchased from customers) to also purchasing used cars at auction, the company transitioned to a retail model, in which retail sales of used cars became the major source of earnings.
The large stores will have larger site areas than its conventional stores (medium-sized purchase/retail stores), allowing them to have more vehicles on display. The company began using the large format in FY02/20, and as of end-FY02/22, 29 of its 445 directly managed stores employ the large format. IDOM says that as a result of the increase in large stores, comparing FY02/19 and FY02/21, the number of directly managed stores fell from 519 to 460 (-59 stores), but display space increased from 106,000sqm to 165,000sqm (+59,000sqm). The number of vehicles sold at retail grew from 124,527 to 137,382 (+12,855 vehicles, +10.3%).
Retail sales volume on a par with medium-sized automakers
In FY02/14, the company sold 50,000 used cars through its retail sales network, accounting for only 28.2% of the total number of vehicles sold through its directly managed outlets. After strengthening its used car retail sales, this figure grew to 137,000 cars by FY02/21 (62.5% of total). Although direct comparisons are not strictly proper, we note that Subaru, the No. 7-ranked domestic brand in terms of new automobile sales, sold some 106,000 vehicles, while No. 8 Mitsubishi Motors sold approximately 70,000. In terms of number of automobiles sold, this puts IDOM ahead of all new auto manufacturers and imported auto dealers from the No. 7 rank down.
In 2021, the number of used cars (standard and small passenger cars) registered reached 3,246,000 (+2.9% YoY). IDOM’s share of this used car retail volume was 4.3% (+0.2pp YoY).
Preparation for the next growth stage
Having established itself as the largest used car buyer in the industry and built up a solid track record in used car retail sales, the company is now starting to take steps toward its next growth stage, during which it plans to focus on diversifying sourcing and its product and service lineup. Shared Research believes that 1) since the company’s status as a major used car retailer puts it in a good position to follow the trends in consumer preferences, there is no reason why it should only buy used cars from consumers, as it is now in a position to generate sufficient gross profit on sales even when buying at auction and through other channels that it did not use in the past; and 2) the company understands that consumer needs vis-a-vis cars may shift from “ownership” to “use,” especially among the younger generations, and is taking steps to meet this demand as well.
Specific initiatives on this front include its establishment of NOREL, a subscription car service that makes use of used cars (as well as some new cars such as BMWs and Minis), Gulliver Flea Market, a C2C platform that brokers used car sales between individual consumers, and Go2Go, a C2C car-sharing service launched in August 2019.