OPERATION OVERVIEW
During the year, we took proactive measures to reinforce the Group’s growth. With respect to Theory, the leading brand in the contemporary market, LTH took steps to further solidify our market position, working closely in collaboration with our stores to create excitement and energy around the brands. LTH also maintained our focus on nurturing Helmut Lang and other growing brands, to complement Theory’s position in the marketplace.
In Japan, amid uneasy situation in the apparel sector in general, regional sales increased 0.6% year-on-year to ¥22,476 million due to expanded Theory Luxe sales and increased exports to Asian markets. In the U.S., sales rose 6.7%, to ¥31,498 million, an increase attributable to sales from Helmut Lang, in addition to the opening of new Theory stores during this fiscal year as well as the full-year contribution of Theory stores opened during the previous year. In Europe, despite a steady growth in the Theory business, a revenue decline in the Rosner segment resulted in a 7.1% fall in sales, to ¥8,192 million. As a result, consolidated net sales for the year totaled ¥59,887 million, up 0.8% from the previous year. During the year, we took various methods of cost cutting, including more stringent inventory control in Japan, North America, and Europe. Gross profit rose 7.6%, to ¥32,655 million, and the gross margin was 54.5%, a healthy improvement from 51.1% recorded in the previous year. The selling, general, and administrative expenses totaled ¥30,598 million, just 2.4% increase year-on-year. We achieved this by strategically reducing personnel, distribution, selling, and other expenses in Japan, North America, and Europe. Consequently, operating income increased markedly, from ¥466 million to ¥2,056 million. Among non-operating items, we recorded a ¥1,588 million foreign exchange loss due to a valuation loss associated with a yen-dominated loan to our U.S. subsidiary. LTH posted extraordinary income of ¥968 million as a dividend from its investment in 7 For All Mankind, a premium U.S. denim brand. Conversely, we recorded a number of extraordinary losses, including a ¥154 million loss on the restructuring of the Proof business in Japan, a ¥272 million loss on the restructuring of U.S. and European subsidiaries, and a ¥166 million loss related to litigation in Japan and the United States. As a result, consolidated net sales for this fiscal year totaled ¥59,887 million, up 0.8% from the previous year. Operating income increased 340.9% year-on-year to ¥2,056 million. Ordinary income decreased 64.5% year-on-year to ¥396 million. Income before income taxes and minority interests totaled ¥800 million, compared with a loss before income taxes and minority interests of ¥5,039 million in the previous year. However, the Group posted a net loss of ¥197 million, compared with a ¥5,617 million net loss recorded in the previous year. This was due to the non-recognition of deferred tax assets related to a pre-tax loss reported by European subsidiaries as well as the amortization of goodwill in a U.S. subsidiary, leading to a higher tax rate.
During the year, we took proactive measures to reinforce the Group’s growth. With respect to Theory, the leading brand in the contemporary market, LTH took steps to further solidify our market position, working closely in collaboration with our stores to create excitement and energy around the brands. LTH also maintained our focus on nurturing Helmut Lang and other growing brands, to complement Theory’s position in the marketplace.
In Japan, amid uneasy situation in the apparel sector in general, regional sales increased 0.6% year-on-year to ¥22,476 million due to expanded Theory Luxe sales and increased exports to Asian markets. In the U.S., sales rose 6.7%, to ¥31,498 million, an increase attributable to sales from Helmut Lang, in addition to the opening of new Theory stores during this fiscal year as well as the full-year contribution of Theory stores opened during the previous year. In Europe, despite a steady growth in the Theory business, a revenue decline in the Rosner segment resulted in a 7.1% fall in sales, to ¥8,192 million. As a result, consolidated net sales for the year totaled ¥59,887 million, up 0.8% from the previous year. During the year, we took various methods of cost cutting, including more stringent inventory control in Japan, North America, and Europe. Gross profit rose 7.6%, to ¥32,655 million, and the gross margin was 54.5%, a healthy improvement from 51.1% recorded in the previous year. The selling, general, and administrative expenses totaled ¥30,598 million, just 2.4% increase year-on-year. We achieved this by strategically reducing personnel, distribution, selling, and other expenses in Japan, North America, and Europe. Consequently, operating income increased markedly, from ¥466 million to ¥2,056 million. Among non-operating items, we recorded a ¥1,588 million foreign exchange loss due to a valuation loss associated with a yen-dominated loan to our U.S. subsidiary. LTH posted extraordinary income of ¥968 million as a dividend from its investment in 7 For All Mankind, a premium U.S. denim brand. Conversely, we recorded a number of extraordinary losses, including a ¥154 million loss on the restructuring of the Proof business in Japan, a ¥272 million loss on the restructuring of U.S. and European subsidiaries, and a ¥166 million loss related to litigation in Japan and the United States. As a result, consolidated net sales for this fiscal year totaled ¥59,887 million, up 0.8% from the previous year. Operating income increased 340.9% year-on-year to ¥2,056 million. Ordinary income decreased 64.5% year-on-year to ¥396 million. Income before income taxes and minority interests totaled ¥800 million, compared with a loss before income taxes and minority interests of ¥5,039 million in the previous year. However, the Group posted a net loss of ¥197 million, compared with a ¥5,617 million net loss recorded in the previous year. This was due to the non-recognition of deferred tax assets related to a pre-tax loss reported by European subsidiaries as well as the amortization of goodwill in a U.S. subsidiary, leading to a higher tax rate.
CONSOLIDATED BALANCE SHEETS
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| CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS | ||||||||||||||
| Millions of yen | ||||||||||||||
| Shareholders’equity | Valuation, translation adjustments and other |
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| FY2008 | Common stock | Capital surplus | (Accumu lated deficit) retained earnings |
Total Share holders’ equity |
Unrealized holding (loss) gain on securities | Unrealized gain on hedging instruments | Trans lation adjust ments |
Total valuation, translation adjustments and other | Share subscrip tion rights |
Mino rity inter ests |
Total net assets | |||
| Balance as of August 31, 2007 | 6,369 | 7,956 | (2,008) | 12,317 | |
(0) | 10 | 297 | 308 | - | 13 | |
12,638 | |
| Changes during the term | ||||||||||||||
| Issuance of common stock | 27 | 27 | 55 | 55 | ||||||||||
| Decrease in capital surplus | (3,503) | 3,503 | - | - | ||||||||||
| Increase in retained earnings resulting from changes in the scope of consolidation | 5 | 5 | 5 | |||||||||||
| Net loss | (197) | (197) | (197) | |||||||||||
| Net changes in items other than those in shareholders’equity | (0) | 7 | (1,292) | (1,285) | 7 | 1 | (1,276) | |||||||
| Total changes during the year | 27 | (3,476) | 3,311 | (136) | (0) | 7 | (1,292) | (1,285) | 7 | 1 | (1,413) | |||
| Balance as of August 31, 2008 | 6,396 | 4,479 | 1,303 | 12,180 | (0) | 18 | (995) | (977) | 7 | 14 | 11,225 | |||
Financial Position
Assets, liabilities and net assets
At fiscal year-end, the Group had total current assets of ¥20,126 million, down ¥823 million from a year earlier. Major factors included a decrease in deferred tax assets accompanying a decreased valuation loss stemming from rigorous inventory controls, as well as a decrease in prepaid income tax and accrued income tax (included in “Other current assets”). Total fixed assets declined ¥3,298 million, to ¥20,183 million. This was mainly the result of a decline in the value of trademarks and goodwill stemming from depreciation and smaller yen translation derived by yen appreciation against the U.S. dollar, as well as a decrease in investment securities through sales of equity holdings held by a U.S. subsidiary. As a result, consolidated total assets stood at ¥40,310 million, down ¥4,122 million from a year earlier.
Total current liabilities amounted to ¥12,087 million at fiscal year-end, down ¥706 million. The decline stemmed mainly from a decrease in accounts payable owing to increased settlement for the purchase of autumn and winter products, as well as a reduction in the allowance for restructuring expenses. Total long-term liabilities fell ¥2,003 million, to ¥16,997 million, due primarily to a decrease in long-term debt through subsidiaries repayment of bank loans. Consequently, total liabilities declined ¥2,709 million, to ¥29,084 million at fiscal year-end.
Total net assets declined ¥1,413 million, to ¥11,225 million, mainly due to the net loss and a fall in translation adjustments accompanying the appreciation of the yen against the U.S. dollar.
Assets, liabilities and net assets
At fiscal year-end, the Group had total current assets of ¥20,126 million, down ¥823 million from a year earlier. Major factors included a decrease in deferred tax assets accompanying a decreased valuation loss stemming from rigorous inventory controls, as well as a decrease in prepaid income tax and accrued income tax (included in “Other current assets”). Total fixed assets declined ¥3,298 million, to ¥20,183 million. This was mainly the result of a decline in the value of trademarks and goodwill stemming from depreciation and smaller yen translation derived by yen appreciation against the U.S. dollar, as well as a decrease in investment securities through sales of equity holdings held by a U.S. subsidiary. As a result, consolidated total assets stood at ¥40,310 million, down ¥4,122 million from a year earlier.
Total current liabilities amounted to ¥12,087 million at fiscal year-end, down ¥706 million. The decline stemmed mainly from a decrease in accounts payable owing to increased settlement for the purchase of autumn and winter products, as well as a reduction in the allowance for restructuring expenses. Total long-term liabilities fell ¥2,003 million, to ¥16,997 million, due primarily to a decrease in long-term debt through subsidiaries repayment of bank loans. Consequently, total liabilities declined ¥2,709 million, to ¥29,084 million at fiscal year-end.
Total net assets declined ¥1,413 million, to ¥11,225 million, mainly due to the net loss and a fall in translation adjustments accompanying the appreciation of the yen against the U.S. dollar.
Cash Flows
At fiscal year-end, cash and cash equivalents totaled ¥5,312 million, down ¥359 million from a year earlier.
Net cash provided by operating activities amounted to ¥1,061 million, down ¥709 million. Although the net income amounted ¥800 million and the depreciation and amortization of trademarks & goodwill amounted ¥2,413 million, accounts receivable increased ¥1,002 million owing to faster shipments to the wholesale customers in the United States as well as the payment of ¥1,019 million income taxes.
Net cash used in investing activities totaled ¥103 million. This was due to ¥1,234 million for the purchase of tangible fixed assets in contrast with ¥1,519 million in proceeds from the sale of the Group’s investment in 7 For All Mankind.
Net cash used in financing activities was ¥1,299 million, a net decrease of ¥1,744 from the previous year due to the repayment of bank debt.
At fiscal year-end, cash and cash equivalents totaled ¥5,312 million, down ¥359 million from a year earlier.
Net cash provided by operating activities amounted to ¥1,061 million, down ¥709 million. Although the net income amounted ¥800 million and the depreciation and amortization of trademarks & goodwill amounted ¥2,413 million, accounts receivable increased ¥1,002 million owing to faster shipments to the wholesale customers in the United States as well as the payment of ¥1,019 million income taxes.
Net cash used in investing activities totaled ¥103 million. This was due to ¥1,234 million for the purchase of tangible fixed assets in contrast with ¥1,519 million in proceeds from the sale of the Group’s investment in 7 For All Mankind.
Net cash used in financing activities was ¥1,299 million, a net decrease of ¥1,744 from the previous year due to the repayment of bank debt.
