Stock Research #1: Ryohin Keikaku
Date of Research: 6/20/24
6/20/24 Close: 1322.00 JPY
9/26/25 Close: 3013.00 JPY
Total Return: 127.91%
CAGR: 89.1%
Ryohin Keikaku Research Report
Company Description
Ryohin Keikaku operates as a retailer commonly known as “Muji,” short for Mujirushi Ryohin (brandless-quality goods.) Muji is a Japanese broadline retailer that manufactures, distributes, and sells apparel, furniture, cosmetics, and other household goods targeted towards young and middle aged professionals in urban settings.
Domestic sales within Japan makes up 69.1% of Muji’s revenues with East Asia, Europe and America, and Southeast Asia and Oceania following in descending order.(34.6%, 7.2%, and 6.3% respectively)
Domestically, Muji has achieved a 7.5% CAGR for operating revenue over the last ten years, while the Overseas business (East Asia, Southeast Asia and Oceania, and Europe and the Americas) grew at a CAGR of 18.3%.
EBITDA margin for 1H2024 (7.5%) was in line with 2024 overall estimates showing management delivering on investor expectations.
Investment Thesis
Muji is strongly positioned to benefit from overall economic activity increasing in China and it can become an even larger portion of their total revenue than the domestic segment based on the addressable market China’s large economy provides. Additionally, their domestic segment can continue steady growth by integrating themselves into their customers daily lives with grocery-store-like offerings, as well as quick kiosk-style “500-yen ‘’ stores. The increase in customer visits within the domestic segment will help drive overall volume growth. The US offers an expansion opportunity into a market with higher levels of disposable income per capita.
Catalysts / Re-Rating Potential
Q3 2024 Earnings Call (July)
Delivering on EBITDA growth and continued improvement of margins
Main Drivers/Sensitivities
Three Key Drivers (current % of overall revenue)
Domestic store strategy increasing visit frequency + sales volume in rural areas that didn’t have Muji stores previously. (69.1%)
Sales growth in China – covid lockdown easing in the beginning of 2023 increased consumer spending in China and that growth can continue into 2024 and beyond (18%)
Expansion into US Market – Higher levels of disposable income per capita (2.6%)
Domestic store strategy: Opening “600 tsubo stores” (supermarket sized stores with more floor space devoted to food sales) as well 500 yen stores in high foot traffic areas like train stations can increase the customer base that Muji sells to, as currently their main presence is in urban areas.
The product mix and store strategy is attempting to increase visit frequency by selling more food products at a lower gross profit margin (33.6%) with the goal of getting customers to buy other products during their visits. Apparel (44.6%) and household goods (38%) are where they want customers to be spending most of their money.
International expansion to the US – currently they only have stores in New York, Boston, and Portland. Before the pandemic, Muji had a larger presence in the US but had to file for Chapter 11 Bankruptcy and only returned to profitability within the US in 2022.
Expansion to the US already has proof of concept – brands like UNIQLO, Ikea, and Muniso have executed on it well and act as specialized brands, contrary to what Muji offers. Muji can act as a one stop shop for high quality apparel, furniture, cosmetics, and food sold at reasonable prices.
Disposable income per capita in the US is $50,329 (FRED)
Disposable income per capita in Japan is $24,740 (statista)
Valuation
At a 23x PE ratio, (TTM) Muji trades at a premium to its peer group (21% on average) due to its substantially higher projected NFY EBITDA growth of 29%. At 20x 2024 PE ratio and 19.5x 2025 PE ratio, the stock is fairly valued given risks that the strong growth experienced from China’s reopening could slow down.
Costs
Due to yen depreciation and rising material costs, Muji had to increase prices for about 20% of their spring and summer products in 2023 by an average of 25%, but are trying to limit future price increases to stay true to their selling points of high quality goods at a reasonable price.
Due to these factors, Muji’s gross profit margin decreased slightly in 2023 (-0.5% YoY) but in their latest quarterly filing gross profit margin increased to a healthy 49.3% likely due to their price revisions in the 2H of 2023.
ESG
• Awarded first place for the second consecutive year in the “Japan Sustainable Brands Index,” a corporate brand survey on SDGs.
• Awarded first place in the Nikkei Corporate Image Survey (general individual category) in the categories of “good sense” and “good products and services.”
Positives
Strong brand and customer loyalty domestically in Japan with the older generations
Vertical Integration – they manufacture, distribute and sell their own products, as well as wholesaling at other retailers
Environmentally conscious brands growing in popularity, an additional tailwind for Muji’s brand
Negatives
Brand recognition – no one on the street will see someone wearing Muji products and be able to find out where they got them without asking them
Lack a strong online presence – online sales account for only 10% of their domestic revenue, but is growing (10% YoY)
Upside Risks
Yen reversion to historical levels
Downside Risks
Further yen depreciation
Competitive threats on margins via the category killers (UNIQLO, Ikea, etc.)
Higher rents in US segment could impact profitability
Misc Sources
https://japannews.yomiuri.co.jp/business/companies/20221002-61963/
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