Tokyo Lifestyle (NASDAQ:TKLF) held its full-year earnings conference call on Friday. Below is the complete transcript from the call.

Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.

View the webcast at https://78449.choruscall.com/dataconf/productusers/tklf/mediaframe/47964/indexr.html

Summary

Tokyo Lifestyle Co Ltd reported a 77.6% increase in total revenue for fiscal year 2026, reaching $373.2 million, driven by strong luxury product sales and expansion in franchise and wholesale operations.

The company achieved double-digit growth across all core operating channels, validating its transformation into a diversified consumer lifestyle platform.

Despite revenue growth, gross margin declined by 3.9 percentage points to 7.5% due to a shift in revenue mix toward lower margin franchise and wholesale businesses.

Operating expenses rose by 29.6% due to higher logistics, payroll, and promotional costs, contributing to a decrease in net income to $0.7 million from $6.6 million the previous year.

Strategic initiatives include opening new stores and distribution centers globally, optimizing the omnichannel retail network, and expanding the luxury goods segment.

The company remains confident in delivering sustainable long-term growth through disciplined execution, despite macroeconomic challenges and tax-related impacts on profitability.

Cash and cash equivalents were $2.1 million as of March 31, 2026, with significant accounts receivable collections post-fiscal year-end enhancing liquidity.

Full Transcript

OPERATOR

Good day, ladies and gentlemen. Thank you for standing by and welcome to Tokyo Lifestyle Co Ltd's fiscal year 2026 earnings conference call. During today's presentation, all parties will be in a listen-only mode. This conference is being recorded today, Friday, July 10, 2026. If you have any objections, you may disconnect at this time. Joining us today from Tokyo Lifestyle Co Ltd is the Company's Representative, Cissy Wong. Before we continue, I would like to remind you that some information discussed on this call will contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks and uncertainties. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances or changes in its expectations except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company's annual report on Form 20-F and in its other filings with the SEC. With that, I will now turn the call over to Cissy Wong, the Company's representative. Please go ahead.

Cissy Wong (Company Representative)

Thank you, operator, and thank you all for joining Tokyo Lifestyle Co Ltd's fiscal year 2026 earnings conference call today. On today's call, I will provide an overview of our performance for the fiscal year ended March 31, 2026, followed by a detailed review of our financial results. Fiscal year 2026 was a year of strong execution across our business, delivering robust revenue growth in all of our core operating channels. Our directly operated stores, franchise network, and wholesale operations each achieved double-digit growth, demonstrating the effectiveness of our strategy to diversify our portfolio, broaden our customer base, and accelerate global market expansion. This result further validates our transformation from a traditional retailer into a diversified consumer lifestyle platform integrating retail, franchise, wholesale, and luxury goods businesses to create sustainable long-term value. During the year, we continued advancing our affiliate growth strategy by expanding our franchise and wholesale operations with a particular focus on the high-end merchandise segment. While these channels generally generate lower gross margins than our directly operated stores, they require significantly less capital investment and operating expense, allowing us to scale more efficiently and generate attractive long-term returns. As a result, the change in our revenue mix reflects a deliberate optimization of our business model rather than a deterioration in operating performance. Another standout achievement of the year was the outstanding performance of our luxury goods business. In particular, our luxury goods segment quickly emerged as a meaningful contributor to growth, reflecting strong customer demand and the successful execution of our product expansion strategy.

At the same time, continued expansion of our wholesale customer base and distribution network further strengthened our market reach, diversified our revenue stream, and enhanced the resilience of our business. Supporting this growth, our total assets increased by 48% during fiscal year 2026, and we remained profitable for the third consecutive year. These achievements reflect both the continued expansion of our business and the increasing strength of our market position.

We continued strengthening our international platform by opening four new physical stores and adding 68 new wholesale customers. At the same time, we expanded strategic partnerships and continued investing in local talent and performance-based incentive programs to further enhance our organizational capabilities to support efficient and sustainable global growth. In addition, we continue optimizing our omnichannel retail network by converting selected underperforming, directly operated stores into franchise locations managed by experienced local partners.

This initiative has improved the overall efficiency of our store network while supporting our affiliate operating model. Looking ahead, we remain committed to executing our long-term growth strategy through continued customer acquisition, stronger global brand recognition, further diversification of our product portfolio, and deeper customer engagement across all sales channels. We plan to establish a new distribution center in Australia in 2026 to support inventory replenishment for our Australian retail operations.

While additional distribution centers are being planned in other strategic markets over the next three years, we intend to open 20 additional directly operated stores across the United States, Canada, Hong Kong, Australia, Thailand, and Taiwan. We're adding 23 new franchise stores in Japan, Southeast Asia, Macau, and Europe. As we continue executing our strategy, we remain confident in our ability to generate sustainable long-term growth and create greater value for our shareholders through disciplined execution and continued operational excellence.

Now, I would like to highlight our financial results for fiscal year 2026. Total revenue increased by 77.6%, rising from $210.1 million to $373.2 million. Revenue from our directly operated stores increased by 15.7% year over year to $19.8 million. Revenue from our franchise stores and wholesale operations grew by 86.9% to $346.7 million. This growth was primarily driven by the significant increase in luxury product sales. In addition, the expansion of our wholesale customer base further strengthened our wholesale platform, deepened supplier relationships, and contributed to continued revenue growth.

Gross profit increased by 17.5% to $28.1 million compared with $23.9 million in fiscal year 2025. Gross margin declined by 3.9 percentage points to 7.5%, primarily due to a shift in our revenue mix as our rapidly growing franchise and wholesale businesses, which generally carry lower gross margins than directly operated stores, accounted for a larger proportion of total revenue. Operating expenses increased by 29.6% to $24.9 million, primarily reflecting higher shipping and logistic costs associated with business growth, increased credit loop provisions, higher payroll, employee benefits, and performance bonuses resulting from our expanding operations, increased professional service fees, and higher promotion, advertising, and lease expenses related to our directly operated stores. As a result, income from operations was $3.2 million compared with $4.7 million in fiscal year 2025. Net income was $0.7 million compared with $6.6 million in fiscal year 2025. The decrease was primarily attributed to tax-related factors rather than a change in our underlying operating performance. Excluding these tax impacts, our core business continued to deliver solid operating results supported by strong revenue growth, healthy customer demand, and disciplined execution.

Basic earnings per share were $0.02 for fiscal year 2026 compared with $0.16 for fiscal year 2025. Diluted earnings per share were $0.02 compared with $0.16 for fiscal year 2025. As of March 31, 2026, the Company had cash and cash equivalents of $2.1 million and accounts receivable of $186.8 million due from third parties. Approximately 22.3% of this receivable has been collected subsequent to fiscal year-end, providing additional liquidity to support our working capital needs.

As of March 31, 2026, merchandise inventory totaled approximately $14.4 million. Based on current demand trends, we believe this inventory is well-positioned to be sold within a relatively short period. For fiscal year 2026, net cash used in operating activities was $10.3 million, while net cash provided by investing activities and financing activities was $6.1 million and $4.2 million, respectively. Overall, our fiscal year 2026 results demonstrate the resilience, scalability, and efficiency of our business model.

Although our reported profitability was affected by tax-related items during the year, our underlying business continued to generate strong revenue growth and healthy operating performance. As the macroeconomic condition continues to improve and consumer demand generally recovers across our key markets, we remain confident in our ability to deliver sustainable, profitable growth through disciplined execution, prudent capital allocation, and continued operational excellence.

Looking ahead, we remain focused on further strengthening our financial performance through disciplined execution, effective cost management, and strategic investment. At the same time, we will continue to identify new growth opportunities and expand our revenue streams as we work to create sustainable long-term value for our shareholders. Thank you so much for joining this conference call. If you have any questions, please contact us through email at ir@tokyolifestyle.co.jp or reach our IR counsel at Ascent Investor Relations at investors@ascent-ir.com.

Management will respond to your questions as soon as possible. We appreciate your interest and support in Tokyo Lifestyle Co Ltd and look forward to speaking with you again next time.

OPERATOR

Thank you again for attending Tokyo Lifestyle Co Ltd's fiscal year 2026 earnings conference call. This concludes our call today, and we thank you all for listening in. Goodbye.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.