Story Filed: Thursday, January 14, 1999 08:16 AM EST
Summary
-- Net sales in the first quarter of fiscal 1999, ended November 30, 1998, declined 23.4% from the same period in the previous fiscal year, to Yen 39.3 billion ($319.7 million). The first quarter of fiscal 1998 was the strongest of the year in terms of sales, making the comparison with this year a difficult one.
-- First quarter operating income declined 49.7% to Yen 5.5 billion
($44.4 million).
-- Net income for the first quarter was down 42.0% to Yen 2.8 billion
($22.7 million), while net income per share declined 41.9% to
Yen 19.42 ($0.16).
-- Shareholders' equity at November 30, 1998 totaled Yen 56.5 billion
($459.0 million), down 7.3 % from August 31, 1998.
Financial Highlights
(Yen billions, except per share and ADS data)
Three months ended November 30,
1998 1997 % change
Net Sales Y 39.3 Y 51.3 -23.4
Operating income Y 5.5 Y 10.9 -49.7
Net income Y 2.8 Y 4.8 -42.0
Net income per share Y 19.42 Y 33.45 -41.9
Net income per ADS Y 9.71 Y 16.73 -41.9
Amway Japan Limited Fiscal 1999 First Quarter Results
TOKYO, Jan. 14 /PRNewswire/ -- Amway Japan Limited (NYSE: AJL)
today announced its financial results for the first quarter of fiscal
1999, ended November 30, 1998. Net sales declined 23.4% from the same
period in the previous fiscal year to Yen 39.3 billion ($319.7
million). Operating income declined 49.7% to Yen 5.5 billion ($44.4
million), while net income was down 42.0% to Yen 2.8 billion ($22.7
million), and net income per share was down 41.9% to Yen 19.42 ($0.16).
Commenting on the first quarter results, Chairman Dick DeVos said, "Our sales performance in the first quarter continued to reflect the effects of depressed economic conditions in Japan, with unemployment at record levels and private consumption declining. Sales also were negatively impacted by the effects of unwarranted negative publicity about our business, which continued to make it more difficult for existing distributors to sponsor new distributors, leading to a decline in new distributor applications. Distributor renewals, however, continued at a very healthy pace, and distributors continue to demonstrate outstanding commitment and dedication to building their businesses. As always, we are working very closely with our distributors to provide them with all possible support and to help them steadily build sales momentum going forward."
President Richard S. Johnson added, "As anticipated, the first quarter of fiscal 1999 was another very difficult period for Amway Japan. Not only did sales decline, but our gross margin fell as well, principally because of the weakening of the yen against the dollar in fiscal 1998. To cope with the difficulties we faced, we acted decisively in a number of areas. First, we continued to engage in very tough cost controls to decrease total operating expenses. Second, we sought aggressively to further strengthen our distributor partnership by sustaining our commitment to enhanced distributor incentive programs, supporting our distributors through targeted marketing programs and working closely with them on product strategy to find innovative ways to add value for consumers in difficult economic times."
Mr. Johnson continued: "In late October, we unveiled plans for a fundamental re-engineering of our business processes, labeled the "3D" project. This is a major initiative, designed to increase the transparency of our business to our customers, enhance the appeal of our direct selling system, make the system easier to understand, and improve distributor satisfaction and performance. We do not expect our re-engineering to have a major positive impact on sales and earnings within fiscal 1999. However, we do believe it will allow us to build the basis for sustained profitable growth for the long-term."
Operating Results
Net sales
Fiscal 1999 first quarter net sales fell 23.4% from the strong performance recorded in the first quarter of fiscal 1998, which benefited from several highly successful product promotions, including promotions related to Amway Japan's sponsorship of the Nagano Winter Olympic Games. Additionally, the first quarter of fiscal 1998 did not reflect the full impact of negative publicity about Amway Japan's business which began in November 1997.
The overall year-on-year net sales decline reflected lower sales in all four of Amway Japan's primary product categories. Details are as follows:
Sales in Personal Care, the largest of the four primary categories, declined 21.4% from the fiscal 1998 first quarter to Yen 14.4 billion ($117.6 million). This partly reflected a decline in sales of the Artistry line of cosmetics and skin care products, which benefited in the year-earlier period from the success of the "Power of Three Promotion" featuring Artistry Self-Acting, Swiss Serum and Moisture Essence, and from strong sales of newly-introduced products, such as Artistry Body Gel. Sales of toiletry products also declined, although this decline was partly offset by the successful launch in October 1998 of Satinique Lustertone, a hair coloring product that extends the Satinique Advanced line.
Sales in Housewares, the second largest category, were down 24.7% to Yen 11.0 billion ($89.1 million), as sales of big ticket durable items remained under pressure reflecting the continued weakness in personal consumption in Japan. Sales of the Amway Air Treatment System declined from very strong year-earlier levels, and sales of the Amway Water Treatment System (including replacement parts) and Queen Cookware also fell. These declines were partly offset by a rise in sales of the Food Processor, reflecting unfulfilled back orders during the first quarter of fiscal 1998, and the successful launch in September 1998 of the Cafetek Coffee Maker.
Nutrition category sales were down 21.7% to Yen 8.8 billion ($71.6 million). Sales of Triple X declined, although this decline was substantially offset by the continued strong performance of Triple X refill, introduced in the third quarter of fiscal 1998, and providing consumers with the same product in a more economical form, without the cost of the original container.
Triple X refill is an example of Amway Japan's drive to further enhance the added-value of its products and make them more accessible to Japanese consumers. This increased value is especially important to Japanese consumers as economic conditions have worsened.
Elsewhere in the category, sales of other food supplements also declined, as did sales of food and beverage products. These declines were minimally offset by a rise in sales of gourmet products, including Essante-Catechin Green Tea, and gourmet coffees launched during the first quarter.
Homecare sales were down 27.8% to Yen 3.5 billion ($28.2 million), as sales of SA8, Dish Drops and other Laundry and Household products declined in an extremely competitive environment for this type of product. Sales of Home Fabrics and other products also declined from the year-earlier quarter, which benefited from strong sales of special limited-offer products, such as the Olympic Anniversary Home Care set.
Sales in the Other category declined 29.9% to Yen 1.6 billion ($13.3 million), reflecting declines in sales of welcome kits and in renewal and other fees.
Net Sales by Product Category, Fiscal 1999 First Quarter
Net sales % change vs. % of Total
Yen billions year earlier
period
Personal Care Y14.4 -21.4 36.8%
Housewares 11.0 -24.7 27.9%
Nutrition 8.8 -21.7 22.4%
Home Care 3.5 -27.8 8.8%
Other 1.6 -29.9 4.1%
TOTAL Y39.3 -23.4 100.0%
Gross Margin
Gross profit in the first quarter declined 27.1% to Yen 25.9 billion ($210.3 million), and as a percentage of sales declined to 65.8% from 69.1% in the same period of the previous year. This decline resulted primarily from higher prices of the products purchased from Amway, which increased because of the weakening of the yen against the U.S. dollar in fiscal 1998. To reflect the recent strengthening of the yen relative to the U.S. dollar, Amway has decreased the implicit yen/dollar exchange rate with respect to products purchased by the Company to Yen 120 = U.S. $1.00 effective from December 1, 1998.
Operating Expenses
Total operating expenses, comprising distributor incentives, distribution expenses and selling and administrative expenses, declined 17.2% to Yen 20.4 billion ($165.9 million), but increased as a percentage of sales to 51.9% from 48.0% in the same period of the previous year. Distributor incentives declined 19.2%, while distribution expenses declined 14.5% and selling and administrative expenses were down 14.2%.
Operating Income
Operating income in the first quarter declined 49.7% to Yen 5.5 billion ($44.4 million), reflecting lower sales, lower gross margin, and the rise in total operating expenses as a percentage of sales.
Other Income-Net
Other income-net in the first quarter totaled Yen 0.02 billion ($0.1 million), compared to a net expense of Yen 0.05 billion in the same period of the previous fiscal year. This positive turnaround mainly reflected an improvement in income from investments.
Outlook
Amway Japan's projections for fiscal 1999 are net sales of Yen 182.5 billion ($1.48 billion), operating income (before reclassification of enterprise tax) of Yen 24.6 billion ($200.0 million) and net income of Yen 14.3 billion ($116.3 million).
These projections, originally announced on October 16, 1998, incorporate the cost and efficiency benefits the Company expects to achieve from the reorganization of its distribution infrastructure and cost cutting initiatives undertaken in fiscal 1998, as well as the benefits of further cost reduction initiatives undertaken or planned in fiscal 1999.
The projections also take into account an increase in the implicit yen/U.S. dollar exchange rate for products purchased from Amway Corporation to %130 per U.S. dollar from Yen 125 per U.S.dollar, which took effect on September 1, 1998. The original projections assumed that the implicit exchange rate would be changed during fiscal 1999 to reflect further weakening of the yen against the U.S. dollar. However, due to the recent strengthening of the yen against the U.S. dollar, the Company and Amway have agreed to a 7.7% decrease in the implicit yen/dollar exchange rate to Yen 120 = U.S. $1.00, effective December 1, 1998. The projections now assume that this implicit yen/dollar exchange rate of Yen 120 = U.S. $1.00 will be sustained for the remainder of the year. However, this benefit to gross margin is expected to be offset by additional costs, resulting in no change to the projected operating income. These additional costs primarily relate to the transition into the new 3D project. Further strengthening or weakening of the yen against the U.S. dollar and the resulting impact on the Company's actual gross margin as compared to that which is implicit in the above projections cannot be predicted. To strengthen and build its business during the remainder of the year, the Company has taken and will undertake a comprehensive program of actions, including the following:
-- Business Re-engineering:
In late October, the Company unveiled plans for a fundamental re-engineering of its business processes, labeled the "3D" project, which the Company has been phasing in since November, and which is scheduled for full implementation in April 1999.
This project consists of three major elements. The first is Direct Fulfillment, a new system under which all transactions -- including product sales, product returns and bonus payments -- will occur directly between Amway Japan and its distributors, whereas previously they could occur between distributors. Among many benefits, this change is designed to increase business efficiency for distributors, while also allowing the Company to identify opportunities in the field because of its expanded interaction with its distributors.
The second element, Distributor Communication, represents a major initiative to further strengthen communication between Amway Japan and distributors, who will be categorized into those who are strongly oriented towards building a business through sponsoring and sales, and those who are strongly oriented towards personal consumption. This initiative is designed to bring numerous benefits, including the enhanced ability of the Company to deliver targeted marketing information most appropriate to individual distributor needs -- through the use of the Amagram distributor magazine, the Internet, telephone and fax and other means. An important part of the Distributor Communication initiative will be a revised version of the Amway Code of Ethics and Rules of Conduct, to make these easier to understand, plus new and improved distributor training programs.
The third element of the 3D project, Direct Marketing, will be designed to improve the environment for motivating purchases. The Company will be pushing ahead with databasing customer information through the further development of its information technology infrastructure, and segmenting customers' buying trends to supply carefully tailored product information, and to develop products that more closely meet identified customer needs.
The Company does not expect the 3D re-engineering project to have a major positive impact on sales and earnings within fiscal 1999. However, the Company does believe the project will allow it to build the basis for sustained profitable long-term growth.
The Company remains committed to ensuring a steady flow of new product introductions carefully tailored for the Japanese market, and to an aggressive schedule of product promotions. Plans for fiscal 1999 include significant extensions to the Artistry line of cosmetics and skincare products, and to the Satinique Advanced product line. Details of these and other new products will be announced in due course.
Risks and Uncertainties in Forward-Looking Statements
The statements contained in this release that are not historical facts are forward-looking statements. These forward-looking statements involve risks and uncertainties, such as, without limitation: continued worsening of the overall economic situation in Japan, resulting in lower demand for the Company's products; potential deterioration in the value of the yen relative to the U.S. dollar such that Amway materially revises the implicit yen/dollar exchange rate for products purchased from Amway from Yen 120 = $U.S. 1.00 effective for products purchased since December 1, 1998; the continuation of adverse publicity with respect to consumer complaints and the occurrence of additional adverse publicity in general; weaker than expected sales from new product introductions scheduled for fiscal 1999, and from those products introduced in fiscal 1998; and adverse action against the Company's distributors or the Company under statutes or regulations which pertain to the direct selling industry and which may impact the Company's ability to sell any of its products or operate pursuant to the Sales Plan generally.
The Company
Amway Japan Limited is the exclusive distribution vehicle in Japan for Amway Corporation. A direct selling company, Amway Japan distributes approximately 180 consumer products through a core distributor force (distributors who renewed within fiscal 1998) of approximately 1,144,000 independent distributors. With total shareholders' equity at August 31, 1998 of Yen 60.9 billion, its fiscal 1998 net sales were Yen 192.5 billion and net income was Yen 12.8 billion. Amway Japan is registered on the Tokyo OTC market (securities code: 9821) and its ADSs (American Depository Shares), each representing one-half of one share of common stock, are listed on the New York Stock Exchange (ticker symbol: AJL) and quoted on SEAQ International. Current Press releases and SEC earnings filings are available through the Internet at www.ajl-amway.com.
Selected Financial Data
AMWAY JAPAN LIMITED
(Yen millions, except per share data and ADS data)
Three Months Ended
November 30,
1998 1997 % change
Statement of Income
Net sales Y 39,320 Y 51,321 -23.4%
Cost of sales 13,452 15,833 -15.0%
25,868 35,488 -27.1%
Distributor incentives 11,534 14,278 -19.2%
Distribution expenses 2,266 2,650 -14.5%
Selling and administrative expenses 6,602 7,699 -14.2%
Total operating expenses 20,402 24,627 -17.2%
Operating income 5,466 10,861 -49.7%
Other income (expense) net 16 -52 NM
Income before income taxes 5,482 10,809 -49.3%
Income taxes 2,685 5,988 -55.2%
Net income Y 2,797 Y 4,821 -42.0%
Weighted average number of shares
outstanding (millions) 144.0 144.1(a) --
Weighted average number of ADSs
(millions) 288.1 288.2(a) --
Amounts per share:
Net income per share Y 19.42 Y 33.45 -41.9%
Net income per ADS Y 9.71 Y 16.73 -41.9%
NM: Not Meaningful
(a) Common shares and ADSs outstanding were reduced following an open
market repurchase and an issuer tender offer concluded on August 11,
1997 for 2,555,300 shares. Additionally 240,200 shares were
repurchased and retired in the first quarter of fiscal year 1998
through open market repurchases before the General Shareholders'
meeting held on November 26, 1997.
November 30, August 31, % change
1998 1998
Balance Sheet
Assets:
Total current assets Y 48,714 Y 59,780 -18.5%
Net property and equipment 40,428 36,639 10.3%
Total investments and other assets 3,674 3,627 1.3%
Total assets Y 92,816 Y100,046 -7.2%
Liabilities and Shareholders'
Equity:
Total current liabilities Y 36,360 Y 39,168 -7.2%
Retained earnings 26,028 30,450 -14.5%
Total shareholders' equity 56,456 60,878 -7.3%
Total liabilities and shareholders'
equity Y 92,816 Y100,046 -7.2%
Notes: 1. All figures in this release have been prepared in accordance
with Japanese accounting principles and have been rounded, as
appropriate. All U.S. dollar amounts represent translations,
for the convenience of readers, of yen amounts at the rate of
Yen 123 = U.S. $1, the approximate prevailing rate of exchange
on November 30, 1998.
2. In accordance with the requirements of the Japanese Commercial
Code, enterprise taxes have been included in operating
expenses. In the Company's financial statements that have been
prepared for the convenience of readers outside Japan,
enterprise taxes are included in income taxes. For the first
quarter ended November 30, 1998, enterprise taxes totaled
Yen 0.56 billion, compared to Yen 1.33 billion during the same
period of the previous year.
SOURCE Amway Japan Limited
01/14/99 /CONTACT: Holly A. Clemente of Amway Japan Limited, U.S., 616-787-8688, or Yoshio Mikoshiba of Amway Japan Limited, Japan, +03-5434-5512