A1: We project sales to recover to about 80% of the previous fiscal year level in the second quarter, to 95% in the third quarter, and to 105% in the fourth quarter. Regionally, we expect sales to start recovering first in China and then in Europe and the United States in each of which the recovery pace to be about the same. We anticipate somewhat slower recoveries in Japan and emerging markets. We expect large keyboard sales to recover after reopening real stores, but wind instrument sales will likely return at a slower pace since brass band activities at schools are still suspended. We have no outlook for when live performances will resume, and thus expect PA equipment recovery to be later than other products.
Q&A on the Performance Results for the First Quarter of Fiscal Year Ending March 31, 2021 (FY2021.3)
Q1: What is the sales recovery outlook for each region and product?
Q2: How are the monthly musical instrument sales for the first quarter?
A2: Monthly sales versus a year ago, absent foreign exchange factors, were roughly April 60%, May 70%, and June 90%. Having said that, we do not expect sales to remain at 90% in July and the following months.
Q3: How are e-commerce sales conditions?
A3: Sales are strong for digital pianos, portable keyboards, guitars, and AV products, as well as music production products in the PA equipment. The ratio of e-commerce sales to overall sales has increased by about 5% from before the COVID-19 pandemic.
Q4: What impact will the change in the product sales mix have on core operating profit?
A4: Changes in the musical instruments segment sales mix will not have a significant impact. The sluggish piano sales in China, the strong sales of guitars, which carry relatively low profit margins, and other factors will have negative effects that reduce profitability, but the relatively strong sales of high-margin digital pianos will provide a boost. We are seeing an impact in the audio equipment segment from the strong sales of AV products and the sluggish sales of high-margin PA equipment.
Q5: Which regions and what products have experienced a halt in production due to supply shortages?
A5: In Indonesia, due to government policies to restrict activities, factories were required to operate at less than about half level of ordinal production from the first quarter into July, which led to supply shortages, notably for digital pianos and guitars. The impact from this is lingering in the second quarter, and we do not expect a return to full operations until probably in the second half.
Q6: What opportunity loss has there been because of the supply shortages?
A6: The supply shortages due to operating restrictions on production caused opportunity loss of about 5 billion yen and the inability to respond to new demand due to the stay-at-home conditions also cost about 5 billion yen. So at the end of June we had an order backlog amounting to about 10 billion yen. We expect to steadily draw down the order backlog during the second and third quarters, but new demand may also arise, so we are working to strengthen our supply structure.
Q7: How do you see the COVID-19 pandemic changing the market in the medium and long term?
A7: We believe the market for musical instruments will return to its growth track after the pandemic is over. The stay-at-home conditions have stimulated new demand, and we are going to actively focus on capturing that demand. The digital shift is also accelerating in many areas, and we are confident that we can leverage the numerous advantages of our digital and network technologies.
Q8: With the changes in the market, will you change the way you market your products?
A8: We have already been focusing on digital marketing, and sales of our digital pianos, guitars, and AV products are growing at both real stores and on e-commerce sites. We think this trend will gain momentum around the world and therefore plan to put more resources into expanding our digital marketing and e-commerce sales channels.
Q9: What is the status of the music schools?
A9: Music lessons for children are starting to recover, but lessons for adults are taking longer to improve because many of the lesson rooms are located where workers stop in on their way home from work and because many people are teleworking now. Right now, we are focusing on developing lesson plans that will be effective for remote lessons, which we think are very promising for the medium and long term.
Q10: How are you approaching the balancing of production and inventories for the end of the term?
A10: We are reducing inventories and keeping an eye on cash flow. On the production side, we are focusing on strong-selling products while carefully monitoring volumes.
Q11: How will you handle cash allocation?
A11: In addition to reducing inventories, we are also strictly restraining capital investment while being careful not to damage cash flow. We remain committed to providing a stable dividend and plan to pay a full-year dividend of 66 yen per share, the same as last year.
Q12: What are the specifics of the “other expenses” that have arisen and what is the full-year forecast?
A12: We booked a loss from suspension of operations on fixed costs due to the temporary closures of our shops and music schools in Japan and our factories in each country in the first quarter. All of these are now back in operation, and we do not expect any additional losses in these areas in the second quarter or later during the year.