Joshua Kennedy of Sonian Capital Management: Long Ryohin

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Joshua Kennedy of Sonian Capital Management: Long Ryohin

Joshua Kennedy of Sonian Capital Management, InvestPitch presentation produced by sumzero and Institutional Investor on the long case for Ryohin Keikaku Co Ltd (TYO:7453) (OTCMKTS:RYKKF).

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Introduction

Ten years ago, Fast Retailing’s Uniqlo was a Japanese retailer with a rabid local fan base. Despite being unknown outside Japan, Uniqlo harbored unproven ambitions for global growth as the clothier of the emerging Asian middle class. If you bought shares then, you are up 500%. Congratulations.

Twenty years ago, Swedish flat-pack furniture and housewares retailer extraordinaire IKEA shared similar characteristics. You couldn’t buy shares then and you still can’t, but IKEA does over 20 billion euros in sales every year.

Today, I believe the analogous company is Ryohin Keikaku Co Ltd (TYO:7453) (OTCMKTS:RYKKF), which operates the retailer MUJI. MUJI has an excellent brand, an enthusiastic and loyal following, and is in the early stages of what has to potential to be at least a decade of growth driven by the emerging Asian middle-class consumer.

MUJI is, in a sense, the IKEA of Japan. It sells daily necessities and lifestyle goods. 55% of sales are household goods, 35% are apparel, and 10% are food. The company designs its own products, outsources manufacturing, and sells minimalist, high quality products for fair prices, eschewing waste in both design and packaging. The design team has won several awards and MUJI products are sold in the gift shop of the MoMA.

The company is debt-free, generates excess cash and has an exceptional opportunity to invest in growth. The payback period for new stores in Japan is currently 10 months, and in Asia 20 months. This is a big brand in a small package, with a long runway of growth.

History

MUJI is the nickname of Mujiroshi-Ryohin, which translates approximately as ‘no label-quality products.’ MUJI began in 1980 as the private brand of supermarket operator Seiyu, which still operates today as a subsidiary of Wal-Mart Stores, Inc. (NYSE:WMT). Seiyu spun MUJI off in 1989 and it began life as a separate company: Ryohin Keikaku Co Ltd (TYO:7453) (OTCMKTS:RYKKF). The stock was listed in 1998, at a split-adjusted price of 2,300 yen/share.

H/T Curry Goat

Joshua Kennedy of Sonian Capital Management: Long Ryohin

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