ROYCE’ USA Q1 FY25 Financial Review & Growth Strategy

ROYCE’ USA<br>Q1 Financial Review (FY25)

August – October<br>Year-over-Year Performance & Cost Commentary

Executive Summary

• Revenue growth remained strong year over year<br>• Gross profit increased faster than revenue, indicating improved margins<br>• Operating expenses increased due to compliance, systems, and inflation<br>• Net income grew year over year, though at a slower pace than revenue<br>• Cost increases were primarily intentional and investment-driven

Revenue Performance

<b>Strong Top-Line Growth</b><br>• Q1 FY25 revenue increased approx. 17% year over year.<br>• Driven by stable retail demand and U.S. brand strength.<br>• Exceeded inflation and market averages.<br><br><b>Management View</b><br>• Reflects sustainable demand, not one-time activity.

Gross Profit & Margin

<b>Performance</b><br>• Gross profit increased over 20% YoY (outperforming revenue).<br>• Gross margin improved compared to last fiscal year.<br><br><b>Key Drivers</b><br>• Improved pricing discipline & favorable product mix.<br>• Better absorption of fixed production costs.<br><br><b>Management View</b><br>• Core business economics are improving.

Operating Expenses: Overview

<b>Year-over-Year Increase</b><br>• Expenses increased faster than net income.<br><br><b>Primary Drivers</b><br>• Compliance and legal requirements.<br>• IT systems and infrastructure investments.<br>• Inflationary pressures.<br><br><b>Important Context</b><br>• No evidence of inefficiency at product/store level.<br>• Increases reflect maturity and risk management.

Cost Focus: Legal & Compliance

<b>Increase: Over 25% YoY</b><br><br><b>Drivers:</b><br>• Regulatory compliance requirements.<br>• Litigation risk management.<br>• Corporate governance needs.<br><br><b>Management View:</b><br>• Defensive spending to reduce long-term risk.<br>• Not expected to sustain this growth rate.

Cost Focus: IT & Systems

<b>Increase: Exceeded 25% YoY</b><br><br><b>Investments:</b><br>• Financial controls & reporting.<br>• Operational systems & data security toolset.<br><br><b>Management View:</b><br>• Necessary front-loaded investment for scale.<br>• Will leverage efficiently as revenue grows.

Cost Focus: Marketing

<b>Increase: 30–40% YoY</b><br><br><b>Strategy:</b><br>• More structured, disciplined approach.<br>• Focus on long-term brand value vs. short-term volume.<br><br><b>Management View:</b><br>• Spending actively monitored for ROI.<br>• Controlled, not aggressive.

Inflationary & Store Costs

<b>Operational and Administrative Pressures:</b><br>• Maintenance and repairs.<br>• Insurance premiums (+).<br>• Regulatory/permit fees.<br><br><b>Outlook:</b><br>• Consistent with broader U.S. inflation trends.<br>• Expected to stabilize.

Net Income Performance

<b>Profitability Remains Positive</b><br>• Net income increased year over year.<br>• BUT: Growth rate was lower than revenue growth.<br><br><b>Key Explanation</b><br>• Incremental operating investments reduced short-term leverage.<br>• Healthy gross margins confirm strong core fundamentals.

Why Net Income Lagged Revenue

<div style='display:flex; gap:20px; text-align:center;'><div style='flex:1; background:#f0f4f8; padding:30px; border-radius:8px;'><h3 style='color:#15396b;'>Legal & Compliance</h3><p>Defensive investments for risk management</p></div><div style='flex:1; background:#f0f4f8; padding:30px; border-radius:8px;'><h3 style='color:#15396b;'>IT & Systems</h3><p>Infrastructure upgrades for scale</p></div><div style='flex:1; background:#f0f4f8; padding:30px; border-radius:8px;'><h3 style='color:#15396b;'>Inflation</h3><p>Operational cost pressures</p></div></div>

<b>Important Insight:</b> These costs are largely non-recurring/stabilizing and are supportive of long-term profitability.

Balance Sheet Stability

• Balance sheet remains stable year over year.<br>• No material deterioration in liquidity.<br>• Working capital remains under control.<br><br><b>Management View:</b><br>• Current position supports continued growth.<br>• No near-term financing pressure.

Forward-Looking Cost Strategy

<b>Cost Control & Operating Leverage (Q2–Q4)</b><br>• Slowing operating expense growth.<br>• Improving operating leverage.<br>• Maintaining gross margin discipline.<br><br><b>Expectation</b><br>• Revenue growth should translate more directly into bottom-line results over time.

Management Commitment

✓ Continued cost discipline<br><br>✓ Strong compliance and risk management<br><br>✓ Focus on sustainable, profitable growth<br><br>✓ Transparent reporting and controls

Q1 FY25 Summary

• Strong revenue growth & improved gross margins<br>• Operating costs increased for strategic/defensive reasons<br>• Business fundamentals remain healthy

“Q1 costs reflect discipline, risk management, and preparation for sustainable growth — not loss of control.”