This week, Shimano released its third-quarter results, revealing a 12% decline in bicycle parts sales when compared to the same period in 2023 (the first nine months of the year).

Sales were 253.8 billion yen (£1.28 billion) and profits fell 26% to 41.3 billion yen (£207 million), which at first glance appears to be a negative picture, but Shimano's analysis of the situation is optimistic.

He cited the ongoing war in Ukraine and tensions in the Middle East as reasons for “downward pressure on the economic situation,” but suggested that the global economy was showing “signs of picking up” as a result of high inflation caused by subsidies. He added that Europe “is beginning to show signs of recovery,” while in the U.S. “the pace of economic expansion is modest.”

Analyzing long-term trends, Shimano's business appears to be still stable after the peak experienced as a result of the pandemic.

Shimano has two main business divisions. The bicycle division accounts for about 75% of sales, while fishing tackle accounts for the bulk of the remaining 25%.

As far as the bicycle industry is concerned, if one normalizes the extraordinary years triggered by the pandemic, the company's sales have been slowly increasing since 2013, as the graph below shows.

Overlaying operating income (real brand profit) on the same graph shows that it has remained steady.

Over the four years from FY16 to FY19, sales increased from 259 billion yen to 290 billion yen, yet profits remained at 57 billion yen.

Next, if we overlay the profit margin, we see the following.

Projected net sales of 348 billion yen and projected operating income of 55.5 billion yen. Shimano's forecast profit margin for FY24 is the lowest in the past decade. Operating income from the company's bicycle division is in line with pre-pandemic growth, and profit margins appear to be following a pre-pandemic trajectory.

Given the significant impact of the pandemic, it is not clear whether the 2023 and 2024 data are reliable indicators of future performance, or whether the industry, and by extension Shimano, will continue to experience peaks and troughs over the next several years.

It should also be remembered that in September 2023, Shimano announced a recall of over 1 million Ultegra and Dura-Ace cranksets and later claimed that the recall would cost $18 million.

However, that data has not yet been included in the FY24 financial results; in the FY22 and FY23 year-end results, the “voluntary recall” is listed as a non-operating expense line item, estimated at 1 million yen ($6,500) for FY22 and 1.4 billion yen ($9,000,000) for FY23

However, the market is not yet fully developed.

However, the voluntary recall is not included in this Q3 report. It is simply listed under “Other” in the amount of 1.9 billion yen, but we will probably have to wait for the year-end results to see its latest cost.

In May, Shimano launched a 12-speed version of its GRX gravel loop set, which Shimano highlights elsewhere in the report. Shimano emphasizes this elsewhere in the report. Shimano states that the group “received positive feedback on the product,” where it also mentions the 2023 launch of the 105 groupset for road use.

Given Shimano's size and its prevalence in all bikes, from grassroots to high-end, the Japanese brand is seen as a bellwether for the health of the broader bicycle industry. Their performance in various geographic markets also provides insight into the global state of the industry.

For example, according to the report, total projected sales in Europe will equal pre-pandemic levels in FY24, while the Chinese market will surpass even the peak of the pandemic, more than doubling total sales in 2019.

It is also interesting to note that sales to North America account for only about 6% of total sales, while Europe accounts for over 40%.