| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥2347.0B | ¥2078.2B | +12.9% |
| Operating Income / Operating Profit | ¥271.4B | ¥236.6B | +14.7% |
| Ordinary Income | ¥271.3B | ¥239.3B | +13.4% |
| Net Income / Net Profit | ¥178.7B | ¥119.2B | +49.9% |
| ROE | 20.7% | 16.3% | - |
For the fiscal year ended February 2026, PAL Group Holdings achieved revenue of ¥2,347.0B (YoY +¥268.8B +12.9%), Operating Income of ¥271.4B (YoY +¥34.8B +14.7%), Ordinary Income of ¥271.3B (YoY +¥32.0B +13.4%), and Net Income attributable to owners of the parent of ¥177.1B (YoY +¥58.7B +49.5%), delivering both top- and bottom-line growth. Operating margin improved to 11.6% (up +0.2pt from 11.4% a year earlier), ROE remained high at 20.7%, and gross margin improved to 56.7% (up +0.7pt from 56.0%), indicating enhanced profitability. Net income rose substantially due to a reduction in impairment losses (¥551M in the prior year → ¥293M in the current period) and recognition of negative goodwill income of ¥235M. By segment, the Apparel Business recorded revenue of ¥1,448.5B (+13.3%) and Operating Income of ¥188.9B (+4.0%), while the Goods Business posted revenue of ¥895.5B (+12.4%) and Operating Income of ¥82.6B (+49.3%), with notable profitability improvement in Goods. Financially, cash and deposits stood at ¥962.6B, Equity Ratio improved to 52.4% (prior year 50.8%), and Free Cash Flow was ¥171.2B—sufficient to cover dividends and capital expenditures.
[Revenue] Revenue reached ¥2,347.0B (+12.9%), achieving double-digit growth. The Apparel Business accounted for ¥1,448.5B (+13.3%) or 61.7% of total sales, and the Goods Business ¥895.5B (+12.4%) or 38.1%. Cost of goods sold ratio improved to 43.3% (down ▲0.7pt from 44.0% a year earlier), resulting in gross margin of 56.7% (up +0.7pt from 56.0%) as product mix and markup management effects materialized. Segmental sales composition changes were minor, with both businesses showing roughly similar growth rates.
[Profitability] From gross profit of ¥1,330.5B (gross margin 56.7%), SG&A amounted to ¥1,059.1B (SG&A ratio 45.1%, up +0.5pt from 44.6%), yielding Operating Income of ¥271.4B (Operating margin 11.6%). Within SG&A, rent was the largest item at ¥263.7B (11.2% of revenue), expanding +12.4% YoY in line with sales growth. Retirement benefit expenses were minor at ¥0.17B, while provision for directors' bonuses increased to ¥20.5B (YoY +¥9.7B), reflecting higher performance-linked compensation. Non-operating items were minimal, net ▲¥0.2B (Non-operating income ¥2.2B, Non-operating expenses ¥2.4B), with equity-method investment income contributing ¥2.8B. Extraordinary items were net ▲¥0.22B, where negative goodwill income of ¥0.24B and impairment losses of ¥0.29B offset, reducing special losses from ¥0.42B in the prior year. Pre-tax profit was ¥269.1B (difference from Ordinary Income ▲¥0.22B due to special items), and after income taxes of ¥90.3B (effective tax rate 33.6%), Net Income attributable to owners of the parent was ¥177.1B (Net margin 7.6%). Net margin improved +1.8pt YoY, aided by reduced special losses and improved gross margin.
By segment, the Apparel Business’ operating margin fell to 13.0% (prior year 14.2%, ▲1.2pt) due to higher SG&A, while the Goods Business’ operating margin improved to 9.2% (prior year 7.0%, +2.2pt) driven by cost improvements and SKU mix effects. Other segments posted an operating loss of ¥0.7B (prior year ▲¥0.7B). In summary, the company delivered revenue and profit growth, slight increase in operating margin, and a substantial rise in Net Income due to lower special losses.
The Apparel Business recorded revenue of ¥1,448.5B (+13.3%), Operating Income of ¥188.9B (+4.0%), and an Operating margin of 13.0% (prior year 14.2%), with margin compression driven by higher SG&A ratios. Increases in fixed costs such as rent and labor appear to have limited profit growth. The Goods Business achieved revenue of ¥895.5B (+12.4%), Operating Income of ¥82.6B (+49.3%), and Operating margin of 9.2% (prior year 7.0%), with significant profitability improvement due to gross margin enhancement and cost control. The Goods Business’ operating income growth of +49.3% substantially outpaced its sales growth of +12.4%, indicating structural profitability improvement. Other segments recorded revenue of ¥0.5B (▲7.2%) and an operating loss of ¥0.7B, both immaterial in scale and impact. Apparel provides scale advantages, while Goods delivers growth and margin improvement as a portfolio strength.
[Profitability] ROE was 20.7%, improving +4.1pt YoY. DuPont decomposition shows Net margin 7.6% (prior 5.7%, +1.9pt), Total Asset Turnover 1.43x (prior 1.41x), and Financial Leverage 1.91x (prior 2.01x), indicating Net margin improvement as the primary driver. Operating margin edged up to 11.6% (prior 11.4%, +0.2pt), with gross margin at 56.7% (prior 56.0%, +0.7pt) partially offset by SG&A ratio rising to 45.1% (prior 44.6%, +0.5pt). Compared to industry, Operating margin 11.6% greatly exceeds the industry median of 4.6%, and Net margin 7.6% exceeds the industry median of 3.3%. ROE of 20.7% far outperforms the industry median of 5.9%, highlighting strong profitability.
[Cash Quality] Operating Cash Flow was ¥213.3B versus Net Income of ¥177.1B, yielding an Operating CF / Net Income ratio of 1.20x, signifying high cash quality. Operating CF before working capital changes (operating CF subtotal) was ¥312.1B, and Operating CF / EBITDA (EBITDA = Operating Income + Depreciation = ¥304.0B) was 0.70x—relatively low—affected by tax payments of ¥99.2B, increase in accounts receivable ¥26.0B, and increase in inventories ¥13.6B. Increase in accounts payable of ¥76.6B partially offset these. Cash conversion (Operating CF / Operating Income) was 0.79x, below the industry median of 1.57x, indicating room to improve working capital management.
[Investment Efficiency] Total Asset Turnover was 1.43x, above the industry median 1.17x, indicating efficient asset use. CapEx was ¥34.4B versus Depreciation ¥31.6B, giving a CapEx/Depreciation ratio of 1.09x, roughly in line with the industry median 1.16x, suggesting a balance between growth and maintenance investment. Inventory turnover days were 65 days (Inventories ¥180.8B / COGS ¥1,016.5B × 365 days), roughly in line with the industry median 65.68 days, but inventories increased ¥13.5B YoY (¥167.3B → ¥180.8B), indicating a slight deterioration. Receivables turnover days were 46 days (Receivables ¥128.8B / Revenue ¥2,347.0B × 365 days), above the industry median 21.05 days, suggesting longer collection periods. Payables turnover days were 92 days (Payables ¥257.2B / COGS ¥1,016.5B × 365 days), well above the industry median 39.35 days, with favorable payment terms supporting liquidity. Net working capital (Receivables + Inventories − Payables) was ¥5.24B, and net working capital turnover days were 19 days (¥5.24B / COGS ¥1,016.5B × 365 days), well below the industry median 39.62 days, indicating generally good working capital management.
[Financial Soundness] Equity Ratio was 52.4% (prior year 50.8%, +1.6pt), above the industry median 50.2%, signaling high financial stability. Current ratio was 219% (Current assets ¥1,287.6B / Current liabilities ¥587.6B), above the industry median 184%, indicating ample short-term liquidity. Against interest-bearing debt (short-term borrowings ¥8.0B + long-term borrowings ¥113.9B + lease liabilities, etc.), cash and deposits were ¥962.6B, resulting in a large net cash position. Net Debt / EBITDA was ▲2.79x (negative due to net cash), more conservative than the industry median ▲0.59x. Interest coverage (Operating CF ¥213.3B / Interest paid ¥1.6B) was 133x, extremely high, indicating minimal interest burden. Asset retirement obligations of ¥51.3B account for 6.6% of total liabilities (¥51.3B / Total liabilities ¥783.3B) and should be monitored as a potential cash outflow risk for store closures or asset dismantling.
Operating CF was ¥213.3B (YoY ▲3.2%), derived from operating CF subtotal (before working capital changes) of ¥312.1B less working capital movements and tax payments. Key drivers included inventory increase of ¥13.6B (prior year inventory decrease ¥12.0B, which contributed cash), accounts receivable increase of ¥26.0B (prior year decrease ¥9.8B), and accounts payable increase of ¥76.6B (prior year decrease ¥21.1B). Inventory build and receivables increase pressured Operating CF, partially offset by higher payables. Income tax payments rose substantially to ¥99.2B (prior year ¥51.1B), reflecting higher tax burden. Investing CF was net ▲¥42.1B (prior year +¥7.9B), driven by capital expenditures of ¥34.4B (prior year ¥28.8B) and intangible asset acquisitions of ¥1.4B (prior year ¥4.8B). The prior year included ¥51.2B cash inflow from subsidiary acquisition, making investing CF positive then; absent that this period shows ordinary capex outflow. Financing CF was net ▲¥65.9B (prior year ▲¥43.6B), driven by long-term borrowings repayments of ¥117.8B (prior year ¥110.5B) and dividend payments of ¥52.1B (prior year ¥43.4B). Long-term borrowings procured were ¥109.6B (prior year ¥113.9B), roughly stable, but repayments exceeded new borrowings, reducing net debt. Free Cash Flow (Operating CF + Investing CF) was ¥171.2B, covering dividends ¥52.1B and CapEx ¥34.4B (total ¥86.5B) by about 2x, supporting sustainable returns. Cash and deposits increased from ¥85.7B at the beginning of the period to ¥96.3B at the end (increase of ¥105.5B), including foreign exchange adjustments of ¥2.2B, confirming cash generation capacity.
Operating Income of ¥271.4B forms the core of earnings, with non-operating income ¥2.2B (equity-method income ¥2.8B, interest income ¥0.2B, etc.) and non-operating expenses ¥2.4B (interest expense ¥1.6B, etc.) being minor, indicating recurring revenue structure. Extraordinary items were net ▲¥0.22B, where negative goodwill income of ¥0.24B (one-off gain on subsidiary acquisition) and impairment losses of ¥0.29B (disposal of underperforming store assets, etc.) offset, reducing special losses from ¥0.42B (impairments ¥0.55B) in the prior year. Impairment losses decreased ▲46.8% from ¥551M to ¥293M, suggesting progress in structural reforms. Ordinary Income ¥271.3B vs. Pre-tax profit ¥269.1B (difference ▲¥0.22B) reflects special items, and tax burden to Net Income ¥177.1B was ¥90.3B (effective tax rate 33.6%), within normal range. The accrual ratio ((Net Income − Operating CF) / Total Assets) is ▲2.2% ((¥177.1B − ¥213.3B) / ¥1,645.0B), negative, indicating cash generation exceeds reported profit and high quality of earnings. Operating CF / Net Income is 1.20x, showing most profits are cash-backed. However, Operating CF / EBITDA is 0.70x—lower—impacted by working capital increases (Inventories +¥13.6B, Receivables +¥26.0B) and higher tax payments (¥99.2B). The gap between Ordinary Income and Net Income (¥271.3B → ¥177.1B) is mainly attributable to income taxes ¥90.3B; special items ▲¥0.22B are minor. Overall, earnings are driven by operating activities, with limited impact from non-operating and extraordinary items, and solid cash backing.
Full-year guidance is Revenue ¥2,530.0B (+7.8%), Operating Income ¥294.0B (+8.3%), Ordinary Income ¥294.0B (+8.4%), and Net Income attributable to owners of the parent ¥190.0B (+7.2%). Progress toward guidance stands at 92.8% for Revenue, 92.3% for Operating Income, 92.3% for Ordinary Income, and 93.2% for Net Income. Reasons actuals slightly lag guidance may include Apparel Business Operating Income growth only +4.0%—below plan—and higher-than-expected SG&A ratio (rent +12.4%, provision for directors’ bonuses +¥9.7B, etc.). Conversely, Goods Business Operating Income grew +49.3%, likely exceeding forecasts. Guidance remains unchanged, but the company needs to recover sales and profits in the remaining period. Dividend forecast is unchanged at year-end ¥40 (annual ¥40), implying a payout ratio of approximately 44.0% based on full-year Net Income guidance of ¥190.0B—seen as conservative.
Dividends are set at year-end ¥40 (annual ¥40), representing a payout ratio of 44.0% (based on full-year Net Income guidance ¥190.0B). Prior year dividend not disclosed (possible change in disclosure format due to stock split), but total dividends this period amounted to ¥52.1B (prior year ¥43.4B), a +20.1% increase on a total-dividend basis. No share buybacks were conducted in the current or prior period (buyback amount ¥0). Free Cash Flow of ¥171.2B versus dividends ¥52.1B yields a dividend payout on Free Cash Flow basis of 30.4%, indicating ample room and high dividend sustainability. With cash and deposits ¥962.6B, a net cash position, and Equity Ratio 52.4%, the financial position supports continued dividends and potential increases. The dividend policy—payout ratio 44.0%—indicates a stable dividend approach with room for growth in line with profit increases. Total return ratio is 44.0% (dividends only, no buybacks), reflecting a policy prioritizing balance between growth investment and shareholder returns.
Risk of deteriorating inventory turnover: Inventories increased ¥13.5B YoY (+8.1%), with inventory turnover days at 65 days—near industry median—but inventory growth (+8.1%) lags sales growth (+12.9%), indicating slight deterioration in efficiency. There is risk of higher markdown rates and gross margin erosion from excess inventory. While net working capital is healthy, inventory-specific stagnation should be monitored.
Risk of margin pressure from rising rent and fixed costs: Rent totaled ¥263.7B (11.2% of revenue), up +12.4% YoY, raising SG&A by +0.5pt. The Apparel Business’ Operating margin declined to 13.0% (prior 14.2%, ▲1.2pt), suggesting rent inflation and labor cost increases are pressuring margins. Continued rent increases could weaken operating leverage and profitability.
Future cash outflow risk from asset retirement obligations: Asset retirement obligations totaled ¥51.3B (6.6% of liabilities). Although actual payments this period were ¥1.3B, strategic store closures or mass exits could trigger material one-off cash outflows and profit pressure.
[Industry Position] (Reference data compiled by the Company) Within domestic retail, PAL Group Holdings ranks in the upper tier on profitability. Operating margin 11.6% significantly exceeds the industry median 4.6%, and Net margin 7.6% exceeds the industry median 3.3%. ROE 20.7% is approximately 3.5x the industry median 5.9%, underscoring high capital efficiency. Financial safety is also above peers: Equity Ratio 52.4% vs. industry median 50.2%, and Current ratio 219% vs. industry median 184%. Net Debt / EBITDA of ▲2.79x is more conservative than the industry median ▲0.59x, indicating near net-debt-free financials. In growth, Revenue growth +12.9% far outpaces the industry median +4.3%, confirming high growth. Conversely, Cash Conversion rate 0.79x is below the industry median 1.57x, suggesting room for working capital improvement. Total Asset Turnover 1.43x exceeds the industry median 1.17x, indicating good asset efficiency. Payout ratio 44.0% is above the industry median 27.0%, reflecting an active shareholder return stance. Overall, the company ranks highly in profitability, growth, and financial safety, with improvement in cash conversion as the next challenge.
Key points from the results are as follows. First, gross margin improved to 56.7% (YoY +0.7pt) and Operating margin edged up to 11.6% (YoY +0.2pt), confirming the benefits of product mix and markup management; however, SG&A ratio rose to 45.1% (YoY +0.5pt), limiting margin expansion. Rent increases were a primary driver, making rent negotiation power and improving sales per square meter key to enhancing operating leverage. Second, the Goods Business delivered a significant Operating Income increase of +49.3% and Operating margin improvement to 9.2% (prior 7.0%, +2.2pt), diversifying group profitability. Given the Apparel concentration (61.7% of revenue), high-growth Goods contributes to overall earnings stability. Third, the company maintained high capital efficiency with ROE 20.7% while pursuing shareholder returns—payout ratio 44.0%—and Free Cash Flow ¥171.2B comfortably covers dividends ¥52.1B and CapEx ¥34.4B, indicating a sustainable financial structure. Fourth, while Operating CF / Net Income 1.20x shows high earnings quality, Operating CF / EBITDA 0.70x indicates working capital efficiency needs improvement; shortening inventory days (65 days) and maintaining payables advantage will help strengthen cash generation.
This report is an earnings analysis document automatically generated by AI from XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company from public financial statements. Investment decisions are your responsibility; consult professionals as necessary.