HONEYS HOLDINGS (2792) FY2027 Q1 Earnings Report

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Executive Summary

In FY2027 Q1, earnings declined at a faster pace than revenue, making deteriorating profitability the main issue in the results. Revenue was ¥12.97B (down 6.7% YoY), Operating Income was ¥0.59B (down 51.1%), Ordinary Income was ¥0.69B (down 45.5%), and Net Income was ¥0.38B (down 52.6%). In addition to lower revenue in the core Japan Business, a higher SG&A expense ratio and the Myanmar Business’s shift to a loss weighed on earnings.

Factors Behind Performance Changes

【Revenue】Revenue was ¥12.97B, down 6.7% YoY. By segment, Japan recorded ¥12.97B (down 6.7% YoY, accounting for all consolidated revenue), while Myanmar (intersegment revenue) recorded ¥0.52B (down 15.8%); both segments posted lower revenue.

【Profit and Loss】Gross profit was ¥7.64B (gross margin of 58.9%, down approximately 70bp from 59.6% in the prior-year period), while SG&A expenses were ¥7.05B (SG&A ratio of 54.4%, up approximately 340bp from 50.9%). Operating Income was ¥0.59B (operating margin of 4.5%, down approximately 410bp from 8.7% in the prior-year period). The biggest factor was the inability to reduce SG&A expenses despite lower revenue. A foreign exchange gain of ¥0.12B contributed to Ordinary Income, partially offsetting the decline in core operating earnings. However, an impairment loss of ¥0.05B (extraordinary loss) was recorded at stores in Japan, reducing Net Income to ¥0.38B. The effective tax rate rose to 40.6% (from 34.9% in the prior-year period), also weighing on the conversion of pretax income to Net Income. Overall, both revenue and earnings declined.

Segment Analysis

The Japan segment, the core business, recorded revenue of ¥12.97B (down 6.7% YoY) and Operating Income of ¥0.57B (down 52.2%, with a margin of 4.4%), indicating a substantial deterioration in profitability. The Myanmar segment’s intersegment revenue was ¥0.52B (down 15.8% YoY), while its operating result shifted from a profit of ¥0.05B in the year-ago period to a loss of ¥0.2B (margin of approximately -38.2%). Intersegment eliminations account for the difference between the combined segment operating results and consolidated Operating Income of ¥0.59B. The earnings structure is highly dependent on the Japan Business, and declining profitability at domestic stores directly affects consolidated performance.

Key Financial Metrics

【Profitability】The operating margin was 4.5%, down approximately 410bp from 8.7% in the prior-year period, while the net margin also declined to 2.9% from 5.7%. Annualized ROE was 3.1%, down from approximately 6.5% in the prior-year period, primarily due to the lower net margin. 【Cash Flow Quality】Ordinary Income of ¥0.69B includes a foreign exchange gain of ¥0.12B, a highly transitory item accounting for approximately 16.9% of Ordinary Income. 【Investment Efficiency】Annualized ROIC was 4.2%, annualized days inventory outstanding were 168 days, and annualized CCC was 178 days; all exceed general retail benchmarks, indicating challenges with inventory efficiency. 【Financial Soundness】The Equity Ratio was 86.2% (85.2% in the prior-year period), the current ratio was 836.5%, and cash and deposits totaled ¥15.42B, reflecting a conservative and substantial financial foundation.

Cash Flow Analysis

As cash flow statement data was not provided, cash movements are analyzed based on changes in the balance sheet. Cash and deposits were ¥15.42B, up from ¥15.11B at the end of the prior year, and liquidity has been maintained. Accounts receivable were ¥2.78B, down ¥1.89B from ¥4.67B in the prior-year period—a decline exceeding the decrease in revenue (-6.7%). Meanwhile, accounts payable increased by ¥0.14B to ¥0.53B from ¥0.39B in the prior-year period. These balance changes tend to reduce the working capital burden, but they are period-end comparisons and do not represent the actual cash inflows during the quarter. Inventory was ¥9.8B, down only approximately 3.5% YoY, a smaller reduction than the decline in revenue; the continued tying up of funds in inventory warrants attention.

Earnings Quality

Ordinary Income of ¥0.69B includes a foreign exchange gain of ¥0.12B, equivalent to approximately 16.9% of Ordinary Income. This is a highly transitory, non-recurring item and should be evaluated separately from the recurring earnings capacity of the store business. In addition, an impairment loss of ¥0.05B was recorded as an extraordinary loss in the Japan segment, up from ¥0.04B in the year-ago period. Inventory accounts for 17.4% of total assets, while annualized days inventory outstanding of 168 days and annualized CCC of 178 days exceed general benchmarks. Inventory obsolescence risk should therefore be considered when assessing the quality of cost of sales and gross margins. The effective tax rate rose to 40.6% (from 34.9% in the prior-year period), weighing on the conversion of pretax income to Net Income; changes in the tax burden are also a factor that cannot be ignored in assessing earnings quality.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥56.5B (up 0.6% YoY), Operating Income of ¥4B (down 13.4%), Ordinary Income of ¥4B (down 17.7%), and Net Income of ¥2.5B (down 12.2%). Q1 progress rates were 23.0% for revenue, 14.8% for Operating Income, 17.3% for Ordinary Income, and 15.0% for Net Income. Operating Income was approximately 10.3 percentage points below the 25% benchmark for an equal quarterly contribution. To achieve the Operating Income forecast, a total of ¥3.41B, or an average of approximately ¥1.14B per quarter, will be required over the remaining three quarters—approximately 1.9x Q1 actual Operating Income of ¥0.59B. Neither the earnings forecast nor the dividend forecast has been revised.

Shareholder Returns

The full-year dividend forecast is ¥55 per share, and forecast EPS is ¥89.67, resulting in an implied payout ratio of approximately 61.3%. This ratio covers dividends only and is not the Total Return Ratio, which includes share repurchases. Based on the weighted-average number of shares during the period, estimated annual total dividends are approximately ¥1.53B, within the forecast Net Income of ¥2.5B. However, simply annualizing Q1 Net Income of ¥0.38B yields approximately ¥1.5B, slightly below the annual dividend total. Dividend sustainability therefore depends on the earnings recovery from Q2 onward assumed in the full-year forecast. The dividend forecast has not been revised.

Risk Factors

1. Deteriorating profitability in the domestic apparel business: Operating Income in the Japan segment, which accounts for virtually all consolidated revenue, was ¥0.57B, down 52.2% YoY, and the operating margin fell to 4.4%. Consolidated performance is structurally affected by domestic demand and the competitive environment.

2. Inventory and working capital accumulation: Annualized days inventory outstanding were 168 days, annualized CCC was 178 days, and inventory of ¥9.8B accounted for 17.4% of total assets. The decline in inventory (-3.5%) was smaller than the decline in revenue (-6.7%), leaving future risks of markdowns and lower gross margins due to unsold goods.

3. Deterioration in Myanmar Business earnings: Segment operating results shifted from a profit of ¥0.05B in the year-ago period to a loss of ¥0.2B (margin of approximately -38.2%). In addition to local business profitability, the business structure is susceptible to foreign exchange and country risks.

Industry Benchmarks (Reference; Compiled by the Company)

Profitability and Returns

Margins are above the industry median, indicating that profitability itself is not relatively weak.

Growth and Capital Efficiency

Revenue growth is substantially below the industry median, making top-line weakness a relative challenge within the industry.

※Source: Compiled by the company

Key Points to Watch in the Results

1. Revenue and earnings both declined in the core Japan Business, and the full-year progress rate for Operating Income was 14.8%, approximately 10.3 percentage points below the standard 25%. The pace of earnings recovery over the remaining three quarters is a key focus in the reported results.

2. The foreign exchange gain of ¥0.12B accounted for ¥0.69B of Ordinary Income, partially offsetting deteriorating profitability in the core business. Understanding the level of underlying business earnings excluding this transitory factor is important for assessing earnings quality.

3. Working capital remains tied up, with annualized days inventory outstanding of 168 days and annualized CCC of 178 days. This is a structural efficiency challenge underlying the strong financial position reflected in an Equity Ratio of 86.2% and a current ratio of 836.5%.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,486–¥1,569 for a ±1% change in the cost of equity; ¥1,520–¥1,531 for a ±0.1 change in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of quarter-end are used (there is a timing difference versus the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated solely from publicly available data; this is not a forecast of market share prices or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI from XBRL earnings release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and, where necessary, after consulting a professional.

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