Quick View
| Metric | Current Period | Same Period Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥346.9B | ¥333.4B | +4.0% |
| Operating Income | ¥24.2B | ¥16.5B | +46.8% |
| Ordinary Income | ¥24.5B | ¥16.7B | +46.9% |
| Net Income | ¥16.1B | ¥11.3B | +42.9% |
| ROE | 12.2% | 9.4% | - |
Executive Summary
For the cumulative Q3 period of FY2026, operating income increased substantially faster than revenue, clearly demonstrating improved profitability. Revenue was ¥346.9B (up +4.0% year on year), operating income was ¥24.2B (up +46.8%), ordinary income was ¥24.5B (up +46.9%), and net income attributable to owners of the parent was ¥16.1B (up +42.9%). The primary drivers of earnings growth were expanded sales and improved margins in the core PC and Gaming Business, with higher gross profit margins and relative control of SG&A expenses lifting the operating margin to 7.0%.
Factors Affecting Business Performance
【Revenue】Revenue was ¥346.9B, representing a +4.0% year-on-year increase. By segment, the PC and Gaming Business led growth with revenue of ¥270.1B (77.9% of total, up +13.3% year on year), while the Cosmetics and General Merchandise Business reported revenue of ¥74.6B (21.5% of total, down △19.3%), and the Publishing and Advertising Business also declined to ¥2.4B (down △10.5%). Overall revenue growth was achieved through a high dependence on the core business.
【Profit and Loss】Operating income was ¥24.2B (up +46.8% year on year), ordinary income was ¥24.5B (up +46.9%), and net income was ¥16.1B (up +42.9%), with earnings growth substantially exceeding revenue growth. The gross profit margin improved to 23.5% from 21.4% in the previous year, while the SG&A expense ratio remained almost flat at 16.5% (approximately 16.5% in the previous year), allowing the improvement in gross profit to flow directly through to earnings as operating leverage. The increase in the profit margin of the PC and Gaming Business to 8.5% (approximately 6.3% estimated for the previous year) was the central factor behind the improvement in the overall profit margin. Meanwhile, the Cosmetics and General Merchandise Business reported a segment loss of ¥0.2B (△¥0.1B in the previous year), indicating a widening deficit. Non-operating income and expenses were immaterial, and the difference between ordinary income and operating income was small, indicating that earnings growth resulted from improved profitability in the core business. In conclusion, the Company achieved both revenue and earnings growth, and the earnings growth rate of +46.8%, exceeding the revenue growth rate of +4.0%, indicates an improvement in profitability driven by the business structure.
Segment Analysis
The PC and Gaming Business reported revenue of ¥270.1B (up +13.3% year on year) and segment income of ¥23.0B (up +53.4%), making it the core business and accounting for the majority of consolidated operating income of ¥24.2B. The Cosmetics and General Merchandise Business reported revenue of ¥74.6B (down △19.3%) and a segment loss of ¥0.2B (△¥0.1B in the previous year), with both revenue declining and the deficit widening. The Publishing and Advertising Business reported revenue of ¥2.4B (down △10.5%) and segment income of ¥0.2B (down △44.4%), indicating a contractionary trend. Overall earnings growth is concentrated in the PC and Gaming Business, with growth in the core business offsetting the contraction and widening losses in the other two businesses.
Key Financial Indicators
【Profitability】The operating margin was 7.0% and the net profit margin was 4.6%. The improvement in the gross profit margin to 23.5% (approximately 21.4% in the previous year) exceeded the burden of the 16.5% SG&A expense ratio, resulting in margin expansion.【Cash Quality】Although direct verification is not possible because operating cash flow has not been disclosed, accounts receivable of ¥61.0B and inventories of ¥27.4B account for approximately 4割 of total assets. Based on the difference from accounts payable of ¥42.6B, working capital appears to be expanding.【Investment Efficiency】ROE was 12.2%, with improved profitability in net profit margin, total asset turnover, and financial leverage being the primary drivers, while dependence on financial leverage remained limited.【Financial Soundness】The equity ratio was 59.3%, and interest-bearing debt remained limited at ¥2.7B. Current assets of ¥165.1B compared with current liabilities of ¥84.0B resulted in positive working capital of ¥81.1B, indicating a conservative and stable financial foundation.
Cash Flow Analysis
Because no cash flow statement figures were disclosed in these financial results, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥68.8B, up from ¥59.7B in the same period of the previous year, and accounted for 30.8% of total assets. Meanwhile, accounts receivable of ¥61.0B and inventories of ¥27.4B have been trending upward in line with sales growth, and even after considering the funding effect of accounts payable of ¥42.6B, expanding working capital may constrain cash generation. Contract liabilities of ¥29.2B support liquidity as deferred revenue, but going forward, the extent to which operating cash flow tracks net income of ¥16.1B will be key to assessing earnings quality.
Earnings Quality
Earnings growth was achieved through improved profitability in the core business rather than reliance on non-operating income and expenses, and the quality of recurring earnings can be assessed as high. Non-operating income was ¥0.3B and non-operating expenses were ¥0.1B, both small in scale, and the difference between ordinary income of ¥24.5B and operating income of ¥24.2B was immaterial. No extraordinary gains or losses were recorded, indicating that earnings growth resulted from improved gross profit in the core business and relative control of SG&A expenses rather than temporary factors. However, comprehensive income of ¥16.1B was almost identical to net income of ¥16.1B, indicating that the impact of valuation differences on other securities and similar items was extremely small. From an accrual perspective, accounts receivable and inventories may be accumulating ahead of earnings, and consistency with operating cash flow should be monitored going forward.
Earnings Forecast and Guidance
Progress against the full-year forecast was 73.0% for revenue (forecast: ¥475.0B), 83.6% for operating income (forecast: ¥29.0B), 84.4% for ordinary income (forecast: ¥29.0B), and 82.3% for net income (forecast: ¥19.5B). Revenue progress was below the standard 75% progress expected at the Q3 stage, but operating income, ordinary income, and net income each exceeded that benchmark by more than 8pt, indicating progress above plan on the earnings front. The Company is compensating for sluggish revenue growth through improved profitability, and the likelihood of achieving the full-year earnings plan appears high.
Shareholder Returns
A Q2 dividend of ¥50 per share has already been paid, and the full-year forecast dividend is ¥120. The payout ratio, calculated using dividends only as the numerator, remains low at approximately 8.4%. Given the full-year forecast net income of ¥19.5B, cash and deposits of ¥68.8B, and interest-bearing debt of ¥2.7B, the forecast dividend is sufficiently covered by both earnings and cash. However, because operating cash flow has not been disclosed, dividend coverage on a cash basis cannot be confirmed.
Risk Factors
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Risk of concentration of earnings in the core business: Segment income of ¥23.0B from the PC and Gaming Business accounts for the majority of consolidated operating income of ¥24.2B, creating a structure in which fluctuations in demand and price competition in this business directly affect overall performance.
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Risk of deteriorating profitability in the Cosmetics and General Merchandise Business: Revenue declined △19.3% year on year to ¥74.6B, while the segment loss widened to ¥0.2B from ¥0.1B in the previous year, increasing the profitability gap within the business portfolio.
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Risk of expanding working capital: Accounts receivable of ¥61.0B and inventories of ¥27.4B are trending upward, and even after considering the funding effect of accounts payable of ¥42.6B, the funding burden associated with sales growth may constrain cash generation.
Industry Benchmarks (Reference; Compiled by the Company)
Industry Benchmarks (retail)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 7.0% | 3.2% (0.7%–6.8%) | +3.8pt |
| Net Profit Margin | 4.6% | 1.4% (0.1%–4.4%) | +3.3pt |
| Both the operating margin and net profit margin exceed the industry median and upper range, indicating a high level of profitability within the industry. |
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (Year on Year) | 4.0% | 3.0% (1.2%–10.3%) | +1.0pt |
| The revenue growth rate slightly exceeds the industry median but does not reach the upper industry range of 10.3%, placing the Company at a mid-level position in terms of growth. |
※Source: Compiled by the Company
Key Points from the Financial Results
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These financial results demonstrate a structural improvement in profitability originating from higher gross profit margins, as operating income increased +46.8%, substantially exceeding the revenue growth rate of +4.0%.
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While the core PC and Gaming Business improved in both revenue and profit margin, the widening loss in the Cosmetics and General Merchandise Business has emerged as an issue within the business portfolio.
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Progress against the full-year earnings forecast exceeded standard progress, with operating income at 83.6% and net income at 82.3%. Low financial leverage (interest-bearing debt of ¥2.7B) and high liquidity support the stability of the financial foundation.
This report is an automatically generated financial results analysis document created by AI based on XBRL financial results summary data. It does not constitute a recommendation to invest in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available financial results data. Investment decisions should be made at your own discretion and responsibility, and, where necessary, after consulting with a professional.
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AI Financial Analysis
Executive Summary
Applied delivered a strong FY2026 Q3 cumulative earnings performance, with modest sales growth translating into substantially faster profit growth. Revenue increased 4.0% year on year to ¥34.69bn. Operating income rose 46.8% to ¥2.42bn, materially outpacing sales growth. Ordinary income also grew 46.9% to ¥2.45bn. Net income attributable to owners increased 43.3% to ¥1.61bn, equivalent to EPS of ¥593.83. Gross profit expanded 13.8% to ¥8.14bn despite only 4.0% revenue growth. The gross margin improved by approximately 203bp year on year to 23.5% from 21.4%. The operating margin widened by approximately 204bp to 7.0% from 5.0%. The net margin increased by approximately 127bp to 4.6% from 3.4%. The PC and game business was the principal earnings driver, combining 13.3% sales growth with a 53.4% increase in segment profit. This segment’s margin expansion indicates that the earnings improvement was driven primarily by mix, gross-margin improvement and operating leverage rather than financial items. Non-operating items were immaterial, with ordinary income only ¥0.02bn above operating income, supporting the recurring nature of reported profit. The effective tax rate was 34.2%, producing a tax burden factor of 0.656 and modestly constraining conversion of pretax profit into net profit. The balance sheet remains conservatively financed, supported by ¥6.88bn of cash and only ¥0.27bn of long-term loans. However, inventories increased 171.1% year on year to ¥2.74bn, a material development that requires monitoring against demand, product cycles and potential markdown risk. The company has achieved 73.0% of its full-year sales forecast and 83.6% of its operating-income forecast by Q3, indicating that the existing earnings plan appears achievable if profitability is maintained through the final quarter. The full-year dividend forecast of ¥120 per share implies a modest payout ratio of approximately 16.6% against forecast EPS of ¥721.45, leaving considerable earnings retention capacity.
Profitability Analysis
Annualized DuPont ROE is 16.2%, exceeding the 15% benchmark for strong shareholder returns. The decomposition consists of a 4.6% net profit margin, annualized asset turnover of 2.072x, and financial leverage of 1.69x. The most meaningful improvement was margin-led: operating margin rose to 7.0% from approximately 5.0% in the prior-year period, while gross margin increased to 23.5% from approximately 21.4%. This indicates that gross-profit expansion, rather than balance-sheet leverage, was the main driver of improved returns. SG&A expenses increased 4.0% to ¥5.72bn, matching revenue growth and leaving the SG&A-to-sales ratio broadly stable at 16.5%. Consequently, the approximately ¥0.99bn increase in gross profit flowed efficiently into operating income, demonstrating favorable operating leverage. The PC and game business is the core business, contributing ¥27.01bn of revenue, or 77.9% of consolidated sales, and ¥2.30bn of segment profit. Its segment profit margin improved to 8.5% from 6.3% a year earlier. Cosmetics and miscellaneous goods generated ¥7.46bn of sales but recorded a segment loss of ¥0.03bn, compared with a ¥0.01bn loss in the prior year. Publishing and advertising remained profitable, but its segment profit declined to ¥0.02bn from ¥0.04bn and its margin contracted to 8.2% from 13.4%. Interest coverage of 808.0x confirms that interest costs are immaterial to profitability. The tax burden factor of 0.656 is below the 0.70 reference level, reflecting an effective tax rate of 34.2%; this is a modest drag on net-margin conversion rather than an operating concern.
Growth Assessment
Sales growth of 4.0% was concentrated in the PC and game business, where revenue increased ¥3.16bn, or 13.3%, to ¥27.01bn. This more than offset a ¥1.78bn, or 19.3%, decline in cosmetics and miscellaneous goods sales to ¥7.46bn. Publishing and advertising revenue declined 10.5% to ¥0.22bn. Consolidated growth is therefore increasingly dependent on the PC and game business, both for revenue and profit generation. The PC and game segment’s ¥0.80bn profit increase was greater than the consolidated operating-income increase after considering weaker results in the other operating segments. The improvement in gross margin suggests enhanced product mix, procurement conditions or pricing discipline, although sustainability will depend on maintaining those economics in the final quarter. The full-year plan calls for revenue of ¥47.50bn, up 0.4% year on year, and operating income of ¥2.90bn, up 8.7%. Q3 cumulative sales represent 73.0% of the annual target, 2.0 percentage points below the standard 75% Q3 progress level. Operating income represents 83.6% of the target, 8.6 percentage points above standard progress, while net income attributable to owners represents 82.3% of the ¥1.95bn forecast. The forecast therefore implies a lower operating margin in Q4 than the 7.0% achieved cumulatively through Q3. This may reflect normal sales seasonality, planned promotional activity, a less favorable expected mix, or prudence in the company’s forecast. Maintaining inventory discipline will be important because the PC and gaming categories can face rapid technology transitions and price deflation.
Financial Health
Liquidity is strong, with a current ratio of 196.6% and a quick ratio of 164.1%, both comfortably above healthy reference levels. Current assets of ¥16.51bn exceed current liabilities of ¥8.40bn by working capital of ¥8.11bn. Cash and deposits of ¥6.88bn alone cover 82.0% of current liabilities. Trade receivables were ¥6.10bn and inventories were ¥2.74bn, while trade payables were ¥4.26bn. The company also carries ¥2.92bn of contract liabilities, which provide a meaningful source of operating funding and may reflect customer advances or prepaid balances. Total liabilities were ¥9.08bn against total equity of ¥13.24bn; the reported debt-to-equity ratio of 0.69x remains below the 1.0x conservative benchmark. Interest-bearing debt is particularly low at ¥0.27bn, equivalent to only 2.0% of capital, and long-term loans declined from ¥0.31bn a year earlier. There is no material maturity mismatch apparent, as current assets substantially exceed current liabilities and debt is limited relative to liquid resources. Equity increased ¥1.29bn year on year to ¥13.24bn, supported principally by earnings retention. The principal balance-sheet issue is the sharp inventory build, which increased ¥1.73bn year on year to ¥2.74bn and rose to 12.3% of total assets. This expansion was partly accompanied by lower receivables, which declined ¥1.23bn to ¥6.10bn, but inventory monetization remains important for cash discipline. Property, plant and equipment totaled ¥4.87bn, including land of ¥2.37bn and buildings of ¥1.93bn, indicating a tangible-asset base rather than acquisition-related intangible dependence. Intangible assets were only 0.1% of total assets, limiting goodwill and intangible-asset impairment exposure.
Notable B/S Changes
Inventories: +¥1.73bn (+171.1%) to ¥2.74bn - a significant working-capital build that may support sales availability but heightens technology obsolescence, markdown and cash-conversion risk. Cash and deposits: +¥0.91bn (+15.2%) to ¥6.88bn - strengthens liquidity and provides a substantial buffer against working-capital volatility. Accounts receivable: -¥1.23bn (-16.8%) to ¥6.10bn - supportive of collection efficiency and partly offsets the inventory-led increase in operating capital. Accounts payable: +¥0.63bn (+17.5%) to ¥4.26bn - adds supplier financing and supports the company’s working-capital position. Contract liabilities: +¥0.52bn (+21.7%) to ¥2.92bn - provides additional operating funding through customer-related advance balances. Property, plant and equipment: +¥0.30bn (+6.6%) to ¥4.87bn, including construction in progress of ¥0.42bn versus ¥0.01bn - indicates ongoing tangible-asset investment that should be monitored for returns and utilization.
Cash Flow Quality
Operating cash flow, free cash flow and capital expenditure figures are not used in this assessment. Earnings quality is nevertheless supported by the composition of profit: operating income was ¥2.42bn and ordinary income was ¥2.45bn, showing that profit was overwhelmingly generated from operations rather than non-operating gains. Net income attributable to owners of ¥1.61bn was also closely aligned with consolidated net income of ¥1.61bn, indicating limited dilution from non-controlling interests. Interest income was ¥0.09bn and interest expense was only ¥0.03bn, so financial income and costs had no meaningful influence on earnings. The main working-capital factor to monitor is inventory, which increased to ¥2.74bn from ¥1.01bn a year earlier. In a PC and gaming-related retail and distribution business, elevated inventory can expose the company to technology obsolescence, vendor price reductions and promotional markdowns if sell-through slows. Conversely, trade receivables declined to ¥6.10bn from ¥7.34bn despite higher revenue, which is supportive of collection discipline. Trade payables increased to ¥4.26bn from ¥3.62bn, providing additional supplier financing. Contract liabilities increased to ¥2.92bn from ¥2.40bn, which supports the operating funding profile. The combined inventory increase, payable increase and receivable decline suggest a substantial shift in the working-capital mix that should be assessed against future inventory turnover and gross-margin retention.
Dividend Sustainability
The full-year dividend forecast is ¥120 per share, including the announced interim dividend of ¥50 per share. Based on forecast EPS of ¥721.45, the implied dividend payout ratio is approximately 16.6%. This is well below the 60% sustainability reference level and provides substantial capacity to retain capital for working capital, store and logistics investment, or shareholder returns. The Q3 cumulative net income attributable to owners of ¥1.61bn already exceeds the cash amount implied by the full-year ¥120 dividend by a wide margin. Retained earnings increased to ¥11.83bn from ¥10.55bn a year earlier, reinforcing dividend capacity. The conservative debt position and strong liquidity further support the durability of the planned dividend. Dividend sustainability is therefore primarily linked to maintaining profitability and managing the enlarged inventory position rather than to financing constraints. No share buyback information is incorporated, so the analysis refers only to the dividend payout ratio and not to a total return ratio.
Risk Assessment
Business risks include PC and game business concentration: the core segment accounts for 77.9% of revenue and essentially all operating profitability, increasing sensitivity to demand conditions, competitive pricing and product-cycle volatility in PCs, gaming hardware and related merchandise., Inventory and obsolescence risk: inventories rose 171.1% year on year to ¥2.74bn; technology-product price declines, model transitions or weaker consumer demand could require markdowns and pressure the improved gross margin., Cosmetics and miscellaneous goods weakness: segment revenue fell 19.3% to ¥7.46bn and the segment loss widened to ¥0.03bn, highlighting the need for a turnaround or disciplined resource allocation., Consumer demand risk: discretionary spending, gaming demand and retail traffic can be affected by household confidence, inflation and competitive online pricing., Margin normalization risk: the 203bp gross-margin expansion is the principal source of profit growth, so any reversal in mix, supplier terms or pricing discipline would have a disproportionate effect on earnings..
Financial risks include Working-capital risk: inventory expansion has increased the capital tied up in merchandise and requires continued sell-through to protect liquidity and margins., Forecast execution risk: Q3 operating-income progress is strong, but the full-year plan still requires sustained sales conversion and disciplined Q4 cost management., Tax-rate sensitivity: the 34.2% effective tax rate reduced the tax burden factor to 0.656, so elevated tax costs can constrain net-income growth relative to pretax profit..
Key concerns include Monitor whether the inventory increase is matched by sales momentum in the PC and game business and whether gross margin remains near the Q3 cumulative 23.5% level., Monitor the loss-making cosmetics and miscellaneous goods segment for further sales deterioration or restructuring needs., Monitor Q4 operating margin, because current operating-income progress implies that the annual plan assumes a materially lower final-quarter margin than the Q3 cumulative result..
Investment Implications
Key takeaways include Revenue grew 4.0%, but operating income grew 46.8%, demonstrating strong operating leverage and a substantial gross-margin recovery., The annualized ROE of 16.2% is supported by a 4.6% net margin, annualized asset turnover of 2.072x and moderate financial leverage of 1.69x., The PC and game business is the clear profit engine, with ¥27.01bn of revenue and ¥2.30bn of segment profit., Financial flexibility is high, with a 196.6% current ratio, ¥6.88bn of cash and only ¥0.27bn of long-term loans., The ¥1.73bn year-on-year inventory increase is the principal item requiring scrutiny because it can affect future cash conversion and markdown exposure., The forecast dividend payout ratio of approximately 16.6% is conservatively covered by earnings and retained earnings..
Metrics to watch include PC and game segment revenue growth and segment profit margin, Consolidated gross margin and operating margin in Q4, Inventory balance, sell-through and markdown pressure, Cosmetics and miscellaneous goods segment revenue and path to profitability, Full-year sales progress against the ¥47.50bn target, Receivable, payable and contract-liability movements as indicators of working-capital discipline.
Regarding relative positioning, Applied exhibits stronger-than-benchmark capital efficiency on an annualized ROE basis and a conservative liquidity and debt profile. Its 23.5% gross margin is consistent with a discount or volume-oriented retail and technology distribution model, while the 7.0% operating margin is below the broad 8% threshold often associated with strong profitability but has improved materially from the prior-year level. Relative positioning is therefore characterized by improving operating execution and balance-sheet resilience, offset by earnings concentration in the PC and game business and elevated inventory exposure.