Beauty Kadan Holdings (3041) FY2026 Q2 Earnings Report

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Executive Summary

For the cumulative Q2 period of the fiscal year ending March 2026, the operating loss widened due to declining revenue and a lower gross margin, making substantial earnings improvement in the second half necessary to achieve the full-year profit forecast. Revenue was ¥3.79B, down -2.5% year on year, while the operating loss widened to ¥0.07B, compared with a loss of ¥0.04B in the same period of the previous year. The ordinary loss was ¥0.07B, compared with a loss of ¥0.03B in the same period of the previous year, and the interim net loss attributable to owners of the parent was ¥0.08B, compared with a loss of ¥0.03B in the same period of the previous year; losses widened in both cases. The primary factor was the decline in the gross margin, which outweighed the effect of SG&A expense reductions.

Factors Affecting Business Performance

【Revenue】Revenue was ¥3.79B, a decrease of -2.5% year on year. By segment, the Fresh Flower Altar Business, which accounted for 52.9% of the total, generated ¥2.00B, up +0.6%; the Fresh Flower Wholesale Business, which accounted for 51.6% including intersegment transactions, generated ¥1.95B, down -0.9%; and the Bridal Floral Decoration Business, which accounted for 4.2%, generated ¥0.16B, down -10.3%. All three segments were sluggish or recorded lower revenue.

【Profit and Loss】Cost of sales was ¥3.42B, nearly flat compared with ¥3.43B in the previous year. As costs did not decline in line with the decrease in revenue, gross profit fell to ¥0.36B from ¥0.45B, and the gross margin declined to 9.6% from 11.7%. SG&A expenses decreased 11.5% year on year to ¥0.44B, and the SG&A ratio also improved to 11.5%; however, this was insufficient to offset the decline in gross profit, and the operating loss widened to ¥0.07B. Non-operating expenses included an interest expense burden of ¥0.01B, resulting in an ordinary loss of ¥0.07B. Extraordinary income was limited to approximately ¥0.003B from gains on the sale of fixed assets, while the absence of the ¥0.016B gain on negative goodwill recognized in the same period of the previous year also contributed to the deterioration in earnings. In conclusion, the company recorded lower revenue and lower earnings, with the loss widening.

Segment Analysis

The Fresh Flower Altar Business maintained revenue of ¥2.00B, up +0.6%, but segment profit declined 36.9% year on year to ¥0.06B, and its profit margin fell to 3.0%. The Fresh Flower Wholesale Business generated revenue of ¥1.95B, down -0.9%, while profit declined 78.9% to ¥0.01B, reducing the profit margin to 0.4%. Deteriorating profitability within this low-margin business structure is weighing on consolidated earnings. The Bridal Floral Decoration Business contracted to revenue of ¥0.16B, down -10.3%, but returned to profitability with segment profit of ¥0.0001B. Lower profit margins in the two core businesses were the primary cause of the widening consolidated operating loss, making recovery of gross margins in the Fresh Flower Altar and Fresh Flower Wholesale businesses the key focus going forward.

Key Financial Indicators

【Profitability】The operating margin was -1.8%, and the net profit margin was -2.0% (net income on an attributable-to-owners-of-the-parent basis). Both deteriorated from the same period of the previous year, primarily due to the decline in the gross margin to 9.6% from 11.7%.【Cash Flow Quality】Cash and deposits stood at ¥0.85B, down from ¥1.22B in the same period of the previous year, while accounts receivable increased 40.0% year on year to ¥0.81B. The increase in receivables amid declining revenue warrants attention from the perspective of funds being tied up and collection management.【Investment Efficiency】Annualized ROE was -30.1%, and the equity ratio was 18.7%, down from 21.1% in the same period of the previous year, indicating deterioration in both capital efficiency and financial soundness.【Financial Soundness】Against total assets of ¥2.75B, net assets were ¥0.51B. Interest-bearing debt, consisting of short-term borrowings of ¥0.53B, long-term borrowings of ¥0.67B, and bonds of ¥0.03B, including amounts due within one year, exceeded ¥1.20B in total, equivalent to approximately 2.3 times net assets. Long-term borrowings were ¥0.67B, while total non-current liabilities were ¥0.83B, resulting in a highly debt-dependent financial structure.

Cash Flow Analysis

Cash and deposits were ¥0.85B, a decrease of ¥0.37B from ¥1.22B in the same period of the previous year. Accounts receivable and notes receivable increased 40.0% year on year to ¥0.81B, and the increase in receivables amid declining revenue suggests delays in cash collection. Accounts payable and notes payable increased substantially to ¥0.39B, with the increase in trade payables temporarily supplementing working capital. Inventories declined to ¥0.02B, indicating progress in inventory reduction; however, the increase in accounts receivable exceeded the decrease in inventories, making recovery of cash-generating capacity amid the operating loss a key issue going forward.

Earnings Quality

Current-period earnings reflected deterioration in recurring business operations. Extraordinary income and expenses were limited to approximately ¥0.003B in gains on the sale of fixed assets, indicating that, from a recurring versus non-recurring perspective, most of the current-period loss originated from the core business. Non-operating income of ¥0.01B and non-operating expenses of ¥0.01B, including interest expense of ¥0.01B, were broadly balanced; however, the company was unable to absorb the interest expense burden while reporting an operating loss. In the same period of the previous year, the company recognized ¥0.016B in extraordinary income from gains on negative goodwill, but this item disappeared in the current period, contributing to the deterioration in net income. Comprehensive income was -¥0.08B, broadly in line with net income, indicating that the impact of other comprehensive income items was limited and the divergence from net income was small.

Earnings Forecast and Guidance

Against the full-year revenue forecast of ¥7.70B, up +1.3% year on year, cumulative Q2 progress was 49.2%, approximately halfway through the forecast. In contrast, against the full-year operating income forecast of ¥0.12B, cumulative Q2 results were an operating loss of ¥0.07B, requiring the generation of at least approximately ¥0.19B in operating income in the second half. Cumulative Q2 results were also losses against the full-year ordinary income forecast of ¥0.08B and net income forecast of ¥0.04B, making substantial earnings improvement in the second half a prerequisite for achieving the plan. No revisions to the earnings forecasts had been made as of the current quarter.

Shareholder Returns

The Q2-end dividend was ¥0 per share. The full-year dividend forecast remains ¥5.25 per share, with no revision. Based on the average number of shares outstanding during the period of 4,100 thousand shares, the annual total dividend is approximately ¥0.022B, implying an estimated payout ratio of approximately 53.8% against the full-year net income forecast of ¥0.04B. However, the company recorded a net loss of ¥0.08B for cumulative Q2, and realization of the annual dividend depends on a return to profitability in the second half and achievement of the full-year earnings plan.

Risk Factors

1. Deteriorating profitability in the core segments: Segment profit in the Fresh Flower Altar Business declined 36.9% year on year, while that of the Fresh Flower Wholesale Business declined 78.9%, with profit margins falling to 3.0% and 0.4%, respectively. The company’s consolidated profitability is structurally exposed to procurement costs for floral materials and delays in passing costs through to prices.

2. High financial leverage: Interest-bearing debt exceeded ¥1.20B against net assets of ¥0.51B, and the equity ratio declined to 18.7%. With operating losses continuing, the interest burden has a significant impact on the company’s financial structure.

3. Working capital management: Accounts receivable reached ¥0.81B, up 40.0% year on year, while cash and deposits declined 30.0% year on year to ¥0.85B. The increase in receivables during a period of declining revenue requires attention to funds being tied up and collection delays.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The company’s net profit margin is substantially below the industry median, indicating a comparatively inferior level of profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate is also below the industry median, placing the company among those showing a notable declining-revenue trend within the industry.

※Source: Compiled by the company

Key Points from the Earnings Results

1. The gross margin declined to 9.6% from 11.7% in the same period of the previous year, and the decline in revenue directly depressed gross profit while cost of sales remained nearly flat. Declining profit margins in the two core businesses—the Fresh Flower Altar and Fresh Flower Wholesale businesses—were the central factors behind the widening consolidated operating loss.

2. Against the full-year operating income forecast of ¥0.12B, cumulative Q2 results were an operating loss of ¥0.07B, requiring approximately ¥0.19B in operating income generation in the second half under the plan. While revenue progress was 49.2%, progress on the earnings front was significantly behind, indicating a divergence between the plan and actual results.

3. Given the financial structure in which interest-bearing debt exceeds twice net assets, the continuation of operating losses indicates a situation requiring monitoring from the perspective of the company’s ability to absorb interest expense.

Theoretical Share Price (Reference Value)

Sensitivity: ¥113–¥119 for ±1% in the cost of equity, and ¥116–¥116 for ±0.1 in ω.

Notes:

• Net income is substantially compressed relative to operating income due to tax burdens, acquisition-related expenses, non-controlling interests, and other factors (net income ÷ operating income 33%). This value reflects that compression at face value; if the factors are temporary, the underlying earnings power may be higher.
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used, resulting in a timing difference relative to the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

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

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

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