ZOZO (3092) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 of the fiscal year ending March 2026, revenue and profit increased; however, while Operating Income grew 6.1%, Net Income growth was limited to 2.9%, as the cost structure and non-operating and extraordinary losses restrained growth in final profit. Revenue was ¥1,718.0B (+6.7% YoY, +¥107.2B), Operating Income was ¥549.2B (+6.1% YoY, +¥31.6B), Ordinary Income was ¥547.0B (+5.5% YoY, +¥28.7B), and Net Income attributable to owners of the parent was ¥369.8B (+2.9% YoY, +¥10.3B). The Operating Margin of 32.0% was broadly in line with 32.1% in the same period of the previous year, but the fact that SG&A expenses increased at a faster pace than revenue growth is a key area of focus going forward. Progress against the full-year forecast (Revenue of ¥2,315.0B and Operating Income of ¥692.0B) was 74.2% for Revenue and 79.4% for Operating Income, with Operating Income exceeding the standard progress rate of 75%.

Factors Affecting Performance

【Revenue】Revenue increased 6.7% YoY to ¥1,718.0B. Merchandise transaction value disclosed in the PDF (excluding other items) increased 11.9% YoY, while EBITDA rose 9.5%, both reaching record highs. LINE Yahoo Commerce (+15.4%) and the consolidation of LYST contributed to revenue growth, whereas the core ZOZOTOWN Business grew only 4.1%, falling slightly short of plan due to sluggish sales of fall/winter products.

【Profit and Loss】Operating Income was ¥549.2B (+6.1% YoY), representing nearly the same rate of growth as the increase in revenue, but the Gross Margin of 93.3% (improving from 93.2% in the previous year) was offset by an SG&A Expense Ratio of 61.4% (rising from below 61.4% in the previous year), limiting the improvement in profitability. Ordinary Income was ¥2.2B below Operating Income, primarily due to interest expenses of ¥2.0B and foreign exchange losses of ¥2.3B. Extraordinary Losses of ¥7.5B, including impairment losses of ¥3.3B, were identified as temporary factors, and the conversion rate from Profit Before Tax to Net Income was 68.5%. In conclusion, both revenue and profit increased.

Segment Analysis

As the disclosed segment information consists of a single E-commerce Business segment, there is no operating profit and loss segment breakdown in the financial statements. Based on the business-specific merchandise transaction value disclosed in the PDF, the ZOZOTOWN Business was the largest component at ¥3,870.1B and is positioned as the “core business.” Growth in the ZOZOTOWN Business slowed to +4.1%, with sluggish fall/winter product sales acting as a drag on performance, while LINE Yahoo Commerce (¥578.9B, +15.4%) and LYST (¥319.0B), consolidated in May 2025, drove overall growth. The BtoB Business remained in contraction at ¥63.2B (-37.3%), indicating continued selection and concentration accompanying business efficiency initiatives.

Key Financial Indicators

Profitability: ROE (annualized) of 51.6% and Operating Margin of 32.0% (32.1% in the same period of the previous year)
Cash flow quality: Evaluation is difficult because Operating Cash Flow data is not disclosed. Annualized DSO of 106 days and annualized inventory turnover days of 78 days indicate room for improvement in working capital efficiency
Investment efficiency: Capital expenditure and depreciation data are not disclosed
Financial soundness: Equity Ratio of 50.9% (52.6% in the previous year) and Current Ratio of 149.3%

Cash Flow Analysis

As data on Operating, Investing, and Financing Cash Flows is not disclosed, movements in funds are inferred from changes in the balance sheet. Cash and deposits were ¥464.5B, a decrease of ¥450.4B from the end of the same period of the previous year. The main use of funds appears to have been the increase of ¥215.8B in goodwill and ¥282.0B in intangible fixed assets, attributable to purchase price allocation associated with the consolidation of LYST. Accounts receivable were ¥666.2B, an increase of 34.7% YoY, indicating that funds are being tied up at a pace substantially exceeding the 6.7% revenue growth rate. Cash and deposits were 2.32 times short-term borrowings of ¥200.0B, indicating that near-term liquidity is secured. Cash generation requires monitoring.

Quality of Earnings

The difference between Ordinary Income of ¥547.0B and Net Income of ¥369.8B was primarily attributable to the tax burden (income taxes of ¥169.7B and an effective tax rate of 31.5%), and the divergence itself is within the normal range as a tax effect. Extraordinary Losses of ¥7.5B, including impairment losses of ¥3.3B, should be distinguished as temporary factors; excluding these losses, Profit Before Tax would have been higher. Non-operating expenses included interest expenses of ¥2.0B and foreign exchange losses of ¥2.3B, both of which were immaterial relative to Revenue and did not materially impair earnings quality. Because Operating Cash Flow data is not disclosed, attention should be paid from an accrual perspective to the increase in accounts receivable (+34.7%), which is delaying the conversion of profit into cash.

Earnings Forecast and Guidance

Progress against the full-year forecast was 74.2% for Revenue and 79.4% for Operating Income, with Ordinary Income at approximately the same level. Compared with the standard progress rate of 75%, Operating Income was 4.4pt ahead. The Operating Margin required in Q4 is mathematically 23.9%, below the Q3 cumulative figure of 32.0%; therefore, there appears to be a certain buffer for achieving the full-year plan. The full-year plan disclosed in the PDF (merchandise transaction value of ¥6,739B and EBITDA of ¥767B) was revised on July 31, 2025, and assumes continued revenue and profit growth based on improved cost efficiency.

Shareholder Returns

The annual dividend forecast is ¥39.00 (Q2 dividend of ¥19.00), and the forecast Payout Ratio based on forecast EPS of ¥53.66 is approximately 72.7%. On a cumulative actual basis, the Payout Ratio calculated by dividing the Q2 dividend of ¥19.00 by cumulative Q3 Net Income is 45.8%. According to the PDF, the company conducted share repurchases (6.542 million shares, approximately ¥10.0B) and a cancellation of treasury shares (9.390 million shares), and its policy is to target a Total Return Ratio exceeding 80% when dividends and share repurchases are combined. Retained earnings of ¥1,018.2B provide substantial support for dividends.

Catalysts

【Short term】Attention will focus on the status of fall/winter inventory clearance in the ZOZOTOWN Business in Q4 and the degree of achievement against the full-year plan (Operating Income of ¥692.0B).

【Long term】The contribution to earnings from LYST, consolidated in May 2025, and the presence or absence of impairment risk related to goodwill of ¥215.8B and intangible fixed assets of ¥282.0B will be points for medium-term monitoring. Progress in downsizing non-core businesses, including the termination of the production business (October 2025), will also be a key focus.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Profitability significantly exceeds the industry median, reflecting the high-profitability structure of an e-commerce and platform-based business.

Growth and Capital Efficiency

The growth rate exceeds the industry median but has not reached the upper range within the industry (10.3%).

※Source: Compiled by the Company

Risk Factors

1. Expansion of working capital: Accounts receivable increased 34.7% from the end of the same period of the previous year, while annualized DSO expanded to 106 days, substantially exceeding the revenue growth rate. If collection periods continue to lengthen, the conversion of profit into cash may be affected.

2. Impairment risk related to acquisition assets: The consolidation of LYST in May 2025 resulted in the recognition of goodwill of ¥215.8B and intangible fixed assets of ¥282.0B. LYST has fallen short of plan against a backdrop of industry weakness and changes to the U.S. tariff system, making it necessary to monitor indicators of impairment depending on progress against the business plan.

3. Composition of short-term funding: All ¥200.0B of interest-bearing debt consists of short-term borrowings, resulting in a short-term debt ratio of 100.0%. Cash and deposits cover short-term borrowings by 2.32 times, but changes in refinancing terms could affect financial flexibility.

Key Points from the Earnings Results

1. The SG&A Expense Ratio rose to 61.4% from the same period of the previous year, offsetting the improvement in Gross Margin (93.3%); consequently, the Operating Margin was broadly flat YoY. The quality of future profit growth will depend on renewed improvements in cost efficiency.

2. While the core ZOZOTOWN Business slightly underperformed plan, LINE Yahoo Commerce and the consolidation of LYST complemented growth, with diversification of the business portfolio supporting overall performance.

3. The forecast Payout Ratio based on the dividend forecast is approximately 72.7%. Together with the policy of targeting a Total Return Ratio exceeding 80%, including share repurchases, this indicates the continuation of a shareholder return policy supported by retained earnings of ¥1,018.2B.

Theoretical Share Price (Reference Value)

Sensitivity: ¥237–¥251 at Cost of Equity ±1%; ¥241–¥249 at ω±0.1.

Notes:

• Because forecast ROE is high, ROE is capped at 50% for calculation purposes (differences between scenarios may appear small).
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because 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: 2026-07 / Mechanically calculated solely from 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 future share prices.)

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This report is an earnings analysis document automatically generated by AI through integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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