HOTMAN (3190) FY2026 Q3 Earnings Report

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Executive Summary

The company posted higher revenue but lower earnings, with revenue increasing 2.8% year on year while Operating Income declined 7.0% due to a lower gross margin. Revenue was ¥17.84B (¥17.36B in the prior year, +¥0.48B), Operating Income was ¥0.92B (¥0.99B in the prior year, -¥0.07B, -7.0%), Ordinary Income was ¥0.96B (¥1.05B in the prior year, -7.9%), and Net Income was ¥0.64B (¥0.69B in the prior year, -8.1%). Cost of sales increased by +4.4%, exceeding the +2.8% increase in revenue, and the gross margin declined by 0.9pt to 44.4% from 45.3% in the same period of the prior year, which was the primary cause of the earnings decline.

Factors Affecting Performance

【Revenue】Revenue was ¥17.84B, up +2.8% year on year (+¥0.48B). By segment, the core YellowHat business led the company with revenue of ¥13.98B (78.4% of the total), followed by UPGARAGE at ¥0.94B and TSUTAYA at ¥1.01B. Progress against the full-year company forecast of ¥22.00B was 81.1%, exceeding the standard progress rate of approximately 75% at the cumulative Q3 stage.

【Profit and Loss】Cost of sales increased at a faster pace than revenue (+4.4%), resulting in a gross margin of 44.4%, down 0.9pt year on year. SG&A expenses were ¥7.00B, up +1.9% year on year, indicating disciplined cost control, and the SG&A ratio improved by 0.3pt to 39.2%. However, this was insufficient to offset the deterioration in the gross margin, and the Operating Margin declined to 5.2% from 5.7% in the prior year. UPGARAGE recorded the highest segment profit margin at 15.7%, followed by YellowHat at 7.5%, while TSUTAYA was the only segment contributing to the earnings decline, with a margin of -2.3%. Special gains and losses consisted solely of a ¥0.001B gain on the sale of investment securities, and the impact of temporary factors on Net Income was limited. Non-operating income and expenses resulted in a small net gain, mainly due to dividend income and other items, but were not sufficient to offset the decline in Operating Income. Overall, the results are characterized as higher revenue but lower earnings.

Segment Analysis

By segment, YellowHat serves as the earnings pillar, with revenue of ¥13.98B (78.4% of company-wide revenue), Operating Income of ¥1.05B, and a profit margin of 7.5%. UPGARAGE is small in scale, with revenue of ¥0.94B, but has the highest profit margin among the three segments at 15.7%, demonstrating strong profitability. TSUTAYA generated revenue of ¥1.01B but recorded an Operating Loss of ¥0.02B (profit margin of -2.3%), making it the only loss-making segment and one factor contributing to the company-wide earnings decline.

Key Financial Indicators

【Profitability】The Operating Margin was 5.2% (5.7% in the prior year), while the Net Profit Margin was 3.6% (4.0% in the prior year); both declined from the prior year. The gross margin of 44.4% is relatively high within the industry, but deteriorated by 0.9pt from 45.3% in the same period of the prior year.【Cash Flow Quality】Cash and deposits were ¥2.68B (up from the equivalent of ¥1.65B in the prior year), but this increase was accompanied by higher short-term borrowings and therefore must be evaluated separately from any improvement in cash-generation capacity. Inventories were ¥5.50B, representing 30.5% of total assets and resulting in a significant use of funds.【Investment Efficiency】Annualized ROE was 10.5%, formed by the combination of a 3.6% Net Profit Margin, total asset turnover, and financial leverage; the company’s capital structure indicates that leverage supports ROE. EPS was ¥90.39 (¥98.34 in the prior year, -8.1%), and BPS was ¥1,146.05.【Financial Soundness】The Equity Ratio was 44.9% (45.1% in the prior year), remaining broadly flat. The current ratio was approximately 127%, while the quick ratio was approximately 53%, indicating that the company’s ability to meet short-term obligations depends substantially on the convertibility of inventories into cash. Short-term borrowings of ¥4.35B substantially exceeded long-term borrowings of ¥0.55B, confirming that the majority of interest-bearing debt is short term and that the maturity of funding has shortened.

Cash Flow Analysis

Cash and deposits increased substantially year on year to ¥2.68B, but this resulted from financing accompanied by an increase of ¥1.10B (+33.8%) in short-term borrowings and should therefore be evaluated separately from any improvement in cash generation from operating activities. Long-term borrowings declined by ¥0.275B (-33.5%) over the same period, indicating a shift in the borrowing structure toward short-term financing. Inventories were ¥5.50B, accounting for 30.5% of total assets and creating a structure in which high inventory levels tie up working capital. Accounts payable increased by ¥1.28B (+26.2%), with trade payables providing some support for working capital; however, without improved inventory turnover, this is unlikely to lead to a sustainable improvement in cash efficiency. Accounts receivable also increased by ¥0.86B (+15.7%), outpacing revenue growth, and trends in collection efficiency will affect future cash movements.

Quality of Earnings

Current-period earnings were largely generated by recurring operating activities. Special income, consisting of a ¥0.001B gain on the sale of investment securities, and special loss, consisting of a ¥0.000B loss on disposal of fixed assets, were both immaterial, and temporary factors had almost no impact on Net Income. Non-operating income was ¥0.07B, including dividend income of ¥0.01B, while non-operating expenses were ¥0.03B, including ¥0.03B in interest expenses. Non-operating income and expenses therefore resulted in a small net gain, but were not large enough to offset the decline in Operating Margin. The difference between Ordinary Income of ¥0.96B and Net Income of ¥0.64B was mainly attributable to ¥0.33B in income taxes and other taxes. The effective tax rate was approximately 34%, with no unusual factors identified in the discrepancy. At the same time, accounts receivable and inventories increased faster than revenue, requiring monitoring of cash collection as the underlying support for earnings.

Earnings Forecast and Guidance

Against the full-year company forecast of ¥22.00B in revenue, ¥0.67B in Operating Income, ¥0.74B in Ordinary Income, and ¥0.42B in Net Income, cumulative Q3 progress was 81.1% for revenue, 137.6% for Operating Income, 130.1% for Ordinary Income, and 150.9% for Net Income. While revenue is progressing faster than the standard progress rate of approximately 75%, profit items have already substantially exceeded the full-year forecast. The company’s full-year plan, consisting of a revenue growth rate of +0.4% and an Operating Income growth rate of +1.3%, is conservatively set relative to the actual revenue growth rate of +2.8% and the current absolute level of earnings. Seasonal increases in expenses and the presence or absence of inventory valuation factors in Q4 are key points that will determine the gap between full-year actual results and the company plan.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year annual dividend forecast is ¥10 per share. Based on the period-average number of shares outstanding of 7,055,500 shares, the expected total dividend is approximately ¥0.071B. Using the full-year Net Income forecast of ¥0.42B, the Payout Ratio is approximately 167%, a level at which dividends alone exceed forecast full-year Net Income. However, cumulative Q3 Net Income of ¥0.64B has already exceeded the full-year forecast; if actual results settle at this level, the Payout Ratio may be below 167%. No data on share buybacks are available. Accordingly, this Payout Ratio is based solely on dividends and differs from the Total Return Ratio.

Risk Factors

1. Inventory Accumulation and Cash Efficiency Risk: Inventories were ¥5.50B, accounting for 30.5% of total assets and suggesting slow inventory turnover. In specialty retail, there is a risk of product obsolescence and gross-margin deterioration due to discounting; in fact, the gross margin declined by 0.9pt year on year.

2. Shortening Funding Maturities Risk: Short-term borrowings increased by +33.8% year on year to ¥4.35B, while long-term borrowings declined by -33.5% to ¥0.55B. The majority of interest-bearing debt consists of short-term funding, and the quick ratio is approximately 53%, below 1x, increasing sensitivity to changes in refinancing conditions.

3. Segment Profitability Dispersion Risk: The TSUTAYA segment generated revenue of ¥1.01B but recorded an Operating Loss of ¥0.02B (profit margin of -2.3%), weighing on the company-wide Operating Margin of 5.2%. The gap versus UPGARAGE, which has a profit margin of 15.7%, is substantial, and changes in the segment structure could affect company-wide profitability.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

The company’s Operating Margin and Net Profit Margin both exceed the industry median, placing its profitability in a relatively favorable position within the industry.

Growth and Capital Efficiency

The revenue growth rate was slightly below the industry median, leaving the company’s growth pace at approximately the middle of the industry range.

※Source: Compiled by the Company

Key Points of the Financial Results

1. Despite higher revenue, the gross margin declined by 0.9pt, resulting in lower Operating Income. The increase in cost of sales exceeding revenue growth is observed as a structural factor behind the deterioration in profitability.

2. Cumulative Q3 progress for Operating Income and Net Income reached 137.6% and 150.9%, respectively, of the full-year forecasts, creating a substantial gap versus the company’s full-year plan of +0.4% revenue growth and +1.3% earnings growth.

3. Short-term borrowings increased by +33.8% year on year, while long-term borrowings declined by -33.5%, indicating a shift toward shorter-term funding. The increase in cash and deposits was accompanied by this increase in borrowings and should be distinguished from an improvement in cash-generation capacity.

Theoretical Share Price (Reference Value)

Sensitivity: ¥961–¥1,017 at ±1% in the cost of equity, and ¥983–¥992 at ±0.1 in ω.

Notes:

• Because cumulative Net Income progress against the full-year forecast (151%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies running ahead of plan tend to outperform forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end have been used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and it 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 available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional advisor as necessary.

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