HOTMAN Co.,Ltd. FY2026 Q3 Earnings Report

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Executive Summary

FY2026 Q3 results were Revenue ¥178.4B (YoY +¥4.8B +2.8%), Operating Income ¥9.2B (YoY -¥0.7B -7.0%), Ordinary Income ¥9.6B (YoY -¥0.9B -7.9%), and Net Income ¥6.4B (YoY -¥0.5B -8.1%). Despite higher revenue, profits declined. While the gross profit margin remained high at 44.4%, selling, general and administrative expenses expanded to ¥69.98B (SG&A ratio 39.2%), compressing the operating margin. By segment, YellowHat contributed as the core business with revenue of ¥139.8B and operating income of ¥10.5B, whereas TSUTAYA reported revenue of ¥10.1B and an operating loss of ¥0.2B, and UPGARAGE recorded revenue of ¥9.4B and operating income of ¥1.5B. The full-year outlook assumes a profit recovery in the second half, forecasting revenue of ¥220.0B (YoY +0.4%), operating income of ¥6.7B (YoY +1.3%), and net income of ¥4.2B (YoY +26.2%).

Key Financial Metrics

[Profitability] ROE 7.9% (flat from the prior 7.9%; DuPont decomposition: net profit margin 3.6% × total asset turnover 0.991 × financial leverage 2.23x), operating margin 5.2% (down -0.5pt from 5.7% in the prior year), net profit margin 3.6% (down -0.4pt from 4.0% in the prior year). The gross profit margin remained high at 44.4%, but the SG&A ratio increased to 39.2%, pressuring operating income. [Cash Quality] Cash and deposits ¥26.8B (+128.4% from ¥11.7B in the prior year), short-term liability coverage (cash/short-term liabilities) 0.62x. Interest coverage (operating income/interest expense) was a solid 29.8x. [Investment Efficiency] Total asset turnover 0.991x; inventories of ¥54.98B accounted for 30.5% of total assets, indicating a high inventory ratio. [Financial Soundness] Equity ratio 44.9% (down -0.2pt from 45.1% in the prior year), current ratio 127.0%, quick ratio 52.9%, debt-to-equity ratio 1.23x, Debt/Capital ratio 37.7%, and short-term debt ratio 88.9%, highlighting a pronounced reliance on short-term borrowings.

Cash Flow Analysis

Cash and deposits increased by ¥11.75B YoY to ¥26.84B, with higher short-term borrowings (¥32.50B in the prior year → ¥43.50B in the current period, +33.8%) contributing to strengthened liquidity through financing. Meanwhile, the concentration of short-term liabilities has advanced, leaving the cash/short-term liabilities ratio at 0.62x. In working capital efficiency, accounts payable increased from ¥10.14B in the prior year to ¥12.80B (+26.2%), indicating utilization of trade payables. Long-term borrowings decreased from ¥8.20B to ¥5.46B (-33.5%), shortening the maturity profile of liabilities. Inventories remained elevated at ¥54.98B, making inventory turnover improvement key to enhancing capital efficiency. Cash coverage of short-term liabilities is limited, and securing refinancing capacity remains a challenge.

Quality of Earnings

Against Ordinary Income of ¥9.6B, Operating Income was ¥9.2B, with net non-operating gains of approximately ¥0.4B being modest. Non-operating income consists of dividend income received and foreign exchange gains, while non-operating expenses include interest expense of ¥0.31B. The ratio of non-operating income and expenses to revenue is small, and the majority of earnings arise from operating activities. Profit before tax was ¥9.64B, and income taxes, etc. were ¥3.27B, implying an effective tax rate of approximately 33.9%, a standard level. While the gross margin of 44.4% is high and indicates solid revenue quality, the burden of SG&A has weakened profit generation at the operating level. Operating Cash Flow (OCF) data are undisclosed, preventing assessment of profit-to-cash alignment; however, the accumulation of cash suggests strengthened liquidity through working capital adjustments or financing.

Risk Factors

1. Short-term Borrowing Concentration Risk: With a short-term debt ratio of 88.9% and short-term borrowings of ¥43.5B, reliance on short-term funding is high. There is a risk of higher refinancing costs and funding constraints amid maturity mismatch if interest rates rise or credit conditions deteriorate.
2. Profitability Erosion from Rising SG&A: The SG&A ratio of 39.2% has increased from the prior year, pressuring the operating margin. If fixed SG&A burdens and increases in personnel expenses and rental costs persist, structural improvement in margins may be difficult.
3. Inventory Turnover Deterioration Risk: Inventories stand at ¥54.98B, a high 30.5% of total assets. If inventory management worsens or sales falter, discounting or inventory write-downs could impair margins and working capital efficiency.

Industry Benchmark (Reference; Our Research)

[Position within Industry] (Reference information; our research) Profitability: ROE 7.9% (exceeding the industry median of 2.9% by +5.0pt and slightly above the industry IQR upper bound of 7.4%, placing it in the upper group within the industry), net profit margin 3.6% (above the industry median of 2.2% by +1.4pt), operating margin 5.2% (above the industry median of 3.9% by +1.3pt). Soundness: Equity ratio 44.9% (below the industry median of 48.9% by -4.0pt, positioned mid-range between the industry IQR lower bound of 37.6% and upper bound of 62.1%), current ratio 1.27x (below the industry median of 1.88x by -0.61x, slightly below the industry IQR lower bound of 1.33x). Efficiency: Revenue growth rate +2.8% (below the industry median of +6.7% by -3.9pt, in the lower-mid range between the industry IQR lower bound of +0.4% and upper bound of +11.7%). Profitability is relatively high within the industry, but growth and soundness indicators are mid- to lower-tier, with short-term liquidity and revenue growth relatively weak versus peers. ※Industry: Retail (N=12 companies), Comparison: FY2025 Q3 actuals, Source: Our compilation

Key Highlights from Results

1. Balance between Profitability and Growth: While maintaining a high gross margin of 44.4%, the rising SG&A ratio of 39.2% capped the operating margin at 5.2%. The full-year outlook assumes a profit recovery in the second half; whether SG&A control can be achieved will be key to meeting second-half performance targets.
2. Short-term Liabilities Concentration and Liquidity Management: Dependence on short-term borrowings of ¥43.5B is high, and the cash/short-term liabilities ratio of 0.62x indicates limited immediate payment capacity. The substantial buildup in cash and deposits (+128.4%) signals reinforcement of the liquidity buffer, but the shortening of liability maturities is progressing. Improving the maturity profile and refinancing into longer-term funding are important to enhance financial stability.
3. Inventory Efficiency and Working Capital Management: With inventories accounting for 30.5% of total assets, the company exhibits a high-inventory structure. Improving inventory turnover is central to strengthening working capital efficiency and cash generation. Inventory reduction and optimization of accounts payable management will be focal factors for improving capital efficiency and ROE.

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This report is an earnings analysis document automatically generated by AI based on XBRL financial results summary data. It does not constitute a recommendation to invest in any specific security. The industry benchmark is reference information compiled by our firm from publicly available financial results data. Investment decisions are your own responsibility; consult a professional as needed before making any decisions.