JOYFUL HONDA CO.,LTD. FY2026 FY Earnings Report

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Executive Summary

The current period results reflect an earnings profile in which net income was boosted by the recognition of extraordinary gains, while profitability remained at a favorable level within the industry. Revenue was ¥132.82B, Operating Income was ¥8.73B (Operating Margin 6.6%), Ordinary Income was ¥9.95B (same 7.5%), and Net Income attributable to owners of the parent was ¥9.00B (Net Margin 6.8%). The recognition of ¥2.45B in extraordinary gains (including ¥1.94B in gain on negative goodwill and ¥0.45B in gain on sales of investment securities) expanded Profit Before Tax to ¥12.18B, which was the primary factor pushing up the final profit margin. For the fiscal year ending June 2027, the Company forecasts Revenue of ¥140.00B (+5.4% YoY), while presenting a plan incorporating the reversal of the extraordinary gains recognized in the current period: Operating Income of ¥8.60B (▲1.5%), Ordinary Income of ¥9.80B (▲1.6%), and Net Income of ¥6.60B (▲26.7%).

Factors Affecting Earnings

【Revenue】The Company discloses results as a single segment, and Revenue for the current period was ¥132.82B. Gross Profit after deducting Cost of Sales of ¥91.03B was ¥41.78B, securing a Gross Margin of 31.5%. Since prior-period sales results are outside the disclosed scope, year-on-year comparisons cannot be made; however, the Gross Margin is at a level above the industry median gross-profit level estimated based on Operating Margin comparisons within the 4.5%–8.9% range.

【Profit and Loss】Operating Income was ¥8.73B (Operating Margin 6.6%) against SG&A expenses of ¥40.12B (SG&A ratio 30.2%). Non-operating income and expenses resulted in a net surplus of +¥1.22B, primarily due to dividends received and other non-operating income, expanding Ordinary Income to ¥9.95B (Ordinary Income Margin 7.5%). Extraordinary gains of ¥2.45B (gain on negative goodwill of ¥1.94B and gain on sales of investment securities of ¥0.45B) exceeded extraordinary losses of ¥0.22B (loss on disposal of fixed assets), resulting in Profit Before Tax of ¥12.18B. Net Income after deducting income taxes and other taxes of ¥3.18B was ¥9.00B, with the reduction from Ordinary Income to Net Income limited to ¥0.95B. While the earnings structure is solid on an Operating Income and Ordinary Income basis, the contribution of non-recurring extraordinary gains to the increase in Net Income was substantial; from the perspective of earnings quality, these results can be described as having a high degree of dependence on temporary factors.

Key Financial Indicators

【Profitability】The Company secured an Operating Margin of 6.6% and a Net Margin of 6.8% (based on Net Income attributable to owners of the parent). Operating-stage profitability remains stable, supported by a balance between a Gross Margin of 31.5% and an SG&A ratio of 30.2%. ROE of 7.1% can be decomposed into a Net Margin of 6.8%, Total Asset Turnover of 0.79x, and Financial Leverage of 1.33x. Under a conservative capital structure with limited leverage, the low asset turnover is structurally restraining the ROE level.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥7.28B, only 0.81x Net Income of ¥9.00B. The primary factor was an increase in inventories, which reduced OCF by ▲¥2.71B due to a deterioration in working capital; inventory days were relatively long at approximately 95 days.【Investment Efficiency】Capital expenditures of ¥4.88B were 1.5x Depreciation and Amortization of ¥3.33B, indicating a phase of investment exceeding depreciation. Free Cash Flow was limited to ¥2.15B.【Financial Soundness】The Equity Ratio was 75.4% and the Current Ratio was 253.9%, indicating high levels of liquidity and capital safety. Interest-bearing debt also remained low relative to total assets.

Cash Flow Analysis

Cash flow from operating activities was ¥7.28B, calculated after deducting the increase in inventories (▲¥2.71B) and income taxes paid (▲¥3.19B) from a subtotal of ¥10.32B before changes in working capital. Cash flow from investing activities was ▲¥5.13B, of which capital expenditures accounted for ¥4.88B, indicating a continued investment stance toward the existing store base. Cash flow from financing activities was ▲¥9.40B, with repayments of borrowings and dividend payments (¥4.48B on the cash flow statement) serving as the primary sources of outflow. As a result, Free Cash Flow (OCF + investing CF) was limited to ¥2.15B, insufficient to fully cover the funding needs for dividend payments and capital expenditures solely through internal funds, and cash and cash equivalents declined to ¥24.97B at period-end (¥32.22B in the previous period).

Earnings Quality

Non-operating income of ¥1.31B consisted primarily of items with a high degree of recurrence, such as dividend income of ¥0.07B and other non-operating income of ¥0.27B. In contrast, extraordinary gains of ¥2.45B were centered on a gain on negative goodwill of ¥1.94B and a gain on sales of investment securities of ¥0.45B, both of which are non-recurring in nature. These extraordinary gains increased Profit Before Tax to ¥12.18B, and the fact that a considerable portion of Net Income of ¥9.00B depended on temporary factors is an important consideration in assessing earnings quality. Comprehensive Income was ¥9.10B, with only a small divergence from Net Income of ¥9.00B. The primary adjustment items were a ▲¥0.19B change in valuation difference on available-for-sale securities and a +¥0.29B adjustment related to retirement benefits. Meanwhile, OCF remained at 0.81x Net Income, indicating accruals arising from inventory accumulation (the divergence between accrual and cash accounting); this level requires monitoring from the perspective of the speed at which earnings are converted into cash.

Earnings Forecasts and Guidance

For the fiscal year ending June 2027, the Company plans Revenue of ¥140.00B (+5.4% YoY), Operating Income of ¥8.60B (▲1.5%), Ordinary Income of ¥9.80B (▲1.6%), Net Income of ¥6.60B, and EPS of ¥109.5. While Revenue is expected to increase, the planned declines in Operating Income and Ordinary Income are believed to reflect the reversal of extraordinary gains recognized in the current period, including the gain on negative goodwill. On a Net Income basis, the Company plans a relatively large decline of ▲26.7% YoY. The Company notes that this forecast is based on information available and certain assumptions as of the announcement date and may differ from actual results.

Shareholder Returns

The annual dividend was ¥84 (interim ¥42, year-end ¥42), representing a substantial increase from ¥32 in the previous year (including a ¥5 commemorative dividend for the 50th anniversary of the Company’s founding). The Payout Ratio was 56.2% (based on Net Income attributable to owners of the parent) and is an indicator based solely on dividends. Meanwhile, dividend payments of ¥4.48B based on the cash flow statement exceeded current-period Free Cash Flow of ¥2.15B, indicating that internal funds alone were insufficient to cover both dividends and capital expenditures. Given the Company’s financial soundness (Equity Ratio of 75.4%), there is room to absorb this situation for the time being; however, improvement in cash-generation capacity is a prerequisite from the perspective of sustainability of shareholder returns. In addition, it has been resolved that the year-end dividend for the fiscal year ending June 2027 will remain undecided in connection with the establishment of a joint holding company.

Risk Factors

1. Inventory Turnover and Cash Conversion Risk: Inventories were ¥23.57B (14.1% of total assets), inventory days reached approximately 95 days, and OCF remained at 0.81x Net Income. These factors could lead to lower Gross Margins through markdowns and obsolescence and could constrain cash-generation capacity.

2. Non-Recurring Nature of Extraordinary Gains: The ¥2.45B in extraordinary gains for the current period (gain on negative goodwill of ¥1.94B and gain on sales of investment securities of ¥0.45B) was non-recurring in nature. The planned Net Income of ¥6.60B for the next fiscal year (▲26.7% versus the current period) is considered to reflect the reversal of these gains.

3. Balance Between Return Funding and Future Obligations: Dividend payments of ¥4.48B based on the cash flow statement exceeded Free Cash Flow of ¥2.15B. In addition, asset retirement obligations of ¥5.25B (12.7% of liabilities) represent a future source of cash outflows. Although financial soundness is high, the sustainability of shareholder returns will depend on improvements in internal cash-generation capacity.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Both the Operating Margin and Net Margin exceed the industry median, placing the Company’s profitability among the higher levels within its peer group.

※Source: Compiled by the Company

Key Points in the Financial Results

1. A considerable portion of Net Income of ¥9.00B was attributable to extraordinary gains (gain on negative goodwill of ¥1.94B and gain on sales of investment securities of ¥0.45B), and the next fiscal year’s plan incorporates the reversal of these gains, with Net Income projected at ¥6.60B (▲26.7% versus the current period). This non-recurring factor must be considered when comparing financial results across periods.

2. OCF remained at 0.81x Net Income, while working-capital conditions, including inventory days of approximately 95 days, constrained cash conversion efficiency. Compared with the favorable Operating Margin of 6.6%, the speed of earnings conversion into cash was relatively slow.

3. While financial soundness remained high, with an Equity Ratio of 75.4% and a Current Ratio of 253.9%, Free Cash Flow was below dividend payments despite a Payout Ratio of 56.2%. In addition, the next fiscal year-end dividend remains undecided in connection with the establishment of a joint holding company, suggesting that the framework for the shareholder-return policy may change.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,799–¥1,904 at ±1% for the Cost of Equity, and ¥1,842–¥1,856 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥0.2 per share has been added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-06 / This value does not forecast or guarantee the future share price)

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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 recommend investment in any specific issue. Industry benchmarks are reference information compiled by the Company based on publicly disclosed financial results. Investment decisions should be made at your own responsibility, after consulting a professional as necessary.

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