HOTLAND HOLDINGS Co.,Ltd. FY2026 Q2 Earnings Report

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Executive Summary

Despite higher revenue, margins declined at the operating level due to an increase in SG&A expenses, while ordinary income and net income, excluding foreign exchange gains and extraordinary income and loss factors, recovered substantially. Revenue was ¥26.81B (¥24.75B in the same period of the previous year, +8.3%), operating income was ¥0.89B (¥1.05B, △15.3%), ordinary income was ¥1.12B (¥0.67B, +68.5%), and net income attributable to owners of the parent was ¥0.35B (¥0.09B in the previous year, +273.4%). The main drivers of revenue growth were the expansion of the FoodDelivery Business and GoodsSales Business. The decline in operating income was attributable to negative operating leverage resulting from a higher SG&A ratio, while the sharp recovery in ordinary income and net income was supported by the recognition of a ¥0.33B foreign exchange gain.

Factors Affecting Results

【Revenue】Revenue increased 8.3% year on year to ¥26.81B. By segment, FoodDelivery, which accounted for 95.9% of total revenue, grew 7.5%, GoodsSales grew 15.3%, and Resort grew 37.7% (on a small scale), resulting in higher revenue across all segments. In addition to the expansion of existing businesses, growth in the manufacturing-and-sales business drove overall performance.

【Profit and Loss】Operating income was ¥0.89B, down 15.3% year on year. Although the gross margin of 56.4% was almost unchanged from the previous year, the SG&A ratio rose to 53.1%, causing the operating margin to decline to 3.3% (approximately 4.2% in the previous year). The SG&A expense growth rate of +10.1% exceeded the revenue growth rate of +8.3%, resulting in negative operating leverage. Meanwhile, ordinary income increased substantially to ¥1.12B (+68.5%) due to the recognition of a ¥0.33B foreign exchange gain. Net income attributable to owners of the parent also recovered sharply to ¥0.35B (+273.4%), partly because impairment losses were limited to ¥0.16B in the current period, compared with ¥0.196B in the previous year. Operating income declined, while ordinary income and net income increased due to non-operating and extraordinary income and loss factors. Overall, the results can be characterized as higher revenue but lower operating income.

Segment Analysis

The FoodDelivery Business is the core business, accounting for 95.9% of total revenue, with revenue of ¥25,994M (+7.5%). However, segment profit declined 15.0% to ¥884M, and the profit margin decreased to 3.4%. Impairment losses of ¥163M were recognized due to declining store profitability (¥196M in the previous year), indicating continued variability in store-level profitability. GoodsSales grew 15.3% to ¥974M in revenue, but profit declined 30.8% to ¥64M due to higher promotional and logistics costs. Resort recorded an operating loss of ¥61M despite revenue of ¥129M (+37.7%), with the loss expanding from ¥42M in the previous year. The decline in profitability in the core business weighed on the overall profit margin, making improvements in store operations a key focus going forward.

Key Financial Metrics

【Profitability】The operating margin declined to 3.3% (approximately 4.2% in the previous year), primarily because the SG&A ratio increased to 53.1%, although the gross margin remained broadly in line with the previous year at 56.4%. ROE remained low at 2.2%, with the sharp increase in equity resulting from the capital increase (net assets of ¥19.43B, compared with ¥12.19B in the previous year) also raising the denominator and contributing to the decline.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥1.80B, approximately five times net income attributable to owners of the parent of ¥0.35B, indicating strong cash backing for earnings.【Investment Efficiency】Capital expenditures were ¥2.03B, approximately 2.2 times depreciation and amortization of ¥0.92B, indicating a growth investment phase. Free cash flow was △¥0.67B, reflecting an investment-led condition.【Financial Soundness】The equity ratio improved substantially to 49.3% (approximately 36.5% in the previous year), while cash and deposits accumulated to ¥10.21B. Financing through the capital increase and long-term borrowings strengthened the financial foundation, and short-term liquidity safety remains high.

Cash Flow Analysis

OCF increased 20.2% year on year to ¥1.80B, demonstrating cash generation substantially above the level of net income. In working capital, a decrease in trade receivables provided ¥1.10B of funds, while an increase in inventories tied up △¥0.61B, making inventory accumulation a drag on cash flow. Investing Cash Flow was △¥2.48B, of which capital expenditures accounted for ¥2.03B, indicating that growth investment remains ongoing. As a result, free cash flow (OCF + investing cash flow) was △¥0.67B, reflecting an investment-led funding structure in which investment exceeded operating cash generation. Financing Cash Flow was positive at ¥6.06B, primarily reflecting financing through the issuance of shares and the execution of long-term borrowings. These funds appear to have been raised to secure investment funding and liquidity. Consequently, cash and cash equivalents increased substantially at the end of the period, providing ample short-term liquidity.

Earnings Quality

The increase in ordinary income to ¥1.12B was primarily driven by a ¥0.33B foreign exchange gain recorded in non-operating income, creating a structure in which non-operating factors offset the decline in operating income (¥0.89B, △15.3%). This foreign exchange gain is subject to market conditions, and its recurrence in the next fiscal year and beyond is uncertain. Impairment losses of ¥0.16B were recorded as an extraordinary loss (¥0.196B in the previous year), highlighting the ongoing business issue of declining store profitability as an extraordinary item. Corporate income taxes and other taxes were ¥0.48B against profit before tax of ¥0.91B, resulting in a high effective tax rate of approximately 52%. Accordingly, the improvement in underlying earnings power is not as strong as the net income growth rate of +273.4% might suggest. The fact that OCF substantially exceeded net income indicates that the impact of accruals and accounting estimates was limited and that earnings quality was generally sound.

Earnings Forecast and Guidance

Progress against the full-year forecast was 46.2% for revenue (forecast: ¥58.00B), 35.6% for operating income (forecast: ¥2.50B), 47.7% for ordinary income (forecast: ¥2.35B), and 43.9% for net income (forecast: ¥0.80B, attributable to owners of the parent). While revenue, ordinary income, and net income are progressing broadly near the halfway mark, operating income progress remains at a level based on a plan weighted toward the second half. Execution in controlling SG&A expenses will therefore be crucial to second-half performance. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

No interim dividend is planned, while the full-year annual dividend forecast is ¥13.00 per share. The payout ratio against forecast full-year EPS of ¥32.72 is approximately 39.7%. Although free cash flow was negative in the first half, cash and deposits were substantial at ¥10.21B, and the capital strengthening from the capital increase means there are no significant concerns regarding the availability of funds for dividends. Monitoring future increases or reductions in dividends will be useful in assessing continuity with the company’s historical dividend record.

Risk Factors

1. Inventory Accumulation Risk: Inventories were ¥3.99B, up from ¥3.35B in the previous year. Inventory levels relative to cost of sales are somewhat high, making the possibility of markdowns and gross margin pressure in the second half a key monitoring point.

2. Business Concentration Risk: The FoodDelivery Business accounts for 95.9% of revenue, creating a structure in which declining store profitability in that business (with ¥0.16B of impairment losses recognized) has a significant impact on company-wide performance.

3. Earnings Structure Volatility: The increase in ordinary income depended substantially on the ¥0.33B foreign exchange gain, while operating income itself declined (△15.3%). If the foreign exchange impact dissipates, profit volatility at the ordinary income level may increase.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

Comparative data against the industry median for the company’s operating margin and net profit margin has not been established. In absolute terms, these margins may be positioned at the low end relative to the average for the retail industry.

Growth and Capital Efficiency

The revenue growth rate indicates a solid growth trend.

※Source: Company compilation

Key Takeaways from the Earnings Results

1. While revenue expanded steadily, negative operating leverage emerged as SG&A expense growth (+10.1%) exceeded revenue growth (+8.3%), causing the operating margin to decline to 3.3%. This indicates room for improvement in underlying earnings power.

2. The substantial increases in ordinary income and net income were primarily driven by the foreign exchange gain and the reduction in extraordinary losses, creating a contrast with the decline in operating income. Trends at the operating level are an important indicator when evaluating earnings quality.

3. The equity ratio improved to 49.3% through the capital increase, and cash and deposits increased to ¥10.21B. The strengthening of the financial foundation and continued capital expenditures (¥2.03B) indicate that the company is in a growth investment phase.

Theoretical Share Price (Reference Value)

Sensitivity: ¥621–¥656 at a ±1% change in the cost of equity, and ¥636–¥640 at a ±0.1 change in ω.

Notes:

• Goodwill amortization of ¥7.9 per share is added back to earnings (due to its non-cash nature and to improve comparability with IFRS companies).
• Net income is substantially compressed relative to operating income due to the tax burden, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income: 32%). This figure reflects that compression as reported, and if these factors are temporary, underlying earnings power may be higher.
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at the end of the quarter are used (there is a timing mismatch with the full-year forecast).

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Base 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 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 responsibility and, where necessary, after consulting a qualified professional.

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