| Metric | Current Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥813.7B | ¥815.9B | -0.3% |
| Operating Income | ¥39.4B | ¥54.9B | -28.2% |
| Ordinary Income | ¥41.7B | ¥56.3B | -25.9% |
| Net Income | ¥22.7B | ¥35.5B | -36.2% |
| ROE | 5.6% | 9.1% | - |
The 2026 FY results showed revenue of ¥813.7B (¥-2.2B YoY, -0.3%), essentially flat, while Operating Income fell to ¥39.4B (¥-15.5B, -28.2%), Ordinary Income to ¥41.7B (¥-14.6B, -25.9%), and Net Income to ¥22.7B (¥-12.9B, -36.2%), marking a pronounced decline in profitability. Gross margin improved to 47.7% (prior year 47.5%), +0.2pt, but SG&A ratio rose to 42.8% (prior year 40.8%), +2.0pt, causing Operating Margin to decline to 4.8% (prior year 6.7%), -1.9pt. Recording of special losses of ¥6.5B (including impairment losses of ¥4.8B) also pressured the net profit margin down to 2.8% (prior year 4.4%). Operating Cash Flow was robust at ¥63.0B (+46.7% YoY), about 2.8x Net Income, and Free Cash Flow was secured at ¥41.5B.
Revenue: Top-line was ¥813.7B, down -0.3% YoY, with gross margin improving to 47.7% (+0.2pt). Price policy and mix improvements likely supported gross margin. Regional sales breakdown is not disclosed, but business structure remains largely domestic with over 90% of sales generated in Japan. Profitability: Cost of sales was ¥425.8B, yielding Gross Profit of ¥387.9B, but SG&A increased to ¥348.5B (¥+1.6B, +4.8% YoY), and cost increases amid flat sales pressured Operating Income. SG&A ratio rose +2.0pt to 42.8%, mainly due to higher fixed costs such as personnel, logistics, and rent. Non-operating items included interest income of ¥0.5B and foreign exchange losses of ¥0.9B, limiting improvement at the Ordinary Income level. Special losses comprised impairment losses of ¥4.8B, loss on disposal of fixed assets ¥0.9B, and disaster losses ¥0.4B, which weighed on Net Income. Pre-tax profit was ¥35.2B, and an effective tax rate of 35.5% produced Net Income of ¥22.7B. In conclusion, despite gross margin improvement and stable revenue, structural SG&A increases and one-off losses resulted in a revenue-up, profit-down outcome.
Profitability: Operating Margin of 4.8% declined -1.9pt from 6.7% last year, as rising SG&A pressured profitability. Net margin of 2.8% worsened -1.6pt from 4.4%, and ROE fell to 5.6% (prior year 9.3%), remaining low versus historical levels. Gross margin improved +0.2pt to 47.7%, indicating price and mix strategy effectiveness. Cash Quality: Operating Cash Flow of ¥63.0B is 2.8x Net Income (¥22.7B), reflecting high cash-generating quality. OCF/EBITDA (Operating Income + Depreciation = ¥57.9B) is 1.09x, a healthy level. FCF of ¥41.5B covered capital expenditures of ¥18.7B and total shareholder returns of ¥14.2B (dividends ¥13.1B + share buybacks ¥1.1B). Investment Efficiency: Total Asset Turnover annualized at 1.45x exceeds the industry median of 1.17x, indicating relatively strong asset efficiency. Capex/Depreciation ratio is 1.01x, showing slightly restrained renewal investment. ROA (on Ordinary Income basis) is 7.4%, indicating a reasonable balance of asset efficiency and profitability. Financial Soundness: Equity Ratio is 71.6%, well above the industry median of 50.2%, indicating a very strong financial base. Current Ratio 222.8% and Quick Ratio 127.4% show solid short-term liquidity. Cash and deposits of ¥123.0B increased ¥28.4B YoY, accounting for 21.9% of total assets. Net cash position is ¥123.0B and interest-bearing debt is effectively zero, maintaining a debt-free balance sheet.
Operating Cash Flow was ¥63.0B, a large increase of ¥+20.1B (+46.7% YoY). Operating CF subtotal (before working capital changes) was ¥83.4B; decreases in inventory (+¥7.7B), increases in accounts payable (+¥2.8B), and decreases in accounts receivable (+¥0.6B) contributed to working capital efficiency, while increases in unpaid taxes (+¥7.2B) and a slight decrease in contract liabilities (-¥0.0B) offset some gains. Corporate tax payments of -¥20.8B increased from -¥14.2B prior year, but adjustments to taxable income limited the impact on operating CF. Investing CF was -¥21.5B, led by capex of -¥18.7B (mainly store-related investment). Investment in intangible assets -¥1.1B decreased from -¥1.9B prior year due to restrained system investment. Financing CF was -¥13.1B, reflecting dividend payments of -¥13.1B and share buybacks of -¥1.1B, executing total shareholder returns; even after subtracting dividends, cash and deposits increased by ¥28.4B from FCF of ¥41.5B. The structure where Operating CF exceeds Net Income by 2.8x is supported by non-cash depreciation of ¥18.5B and working capital efficiency, indicating high quality of earnings.
Core earnings quality is maintained by sustaining a gross margin of 47.7%, but the rise in SG&A ratio to 42.8% is compressing operating-level profitability. Non-operating items included interest income of ¥0.5B and foreign exchange losses of ¥0.9B, leaving non-operating balance at only +¥2.3B. Special losses of ¥6.5B (impairment ¥4.8B, loss on disposal of fixed assets ¥0.9B, disaster losses ¥0.4B) amount to 28.6% of Net Income ¥22.7B, indicating significant one-off impacts. The fact that Operating CF substantially exceeds Net Income indicates good accrual quality and strong cash-backed earnings. The gap between Ordinary Income ¥41.7B and Net Income ¥22.7B is attributable to special losses and an effective tax rate of 35.5%, so evaluating core earning power at the Ordinary Income level is appropriate.
Full Year guidance targets Revenue ¥862.8B (+6.0% YoY), Operating Income ¥43.0B (+9.2%), Ordinary Income ¥44.4B (+6.5%), and Net Income ¥27.3B (+20.3%). Progress rates are Revenue 94.3%, Operating Income 91.6%, Ordinary Income 93.9%, and Net Income 83.2%, indicating around 90% progress for each profit item and requiring incremental contribution in Q4 to achieve the full-year targets. Operating Margin is forecast at 5.0% for the full year, a +0.2pt improvement from the current 4.8%, presumably assuming elimination of special losses and restraint in SG&A growth. Net Income progress is relatively low due to the current period special loss of ¥6.5B; the guidance appears conservative, incorporating a reduction of one-off losses in H2.
Annual dividend is ¥50 (interim ¥25, year-end forecast ¥25), implying a payout ratio of 57.4% (annual dividend ¥50 / FY EPS forecast ¥104.83). The current period payout ratio on an actual basis is 36.6% (interim dividend ¥25 / H1 EPS ¥87.12), modest, but the full-year ratio is planned to rise assuming Net Income recovery from elimination of special losses. Share buybacks of ¥1.1B were executed, bringing total return to shareholders to ¥14.2B (dividends ¥13.1B + buybacks ¥1.1B). Total return ratio relative to FCF of ¥41.5B is 34.2%, conservative, and dividend sustainability is high. With cash and deposits of ¥123.0B and a debt-free balance sheet, dividend stability is solid.
Industry Position (reference, our compilation): Within the retail sector (2025-FY, n=47), Equity Ratio of 71.6% far exceeds the industry median of 50.2%, placing the company among the top in financial soundness. Operating Margin of 4.8% is roughly in line with industry median 4.6%, though it fell from 6.7% last year due to SG&A growth. Net Margin of 2.8% slightly trails the industry median of 3.3%, reflecting the impact of special losses. ROE of 5.6% is slightly below the industry median of 5.9%, indicating room to improve profitability. Total Asset Turnover of 1.45x exceeds the industry median of 1.17x, showing good asset efficiency. Inventory turnover days of 120 days greatly exceed the industry median of 65.7 days, placing inventory efficiency at the lower end in the sector. Payout ratio of 36.6% (current period actual) exceeds the industry median of 27.0%, indicating a relatively proactive shareholder return stance. Current Ratio 222.8% exceeds the industry median 184%, ranking high in short-term liquidity. Cash Conversion Ratio of 2.8 (Operating CF / Net Income) far exceeds the industry median 1.57, indicating superior cash generation within the industry.
Three key points are: First, the rise in SG&A ratio to 42.8% (+2.0pt YoY) is pressuring Operating Margin, and improving the cost structure is key to restoring profitability. Given gross margin improved +0.2pt, if SG&A growth can be restrained, recovery to Operating Margin in the 5% range is feasible. Second, inventory turnover days of 120 vs. industry median 65.7 indicate low inventory efficiency, which is a bottleneck for both capital efficiency and gross margin; compressing inventory and improving turnover would directly improve working capital efficiency and ROE. Third, Operating CF of ¥63.0B generated FCF of ¥41.5B, funding dividends, buybacks, and capex, demonstrating strong cash-generating capacity that supports financial stability and sustainable shareholder returns. The full-year guidance assumes elimination of special losses and SG&A restraint, so execution in H2 will be the focal point.
This report is an AI-generated earnings analysis using XBRL earnings release data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by our firm from public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed.