&Do Holdings (3457) FY2026 Q2 Earnings Report

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Executive Summary

The results for the period represent a decline in both revenue and earnings, driven by the contraction of the real estate sales and House Leaseback businesses, as well as significant profit pressure from lower gross profit margins and high company-wide expenses. Revenue was ¥259.7B (down -27.7% YoY), Operating Income was ¥3.9B (down -75.5%), Ordinary Income was ¥5.2B (down -70.6%), and Net Income was ¥0.8B (down -93.0%). The gross profit margin declined from 22.1% to 21.2%. Although selling, general and administrative expenses were reduced (-19.3%), the reduction was insufficient to absorb the decline in revenue, while the effective tax rate of 84.4% placed further pressure on Net Income.

Factors Affecting Performance

【Revenue】Revenue was ¥259.7B, down 27.7% YoY. By segment, the two core businesses contracted significantly, with Real Estate Sales at ¥165.1B (down -26.1%) and House Leaseback at ¥66.3B (down -37.3%). Meanwhile, Franchise remained resilient at ¥16.6B (up +2.3%), and Finance also remained firm at ¥3.1B (up +7.5%). Real Estate Sales accounted for approximately 63.6% of total revenue, making its performance the primary determinant of company-wide results.

【Profit and Loss】Operating Income declined sharply to ¥3.9B (down -75.5%). While total segment profit was ¥23.8B (down -40.1%), the adjustment for company-wide expenses and other items was negative ¥19.9B, significantly compressing consolidated Operating Income. Non-operating income exceeded non-operating expenses by ¥1.2B, resulting in Ordinary Income of ¥5.2B, above Operating Income. However, against Profit Before Tax of ¥5.1B, corporate income taxes and other taxes of ¥4.3B (effective tax rate of 84.4%) were recorded, leaving Net Income at only ¥0.8B. Extraordinary gains and losses were immaterial, and the impact of temporary factors was limited. In conclusion, the results represent a decline in both revenue and earnings.

Segment Analysis

Franchise generated revenue of ¥16.6B, segment profit of ¥9.2B, and a profit margin of 55.3%, making it the highest-margin business. Segment profit declined -6.1% YoY, remaining relatively resilient. Real Estate Sales generated revenue of ¥165.1B and profit of ¥6.5B (profit margin of 3.9%), representing the largest decline, with profit down -58.9% YoY. House Leaseback generated revenue of ¥66.3B and profit of ¥6.3B (profit margin of 9.5%), with profit down -47.0%. Finance generated revenue of ¥3.1B and profit of ¥1.4B (profit margin of 44.4%), with profit up +54.5%, making it the only segment to report higher earnings. Against total segment profit of ¥23.8B, the adjustment for company-wide expenses and other items was negative ¥19.9B, which compressed consolidated Operating Income to ¥3.9B.

Key Financial Indicators

【Profitability】The Operating Income margin was 1.5%, approximately 295bp lower than 4.5% in the same period of the previous year, while the Net Income margin also declined approximately 286bp, from 3.2% to 0.3%. Annualized ROE was 0.9%, and ROIC was 1.0%, both at low levels.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥33.2B, reaching 41.5 times Net Income of ¥0.8B. However, the primary driver was a ¥38.1B decrease in inventories, indicating a significant contribution from temporary cash generation through inventory reduction. Trade payables decreased by ¥2.5B, meaning the result was not attributable to deferred payments.【Investment Efficiency】Capital expenditures were ¥0.5B, compared with depreciation and amortization of ¥3.7B, resulting in investment at a low level of 0.15 times depreciation and amortization. Investment in asset maintenance and replacement was limited.【Financial Soundness】The Equity Ratio was 25.6%, at the same level as in the same period of the previous year. Interest-bearing debt reached approximately ¥321.5B. Long-term borrowings declined 11.2% YoY to ¥178.5B, while current portion of long-term borrowings increased 8.3% to ¥127.0B, indicating a shortening of the repayment profile. Cash and deposits were ¥96.2B.

Cash Flow Analysis

Operating Cash Flow was ¥33.2B, down 3.9% YoY, but remained substantially above Net Income of ¥0.8B. The primary driver was the ¥38.1B decrease in inventories. Real estate held for sale declined from ¥341.3B to ¥316.4B, indicating progress in converting inventory into cash; however, this should be evaluated separately from recurring profit generation. Investing Cash Flow was limited to an inflow of ¥0.03B, while capital expenditures were restrained at the low level of ¥0.5B. Financing Cash Flow was an outflow of ¥23.6B, as repayments of long-term borrowings of ¥80.5B exceeded new borrowings of ¥67.7B. As a result, free cash flow of ¥33.2B was secured and supported a portion of debt repayments. However, the company’s future financial capacity will depend on the sustainability of cash generation associated with inventory monetization.

Quality of Earnings

Ordinary Income exceeded Operating Income because non-operating income of ¥5.8B exceeded non-operating expenses of ¥4.6B, primarily consisting of interest expenses; this does not indicate an improvement in the profitability of the core business. Extraordinary gains and losses were immaterial, comprising extraordinary gains of ¥0.1B and extraordinary losses of ¥0.1B (including impairment losses and losses on disposal of fixed assets), and their impact on performance for the period was limited. Meanwhile, corporate income taxes and other taxes of ¥4.3B were recorded against Profit Before Tax of ¥5.1B, resulting in an effective tax rate of 84.4% and significantly depressing Net Income. Although Operating Cash Flow substantially exceeded Net Income, the primary driver was the temporary cash conversion effect from the reduction in inventories. From an accrual perspective, there was no buildup of non-cash, uncollected earnings; however, it should be noted that cash flow quality is highly dependent on the inventory cycle. Comprehensive Income was ¥0.9B, close to Net Income of ¥0.8B, indicating limited impact from the valuation of other securities or foreign currency translation adjustments.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥550.0B (down -15.0% YoY), Operating Income of ¥29.0B (up +10.6%), Ordinary Income of ¥30.0B (up +1.9%), EPS of ¥138.90, and dividends of ¥46.00. There were no revisions to the earnings forecast or dividend forecast for the period. The Q2 cumulative progress rate for Revenue was 47.2%, broadly in line with a standard trajectory. However, progress was substantially behind schedule for Operating Income at 13.5%, Ordinary Income at 17.2%, and Net Income at 2.9%. Achieving the full-year Operating Income forecast requires generating ¥25.1B in the second half (an Operating Income margin of approximately 8.6%), premised on a recovery in the profitability of Real Estate Sales and further progress in inventory turnover.

Shareholder Returns

The dividend per share at the end of Q2 was ¥0. The full-year company forecast for annual dividends is ¥46.00, implying a forecast Payout Ratio of approximately 33.1% against forecast Net Income of ¥27.7B (calculated using dividends alone as the numerator). Dividends actually paid during the cumulative Q2 period totaled ¥8.97B, substantially exceeding Net Income for the same period of ¥0.80B. Accordingly, the interim dividend burden depended not on earnings for the period but on retained earnings from prior periods and cash generation through inventory monetization. Operating Cash Flow of ¥33.2B is sufficient to cover the forecast annual dividend amount (approximately ¥9.2B); however, given the delay in earnings progress and high leverage, dividend sustainability will depend on an earnings recovery in the second half.

Risk Factors

1. Real estate inventory monetization risk: Real estate inventory, comprising real estate held for sale of ¥316.4B and real estate under development of ¥81.6B, totaled ¥397.0B, accounting for 57.7% of total assets. Given that the primary driver of Operating Cash Flow was the ¥38.1B decrease in inventories, the speed of inventory turnover and valuation fluctuations will directly affect future earnings and cash flow.

2. Interest-bearing debt and interest burden risk: Interest-bearing debt was approximately ¥321.5B, while the D/E ratio was 2.91 times and interest coverage was 0.96 times (1.87 times on an EBITDA basis), indicating that the company cannot cover its interest burden through Operating Income alone. The short-term debt ratio was 44.5%, and current portion of long-term borrowings increased to ¥127.0B, resulting in high sensitivity to the refinancing environment.

3. Risk of divergence between the pace of earnings recovery and the full-year plan: Against the full-year Operating Income forecast of ¥29.0B, Q2 progress was only 13.5%. Achievement of the plan is premised on a recovery in the profitability of Real Estate Sales and House Leaseback during the second half.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Because industry comparison data for the company’s Operating Income margin and Net Income margin is limited, both are observed to be low in absolute terms.

Growth and Capital Efficiency

The Revenue growth rate was significantly negative due to the contraction of the core segments.

※Source: Compiled by the Company

Key Points in the Financial Results

1. The Franchise Business generated revenue of ¥16.6B, segment profit of ¥9.2B, and a profit margin of approximately 55.3%, making it the largest source of profit contribution. Its role as an earnings base that mitigates fluctuations in Real Estate Sales and House Leaseback is a structural characteristic of the company.

2. Operating Cash Flow of ¥33.2B is a strong figure, but its primary driver was the conversion of inventory into cash through the ¥38.1B decrease in inventories. This is a key point in the financial results that must be distinguished from a structural improvement in recurring earnings power.

3. As indicated by the burden of debt equivalent to Debt/EBITDA and interest coverage of 0.96 times, both the pace of earnings recovery and the financing environment may affect the company’s future financial metrics.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥1,053–¥1,116 at ±1% in the cost of equity, and ¥1,079–¥1,091 at ω±0.1.

Notes:

• Goodwill amortization of ¥5.5 per share has been added back to earnings (as a non-cash expense and to improve comparability with IFRS companies).
• Net assets as of the quarter-end have been used (there is a timing difference from the full-year forecast).

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of market prices or a recommendation of any specific investment action, and does not forecast or guarantee future stock 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, after consulting with a professional as necessary.

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