WACOAL HOLDINGS CORP. FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased, supported by growth in the overseas business, Operating Income and Net Income declined sharply due to the absence of the prior year’s one-time gain on the sale of non-current assets. Revenue was ¥489.1B (+8.8% YoY), Operating Income was ¥18.1B (-90.8%), and Net Income was ¥15.1B (¥15.5B attributable to owners of the parent, -88.7% YoY). The same period of the previous year included the exceptional factor of ¥174.5B in other income, including gains on the sale of non-current assets, which boosted Operating Income; this amount fell to ¥2.96B in the current period, and the resulting decline was the primary cause of the decrease in profit. Although the cost of sales ratio improved, the SG&A ratio increased to 55.3% (53.0% in the previous year), and the Operating Income margin declined to 3.7% (44.0% in the previous year).

Factors Affecting Performance

【Revenue】Revenue increased 8.8% YoY to ¥489.1B. Wacoal Business (Overseas) grew to ¥227.3B (+23.3%) and led overall growth, while Wacoal Business (Japan) declined 2.0% to ¥218.2B. By region, Europe and the Americas grew to ¥189.6B (+26.1%), and Asia and Oceania increased to ¥46.9B (+11.1%), while Japan weakened to ¥252.6B (-1.7%).

【Profit and Loss】The cost of sales ratio improved slightly to 41.5% (41.7% in the previous year), and the gross margin increased to 58.5% (58.3% in the previous year). However, the SG&A ratio increased to 55.3% (53.0% in the previous year), reducing the Company’s cost absorption capacity. In addition, other income of ¥174.5B recorded in the previous year, including one-time gains on the sale of non-current assets, declined to ¥2.96B in the current period. As a result, Operating Income declined sharply to ¥18.1B (-90.8% YoY). Profit Before Tax was ¥26.1B (-87.0%), and Net Income was ¥15.1B (-89.0%). The effective tax rate was high at 42.2%, further weighing on net profit. In conclusion, the Company achieved higher revenue but lower profit.

Segment Analysis

Wacoal Business (Overseas) generated revenue of ¥227.3B (+23.3%) and segment profit of ¥17.9B (+10.1%), with a profit margin of 7.9%, making it the core and only segment to achieve profit growth. In contrast, Wacoal Business (Japan) recorded revenue of ¥218.2B (-2.0%) and a segment loss of ¥2.8B (-145.5% YoY), falling into the red, with its profit margin deteriorating to -1.3%. Peach John Business posted higher revenue but lower profit, with revenue of ¥29.0B (+4.1%) and segment profit of ¥0.1B (-36.4%). Overall, the overseas business is offsetting deteriorating profitability in Japan, and the imbalance in the regional and business mix is determining overall profitability.

Key Financial Indicators

【Profitability】The Operating Income margin fell sharply to 3.7% from 44.0% in the previous year, while the Net Income margin also declined to 3.1% (30.5% in the previous year). The primary factor was the absence of the one-time other income of ¥174.5B recorded in the previous year; the figures reflect a combination of underlying business deterioration and one-time factors.【Cash Flow Quality】Operating Cash Flow (OCF) was -¥23.0B, below Net Income of ¥15.1B, resulting in negative OCF/Net Income. Tax payments of ¥64.5B, an increase in trade receivables, and lease payments of ¥14.6B created headwinds for cash flow.【Investment Efficiency】ROE was 0.7%, a substantial decline from approximately 6.5% in the previous year. The total asset turnover ratio remained low, with the burden of inventories and accounts receivable limiting efficiency.【Financial Soundness】The Equity Ratio remained at a conservative level of 72.9% (71.7% in the previous year), while interest-bearing debt stood at ¥123.8B. Cash and cash equivalents totaled ¥317.5B, providing ample liquidity.

Cash Flow Analysis

Operating Cash Flow (OCF) was -¥23.0B, a substantial deterioration from ¥21.9B in the same period of the previous year. The primary factors were income tax payments of ¥64.5B (up from ¥31.4B in the previous year), an ¥8.5B increase in trade receivables, and a decrease in other liabilities. Investing Cash Flow was -¥62.3B, primarily due to ¥45.1B in expenditures for the acquisition of subsidiaries. This also represented a significant reversal from Investing Cash Flow of +¥199.7B in the previous year, which included large proceeds of ¥223.9B from the sale of property, plant and equipment. Financing Cash Flow was -¥39.6B, mainly comprising dividend payments of ¥24.7B and lease liability repayments of ¥14.6B. Free Cash Flow was -¥85.3B, and cash and cash equivalents declined from ¥441.7B at the beginning of the period to ¥317.5B. M&A and dividend payments were absorbed using cash on hand, making the recovery of near-term cash-generating capacity the key factor in future cash trends.

Earnings Quality

Recurring earnings for the current period were centered on segment profit from the overseas business. Following the absence of the one-time ¥174.5B in other income recorded in the same period of the previous year, including gains on the sale of non-current assets, Operating Income has moved closer to a normalized level. Non-operating income was primarily composed of financial income of ¥10.1B, relying on dividend income and interest income, and there is limited evidence of an abnormal composition. The divergence between Ordinary Income (presented as Profit Before Tax because the Company applies IFRS) and Net Income was primarily attributable to the high effective tax rate of 42.2%; this should be monitored as a structural burden rather than a temporary tax effect. From an accrual perspective, OCF was below Net Income, indicating weak cash conversion of earnings and warranting monitoring in terms of earnings quality.

Earnings Forecast and Guidance

Progress against the full-year plan varies considerably across indicators. Revenue was ¥48.9B against a full-year plan of ¥187.6B, representing progress of 26.1%, a standard level. Meanwhile, Operating Income of ¥18.1B had already exceeded the full-year plan of ¥15.0B (-92.5% YoY) as of Q1, resulting in a progress rate of 121%. Profit attributable to owners of the parent was ¥15.5B, representing a high progress rate of 86% against the full-year plan of ¥18.0B. This high progress suggests that the full-year plan conservatively incorporates the reversal of the prior year’s temporary profit increase. However, attention should be paid to the fact that weak OCF and deteriorating profitability in the domestic business remain downside factors for the full year.

Shareholder Returns

The Company’s annual dividend forecast is ¥100 per share. Although this represents a doubling from the previous year’s annual dividend of ¥50, the Payout Ratio is expected to be high based on the full-year forecast of ¥18.0B in profit attributable to owners of the parent. No share repurchases were conducted during the current period (¥39.7B in the same period of the previous year), and shareholder returns should currently be evaluated based solely on dividends. Free Cash Flow for the current period was -¥85.3B, indicating that dividend funding will depend on cash on hand and financial assets for the time being.

Risk Factors

1. Deteriorating profitability in the domestic business: Wacoal Business (Japan) fell into a segment loss of ¥2.8B (profit margin of -1.3%), while revenue also declined by -2.0%. Structural improvement in domestic profitability remains a challenge.

2. Declining cash-generating capacity: OCF was -¥23.0B, below Net Income of ¥15.1B, while increased tax payments and trade receivables placed pressure on cash flow. Free Cash Flow was also significantly negative at -¥85.3B.

3. Impairment risk associated with increased goodwill: Goodwill increased to ¥200.0B following the acquisition of subsidiaries (Investing Cash Flow of -¥45.1B), up 33.0% from ¥150.0B in the previous year. Goodwill represents 9.3% of net assets, and future integration progress warrants monitoring from an impairment-risk perspective.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Profitability is slightly above the industry median.

Growth and Capital Efficiency

Revenue growth also exceeds the industry median and is positioned in the upper range of the IQR.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. The primary cause of the decline in profit was the absence of the prior year’s one-time other income of ¥174.5B, including gains on the sale of non-current assets. The results indicate that this was not due to a sudden deterioration in the underlying business structure. To assess the normalized earnings level, it will be useful to monitor the trend in the Operating Income margin over the next several quarters.

2. Wacoal Business (Japan) fell into a segment loss, further increasing dependence on the overseas business. Regional revenue also showed contrasting trends, with Europe and the Americas growing by +26.1% while Japan declined by -1.7%, indicating a structural change in the business portfolio.

3. OCF has remained below Net Income, with increased tax payments and changes in working capital weighing on cash flow. The annual dividend forecast of ¥100 has doubled from ¥50 in the previous year, making it important to monitor the underlying support for the dividend alongside the recovery in cash-generating capacity.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥3,271–¥3,454 at ±1% for the cost of equity, and ¥3,332–¥3,379 at ±0.1 for ω.

Notes:

• Because progress in Net Income against the full-year forecast (86%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of plan tend to exceed forecasts. For businesses with strong seasonality, the adjustment may be excessive).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are 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 using only publicly disclosed data; this does not constitute a forecast of the market share price or a recommendation of any specific investment action, and does not forecast 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 discretion and responsibility, after consulting a professional as necessary.

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