JICHODO (3597) FY2026 Q2 Earnings Report

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Executive Summary

The most important point in these results is that the Company secured higher earnings despite declining revenue, with improved profitability driven by a lower cost ratio and restrained SG&A expenses. Revenue was ¥6.81B (down 10.3% year on year), while Operating Income was ¥0.99B (up 11.3%), Ordinary Income was ¥1.35B (up 17.9%), and Net Income was ¥0.93B (up 15.9%), representing increases across all profit measures. The gross profit margin improved from 31.8% to 33.4%, while the SG&A ratio declined from 20.1% to 18.9%, which were the primary drivers of earnings growth. In addition, non-operating income, including ¥0.21B in gains on the valuation of derivatives, boosted the increase in Ordinary Income.

Factors Affecting Performance

【Revenue】Revenue was ¥6.81B, down 10.3% year on year. As the Company operates in a single segment, the manufacture and sale of apparel, segment-specific factors contributing to changes cannot be identified; however, the decline in sales volume appears to have been the primary factor. Progress against the full-year Revenue plan of ¥16.00B was 42.6%, below the standard progress rate of 50%, making revenue recovery in the second half a key challenge.

【Profit and Loss】Despite the decline in revenue, Cost of Sales decreased 12.7% year on year, outpacing the decline in Revenue, and the gross profit margin improved by 164bp from 31.8% to 33.4%. SG&A expenses also declined 15.7%, causing the SG&A ratio to fall by 120bp from 20.1% to 18.9%; consequently, Operating Income increased to ¥0.99B (up 11.3%). Non-operating income of ¥0.37B, including ¥0.10B in interest and dividend income and ¥0.21B in gains on the valuation of derivatives, lifted Ordinary Income to ¥1.35B (up 17.9%). Although the Company recorded an extraordinary loss of ¥0.03B, Net Income increased to ¥0.93B (up 15.9%), resulting in higher earnings despite lower revenue.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 14.6% (11.7% in the same period of the previous year), while the Net Income margin improved to 13.6% (10.6% in the same period of the previous year); both remain at high levels.【Cash Flow Quality】Operating Cash Flow (OCF) was limited to ¥0.07B, and the OCF/Net Income ratio was low at 0.08x against Net Income of ¥0.93B, indicating weak cash conversion. The primary factors were a ¥1.31B increase in inventories and a ¥0.91B increase in trade receivables.【Investment Efficiency】Annualized ROE was 4.9%, and total asset turnover was approximately 0.33x, indicating limited asset efficiency relative to the high profit margins.【Financial Soundness】The Equity Ratio was 90.3%, the current ratio was approximately 1,171%, and the debt-to-equity ratio was 0.11x, indicating an extremely conservative financial foundation.

Cash Flow Analysis

OCF was ¥0.07B, a significant decline from ¥3.78B in the same period of the previous year. The ¥1.31B increase in inventories, the ¥0.91B increase in trade receivables, and ¥0.72B in other operating cash flow outlays were factors contributing to cash outflows, resulting in limited cash conversion of Net Income of ¥0.93B. Investing Cash Flow was positive at ¥0.19B, while capital expenditures were minimal at ¥0.002B. Financing Cash Flow was negative ¥1.73B, primarily due to ¥1.73B in dividend payments. Free Cash Flow (OCF + Investing Cash Flow) was positive at ¥0.27B; however, if the low level of OCF continues, the sources of shareholder returns, including dividends, will depend on cash and deposits of ¥11.93B and retained earnings of ¥30.41B.

Quality of Earnings

The increase in earnings for the current period was supported by recurring factors, namely improvements in the cost ratio and SG&A ratio. However, non-operating income of ¥0.37B made a significant contribution to the increase in Ordinary Income, and the ¥0.21B gain on the valuation of derivatives included therein is non-recurring in nature and subject to market fluctuations. Due to the extraordinary loss of ¥0.03B, Profit Before Tax was slightly below Ordinary Income. OCF was substantially below Net Income, and deterioration in working capital resulting from increases in inventories and trade receivables expanded accruals, or the divergence between earnings and cash. Accordingly, cash-based earnings improvement has not progressed to the same extent as the increase in earnings reported on the income statement, and the sustainability of non-operating income and normalization of working capital will determine the quality of earnings going forward.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥16.00B (up 7.1% year on year), Operating Income of ¥1.80B (up 24.4%), and Ordinary Income of ¥1.90B (up 16.8%). While first-half progress was 42.6% for Revenue, below the standard progress rate of 50%, progress for Operating Income, Ordinary Income, and Net Income was 55.1%, 71.2%, and 68.8%, respectively, all above standard levels. The high rate of profit progress includes the contribution from non-operating income; therefore, in the second half, the pace of revenue recovery must be considered separately from the repeatability of non-operating income. No revisions were made to the earnings forecast or dividend forecast during the current quarter.

Shareholder Returns

The dividend at the end of Q2 was ¥0 per share, while the full-year dividend forecast is ¥500 per share. The total annual dividend based on the number of shares outstanding is expected to be approximately ¥1.44B, resulting in a Payout Ratio of approximately 106.7% against the full-year Net Income forecast of ¥1.35B. Although the calculated Payout Ratio exceeds 100%, the distribution is supported by cash and deposits of ¥11.93B and retained earnings of ¥30.41B, underpinned by high financial soundness reflected in an Equity Ratio of 90.3%. Share repurchases were minimal at ¥0.001B. Meanwhile, OCF for the current period was limited to ¥0.07B, resulting in low cash coverage of the planned annual dividend amount; normalization of OCF will therefore be a focus from a sustainability perspective.

Risk Factors

1. Inventory accumulation risk: Inventories amounted to ¥11.42B, representing 27.3% of total assets, with raw materials increasing 28.1% year on year. Apparel is susceptible to seasonality and obsolescence, and continued inventory growth could result in valuation losses or discounted sales.

2. Weak cash conversion: OCF was ¥0.07B, representing a low ratio of 0.08x against Net Income of ¥0.93B. The primary factors were increases in inventories and trade receivables. If the delayed cash conversion of earnings continues, flexibility for internally funded investment and shareholder returns may decline.

3. Dependence on non-operating income: Non-operating income of ¥0.37B, including ¥0.21B in gains on the valuation of derivatives, contributed to the increase in Ordinary Income and was equivalent to approximately 21% of Operating Income (¥0.99B). As this income could reverse due to changes in market conditions, the Company’s underlying earnings capacity on an Operating Income basis should be closely monitored.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (retail)

Profitability and Returns

Because no disclosed median data are available for the Company’s Operating Income margin or Net Income margin, the analysis is limited to assessing their absolute levels.

Growth and Capital Efficiency

The Revenue Growth Rate was negative year on year, and additional median data are required for a relative comparison within the industry.

※Source: Compiled by the Company

Key Points from the Results

1. While Revenue declined 10.3% year on year, Operating Income increased 11.3% and Net Income increased 15.9% due to improvements in the cost ratio and SG&A ratio. This is earnings improvement without revenue growth, and the key focus will be whether the same cost structure can be maintained from the second half onward.

2. The financial foundation is extremely conservative, with an Equity Ratio of 90.3% and a current ratio of approximately 1,171%; however, annualized ROE remains at 4.9%. The utilization of assets, including cash and deposits of ¥11.93B and investment securities of ¥4.93B, represents a structural characteristic indicating a gap between profitability and capital efficiency.

3. The fact that OCF remained at 0.08x Net Income was attributable to changes in working capital resulting from increases in inventories and trade receivables, creating a divergence between earnings growth and cash flow trends. Future trends in inventories and accounts receivable will remain an important area of observation in assessing the quality of earnings.

Theoretical Share Price (Reference Value)

Sensitivity: ¥10,564–¥11,127 at Cost of Equity ±1%; ¥10,776–¥10,880 at ω ±0.1.

Notes:

• Because progress of Net Income against the full-year forecast (69%) exceeds the standard level (50%), Forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to outperform forecasts; adjustments may be excessive for businesses with strong seasonality).
• 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 relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it 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 summary data. It does not recommend investment in any specific security. 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 you should consult a professional adviser as necessary.

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