4Cs HD (3726) FY2026 Q1 Earnings Report

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Executive Summary

For Q1 of the fiscal year ending September 2026, the sharp increase in SG&A expenses placed pressure on earnings, resulting in significant deterioration in both operating and net income. Revenue was ¥0.53B (-14.1% year on year), operating income was ¥-0.16B (deteriorating from ¥-0.01B in the same period of the previous year), ordinary income was ¥-0.17B, and net income was ¥-0.18B. Although the gross profit margin improved slightly year on year to 66.9%, the SG&A ratio rose to 97.3%, with fixed costs substantially exceeding revenue, which was the primary cause of the widening loss.

Factors Affecting Results

【Revenue】Revenue was ¥0.53B, down 14.1% year on year. By segment, MailOrder maintained an almost flat performance at ¥0.31B, representing 58.9% of total revenue, while Retail posted a significant decline to ¥0.08B, Wholesale declined to ¥0.13B, and Consulting contracted to ¥0.01B. All segments other than the mail-order business recorded lower revenue, contributing to the overall decline.

【Profit and Loss】Cost of sales was reduced to ¥0.17B, resulting in a gross profit margin of 66.9% (improving from 66.7% in the previous year). However, SG&A expenses expanded to ¥0.51B, with the SG&A ratio rising to 97.3% from 68.2% in the previous year, causing operating income to deteriorate to ¥-0.16B. By segment, only MailOrder secured operating income of ¥0.05B, with a margin of 15.3%; Retail and Consulting posted losses of ¥-0.03B each, while Wholesale remained approximately breakeven. Corporate expenses also increased year on year. Including non-operating expenses, primarily interest expenses of ¥0.01B, ordinary income was ¥-0.17B. Extraordinary gains and losses were immaterial, resulting in net income of ¥-0.18B. The Company experienced lower revenue and earnings, with a structural deterioration in profitability in which the increase in SG&A expenses outweighed the benefit of the improved gross profit margin.

Segment Analysis

Of the four reported segments, only MailOrder (mail-order business) secured profitability, maintaining approximately the previous year’s level with revenue of ¥0.31B, operating income of ¥0.05B, and a margin of 15.3%. Retail declined to revenue of ¥0.08B, down 47.9% year on year, and posted an operating loss of ¥0.03B. Wholesale recorded revenue of ¥0.13B, down 7.6% year on year, while operating income deteriorated to approximately zero. Consulting contracted to revenue of ¥0.01B and posted an operating loss of ¥0.03B, resulting in a negative margin of 428.2%. The total profit of the reported segments shifted from ¥0.09B in the previous year to ¥-0.01B. In addition, corporate expenses and adjustments expanded to ¥0.15B year on year, which was the primary cause of the consolidated operating loss of ¥0.16B. Earnings dependence on the mail-order business is increasing, and the recovery of the other segments will be key to improving consolidated earnings.

Key Financial Indicators

【Profitability】The operating margin deteriorated significantly to -30.3% from -1.5% in the previous year, while the net profit margin declined to -34.3% from -1.0%. The gross profit margin improved slightly to 66.9% from 66.7% in the previous year, indicating that the primary cause of the earnings deterioration was not cost of sales but the increase in the SG&A ratio to 97.3% from 68.2%. 【Cash Flow Quality】Cash and deposits stood at ¥0.11B, a significant decrease from ¥0.44B in the same period of the previous year, indicating reduced liquidity during a period of losses. 【Investment Efficiency】Annualized ROE was -49.1%, while the equity ratio was 54.8% (55.1% in the previous year), indicating that the Company’s financial position remains sound. 【Financial Soundness】Current assets of ¥2.33B exceeded current liabilities of ¥1.00B, indicating a favorable current ratio. However, inventories of ¥0.66B accounted for 28.3% of current assets, warranting attention to asset liquidity. Retained earnings expanded to ¥-1.91B, with accumulated losses continuing to place pressure on net assets.

Cash Flow Analysis

Although no cash flow statement has been disclosed, cash movements can be inferred from changes in the balance sheet. Cash and deposits stood at ¥0.11B, down ¥0.33B from ¥0.44B in the same period of the previous year, indicating continued cash consumption associated with the recorded loss. Short-term borrowings were ¥0.19B, reduced from ¥0.34B in the previous year. While this contributed to lower financial leverage, the simultaneous decline in cash balances warrants attention from a liquidity management perspective. Inventories were ¥0.66B, slightly higher than ¥0.60B in the previous year, potentially indicating delays in converting inventory into cash. Fixed liabilities included ¥0.20B of bonds due for redemption within one year, making the Company’s ability to address future funding needs an issue.

Earnings Quality

The current period’s earnings deterioration was recurring in nature and primarily attributable to the operating loss. Extraordinary gains and losses were immaterial, consisting of extraordinary gains of ¥0.00B and extraordinary losses of ¥0.00B, including impairment losses, and therefore the impact of temporary factors on earnings was limited. Non-operating expenses consisted primarily of interest expenses of ¥0.01B, which represented an additional burden during the loss-making period. Comprehensive income was ¥-0.18B, approximately in line with net income of ¥-0.18B, with no prominent factors such as valuation differences on other securities causing a divergence between net income and comprehensive income. The deterioration in net income was primarily attributable to the operating loss from the core business. Accrual-related adjustment factors were limited, and earnings quality can be viewed as reflecting the underlying earning power of the core business itself.

Earnings Forecast and Guidance

The full-year company forecast is revenue of ¥3.54B, up 45.1% year on year, operating income of ¥0.16B, ordinary income of ¥0.15B, and forecast EPS of ¥7.41. Q1 revenue progress was approximately 14.9% (¥0.53B/¥3.54B), below the simple quarterly run-rate of 25%. The Company recorded an operating loss of ¥0.16B in Q1, meaning that achieving the full-year forecast will require the generation of approximately ¥0.32B in cumulative operating income over the remaining three quarters. No revision to the earnings forecast had been made as of the current quarter. However, there is a significant gap between Q1 results and the full-year plan, making the progress of segment earnings improvement and corporate expense control from the second half onward the focus going forward.

Shareholder Returns

The dividend forecast for the fiscal year ending September 2026 remains undecided. In Q1, the Company recorded a quarterly net loss attributable to owners of the parent of ¥0.18B, and no earnings available for dividends had been generated. The dividend paid in the same period of the previous year was also ¥0, and the recovery of earnings and the trend in cash balances are expected to be the key factors in determining whether dividends can resume in the near term.

Risk Factors

1. Continued losses in unprofitable segments: Revenue in the Retail Business declined 47.9% year on year and the business posted an operating loss of ¥0.03B. The Consulting Business also recorded a 45.6% decline in revenue and an operating loss of ¥0.03B, indicating that the earnings base outside the mail-order business has weakened.

2. Inventory and working capital efficiency: Inventories were ¥0.66B, accounting for 24.6% of total assets, and delays in inventory turnover could weigh on capital efficiency. Cash and deposits declined substantially from ¥0.44B in the same period of the previous year to ¥0.11B, requiring monitoring of liquidity.

3. Higher breakeven point due to increased fixed costs: SG&A expenses, including corporate expenses, expanded to ¥0.51B, with the SG&A ratio rising to 97.3% from 68.2% in the previous year. The increase in fixed costs during a period of declining revenue is a factor affecting the feasibility of achieving the full-year plan for profitability.

Industry Benchmark (For Reference; Company Analysis)

Industry Benchmark (retail)

Profitability and Returns

The Company’s operating margin and net profit margin are both at significantly loss-making levels, while comparative data within the industry is limited.

Growth and Capital Efficiency

Revenue growth was negative, and the Company’s specific position within the industry has not been clarified due to limitations in the available median data.

Source: Compiled by the Company

Key Points from the Earnings Results

1. The gross profit margin improved to 66.9% from the previous year; however, the SG&A ratio rose to 97.3%, indicating that the deterioration in the earnings structure was attributable not to cost of sales but to the increased burden of fixed costs.

2. Of the four segments, only the mail-order business secured profitability, with operating income of ¥0.05B and a margin of 15.3%, increasing the dependence of consolidated earnings on this business. Declining revenue and widening losses in the Retail and Consulting businesses are weighing on consolidated earnings.

3. Against the full-year company forecast of operating income of ¥0.16B, Q1 recorded an operating loss of ¥0.16B, while revenue progress remained low at 14.9%. Significant earnings improvement over the remaining three quarters is a prerequisite for achieving the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥111–¥117 for a ±1% change in the cost of equity, and ¥113–¥114 for a ±0.1 change in ω.

Notes:

• Net income is substantially compressed relative to operating income due to tax burdens, acquisition-related expenses, and non-controlling interests, among other factors (net income ÷ operating income 51%). This value reflects that compression at face value; if the factors are temporary, the 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 as of the quarter-end 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: 2026-08 / Mechanically calculated using only 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 the future share price.)

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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 advisor as necessary.

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