BLUE ZONES HOLDINGS (417A) FY2026 FY Earnings Report

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Executive Summary

Although the Company reported increases in revenue and profit, revenue grew by 11.0% while Operating Income increased by only +2.9%, causing the Operating Income margin to remain relatively sluggish at 4.5%. Revenue was ¥813.16B (+11.0% YoY), Operating Income was ¥36.39B (+2.9%), Ordinary Income was ¥35.73B (+1.7%), and Net Income attributable to owners of the parent was ¥23.59B (+1.3%). The primary driver of revenue growth was business expansion, including the consolidation of three new subsidiaries. However, increases in SG&A expenses, including personnel expenses and rent, weighed on profit growth, preventing profit growth commensurate with the increase in revenue.

Factors Affecting Financial Performance

【Revenue】Revenue was ¥813.16B, representing an 11.0% YoY increase. The Company operates a single business consisting of food supermarkets, and the consolidation of three new subsidiaries was the primary factor behind the revenue increase. Cost of sales was ¥589.80B, representing a cost ratio of 72.6%, resulting in gross profit of ¥193.63B and a gross profit margin of 23.8%.

【Profit and Loss】Operating Income was ¥36.39B, with an Operating Income margin of 4.5% and a YoY increase of +2.9%. SG&A expenses of ¥186.96B, equivalent to 23.0% of revenue, including salaries and allowances at 9.8% of revenue, weighed on the profit margin relative to gross profit growth. Ordinary Income was ¥35.73B (+1.7%), with interest expenses of ¥1.06B among non-operating expenses acting as a downward factor. Against Profit Before Tax of ¥33.30B, the Company recorded extraordinary losses of ¥3.20B, including impairment losses of ¥2.99B. After deducting income taxes and other taxes of ¥8.98B, Net Income attributable to owners of the parent was ¥23.59B (+1.3%). The approximately 34% divergence between Ordinary Income and Net Income was primarily attributable to temporary factors, namely impairment losses and the income tax burden. While the results can be characterized as increases in revenue and profit, profit growth was limited relative to revenue growth, making the ability to absorb costs a key issue.

Segment Analysis

The Company operates as a single segment comprising a supermarket business centered on food products, and segment-specific disclosures have been omitted. In terms of geographic revenue, the Company has no overseas revenue and operates in a single domestic market.

Key Financial Metrics

【Profitability】The Operating Income margin of 4.5% and Net Income margin of 2.9%—on a basis attributable to owners of the parent—indicate a low-margin structure typical of food retail, although a high total asset turnover ratio supplements profitability. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥47.07B, approximately 2.0 times Net Income attributable to owners of the parent of ¥23.59B, indicating strong cash support for accounting earnings. 【Investment Efficiency】ROE was 11.8%, reflecting a structure in which low Net Income margins are offset by asset efficiency and financial leverage. Basic EPS was ¥115.91 and BPS was ¥980.25. 【Financial Soundness】The Equity Ratio was 48.1%. Current assets of ¥102.05B were lower than current liabilities of ¥123.29B, resulting in negative working capital; this reflects the cash conversion cycle characteristic of food retail, which utilizes trade payables of ¥54.06B.

Cash Flow Analysis

Operating Cash Flow was ¥47.07B. Non-cash expenses, including depreciation and amortization of ¥15.99B, and an ¥1.88B increase in trade payables provided support, while an ¥1.19B increase in inventories was a source of cash outflow. Investing Cash Flow was negative ¥46.39B, including capital expenditures of ¥33.25B and approximately ¥10.4B for the acquisition of subsidiary shares, indicating the substantial scale of investment associated with business expansion. Free Cash Flow, defined as Operating Cash Flow plus Investing Cash Flow, was limited to ¥0.68B. The investment shortfall was supplemented by Financing Cash Flow of ¥3.64B, including proceeds from long-term borrowings, and cash and cash equivalents increased to ¥52.81B at period-end from ¥48.50B in the previous year. Although capital expenditures were covered within the range of Operating Cash Flow, a contraction in Free Cash Flow is observed during investment phases involving acquisitions.

Earnings Quality

Non-operating income was ¥0.42B, while non-operating expenses were ¥1.09B, including interest expenses of ¥1.06B. Both were small relative to revenue, and the extent to which recurring non-operating gains and losses enhanced profit was limited. Meanwhile, impairment losses of ¥2.99B, included in extraordinary losses of ¥3.20B, represented a temporary factor and reduced Profit Before Tax of ¥33.30B. The divergence between Ordinary Income of ¥35.73B and Net Income attributable to owners of the parent of ¥23.59B was primarily due to these impairment losses and the deduction of income taxes and other taxes of ¥8.98B. This should be evaluated separately from recurring earnings power as indicated by the Operating Income margin. Operating Cash Flow exceeded Net Income, indicating limited reliance on accruals and favorable earnings quality from the perspective of cash conversion.

Earnings Forecast and Guidance

The Company forecasts Revenue of ¥903.00B, Operating Income of ¥37.45B (+2.9% YoY), Ordinary Income of ¥36.35B (+1.7%), and EPS of ¥117.40 for the fiscal year ending March 2027. The forecast Operating Income margin is estimated at approximately 4.1%, representing a slight decline from 4.5% in the current period. The anticipated slowdown in profit growth relative to revenue growth has therefore been incorporated into the forecast.

Shareholder Returns

The Company’s year-end dividend is ¥97.5 per share. The Payout Ratio is 16.8%; however, this figure is based on the Company’s standalone year-end dividend and should be considered in light of the fact that the effective annual dividend, including the interim dividend paid by a wholly owned subsidiary, is ¥160, resulting in a Payout Ratio of 27.6%. Virtually no share repurchases were conducted, at approximately ¥0.002B, and the Total Return Ratio was therefore broadly in line with the Payout Ratio. The forecast dividend for the fiscal year ending March 2027 is ¥32 per share, shown after the stock split, equivalent to ¥160 before the split, indicating that the effective dividend level is expected to be maintained.

Risk Factors

1. Cost pass-through risk arising from the low-margin structure: In the food supermarket industry, where the Operating Income margin is 4.5%, margins could face further pressure if increases in personnel expenses, equivalent to 9.8% of revenue, logistics costs, and utility expenses cannot be passed on through pricing. The forecast for the fiscal year ending March 2027 also anticipates a decline in the Operating Income margin to approximately 4.1%.

2. Liquidity and working capital risk: Current assets of ¥102.05B were lower than current liabilities of ¥123.29B, resulting in negative working capital. Although this reflects the cash conversion cycle characteristic of food retail, which utilizes trade payables, ongoing monitoring of short-term funding and liquidity is necessary.

3. Impairment and investment recovery risk: The Company recorded impairment losses of ¥2.99B during the current period, while investments are being made ahead of returns, including capital expenditures of ¥33.25B—approximately 2.1 times depreciation and amortization—and approximately ¥10.4B for the acquisition of subsidiary shares. If the profitability of stores or acquired businesses falls below expectations, additional impairment losses may arise.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Both the Operating Income margin and Net Income margin exceed the industry median, placing the Company’s profitability in a relatively favorable position within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Against revenue growth of +11.0%, the growth rates of Operating Income, Ordinary Income, and Net Income were all limited to the 1–3% range. The ability to absorb rising costs is therefore a structural issue that will influence future profit trends.

2. Operating Cash Flow was approximately twice Net Income, indicating strong cash support for earnings. However, the expansion of Investing Cash Flow, including subsidiary acquisitions, reduced Free Cash Flow to ¥0.68B. Investment discipline and post-investment earnings contributions will therefore be the focus of capital allocation.

3. The effective annual dividend was ¥160, and the Payout Ratio was 27.6%, indicating a stable dividend policy. However, during periods of large-scale investment, the level of Free Cash Flow may affect the balance between funding dividends and growth investments.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,043–¥1,105 at ±1% for the Cost of Equity, and ¥1,071–¥1,077 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥1.7 per share has been added back to earnings, due to its nature as a non-cash expense and to improve comparability with IFRS companies.

(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 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. 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, and after consulting with professionals as necessary.

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