BLUE ZONES HOLDINGS (417A) FY2026 Q3 Earnings Report

Quick View

Executive Summary

The Company achieved increases in both revenue and profit in its single food supermarket business, with Operating Income, Ordinary Income, and Net Income attributable to owners of the parent all progressing beyond the full-year company forecast as of the cumulative Q3 period. Revenue was ¥6,082.7B, Operating Income was ¥375.8B (Operating Margin 6.2%), Ordinary Income was ¥370.4B, and Net Income attributable to owners of the parent was ¥249.7B (consolidated Net Income of ¥255.0B). Against the full-year forecast, progress rates were 78.8% for Revenue, compared with 111.2% for Operating Income, 112.2% for Ordinary Income, and 121.8% for Net Income. Profit items significantly exceeded the standard 75% level, suggesting that the full-year plan may be conservative or that seasonal cost increases have been incorporated into Q4.

Factors Affecting Performance

【Revenue】Revenue was ¥6,082.7B, representing progress of 78.8% against the full-year forecast of ¥7,720.0B. The business consists of a single food supermarket segment, reflecting a stable earnings base supported by daily consumption.

【Profit and Loss】Gross profit, after deducting Cost of Sales of ¥4,392.4B, was ¥1,466.0B (Gross Margin 24.1%). After deducting Selling, General and Administrative Expenses of ¥1,314.5B (SG&A Ratio 21.6%), Operating Income was ¥375.8B (Operating Margin 6.2%). Ordinary Income of ¥370.4B was close to Operating Income at 98.6%, with the small decline primarily attributable to non-operating expenses, including interest expenses of ¥7.7B. Extraordinary income of ¥2.1B and extraordinary losses of ¥0.5B resulted in a net gain of only ¥1.7B, representing less than 0.5% of Profit Before Tax of ¥372.1B. This indicates a recurring earnings structure with low dependence on extraordinary factors. The effective tax rate was 31.5%, resulting in Net Income attributable to owners of the parent of ¥249.7B. In conclusion, the Company achieved increases in both revenue and profit.

Segment Analysis

The Group operates a single segment consisting primarily of the food supermarket business, and segment-level revenue and profit/loss are not disclosed.

Key Financial Indicators

【Profitability】The Operating Margin of 6.2% and Net Profit Margin of 4.2% (based on consolidated Net Income) reflect a low-margin structure determined by deducting the SG&A Ratio of 21.6% from the Gross Margin of 24.1%, resulting in high sensitivity to cost fluctuations. 【Cash Quality】Ordinary Income of ¥370.4B was broadly consistent with Operating Income of ¥375.8B, while the contribution from extraordinary gains and losses was small at ¥1.7B; therefore, earnings quality is primarily based on recurring business activities. 【Investment Efficiency】ROE was 12.3%, reflecting a structure in which asset turnover and moderate financial leverage supplement the low Net Profit Margin. Tangible fixed assets accounted for approximately 59.8% of total assets, indicating that the utilization of store assets is central to profit generation. 【Financial Soundness】The Equity Ratio was 48.6%, and Cash and Deposits of ¥538.5B substantially exceeded Short-Term Borrowings, providing a substantial buffer for short-term liquidity. On the other hand, Current Liabilities of ¥1,279.8B exceeded Current Assets of ¥1,115.8B, resulting in a Current Ratio below 100% and negative working capital. However, Accounts Payable of ¥646.1B constitutes the primary component of Current Liabilities, reflecting the characteristics of food retail businesses that utilize trade payables.

Cash Flow Analysis

Because Operating Cash Flow (OCF), Investing Cash Flow, and Financing Cash Flow in the statement of cash flows are not included in the disclosed data, cash trends are analyzed based on changes in the balance sheet. Cash and Deposits were ¥538.5B, substantially exceeding Short-Term Borrowings of ¥8.0B, indicating ample short-term liquidity. Interest-bearing debt primarily consisted of Long-Term Borrowings of ¥574.3B, with long-term funding allocated to Fixed Assets of ¥3,143.2B; the maturity matching between financing and asset holdings is therefore generally consistent. Operating Income of ¥375.8B was more than 48 times Interest Expenses of ¥7.7B, indicating that the interest burden was minor relative to the earnings level.

Earnings Quality

Current-period profit was largely derived from recurring business activities and had low dependence on temporary factors. Ordinary Income of ¥370.4B represented 98.6% of Operating Income of ¥375.8B, with the difference primarily attributable to the net of non-operating income of ¥2.5B and non-operating expenses of ¥7.9B, including Interest Expenses of ¥7.7B. Extraordinary income of ¥2.1B, including gains on the sale of fixed assets, and extraordinary losses of ¥0.5B, including losses on the disposal of fixed assets, resulted in a net contribution of only ¥1.7B, representing less than 1% of Profit Before Tax of ¥372.1B. Comprehensive Income was ¥255.8B, of which ¥250.4B was attributable to owners of the parent. The difference from Net Income of ¥249.7B was limited to small other comprehensive income items, including valuation differences on securities of ¥1.0B. From an accrual perspective as well, no significant distortion was observed in earnings quality.

Earnings Forecast and Guidance

As of the cumulative Q3 period, Operating Income, Ordinary Income, and Net Income attributable to owners of the parent had already exceeded the full-year company forecast. Operating Income was ¥375.8B versus the full-year forecast of ¥338.0B, representing progress of 111.2%, while Ordinary Income was ¥370.4B versus the forecast of ¥330.0B, representing progress of 112.2%. Net Income attributable to owners of the parent was ¥249.7B versus the forecast of ¥205.0B (based on forecast EPS of ¥501.22), with EPS of ¥613.19, representing progress of 121.8%. While Revenue progress remained at a standard level of 78.8%, profit items were significantly ahead of schedule, making Q4 expense plans and potential revisions to the full-year forecast key areas of focus.

Shareholder Returns

The company forecast for the annual dividend is ¥62.5 per share. Based on forecast EPS of ¥501.22, the forecast Payout Ratio is approximately 12.5%, indicating substantial dividend capacity relative to accounting profit. Retained Earnings were a substantial ¥1,869.9B, and capital constraints are considered limited. Cumulative Q3 actual EPS was ¥613.19, exceeding forecast EPS, and assuming achievement of the full-year forecast, dividend coverage by earnings is at a sufficient level. As no data on share repurchases was provided, this section evaluates only the Payout Ratio.

Risk Factors

1. Decline in liquidity indicators: Current Liabilities of ¥1,279.8B exceeded Current Assets of ¥1,115.8B, resulting in a Current Ratio of approximately 87.2%, below 100%. Although Cash and Deposits of ¥538.5B substantially exceeded Short-Term Borrowings of ¥8.0B, the ability to meet Current Liabilities, primarily Accounts Payable of ¥646.1B, depends on cash generation from operating activities.

2. Price competition and cost pass-through risk: Under the low-margin structure represented by a Gross Margin of 24.1% and an SG&A Ratio of 21.6%, if increases in labor costs, logistics costs, utility expenses, and raw material prices cannot be sufficiently passed on to selling prices, the Operating Margin of 6.2% could be pressured.

3. Divergence between the full-year plan and Q4: Progress rates for Operating Income, Ordinary Income, and Net Income exceeded 110%, substantially outpacing the Revenue progress rate of 78.8%. Q4 expense recognition, seasonal factors, and the assumptions underlying the full-year plan therefore require confirmation.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Return

Both the Operating Margin and Net Profit Margin exceeded the industry median, indicating that profitability is relatively high within the retail industry.

※Source: Compiled by the Company

Key Points in the Financial Results

1. Progress rates for Operating Income, Ordinary Income, and Net Income all exceeded 110%, putting the Company ahead of its full-year forecast. Q4 expense trends and whether the full-year forecast is revised are key points of focus in the financial results data.

2. ROE of 12.3% is supported by a combination of asset turnover and moderate financial leverage. Although the Net Profit Margin of 4.2% itself exceeds the industry median, it remains a low-margin level in absolute terms.

3. The Current Ratio was 87.2%, below 100%; however, Cash and Deposits substantially exceeded Short-Term Borrowings, and the fact that Accounts Payable constitutes the primary component of Current Liabilities can be understood as a working capital structure characteristic of food retail. Future Operating Cash Flow and trends in inventories and trade payables will be monitoring points.

Theoretical Share Price (Reference Value)

Sensitivity: ¥5,059–¥5,367 at Cost of Equity ±1%, and ¥5,203–¥5,220 at ω±0.1.

Notes:

• Because progress of Net Income against the full-year forecast (122%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of schedule tend to exceed their forecasts. For businesses with strong seasonality, the adjustment may be excessive).
• Net assets as of the quarter-end have been used (there is a timing difference relative to the full-year forecast).

(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; 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.)

---

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 a professional as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2026 Q3 performance was strong relative to the company’s full-year plan, led by earnings that have already exceeded guidance despite a moderate-margin supermarket business model. Cumulative revenue reached ¥608.3bn. Operating income was ¥37.6bn, ordinary income was ¥37.0bn, and profit attributable to owners of parent was ¥25.0bn. Q3 revenue represents 78.8% of the ¥772.0bn full-year revenue forecast, 3.8 percentage points ahead of the standard 75% seasonal progress benchmark. Operating-income progress was 111.2% of the ¥33.8bn full-year forecast. Ordinary-income progress was 112.2% of the ¥33.0bn forecast. Net-income progress was 121.8% of the ¥20.5bn forecast. The magnitude of the profit outperformance indicates either material fourth-quarter seasonality, a conservative/stale forecast, or a combination of both. The reported operating margin was 6.2%, placing profitability above the <5% concern threshold but below the 8% level generally associated with a higher-margin business model. Net profit margin was 4.1%, supported by a very low financing burden rather than an unusually high operating margin. Interest coverage was a robust 48.9x, demonstrating that interest expense of ¥0.77bn is readily absorbed by operating income. The effective tax rate was 31.5%, producing a tax burden of 0.671 and moderately reducing conversion of pre-tax income into net income. Return on equity was 16.1% on an annualized basis, exceeding the 15% excellent benchmark. The balance sheet is materially weighted toward fixed assets, with PPE representing 59.8% of total assets, consistent with an asset-intensive supermarket and property footprint. Liquidity is the principal financial constraint: current assets covered only 87.2% of current liabilities, leaving working capital negative by ¥16.4bn. Long-term funding nevertheless reduces immediate refinancing pressure, as only 1.4% of interest-bearing debt is classified as short-term loans. Goodwill is modest at 3.0% of equity, so the balance sheet is not materially dependent on acquired intangible value. The principal implication for the remainder of FY2026 is that management’s full-year earnings forecast requires clarification through the Q4 trading update, while liquidity discipline should remain a central monitoring point.

Profitability Analysis

The annualized 16.1% ROE is explained by a 4.1% net profit margin, 1.904x annualized asset turnover, and 2.06x financial leverage. Asset turnover is the major positive operating contributor, reflecting a high-volume food-supermarket revenue base relative to assets. Financial leverage also meaningfully supports shareholder returns, although the 2.06x leverage factor remains below the D/E >2.0x threshold that would indicate aggressive balance-sheet risk. Operating profitability is moderate rather than exceptional: the 6.2% EBIT margin is above the stated concern level but remains the key structural limitation on earnings resilience. Gross profit was reported at ¥146.6bn and gross margin at 24.1%, consistent with a value-oriented food retail format near the lower end of the general-retail benchmark range. SG&A expense was ¥131.4bn, equivalent to 21.6% of revenue, which is efficient relative to the 25-35% typical retail range. The combination of a 24.1% reported gross margin and lean SG&A intensity supports positive operating leverage, although the model remains sensitive to procurement costs, promotional activity, labor costs, and store operating expenses. The five-factor DuPont analysis shows a 0.990 interest burden, confirming that financing costs have only a limited effect on pre-tax profit. The 0.671 tax burden is the main non-operating drag on earnings conversion, rather than interest expense. Extraordinary income of ¥2.13bn exceeded extraordinary loss of ¥0.45bn, creating a net ¥1.68bn benefit before tax. This item is small at 0.3% of revenue but should be excluded when assessing normalized earnings momentum. The company operates as a single food-supermarket segment, making consolidated operating profitability the relevant measure of core-business performance.

Growth Assessment

Revenue has reached ¥608.3bn by Q3, putting the company modestly ahead of the normal pace required to meet its ¥772.0bn full-year target. Earnings are considerably further ahead of plan than revenue: operating income has exceeded full-year guidance by ¥3.8bn, while net income has exceeded it by ¥4.5bn. This divergence suggests improved margin execution, a favorable earnings mix, or guidance that does not yet incorporate Q3 performance. To reconcile with unchanged full-year guidance mechanically, Q4 would need revenue of ¥163.7bn, operating loss of ¥3.8bn, ordinary loss of ¥4.0bn, and loss attributable to owners of parent of ¥4.5bn. Such implied results make a simple run-rate interpretation inappropriate and increase the importance of management commentary on forecast assumptions. The core business is food-focused supermarket retail, where recurring demand supports revenue visibility but price competition and input-cost volatility can constrain margin expansion. Three subsidiaries were newly consolidated during the period, which may contribute to reported scale and requires monitoring to distinguish acquired growth from underlying organic growth. The asset base includes ¥25.5bn of PPE, primarily buildings of ¥11.7bn and land of ¥10.3bn, providing operating capacity but also creating a fixed-cost and capital-intensity profile. Profit growth appears high quality at the operating-income level because earnings exceeded plan before the relatively small net extraordinary gain. Sustainability depends on retaining disciplined SG&A intensity and protecting gross margin amid food-cost and wage inflation.

Financial Health

Liquidity requires explicit caution. The current ratio is 0.87x, below 1.0x and below the 1.5x healthy benchmark, while the quick ratio is also low at 0.75x. Current liabilities of ¥128.0bn exceed current assets of ¥111.6bn, resulting in negative working capital of ¥16.4bn. This structure is partly characteristic of food retail, where rapid inventory turnover and supplier payables can finance operations, but it leaves the company more reliant on continued cash generation and smooth supplier-credit conditions. Accounts payable of ¥64.6bn are substantial relative to inventory of ¥15.4bn, reinforcing the importance of maintaining stable merchandise turnover and vendor relationships. Cash and deposits of ¥53.8bn provide a meaningful liquidity reserve and equal 67.3x short-term loans of ¥0.8bn. In addition, the current portion of long-term loans is ¥25.7bn, which should be monitored within the broader current-liability burden. Interest-bearing debt totals ¥58.2bn, consisting mainly of ¥57.4bn in long-term loans. Debt-to-equity is 1.06x, moderately levered but well below the 2.0x explicit warning level. Debt accounts for 22.0% of capital, comfortably within the <40% investment-grade-oriented benchmark. Interest coverage of 48.9x indicates strong capacity to service the present interest burden. Total equity is ¥206.9bn, equivalent to 48.6% of assets, providing a reasonable capital cushion. Goodwill of ¥6.1bn equals only 1.4% of assets and 3.0% of equity, limiting acquisition-related impairment exposure. Asset retirement obligations of ¥9.3bn are material obligations associated with the physical store and property base and should be incorporated into long-term site economics.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is ¥62.50 per share. Against forecast EPS of ¥501.22, the prospective dividend payout ratio is 12.5%. This is substantially below the 60% sustainability benchmark and leaves a wide earnings retention buffer. The low payout ratio is consistent with preserving funding capacity for an asset-intensive supermarket operation and for debt reduction or reinvestment. Retained earnings were ¥187.0bn at Q3, providing substantial accounting capacity for dividends. Treasury stock was ¥8.3bn, equal to 2.0% of total assets, but no current-period repurchase amount is provided; therefore, a total return ratio is not calculated. The dividend outlook is supported by Q3 profit already exceeding the full-year net-income forecast, although the final distribution should be interpreted alongside any revision to FY2026 guidance.

Risk Assessment

Business risks include Food-supermarket margins are exposed to food procurement inflation, promotional intensity, and consumer price sensitivity; the 6.2% operating margin provides less buffer than a high-margin retail model., The large fixed-asset base, including ¥11.7bn of buildings and ¥10.3bn of land, raises operating leverage and exposes returns to store productivity, local competition, and site-level demand changes., Labor-market tightness and wage inflation are material retail-sector risks because labor costs are embedded in SG&A and could erode the currently efficient 21.6% SG&A-to-revenue ratio., Three newly consolidated subsidiaries introduce integration and comparability risk, particularly if reported growth is acquisition-led rather than organic..

Financial risks include LOW_LIQUIDITY: the 0.87x current ratio is below 1.0x, meaning current liabilities exceed current assets by ¥16.4bn. While supplier financing is common in food retail, the position heightens dependence on stable cash collections, inventory turnover, and supplier payment terms., The quick ratio of 0.75x indicates that liquidity remains below current obligations even after excluding inventories, limiting flexibility if trading conditions deteriorate., Current liabilities include ¥25.7bn of the current portion of long-term loans, which requires disciplined liquidity management despite substantial cash balances., Interest-bearing debt of ¥58.2bn and D/E of 1.06x are manageable at present, but a sustained earnings decline would reduce the benefit of financial leverage..

Key concerns include Q3 operating income is already 111.2% of full-year guidance and net income is 121.8%; the implied Q4 result under unchanged guidance is sharply negative, so forecast credibility and Q4 seasonality are key near-term interpretive issues., A net extraordinary gain of ¥1.68bn modestly lifts reported pre-tax profit and should not be treated as recurring operating performance., The company’s short-term liquidity profile is the highest-priority balance-sheet issue, despite strong interest coverage and moderate debt-capitalization..

Investment Implications

Key takeaways include Annualized ROE of 16.1% is strong and is driven by high annualized asset turnover of 1.904x, moderate leverage, and positive but not high operating margins., Q3 earnings materially exceed the full-year plan, with operating income at 111.2% and net income at 121.8% of guidance., Operating margin of 6.2% and reported gross margin of 24.1% indicate an efficient, volume-oriented supermarket model rather than a structurally high-margin retailer., Liquidity warrants close attention because the current ratio is 0.87x and working capital is negative ¥16.4bn., Leverage servicing risk is limited currently, supported by 48.9x interest coverage, 22.0% debt/capital, and low goodwill exposure..

Metrics to watch include Full-year guidance revision and the explanation for Q4 implied earnings under the current forecast, Current ratio, quick ratio, cash balances, and the current portion of long-term loans, Gross margin and SG&A-to-revenue ratio as indicators of procurement, pricing, and labor-cost pressure, Supplier payables relative to inventory and revenue as indicators of working-capital discipline, Performance and integration of newly consolidated subsidiaries, Interest-bearing debt and interest coverage.

Regarding relative positioning, The company combines strong annualized ROE and efficient SG&A with a moderate supermarket operating margin. Its capital structure is more resilient than its current-ratio reading alone suggests because debt capitalization is contained and interest coverage is high, but its liquidity profile is weaker than a conservatively financed retailer and depends on ongoing operational cash conversion and supplier-credit stability.