BLUE ZONES HOLDINGS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Q1 of the fiscal year ending March 2027 delivered higher revenue and earnings, with solid progress toward the full-year forecast. Revenue was ¥2,230.8B, Operating Income was ¥116.3B, Ordinary Income was ¥113.8B, and Net Income was ¥77.7B (¥77.3B attributable to owners of the parent). The Operating Margin of 5.2% reflects cost efficiency, with a Selling, General and Administrative Expense ratio of 22.1% against a Gross Margin of 23.9%, and is relatively high compared with the industry median. Progress toward the full-year forecast was 24.7% for Revenue, compared with 31.1% for Operating Income, 31.3% for Ordinary Income, and 32.4% for Net Income. Profit items are therefore progressing faster than Revenue, with improved cost efficiency supporting earnings.

Factors Affecting Business Performance

【Revenue】Revenue was ¥2,230.8B, representing progress of 24.7% against the full-year forecast of ¥9,030.0B. The Company operates in a single segment, the Food Supermarket Business, and does not disclose a breakdown by business; however, the resilience of existing stores appears to have supported Revenue.

【Profit and Loss】Operating Income was ¥116.3B (Operating Margin: 5.2%), while Ordinary Income was ¥113.8B. Although non-operating expenses, primarily interest payments of ¥3.3B, exceeded non-operating income of ¥0.8B, the impact was limited. Extraordinary income of ¥4.2B, mainly gains on sales of fixed assets, and extraordinary losses of ¥0.7B were small and not at a level that distorts the assessment of the core business. Against Profit Before Tax of ¥117.3B, the Company incurred income taxes and other taxes of ¥39.6B, resulting in Net Income of ¥77.7B. Given the increase in both Revenue and earnings, and the fact that profit progress exceeded Revenue progress, improved cost efficiency can be viewed as the primary driver of earnings growth.

Segment Analysis

The Group operates a single segment, the supermarket business centered on food products, and does not disclose information by segment.

Key Financial Indicators

【Profitability】The Operating Margin was 5.2% and the Net Profit Margin was 3.5% (Net Income of ¥77.7B / Revenue of ¥2,230.8B). Cost efficiency supported profitability, with a Gross Margin of 23.9% against a Selling, General and Administrative Expense ratio of 22.1%.【Cash Flow Quality】The impact of extraordinary gains and losses on Net Income was small (extraordinary income of ¥4.2B and extraordinary losses of ¥0.7B), indicating that most earnings were generated by the core business. Meanwhile, the effective tax rate was approximately 33.7% (income taxes and other taxes of ¥39.6B / Profit Before Tax of ¥117.3B), weighing on final earnings.【Investment Efficiency】ROE was 3.8% and the Equity Ratio was 50.3%. Total asset turnover remained relatively low, while the high fixed asset ratio—¥3,268.3B out of total assets of ¥4,083.5B, or approximately 80.1%—structurally constrained asset efficiency.【Financial Soundness】Current liabilities of ¥1,052.2B exceeded current assets of ¥815.2B, leaving the current ratio at approximately 77.5% and indicating limited short-term financial flexibility. Cash and deposits were ¥366.6B, representing a significant decrease from the previous-year figure before conversion of ¥593.2B, and the trend in cash on hand requires monitoring.

Cash Flow Analysis

As detailed disclosure of the cash flow statement is not available, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥366.6B, down ¥176.6B (-32.5%) year on year. Current liabilities of ¥1,052.2B exceeded current assets of ¥815.2B, resulting in a tight structure with negative working capital of ¥236.9B. Long-term borrowings were ¥611.0B, down from the previous year, suggesting that the reduction of interest-bearing debt may have contributed to the decline in cash. Property, plant and equipment was ¥2,692.5B, an increase from the previous year, which is also consistent with continued investment in stores and other assets contributing to the decline in cash on hand. Overall, the Company’s underlying ability to generate cash from business activities appears stable, given the limited impact of extraordinary gains and losses. However, the balance between investment and debt repayment has reduced the liquidity cushion.

Earnings Quality

Most of the period’s earnings were generated by the core business, and earnings quality was generally stable. Non-operating income of ¥0.8B and non-operating expenses of ¥3.4B were both small, each accounting for less than 0.1% of Revenue, indicating minimal dependence on net financial income. Extraordinary income of ¥4.2B, including a gain on the sale of fixed assets of ¥1.1B, and extraordinary losses of ¥0.7B each accounted for less than 0.2% of Revenue, limiting their temporary positive or negative effects on Net Income. The difference between Ordinary Income of ¥113.8B and Net Income of ¥77.7B was primarily attributable to income taxes and other taxes of ¥39.6B. The effective tax rate was approximately 33.7% (the ratio of income taxes and other taxes to Profit Before Tax of ¥117.3B), indicating that taxes, rather than a structural divergence, were the primary cause. Comprehensive income was ¥78.0B, nearly in line with Net Income of ¥77.7B. As the effects of valuation differences on other securities and adjustments for retirement benefits were minor, the divergence between Net Income and underlying earnings is considered small.

Earnings Forecast and Guidance

Progress in Q1 against the full-year forecasts—Revenue of ¥9,030.0B, Operating Income of ¥374.5B, and Ordinary Income of ¥363.5B—was 24.7% for Revenue, 31.1% for Operating Income, and 31.3% for Ordinary Income. Compared with 25%, a benchmark based on simply dividing the year into four quarters, Revenue was progressing almost evenly, while profit items were progressing 6–7 percentage points ahead. As the contribution from non-operating and extraordinary factors was limited, this outperformance is considered primarily attributable to improved operating efficiency resulting from control of Selling, General and Administrative Expenses. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The dividend forecast for the fiscal year ending March 2027 is ¥32 per share. Due to the circumstances surrounding the Company’s establishment, namely a share transfer conducted independently, and the effects of the stock split, a simple comparison with results through the previous fiscal year is not possible. However, based on the dividend forecast of ¥32 against forecast EPS of ¥117.40, the Payout Ratio is approximately 27.3%. As returns consist solely of dividends and there is no disclosure regarding share repurchases, shareholder returns are evaluated using the Payout Ratio. Given the decline in cash and deposits and the low current ratio, the balance between securing funds for dividends and maintaining liquidity will be an area to monitor going forward.

Risk Factors

1. Short-Term Liquidity Risk: The current ratio was approximately 77.5% (current assets of ¥815.2B / current liabilities of ¥1,052.2B), below 100%, while the quick ratio also remained at approximately 63.0%. Working capital was negative ¥236.9B, indicating limited short-term financial flexibility.

2. Risk of Declining Cash on Hand: Cash and deposits were ¥366.6B, down ¥176.6B (-32.5%) year on year. Continued investment, including store investments, and the reduction of interest-bearing debt are progressing simultaneously, requiring close monitoring of the cash cushion.

3. Risk of Persistently Low Capital Efficiency: ROE was 3.8% and the fixed asset ratio was approximately 80.1% (fixed assets of ¥3,268.3B / total assets of ¥4,083.5B). The increasing concentration of assets in fixed assets structurally constrains capital efficiency through lower asset turnover.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Both the Operating Margin and Net Profit Margin exceeded the industry median, placing the Company in a relatively favorable position within the industry in terms of profitability.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Q1 profit progress—Operating Income of 31.1% and Ordinary Income of 31.3%—exceeded Revenue progress of 24.7%, with improved Selling, General and Administrative Expense efficiency supporting performance. The balance between the Gross Margin of 23.9% and the Selling, General and Administrative Expense ratio of 22.1% resulted in an Operating Margin of 5.2%.

2. Cash and deposits declined 32.5% year on year, while the current ratio remained at 77.5%, highlighting points of concern regarding short-term liquidity. The asset structure is heavily weighted toward fixed assets, with a fixed asset ratio of 80.1%, making improvement in capital efficiency (ROE of 3.8%) a medium-term area for monitoring.

3. Goodwill of ¥59.7B was approximately 2.9% of net assets, while intangible fixed assets also remained low at approximately 3.3% of total assets. Accordingly, the risk of future impairment is considered limited.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,054–¥1,117 at ±1% for the cost of equity, and ¥1,083–¥1,088 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are 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.)

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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 as necessary.

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AI Financial Analysis

Executive Summary

FY2027 Q1 performance was broadly in line with the full-year plan, with profitability supported by a solid supermarket operating model but liquidity remaining structurally tight. Revenue was ¥223.1bn and operating income was ¥11.6bn, producing a 5.2% operating margin. Ordinary income was ¥11.4bn and profit attributable to owners of parent was ¥7.7bn, or ¥37.98 per share. Q1 revenue represents 24.7% of the ¥903.0bn full-year forecast, close to the standard 25% seasonal progress rate. Operating-income progress was stronger at 31.1% of the ¥37.5bn forecast, 6.1 percentage points above the standard first-quarter pace. Ordinary-income progress was also ahead at 31.3% of plan, versus a 25% benchmark. Net-income progress reached 32.4% of the ¥23.9bn target, indicating that the company has entered the year with a meaningful earnings cushion against its plan. The gross-profit calculation from revenue less cost of sales implies a 27.4% gross margin, while SG&A was equivalent to 22.1% of revenue. This cost structure resulted in a 5.2% operating margin, above the less-than-5% general profitability concern threshold but still indicative of the inherently low-margin food-supermarket format. Annualized ROE was 15.1%, supported by a 3.5% net margin, 2.185x asset turnover and 1.99x financial leverage. Asset turnover is the principal positive DuPont driver, consistent with a high-volume retail business rather than a high-margin model. Interest coverage of 35.47x indicates that current earnings comfortably service reported interest costs despite ¥611.0bn of long-term loans. The balance sheet is asset-intensive, with property, plant and equipment comprising 65.9% of total assets, reflecting the company’s store-property base. Liquidity is the principal financial issue: the current ratio is 0.77x, quick ratio is 0.63x and working capital is negative ¥23.7bn. Cash and deposits declined ¥17.7bn year on year to ¥36.7bn, reinforcing the need to monitor seasonal working-capital funding and liquidity management. The company is a single-segment food-supermarket operator, so earnings diversification is limited but reporting complexity is low. Full-year management guidance remains unchanged, calling for operating-income growth of 2.9% and ordinary-income growth of 1.7%.

Profitability Analysis

The reported annualized 15.1% ROE decomposes into a 3.5% net profit margin, 2.185x annualized asset turnover and 1.99x financial leverage. The highest-contributing component is asset turnover, which is characteristic of food retail, where frequent inventory conversion and sales throughput compensate for modest unit margins. Financial leverage is meaningful but not excessive: D/E is 0.99x and debt/capital is 22.9%, while leverage of 1.99x approximately doubles the return generated on the asset base. The 5-factor analysis shows a 5.2% EBIT margin, a 1.008 interest burden and a 0.660 tax burden. The interest burden above 1.0x reflects the net contribution of non-operating and extraordinary items relative to EBIT, while interest expense itself is modest relative to operating profit. The effective tax rate was 33.7%, resulting in the 0.660 tax-burden factor and limiting conversion of pre-tax income into net income. Operating profit of ¥11.6bn represented 5.2% of revenue, and ordinary income of ¥11.4bn was only ¥0.3bn below operating income, demonstrating limited recurring non-operating drag. Net extraordinary income was ¥0.4bn, comprising ¥0.4bn of extraordinary income and ¥0.1bn of extraordinary loss, which lifted profit before tax to ¥11.7bn. This contribution was modest relative to pre-tax income and does not materially alter the recurring earnings profile. The operating margin is reasonable for a volume-driven supermarket business but leaves earnings sensitive to procurement costs, price competition, shrinkage and labor expenses. SG&A represented 22.1% of revenue based on reported SG&A expense, leaving relatively limited room for cost inflation before margins weaken. Sustainability of annualized ROE therefore depends more on preserving store productivity, merchandise margin and cost discipline than on further balance-sheet leverage.

Growth Assessment

The unchanged full-year forecast calls for revenue of ¥903.0bn, operating income of ¥37.5bn, ordinary income of ¥36.4bn and profit attributable to owners of parent of ¥23.9bn. Q1 revenue progress of 24.7% is close to a standard first-quarter run rate, indicating that the sales target does not require an unusual acceleration later in the year. Operating-income progress of 31.1% is ahead of the 25% standard by 6.1 percentage points. Ordinary-income and net-income progress are similarly ahead of schedule at 31.3% and 32.4%, respectively. This early profitability outperformance provides some buffer against later-year food-cost, labor-cost or competitive-price pressures. Management’s forecast nonetheless implies only 2.9% operating-income growth and 1.7% ordinary-income growth for the full year, signaling a prudent outlook rather than an assumption that Q1’s earnings pace persists unchanged. The business is reported as a single food-supermarket segment, making group growth dependent on the same core retail format and its store network. The fixed-asset base, including ¥269.3bn of PPE, supports the operating platform but also raises the importance of store-level productivity and disciplined maintenance and renewal investment. Inventory was ¥15.2bn, broadly stable versus ¥15.0bn in the prior period, which is consistent with controlled merchandise inventory at the balance-sheet date. The outlook should be evaluated primarily through the company’s ability to defend gross margin and operating cost efficiency while maintaining sales throughput.

Financial Health

Financial health is adequate from a long-term solvency perspective but constrained by weak short-term liquidity. The current ratio of 0.77x is below 1.0x and warrants an explicit warning: current assets of ¥81.5bn do not fully cover current liabilities of ¥105.2bn. The quick ratio of 0.63x confirms that the liquidity shortfall remains even after excluding inventories. Working capital was negative ¥23.7bn, reflecting the retail model’s reliance on supplier credit and rapid merchandise turnover. Accounts payable totaled ¥53.2bn, substantially exceeding trade receivables of ¥15.6bn, which supports operating funding but makes payment timing and supplier terms important liquidity variables. Current maturities of long-term loans were ¥19.3bn and current bonds were ¥0.7bn, while cash and deposits were ¥36.7bn; cash exceeds these stated debt maturities but is not sufficient to cover all current liabilities. Long-term loans were ¥611.0bn, and total reported interest-bearing debt was also ¥611.0bn. D/E of 0.99x is below the 2.0x aggressive-leverage threshold, and debt/capital of 22.9% is within the investment-grade benchmark of below 40%. Interest coverage of 35.47x demonstrates strong near-term debt-service capacity. Total liabilities accounted for 49.7% of assets, while total equity was ¥205.3bn, providing a substantial capital base. Cash and deposits fell 32.5% year on year, or ¥17.7bn, to ¥36.7bn, requiring attention even though the balance sheet has materially reduced current liabilities. The HIGH_ARO_RATIO alert reflects asset-retirement obligations of ¥13.1bn, equal to 6.5% of liabilities. This is relevant to a store-based retailer because obligations related to leased sites, restoration and property exits can create cash requirements that do not directly enhance operating capacity. The level is consistent with a business operating a sizeable physical-store footprint, but it increases the importance of maintaining cash reserves and avoiding underperforming-site closures. Goodwill of ¥6.0bn equals only 2.9% of equity and 1.5% of assets, so acquisition-value retention is not a material balance-sheet dependency.

Notable B/S Changes

Cash and deposits: -¥17.7bn (-32.5%) to ¥36.7bn - liquidity buffer declined materially and should be assessed alongside the 0.77x current ratio. Current assets: -¥20.5bn (-20.1%) to ¥81.5bn - the decline was driven primarily by cash and contributes to negative working capital. Current liabilities: -¥18.1bn (-14.7%) to ¥105.2bn - lower short-term obligations partly offset the reduction in current assets but did not restore current-ratio coverage. Total assets: -¥19.5bn (-4.6%) to ¥408.4bn - balance-sheet contraction was concentrated in liquid assets rather than the core property base. Non-controlling interests: -¥54.0bn (-84.4%) to ¥10.0bn - the material change altered the composition of total equity and should be monitored in subsequent ownership and consolidation disclosures.

Cash Flow Quality

The available balance-sheet movements indicate a decline in cash and deposits of ¥17.7bn year on year to ¥36.7bn. Inventory increased only ¥0.2bn year on year to ¥15.2bn, while trade receivables increased ¥0.1bn to ¥15.6bn. Trade payables declined ¥0.9bn to ¥53.2bn, a movement that can absorb liquidity because the business normally benefits from supplier financing. Current liabilities declined ¥18.1bn, including a ¥4.3bn decline in the current portion of long-term loans, which reduced near-term refinancing exposure but also coincided with lower cash balances. The asset-intensive supermarket model has ¥269.3bn of PPE and ¥13.1bn of asset-retirement obligations, making operating cash generation and disciplined property investment important to financial flexibility. The modest year-on-year inventory movement is not indicative of an outsized inventory accumulation at the reporting date. Net profit attributable to owners was ¥7.7bn, and extraordinary gains were modest, supporting a predominantly operating-income-based earnings profile.

Dividend Sustainability

The full-year dividend forecast is ¥32.00 per share, compared with forecast EPS of ¥117.40. This implies a dividend-only payout ratio of approximately 27.3%, comfortably below the 60% sustainability benchmark. The forecast dividend reflects the post-split basis described by the company. The low payout ratio provides a sizable accounting earnings buffer for store investment, debt service and liquidity management. Retained earnings were ¥1,892.7bn, substantially exceeding the annual dividend commitment implied by the forecast. Dividend capacity should nevertheless be considered alongside the low current ratio and the ¥17.7bn year-on-year reduction in cash, because short-term liquidity is more constrained than the payout ratio alone suggests. The unchanged dividend forecast is consistent with management maintaining its current shareholder-return framework while retaining financial flexibility.

Risk Assessment

Business risks include Food-supermarket profitability risk: the 5.2% operating margin is vulnerable to food procurement inflation, price competition, markdowns, shrinkage and labor-cost increases., Single-segment concentration: all reported operations are within the food-supermarket business, limiting diversification if consumer traffic or local competitive conditions weaken., Physical-store productivity risk: PPE of ¥269.3bn, including ¥120.2bn of buildings and ¥110.4bn of land, creates a high fixed-asset commitment and raises the cost of underperforming locations., Consumer and competitive risk: supermarket demand is comparatively defensive, but customer traffic and basket sizes can be affected by household real-income pressure, discount competitors and e-commerce substitution..

Financial risks include Low-liquidity warning: the current ratio of 0.77x and quick ratio of 0.63x indicate reliance on operating cash conversion, supplier payment terms and continued access to funding., Cash-balance risk: cash and deposits declined 32.5% year on year to ¥36.7bn, reducing the buffer against working-capital volatility and property-related cash needs., Debt exposure: long-term loans of ¥611.0bn are serviceable at present, as shown by 35.47x interest coverage, but funding costs and refinancing conditions remain relevant., Asset-retirement obligation risk: ¥13.1bn of AROs equals 6.5% of liabilities, above the quality-alert threshold; store closures, lease exits or restoration requirements could require material cash outlays..

Key concerns include The highest-priority concern is liquidity, because current assets are ¥23.7bn below current liabilities despite satisfactory leverage and interest coverage., The second priority is protection of merchandise and operating-cost margins, as a modest operating margin provides limited cushion against inflation or competitive pricing., The third priority is whether cash balances stabilize while the company services debt maturities and maintains its property-intensive retail network., The early earnings progress versus full-year guidance is favorable, but full-year delivery still depends on maintaining Q1-level operating discipline through the remaining quarters..

Investment Implications

Key takeaways include Q1 operating income of ¥11.6bn reached 31.1% of the full-year plan, ahead of the standard first-quarter progress rate., Annualized ROE of 15.1% is strong and is driven chiefly by 2.185x asset turnover, consistent with an efficient high-volume retail model., Leverage is manageable, with D/E of 0.99x, debt/capital of 22.9% and interest coverage of 35.47x., Short-term liquidity is the central balance-sheet constraint, with a 0.77x current ratio, 0.63x quick ratio and negative ¥23.7bn working capital., The FY2027 dividend forecast implies a modest 27.3% payout ratio, preserving earnings retention capacity..

Metrics to watch include Quarterly revenue and operating-income progress versus the ¥903.0bn and ¥37.5bn full-year forecasts, Operating margin and gross-margin resilience amid food-cost and labor-cost changes, Cash and deposits following the year-on-year ¥17.7bn decline, Current ratio, quick ratio, trade payables and current debt maturities, Interest coverage and long-term loan balances, Store-property productivity, asset-retirement obligations and any property disposal or closure-related charges.

Regarding relative positioning, The company presents as a mature, asset-intensive Japanese food-supermarket operator with strong annualized ROE and robust interest-service capacity. Its return profile relies more on sales throughput and property-supported retail scale than on premium margins. Relative financial positioning is supported by moderate debt/capital and limited goodwill exposure, but is tempered by below-benchmark short-term liquidity and a shrinking cash balance.