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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