| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥306.1B | ¥320.4B | -4.4% |
| Operating Income | ¥45.3B | ¥57.1B | -20.6% |
| Ordinary Income | ¥47.9B | ¥60.2B | -20.5% |
| Net Income | ¥28.5B | ¥27.5B | +3.6% |
| ROE | 5.8% | 5.1% | - |
For the half-year ended March 2026 (Q2), Revenue was ¥306.1B (YoY -¥14.2B -4.4%), Operating Income was ¥45.3B (YoY -¥11.8B -20.6%), Ordinary Income was ¥47.9B (YoY -¥12.3B -20.5%), and Net Income was ¥28.5B (YoY +¥1.0B +3.6%). Weakening sales in the Cosmetics Business and higher SG&A drove a substantial decline at the operating level, but recognition of ¥9.2B in gain on sale of fixed assets resulted in a slight increase in the bottom line. Operating margin was 14.8% (down 3.0pt from 17.8% a year earlier). Gross margin remained high at 67.8%, but SG&A rose to ¥162.3B (YoY +¥3.2B), revealing negative operating leverage. ROE compressed to 5.8%. Progress toward the full-year plan is behind schedule at 47.1% of Revenue, 39.8% of Operating Income, and 33.1% of Net Income (vs. standard progress of 50%), indicating a need for recovery in H2.
[Revenue] Revenue of ¥306.1B (YoY -4.4%) was mainly driven by a decline in the core Cosmetics Business to ¥241.7B (YoY -5.0%). Cosmetics account for 78.6% of Revenue and are the core profit engine, but domestic market competition and slowing unit sales led to lower sales versus the prior year. Pharmaceuticals & Foods totaled ¥53.9B (YoY -3.8%), and Other businesses ¥11.9B (YoY +5.6%). Gross margin was maintained at 67.8% (up 0.3pt from 67.5% a year earlier) indicating preserved price/mix, but the lower top line reduced gross profit in absolute terms to ¥207.7B. Accounts receivable declined to ¥106.9B (YoY -¥12.1B), and DSO stood at 127 days, showing some collection progress but reflecting the sales decline.
[Profitability] Operating Income was ¥45.3B (YoY -20.6%). SG&A increased to ¥162.3B (from ¥159.1B, +2.0%), rising despite lower Revenue and worsening SG&A ratio to 53.0% (up 3.3pt from 49.7%). Corporate allocation costs remained heavy with segment adjustment expense of -¥12.7B (prior year -¥12.3B). Cosmetics Operating Income was ¥53.6B (YoY -16.5%), with margin at 22.2% (down 3.0pt from 25.2%). Pharmaceuticals & Foods Operating Income was ¥3.9B (YoY -8.5%) with a 7.2% margin. Non-operating income totaled ¥2.5B (including ¥0.7B forex gains), yielding Ordinary Income of ¥47.9B (YoY -20.5%). Special gains totaled ¥9.2B (gain on sale of fixed assets) and special losses ¥2.9B (including ¥1.2B impairment loss in Pharmaceuticals & Foods), resulting in pre-tax income of ¥54.3B. Corporate tax and related expenses were ¥25.8B (effective tax rate 47.5%), a continued high tax burden, and after deducting non-controlling interests of ¥1.3B, Net Income was ¥28.5B (YoY +3.6%). While special gains contributed to a slight increase in final profit, the decline in recurring earning power is evident; overall conclusion: lower Revenue and lower profit.
The Cosmetics Business recorded Revenue of ¥241.7B (YoY -5.0%) and Operating Income of ¥53.6B (YoY -16.5%), with a margin of 22.2% (down 3.0pt from 25.2%). With a 78.6% share of Revenue and the largest contributor to segment profit, the business saw profitability decline due to slower unit sales and higher promotional spending. Pharmaceuticals & Foods posted Revenue of ¥53.9B (YoY -3.8%) and Operating Income of ¥3.9B (YoY -8.5%) with a 7.2% margin (down 0.4pt from 7.6%), and recorded a ¥1.2B impairment loss related to land. Other businesses delivered Revenue of ¥11.9B (YoY +5.6%) and Operating Income of ¥0.6B (YoY -41.6%) with a 4.9% margin — growth in Revenue but compressed profitability. Large margin dispersion across segments and high dependence on Cosmetics means that the slowdown in that business directly impacted consolidated results.
[Profitability] Operating margin 14.8% (down 3.0pt from 17.8%), Net margin 9.3% (up 0.7pt from 8.6%), Gross margin 67.8% (up 0.3pt from 67.5%). ROE is 5.8%, indicating compressed profitability. EBITDA margin is 16.4% (calculated as Operating Income plus depreciation ¥4.8B), implying solid underlying earning power, but heavy SG&A is depressing operating-level margins. [Cash Quality] Operating Cash Flow (OCF) was ¥30.8B, 1.08x Net Income ¥28.5B on the surface acceptable, but OCF/EBITDA is 0.61x showing weak cash conversion, impacted by inventory increase of -¥13.4B. [Investment Efficiency] Total asset turnover 0.43x (annualized 0.86x), DSO 127 days, DIO 337 days, DPO 129 days, resulting in CCC of 333 days — elongated. Inventory swelled to ¥72.1B (YoY +20.7%), deteriorating working capital efficiency. CapEx/Depreciation is 0.53x, indicating restrained capital spending. [Financial Soundness] Equity Ratio 69.0% (down 1.3pt from 70.3%), debt-to-equity 0.45x, Current Ratio 449.7%, Quick Ratio 378.3% — extremely strong. Cash and deposits of ¥234.2B provide low short-term debt pressure.
Operating CF was ¥30.8B (YoY -¥9.1B -22.7%), starting from pre-tax income of ¥54.3B, adding back depreciation ¥4.8B, impairment losses ¥1.2B and other non-cash expenses, with working capital changes including AR collection +¥14.6B, inventory increase -¥13.4B, AP increase +¥2.8B, and tax payments -¥21.1B, arriving at the result. Inventory increases significantly hindered CF generation, compressing operating CF from subtotal ¥48.9B to ¥30.8B after tax payments. Investing CF was inflow of ¥10.6B, driven mainly by redemption of short-term investment securities ¥100.0B offset by purchases -¥99.9B; business-related investments were limited with CapEx -¥2.5B and proceeds from sale of tangible fixed assets +¥14.2B. Free Cash Flow was positive at ¥41.4B (Operating CF ¥30.8B + Investing CF ¥10.6B), but Financing CF was -¥79.0B, largely due to dividend payments of -¥78.5B, causing mid-term distributions to exceed FCF. As a result, cash and deposits fell from ¥268.0B to ¥234.2B (-¥35.1B, including forex impact +¥2.4B). Working capital CF effects saw AR collections partially offset by inventory build, resulting in net cash tie-up. OCF/EBITDA 0.61x and FCF coverage 0.53x indicate challenges in cash generation and dividend coverage.
Recurring earnings consist of Operating Income ¥45.3B and Non-operating income ¥2.5B (0.8% of sales, including ¥0.7B forex gains), so non-operating contribution is minor. However, Special gains of ¥9.2B (gain on sale of fixed assets) were recorded, and after deducting Special losses of ¥2.9B (including ¥1.2B impairment), net one-off contribution was ¥6.3B, representing 22.1% of Net Income ¥28.5B. Operating CF of ¥30.8B is 1.08x Net Income ¥28.5B, indicating accounting profits are broadly realized, but OCF/EBITDA 0.61x suggests delayed cash conversion due to inventory increases. The accrual ratio (Net Income - Operating CF)/Total Assets is -0.3%, a small negative, indicating limited distortion from accruals. The divergence between Ordinary Income ¥47.9B and Net Income ¥28.5B of -40.5% reflects uplift to the final profit from one-off gains. The effective tax rate remains high at 47.5%. Comprehensive income was ¥31.4B, up 10.2% from Net Income ¥28.5B, with currency translation adjustments +¥2.6B, valuation differences on securities +¥0.2B, and retirement benefit adjustments +¥0.2B. Quality of earnings is a concern due to high reliance on one-off gains and margin compression from heavy tax burden.
Full-year plan: Revenue ¥650.0B (YoY +0.4%), Operating Income ¥114.0B (YoY +2.9%), Ordinary Income ¥118.0B (YoY +0.2%), Net Income ¥82.0B, EPS ¥240.07. H1 progress vs plan: Revenue 47.1% (standard 50% -2.9pt), Operating Income 39.8% (-10.2pt), Ordinary Income 40.6% (-9.4pt), Net Income 33.1% (-16.9pt). Both Operating Income and Net Income are well below standard, indicating an H2-weighted plan. Given H1 inventory increase (+¥12.4B) and SG&A growth, H2 achievement assumptions include inventory reduction easing discount pressure, improved promotional efficiency curbing SG&A growth, and normalization of tax burden. No revision to forecasts during the period; dividend forecast unchanged at ¥230 for the year. Payout ratio to full-year EPS ¥240.07 is approximately 96%, maintaining a high-return policy.
No interim dividend in H1, but full-year dividend forecast is ¥230. The payout ratio relative to forecast EPS ¥240.07 is approximately 96%, indicating a policy to allocate most earnings to shareholder returns. Prior year also had no interim dividend and full-year dividend of ¥230, so policy is consistent. Dividend payments of ¥78.5B during the period substantially exceed Free Cash Flow ¥41.4B, resulting in FCF coverage of 0.53x and a shortfall. However, with cash and deposits of ¥234.2B and an Equity Ratio of 69.0%, the financial base is extremely strong and short-term sustainability of distributions is not a major concern. Medium-to-long-term improvement in OCF and FCF generation through inventory reduction is necessary. No share buyback was disclosed; dividends are the primary shareholder return. The high payout indicates a stable dividend orientation but attention is needed on balancing with growth investments.
Inventory stagnation and deterioration of working capital efficiency: Inventories of ¥72.1B (YoY +20.7%), DIO 337 days, CCC 333 days. Excess inventory risks discount pressure, inventory valuation losses, margin compression and impaired Operating CF generation. If demand volatility in cosmetics continues, inventory correction may take time and lead to prolonged working capital cash tie-up.
Concentration in the Cosmetics Business and single-business dependence: Cosmetics account for 78.6% of Revenue and the majority of segment profit. While Cosmetics margin is high at 22.2%, it fell 3.0pt YoY, and slower sales plus higher promotional spending are pressuring profit. The business is exposed to domestic market competition, declines in inbound demand, channel shifts, etc., and revenue diversification is limited.
Rising SG&A and negative operating leverage: While Revenue fell -4.4%, SG&A increased +2.0%, worsening SG&A ratio to 53.0% (up 3.3pt from 49.7%). Increased advertising/promotional spending and the fixed nature of corporate costs are compressing operating margins; if Revenue recovery lags, margin deterioration could persist. Achieving the full-year plan requires improved promotional efficiency and better absorption of fixed costs.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 14.8% | 8.8% (3.0%–11.0%) | +6.0pt |
| Net Margin | 9.3% | 5.4% (1.1%–8.2%) | +3.9pt |
Operating margin 14.8% and Net margin 9.3% both exceed the manufacturing median, placing the company favorably within the industry on profitability.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -4.4% | 11.7% (-5.4%–28.3%) | -16.1pt |
Revenue growth of -4.4% is well below the manufacturing median of +11.7%, making the revenue decline notable within the industry.
※ Source: Company compilation
The decline in Cosmetics operating margin (22.2%, down 3.0pt from 25.2%) and the lagging full-year progress (Operating Income 39.8%) indicate pressure on the core business’s profitability. H2 focus must be on inventory reduction (improving DIO 337 days) and SG&A efficiency; failure to make progress could make achieving the full-year plan difficult. Inventory levels and SG&A trends are the H2 performance inflection points.
Recognition of ¥9.2B in special gains (gain on sale of fixed assets) secured a slight rise in Net Income, but the decline in recurring earning power is clear. One-off items contributed 22.1% of Net Income, so sustainable profit growth requires recovery of operating-level profitability. Maintaining a high payout ratio of 96% presumes improvement in Operating CF and FCF generation.
The financial base is extremely strong (Equity Ratio 69.0%, Current Ratio 450%), providing high downside resilience and substantial cash deposits ¥234.2B that underpin dividend sustainability. However, CapEx/Depreciation 0.53x indicates restrained growth investment, and additional investment may be needed to expand business or strengthen competitiveness. Balancing high returns with growth investment is a key mid-term capital policy consideration.
This report is an earnings analysis document automatically generated by AI from XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company from public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed.