Achilles (5142) FY2026 Q3 Earnings Report

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Executive Summary

The quarter was characterized by a sharp recovery in operating income driven by higher revenue and cost improvements; however, net income fell below the same period of the previous year due to the recognition of extraordinary losses. Revenue was ¥60.45B (+3.4% year on year), operating income was ¥2.42B (a significant recovery from ¥0.06B in the previous year), and ordinary income was ¥3.16B (+493.6%), while net income remained at ¥1.66B (-36.8%). The primary drivers of the increase in profit were an improved gross profit margin (21.8%, up from approximately 21.0% in the previous year) and control of selling, general and administrative expenses. The primary factor behind the decline in net income was the recognition of ¥0.96B in extraordinary losses, including a ¥0.91B impairment loss related to the Disaster Prevention Business.

Factors Affecting Performance

【Revenue】Revenue was ¥60.45B, an increase of +3.4% year on year. By segment, the First Division (the core division under the former classification) generated ¥37.42B in revenue (61.9% of the total), driving the increase in revenue. The Second Division generated ¥17.04B, remaining broadly flat, while the Shoes BU generated ¥6.68B, down -11.1% year on year, continuing its decline. The growth structure remains highly dependent on the First Division.

【Profit and Loss】Operating income was ¥2.42B (operating margin of 4.0%, a significant improvement from 0.1% in the previous year), while ordinary income was ¥3.16B (+493.6%), indicating a recovery in core business profitability due to the improved gross profit margin and control of selling, general and administrative expenses. However, net income was ¥1.66B (-36.8% year on year), affected by both the reversal of the previous year's one-time gain on the sale of fixed assets of ¥2.31B and the recognition in the current period of ¥0.96B in extraordinary losses, including a ¥0.91B impairment loss related to the Disaster Prevention Business (within the Second Division). In conclusion, the Company achieved higher revenue but lower net income, as core operations improved while extraordinary losses weighed on net income.

Segment Analysis

The First Division generated revenue of ¥37.42B (61.9% of the total), operating income of ¥2.60B, and a profit margin of 6.9% (improved from 2.8% in the previous year), serving as the core contributor to company-wide profit. The Second Division generated revenue of ¥17.04B, operating income of ¥1.70B, and a profit margin of 10.0%, maintaining the highest profitability among the three segments; however, delays versus the original plan occurred in its Disaster Prevention Business, resulting in the recognition of a ¥0.91B impairment loss. The Shoes BU generated revenue of ¥6.68B (-11.1% year on year) and continued to report an operating loss of ¥0.16B, although the loss narrowed from ¥0.58B in the previous year.

Key Financial Metrics

【Profitability】The operating margin was 4.0% and the net profit margin was 2.8%. Although the operating margin improved significantly from 0.1% in the same period of the previous year, it remains below 5%. The gross profit margin was 21.8%, with cost improvements serving as the primary driver of the recovery in profitability.【Cash Quality】The ¥0.96B in extraordinary losses was equivalent to approximately 58% of net income of ¥1.66B, indicating that current-period profit was significantly affected by the one-time impairment loss in the Disaster Prevention Business. Comprehensive income was ¥0.99B, below net income of ¥1.66B, primarily due to a negative foreign currency translation adjustment of ¥0.97B.【Investment Efficiency】Annualized ROE was 5.5%, while the equity ratio was 49.8% (49.5% in the previous year).【Financial Soundness】Liquidity was secured, with current assets of ¥47.41B versus current liabilities of ¥29.05B. Cash and deposits of ¥7.45B exceeded long-term borrowings of ¥4.50B. Retained earnings increased from the previous year to ¥15.04B, indicating an expansion of the capital base through retained internal funds.

Cash Flow Analysis

Although detailed data from the statement of cash flows has not been disclosed, funding trends can be inferred from changes in the balance sheet. Cash and deposits were ¥7.45B, slightly down from ¥7.72B in the previous year. The increase in accounts receivable and electronically recorded monetary claims on operating activities (a substantial year-on-year increase in aggregate) may indicate a greater commitment of working capital, while inventories increased to ¥9.76B from ¥8.87B in the previous year. Meanwhile, property, plant and equipment declined to ¥18.76B from ¥20.24B in the previous year, apparently reflecting the impact of the impairment loss recognized in the Disaster Prevention Business on the reduction in asset scale. Long-term borrowings were ¥4.50B, unchanged from the previous year, indicating limited movement toward either aggressive reduction or expansion of interest-bearing debt.

Quality of Earnings

The current-period profit structure is characterized by the simultaneous progress of recurring profitability improvements and a reversal of one-time factors. Growth in operating income and ordinary income was supported by recurring factors, namely the improved gross profit margin and control of selling, general and administrative expenses. Non-operating income also boosted ordinary income through a foreign exchange gain of ¥0.45B and dividend income of ¥0.14B. In contrast, while the previous year included a one-time gain on the sale of fixed assets of ¥2.31B under extraordinary gains and losses, the current period incurred ¥0.96B in extraordinary losses, including a ¥0.91B impairment loss related to the Disaster Prevention Business, which was the primary cause of the year-on-year decline in net income. These extraordinary losses were equivalent to approximately 58% of net income of ¥1.66B, meaning that current-period net income was significantly affected by a non-cash reassessment of asset values. Comprehensive income of ¥0.99B was below net income of ¥1.66B due to the negative foreign currency translation adjustment of ¥0.97B, indicating that valuation fluctuations related to overseas assets and businesses affected the financial position separately from net income.

Earnings Forecasts and Guidance

Progress against the full-year forecast has been generally steady. Revenue progress was 74.6% (¥60.45B/¥81.00B), broadly consistent with the quarterly progress benchmark of 75%. Operating income, however, had already reached 105.2% of the full-year forecast of ¥2.30B, while ordinary income had reached 123.9% of the forecast of ¥2.55B. Net income had also reached 114.8% of the full-year forecast of ¥1.45B, meaning that all major profit items had exceeded company guidance as of Q3. This may reflect the possibility that the full-year forecast conservatively incorporates lower profitability and additional costs in Q4. Trends in Q4 and whether the forecast is revised will therefore be key points to monitor.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year annual dividend forecast is ¥30 per share. Based on the weighted-average number of shares outstanding during the period of 13,666,813 shares, the annual dividend payout is calculated at approximately ¥0.41B, resulting in a payout ratio of approximately 28.3% relative to the full-year net income forecast of ¥1.45B. Treasury shares were ¥1.33B, broadly unchanged from the previous year, indicating limited additional shareholder returns through share repurchases during the current period.

Risk Factors

1. Risk of impairment and delays in the earnings plan for the Disaster Prevention Business: The Disaster Prevention Business within the Second Division experienced delays in achieving earnings under the original business plan and recognized an impairment loss of ¥0.91B. Further delays in restoring the business plan to target could result in additional declines in profitability or a reassessment of asset values.

2. Structural profitability risk in the Shoes BU: The Shoes BU continues to report declining revenue, down -11.1% year on year, and an operating loss of ¥0.16B remains. Although the loss narrowed from ¥0.58B in the previous year, continued delays in demand recovery or fixed-cost absorption could weigh on company-wide profit.

3. Risk of increased trade receivables and collection periods: Trade receivables, including electronically recorded monetary claims on operating activities, have increased from the previous year, resulting in a greater commitment of working capital. If collection periods continue to lengthen, collection risk during economic fluctuations may increase.

Industry Benchmark (For Reference; Company Research)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin are below the industry median, placing the Company's profitability toward the lower end of the industry.

Growth and Capital Efficiency

The revenue growth rate is broadly in line with the industry median, indicating a standard position within the industry from a growth perspective.

※Source: Company research

Key Takeaways from the Results

1. The operating margin improved by approximately 390bp, from approximately 0.1% in the previous year to 4.0%, but remains low compared with the industry median of 8.6%. The sustainability of gross profit improvements and selling, general and administrative expense control will determine the earning power of the core business.

2. While the First Division accounts for more than 60% of total segment profit, the Shoes BU's declining revenue and losses, as well as the impairment loss in the Second Division's Disaster Prevention Business, remain challenges in the business portfolio.

3. All major profit items (operating income, ordinary income, and net income) were progressing above their full-year forecasts as of Q3. Trends in Q4 profitability and whether the earnings forecast is revised will therefore be key points to monitor.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,401–¥2,540 at ±1% for the cost of equity, and ¥2,454–¥2,479 at ±0.1 for ω.

Notes:

• Since net income progress against the full-year forecast (115%) exceeds the standard benchmark (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of forecast tend to outperform their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from 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 forecast or guarantee the future share price.)

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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, after consulting professionals as necessary.

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