FUJISHOJI (6257) FY2026 Q3 Earnings Report

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Executive Summary

For the nine months ended Q3 of the fiscal year ending March 2026, the Company posted a substantial decline in revenue and fell into an operating loss due to a sharp decrease in the number of gaming machines sold, while recurring earnings power deteriorated significantly. Revenue was ¥160.0B (-47.9% YoY), Operating Income was ¥-46.1B (a shift to a loss from ¥62.1B in the prior year), Ordinary Income was ¥-44.4B (a shift to a loss from ¥64.1B in the prior year), and Net Income was ¥-29.1B (a shift to a loss from ¥43.0B in the prior year, YoY -167.6%). Unit sales declined by approximately 38,000 units YoY to 38,552 units. Although the gross profit margin was maintained, the Company was unable to absorb fixed SG&A expenses, which accounted for 77.1% of revenue, resulting in an expanded loss. The reduction in net loss was attributable to the non-recurring factor of a ¥17.5B gain on the sale of investment securities and does not indicate a recovery in the recurring earnings power of the business.

Factors Driving Earnings Changes

【Revenue】Revenue was ¥160.0B, representing a substantial decline of -47.9% YoY. The primary factor was a sharp decrease in unit sales across both categories: 33,348 pachinko machines (-25,804 units YoY) and 5,204 pachislot machines (-12,591 units YoY). This suggests that the market response to the new titles launched in Q3 (“e Jigoku Shoujo 7500 Ver.” and “Smart Slot A Certain Scientific Railgun 2”) fell short of expectations.

【Profit and Loss】Operating Loss was ¥46.1B, representing a shift to a loss from Operating Income of ¥62.1B in the prior-year period. Although the gross profit margin was maintained at 48.2% (-6.8pt from 55.1% in the prior year), SG&A expenses reached ¥123.3B, or 77.1% of revenue, rising sharply from 34.9% in the prior year. In particular, R&D expenses increased substantially to ¥71.9B (+¥19.8B YoY), placing a heavier burden on fixed costs. Ordinary Loss was ¥44.4B, while non-operating income of ¥1.9B, primarily consisting of ¥1.2B in dividend income, made little contribution to reducing the loss. Against a Loss Before Tax of ¥26.9B, extraordinary income of ¥17.6B, including a ¥17.5B gain on the sale of investment securities, was recorded; this was a non-recurring factor. Net Loss was ¥29.1B, a decrease from the prior year. However, excluding extraordinary income, Loss Before Tax remained close to Operating Loss and Ordinary Loss. Accordingly, the results should be viewed as a decline in revenue and earnings—more substantively, an expansion of recurring losses.

Segment Analysis

The Company consists of a single segment, the Gaming Machine Business, and no segment breakdown is disclosed. This business accounts for 100% of Revenue and Operating Income/Loss and is the core business, with earnings fluctuations almost entirely dependent on sales trends for new machine titles. Operating Loss in the Gaming Machine Business was ¥46.1B. Despite securing a gross profit margin of 48.2%, the Company was unable to absorb the increase in SG&A expenses, including R&D expenses, resulting in a loss. Due to its single-business structure, the Company is characterized by the fact that the hit rate of individual titles and the investment appetite of gaming halls directly determine overall performance.

Key Financial Metrics

Profitability: ROE was -6.8% (positive based on the prior-year calculation, but shifted into negative territory), while the Operating Margin was -28.8% (a sharp deterioration from approximately 20.2% in the prior year).
Cash flow quality: Actual Operating Cash Flow (OCF) was not included in the disclosed materials; therefore, the OCF/Net Income multiple and FCF cannot be calculated.
Investment efficiency: Actual data for capital expenditures and depreciation and amortization could not be confirmed; therefore, calculation was not possible.
Financial soundness: The Equity Ratio was 86.8% (88.0% in the prior year), and the Current Ratio was 638.9%, both extremely high levels.

Cash Flow Analysis

Actual figures for Operating Cash Flow, Investing Cash Flow, and Financing Cash Flow were not included in the disclosed data; therefore, the ratios to Net Income and FCF cannot be calculated. Cash and deposits were ¥145.3B, down -32.6% from ¥215.5B in the prior year. Cash declined despite the sale of investment securities, which generated extraordinary income of ¥17.2B. This is believed to reflect continued cash consumption from operating activities and dividend payments. Accounts receivable were ¥38.9B (+118.0% YoY), while inventories, primarily raw materials, increased sharply, potentially constraining cash generation through deterioration in working capital. Cash generation should be closely monitored.

Earnings Quality

The gap between Ordinary Loss of ¥44.4B and Net Loss of ¥29.1B was attributable to extraordinary income of ¥17.6B, primarily the ¥17.5B gain on the sale of investment securities, and was therefore non-recurring. Non-operating income was ¥1.9B, equivalent to only 1.2% of revenue, and had no significant impact. Excluding extraordinary income, Loss Before Tax remained close to Ordinary Loss. Earnings quality is considered low because the improvement in net income depended on a non-recurring asset sale. As actual OCF cannot be confirmed, corroboration through accrual analysis is limited.

Earnings Forecast and Guidance

Against the Full-Year forecast (Revenue of ¥231.0B, Operating Loss of ¥38.0B, and Ordinary Loss of ¥37.0B), cumulative Q3 progress was 69.3% for Revenue, below the standard progress level of 75%. Meanwhile, Operating Loss and Ordinary Loss had already reached 121.4% and 120.0% of their respective Full-Year forecasts. This gap indicates that the forecast assumes a substantial recovery in revenue and an improvement in earnings in Q4. Required Q4 Revenue is approximately ¥71.0B, and achieving the Full-Year forecast will depend on market reception of new titles scheduled for launch in February 2026: the pachinko title “e Iserebe” and the pachislot title “Smart Slot Goblin Slayer II.” This forecast was revised on February 6, 2026.

Shareholder Returns

An interim dividend of ¥25 has been paid, and the Full-Year forecast is ¥50 (¥25 interim and ¥25 year-end). The Company recorded Net Loss of ¥29.1B for the current period, providing weak support for dividends from current-period earnings. Since the Payout Ratio cannot be meaningfully calculated during a period of net loss, it should be treated only as a reference indicator. No share repurchases have been confirmed; therefore, the Total Return Ratio is not evaluated. Given Cash and deposits of ¥145.3B and a low debt-to-equity ratio of 0.15x, the Company appears capable of maintaining dividends in the short term using its financial capacity. However, the sustainability of such payments cannot be fully assessed because actual OCF is unknown.

Catalysts

【Short Term】The market operating performance of the new titles scheduled for launch in February 2026—“e Iserebe” (pachinko) and “Smart Slot Goblin Slayer II” (pachislot)—will determine Q4 performance.

【Long Term】Amid a market environment in which the number of installed pachinko and pachislot machines and the number of gaming halls continue to decline, the investment efficiency of R&D expenses (Full-Year budget of ¥88B) and the ability to produce hit new titles will be challenges for the Company’s medium-term earnings structure.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

The Company is substantially below the manufacturing-industry median and ranks at a notably low level within the industry in terms of profitability.

Growth and Capital Efficiency

While the manufacturing-industry median reflects modest revenue growth, the Company posted a substantial decline in revenue and is also at the lowest level within the industry in terms of growth.

※Source: Compiled by the Company

Risk Factors

1. Sales demand risk: The number of installed pachinko and pachislot machines (1.969 million pachinko machines and 1.355 million pachislot machines in 2024) and the number of gaming halls (6,706) continue to decline, creating a structurally challenging environment for generating demand through the launch of new titles.

2. Inventory and working capital risk: Inventories increased by +620.0% YoY, primarily due to raw materials of ¥77.0B, while accounts receivable also increased sharply to ¥38.9B (+118.0% YoY). There is a risk of inventory write-downs and funds becoming tied up during a period of declining revenue.

3. Risk of temporary dependence on earnings: The primary factor behind the improvement in net income was the ¥17.5B gain on the sale of investment securities, rather than an improvement in recurring business earnings power. There is no guarantee that similar opportunities to sell assets will remain available in the future.

Key Takeaways from the Earnings Results

1. Operating Loss has already reached 121.4% of the Full-Year forecast, making market operation of the two new titles in Q4 a prerequisite for achieving the Full-Year forecast.

2. The SG&A ratio rose sharply from 34.9% in the prior year to 77.1%, with R&D expenses increasing by ¥19.8B in particular. The decline in the ability to absorb fixed costs amid falling revenue is observed as a structural challenge.

3. Cash and deposits declined -32.6% YoY despite the sale of investment securities, which is believed to reflect continued cash consumption from operating activities and dividend payments.

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This report is an earnings analysis document automatically generated through an integrated AI analysis of XBRL earnings-release data and PDF earnings presentation materials. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 cumulative earnings were materially weak, with a sharp sales contraction driving a substantial operating and net loss despite a one-off securities gain. Revenue fell 47.9% YoY to ¥16.00bn. Gross profit declined to ¥7.72bn from ¥16.93bn in the prior-year period. The gross margin compressed by 690bp to 48.2% from 55.1%, indicating that the decline was not solely a volume issue. SG&A expense increased 15.1% YoY to ¥12.33bn while sales nearly halved. Consequently, SG&A rose to 77.1% of revenue from 34.9% a year earlier, overwhelming gross profit. Operating income was a ¥4.61bn loss, compared with ¥6.21bn operating profit in the prior-year period, and the operating margin deteriorated by approximately 4890bp to -28.8%. Ordinary income was a ¥4.44bn loss, while non-operating income of ¥0.19bn, principally ¥0.12bn of dividend income, provided only limited support. A ¥1.75bn gain on sale of investment securities lifted profit before tax to a smaller ¥2.69bn loss. However, net income remained a ¥2.91bn loss, equivalent to EPS of negative ¥139.05. The securities gain is non-recurring and therefore does not alter the weak underlying operating trajectory. The annualized DuPont ROE was -9.1%, driven principally by the negative -18.2% net margin, while financial leverage remained low at 1.15x. The balance sheet remains exceptionally liquid, with ¥14.53bn of cash and deposits, a 638.9% current ratio, and D/E of only 0.15x. Nevertheless, cash declined ¥7.03bn YoY and trade receivables increased ¥2.11bn, coinciding with weak sales and an extended working-capital cycle. The company operates only in the amusement-machine business, so there is no segment diversification to offset volatility in product release timing or demand. Against the FY2026 forecast, Q3 cumulative revenue progress is 69.3%, below the normal 75% seasonal benchmark, while the reported operating loss already equals 121.4% of the full-year forecast loss. Achieving the full-year outlook therefore requires a significant Q4 reversal to approximately ¥7.10bn of sales and ¥0.81bn of operating profit. The central issue for the remainder of the year is whether product demand and cost absorption can recover sufficiently to deliver that implied Q4 profitability.

Profitability Analysis

The annualized three-factor DuPont decomposition is net profit margin of -18.2% × asset turnover of 0.434x × financial leverage of 1.15x, resulting in ROE of -9.1%. The dominant adverse factor is profitability rather than leverage: the company has a conservative capital structure, but each ¥100 of sales generated a ¥18.2 loss after tax on an annualized basis. Asset turnover of 0.434x also reflects low revenue relative to the asset base, particularly given the large cash and investment-security holdings. Financial leverage is modest and therefore neither amplifies operating returns materially nor presents balance-sheet stress. Gross margin fell to 48.2% from 55.1% in the prior-year cumulative period, a 690bp deterioration. More importantly, SG&A increased to ¥12.33bn from ¥10.72bn despite revenue falling to ¥16.00bn from ¥30.74bn. This unfavorable cost-volume relationship created severe negative operating leverage and resulted in a -28.8% operating margin, versus a 20.2% margin a year earlier. The annualized ROIC alert of -21.8% reinforces that current operating returns are well below the cost of capital. The reported interest-burden ratio of 0.582 is mechanically weak because profit before tax is affected by a large extraordinary gain while EBIT is negative; it should not be interpreted as evidence that cash interest expense consumed 42% of EBIT. In fact, non-operating income exceeded non-operating expense during the period, but this support is immaterial relative to the operating loss. The tax burden of 1.083 and negative effective tax rate of -8.3% reflect tax expense despite a pre-tax loss, further reducing reported net income. The ¥1.75bn gain on sale of investment securities reduced the pre-tax loss but is not a recurring operating-profit source.

Growth Assessment

Revenue declined 47.9% YoY to ¥16.00bn in the nine-month cumulative period, marking a substantial reversal from the prior-year revenue base of ¥30.74bn. The single-segment amusement-machine business has high exposure to product launch timing, installed-base replacement cycles, and pachinko/pachislot market conditions, which can create pronounced period-to-period sales volatility. Gross profit declined 54.4% YoY, faster than revenue, demonstrating lower gross-margin absorption. Operating performance deteriorated from ¥6.21bn of profit to a ¥4.61bn loss as SG&A rose rather than adjusting downward with sales. Full-year guidance calls for revenue of ¥23.10bn, down 33.2% YoY, and an operating loss of ¥3.80bn. Revenue progress of 69.3% at Q3 is 5.7 percentage points below the standard 75% progress level. The forecast implies Q4 revenue of ¥7.10bn, compared with average quarterly revenue of ¥5.33bn over the first nine months. It also implies Q4 operating profit of approximately ¥0.81bn, ordinary profit of ¥0.74bn, and net profit of ¥0.90bn, after cumulative losses through Q3. This required Q4 inflection is demanding because it depends on sharply improved sales volume, gross-profit conversion, and SG&A absorption. The extraordinary gain on securities sales should not be treated as evidence of improving core demand or earnings power. Investment securities of ¥9.57bn provide financial flexibility, but monetization gains are not a substitute for sustainable operating recovery.

Financial Health

Financial liquidity is strong. Current assets were ¥28.56bn against current liabilities of ¥4.47bn, producing a current ratio of 638.9%, while the quick ratio was 636.4%. Working capital was ¥24.09bn, and cash and deposits of ¥14.53bn alone covered current liabilities by more than three times. Total liabilities were only ¥6.48bn, equal to 13.2% of total assets, and D/E was a conservative 0.15x; therefore, neither the current-ratio-below-1.0 nor D/E-above-2.0 warning threshold is approached. Current liabilities include ¥2.89bn of trade payables, and the current-asset surplus indicates no apparent short-term debt maturity mismatch. Equity declined to ¥42.68bn from ¥46.78bn, mainly reflecting the current loss, but the equity ratio remained high at 86.8%. Cash and deposits fell ¥7.03bn YoY, or 32.6%, to ¥14.53bn. Trade receivables increased ¥2.11bn YoY, or 118.0%, to ¥3.89bn, which requires monitoring given the decline in sales. Trade payables increased ¥0.63bn YoY, or 27.7%, to ¥2.89bn, providing some supplier-financing offset. Investment securities were substantial at ¥9.57bn, representing 19.5% of total assets and adding market-value exposure to the capital base. Deferred tax liabilities were ¥0.72bn and net defined benefit liabilities were ¥0.37bn. The balance sheet is robust enough to absorb the currently forecast loss, but repeated operating losses and reductions in liquid assets would gradually weaken this buffer.

Notable B/S Changes

Cash and deposits: -¥7.03bn (-32.6%) to ¥14.53bn — liquidity remains ample, but the decline warrants monitoring while the company is loss-making. Accounts receivable: +¥2.11bn (+118.0%) to ¥3.89bn — receivables rose despite sharply lower sales and align with the reported 67-day annualized DSO warning. Inventories: +¥0.93bn (+620.0%) to ¥1.08bn — the percentage increase is substantial from a small base and is consistent with the reported elevated inventory-days alert. Accounts payable: +¥0.63bn (+27.7%) to ¥2.89bn — increased supplier financing partly offsets working-capital pressure. Retained earnings: -¥4.06bn (-10.8%) to ¥33.53bn — cumulative losses and shareholder distributions reduce the retained earnings buffer, although absolute equity remains strong.

Cash Flow Quality

Cash-flow quality cannot be quantified because operating, investing, and financing cash-flow figures were not reported in the provided data. Accordingly, OCF-to-net-income, free-cash-flow, cash-conversion, and dividend cash-coverage ratios cannot be assessed. Balance-sheet movements nevertheless point to potentially unfavorable working-capital cash usage: trade receivables rose to ¥3.89bn from ¥1.79bn while sales declined sharply. The quality alert reports annualized DSO of 67 days, above the 60-day warning level, indicating slower cash collection or a less favorable sales mix. The reported annualized DIO of 258 days is also materially above the 90-day warning threshold. The resulting reported annualized cash conversion cycle of 229 days exceeds the 120-day warning level and heightens the risk that cash remains tied up in production and collection processes. These working-capital indicators are particularly relevant for an amusement-machine manufacturer, where demand forecasting, component procurement, and product-cycle execution directly affect inventory conversion. The increase in trade payables partly offsets receivables growth, but does not eliminate the risk indicated by the extended cash conversion cycle. Cash and deposits declined by ¥7.03bn YoY; absent cash-flow statements, the respective contributions of operating loss, working capital, capital expenditure, dividends, and investment transactions cannot be isolated. The ¥1.75bn securities-sale gain is earnings-accretive but does not establish recurring operating cash generation.

Dividend Sustainability

The company paid an interim Q2 dividend of ¥25 per share and forecasts FY2026 DPS of ¥50 per share. The interim dividend corresponds to roughly ¥0.52bn based on average shares of 20.92 million. The full-year ¥50 DPS would correspond to approximately ¥1.05bn using the same share base. Because FY2026 Q3 cumulative net income was a ¥2.91bn loss and the full-year forecast is a ¥2.10bn loss, a conventional dividend payout ratio is not economically meaningful as a measure of earnings coverage. The reported calculated payout ratio of -19.7% relates to the ¥25 interim dividend relative to the cumulative loss and should not be viewed as indicating low distribution intensity. The forecast full-year dividend would also exceed forecast earnings because forecast earnings are negative. Liquidity provides near-term capacity: cash and deposits were ¥14.53bn, current assets exceeded current liabilities by ¥24.09bn, and D/E was only 0.15x. However, recurring operating profitability rather than balance-sheet cash is the key determinant of long-run dividend sustainability. Free-cash-flow coverage cannot be evaluated from the available data. No share repurchase amount was provided, so total return ratio cannot be assessed.

Risk Assessment

Business risks include High priority — demand and product-cycle risk: revenue fell 47.9% YoY in the single amusement-machine segment, leaving earnings highly dependent on successful product launches and replacement demand., High priority — fixed-cost absorption risk: SG&A increased 15.1% while sales declined, producing a -28.8% operating margin; continued low volumes would sustain negative operating leverage., High priority — inventory and production-planning risk: the reported annualized DIO of 258 days exceeds the 90-day warning benchmark, raising the possibility of slow-moving inventory and future valuation pressure., Medium priority — collection risk: reported annualized DSO of 67 days exceeds the 60-day warning threshold, while receivables increased 118.0% YoY despite lower sales., Medium priority — industry-specific regulatory and market risk: the pachinko/pachislot industry remains exposed to regulatory changes, player participation trends, and operator capital-spending cycles..

Financial risks include Medium priority — earnings-funded distribution risk: the ¥50 FY dividend forecast is not covered by forecast earnings, requiring reliance on cash resources or investment income., Medium priority — liquidity erosion risk: cash and deposits declined 32.6% YoY to ¥14.53bn, although current liquidity remains strong., Medium priority — investment-portfolio risk: investment securities total ¥9.57bn, or 19.5% of assets; realized gains can support results but introduce exposure to market-value movements and non-recurring earnings dependence., Low priority — leverage risk: D/E of 0.15x and a 638.9% current ratio indicate limited debt-servicing and refinancing pressure..

Key concerns include The LOW_OPERATING_EFFICIENCY alert is substantiated by the -28.8% EBIT margin: the root cause is severe revenue contraction combined with higher SG&A, the context is a sharp reversal from a 20.2% operating margin a year earlier, and the impact is that recovery requires substantial Q4 operating leverage., The CAPITAL_EFFICIENCY alert is substantiated by annualized ROIC of -21.8% and annualized ROE of -9.1%: losses are being generated against a large capital base, reducing the economic return on retained capital., The HIGH_RECEIVABLE_DAYS alert reflects reported annualized DSO of 67 days: the rise in receivables alongside falling revenue suggests slower conversion of reported sales into cash and increases working-capital risk., The HIGH_INVENTORY_DAYS alert reflects reported annualized DIO of 258 days: this is far above the 90-day benchmark and creates exposure to inventory aging, demand forecast error, and cash lock-up., The LONG_CCC alert reflects a reported annualized cash conversion cycle of 229 days: the combination of extended receivables and inventory cycles can increase funding needs even though the company currently has abundant liquidity., The HIGH_INTEREST_BURDEN alert should be interpreted cautiously: the 0.582 ratio is distorted by negative EBIT and extraordinary gains rather than indicating material interest expense, but it remains unsuitable as a conventional interest-coverage measure..

Investment Implications

Key takeaways include Core earnings deteriorated sharply: revenue was down 47.9% YoY and operating income swung from a ¥6.21bn profit to a ¥4.61bn loss., Margin pressure is severe, with gross margin down 690bp and SG&A-to-sales up 4220bp YoY., The ¥1.75bn gain on sale of investment securities reduced the reported loss but is non-recurring and does not repair operating profitability., The balance sheet remains a material stabilizer, supported by ¥14.53bn of cash, ¥9.57bn of investment securities, an 86.8% equity ratio, and D/E of 0.15x., The FY forecast requires a substantial Q4 turnaround from cumulative losses to implied quarterly operating profit..

Metrics to watch include Quarterly sales trajectory and product launch contribution in the amusement-machine business, Gross margin and SG&A-to-sales ratio, Progress toward the implied Q4 operating profit of approximately ¥0.81bn, Trade receivables, annualized DSO, inventory days, and the cash conversion cycle, Cash and deposits, realized gains or losses on investment securities, and the relationship between dividends and operating cash generation, Whether the ¥50 full-year DPS is maintained alongside negative forecast earnings.

Regarding relative positioning, The company is financially conservative relative to typical debt-sensitive industrial issuers, with very strong liquidity and low leverage. Its current relative weakness is operational rather than solvency-related: negative annualized ROIC, a -28.8% operating margin, weak asset utilization, and an unusually long reported working-capital cycle are inconsistent with efficient manufacturing performance.