INCLUSIVE Holdings (7078) FY2026 Q3 Earnings Report

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Executive Summary

This earnings result reflects a continued deterioration in the earnings base, with the operating loss expanding due to lower revenue, a decline in the gross profit margin, and insufficient absorption of fixed costs. Revenue was ¥2.88B (-12.2% YoY), Operating Income was ¥-0.59B (deteriorating from ¥-0.43B in the previous year), Ordinary Income was ¥-0.58B (¥-0.42B in the previous year), and Net Income was ¥-0.36B (¥-0.19B in the previous year). The primary factor was a decline in revenue from the core Brand Consulting Business. The gross profit margin also declined to 31.9%, while extraordinary income of ¥0.18B, including gains on business transfers, provided support for the bottom-line result.

Factors Affecting Performance

【Revenue】Revenue was ¥2.88B, down -12.2% YoY. The core Brand Consulting Business declined significantly to ¥1.80B (62.7% of total revenue, -17.9% YoY), becoming the primary driver of the consolidated revenue decline. The Food-Related Business was relatively resilient at ¥1.06B (-1.2% YoY), while the Space-Related Business was newly disclosed as a separate segment and recorded ¥0.01B.

【Profit and Loss】The operating loss expanded to ¥0.59B from ¥0.43B in the previous year. The gross profit margin declined to 31.9% from 36.9% in the previous year, a decrease of approximately 5pt. Although SG&A expenses declined by 8.0%, the decrease was smaller than the decline in revenue, causing the SG&A ratio to rise to 52.5%. The ordinary loss was ¥0.58B, while the loss before tax was ¥0.41B. Extraordinary income of ¥0.18B, including a ¥0.15B gain on a business transfer, reduced the loss but does not indicate an improvement in recurring earnings power. Revenue and profit both declined.

Segment Analysis

The Brand Consulting Business recorded revenue of ¥1.80B (-17.9% YoY) and a segment loss of ¥0.19B (¥0.19B in the previous year), indicating only limited improvement in the deficit despite the revenue decline. The Food-Related Business recorded revenue of ¥1.06B (-1.2% YoY) and a segment loss of ¥0.20B (¥0.23B in the previous year), representing a slight narrowing of the loss. The Space-Related Business recorded revenue of ¥0.01B and a segment loss of ¥0.02B and remains in an early investment phase. Adjustments for corporate expenses and other items amounted to -¥0.13B, contributing to the consolidated operating loss.

Key Financial Indicators

【Profitability】The operating margin deteriorated to -20.6% from -13.2% in the previous year, a decline of approximately 7.4pt, while the net profit margin also declined to approximately -8.4%. The gross profit margin declined to 31.9% from 36.9% in the previous year, and the SG&A ratio increased to 52.5%; these were the primary factors behind the expansion of the operating deficit.【Cash Flow Quality】The ordinary loss was ¥0.58B, compared with a loss before tax of ¥0.41B. Extraordinary income of ¥0.18B (a ¥0.15B gain on a business transfer and a ¥0.02B gain on insurance settlement) represents a temporary uplift explaining the difference.【Investment Efficiency】Annualized ROE was -27.7%, a severe level, as the continued operating loss significantly reduced capital efficiency.【Financial Soundness】The equity ratio was 51.4% (51.4% based on total assets and 43.4% according to reference data), maintaining a certain level. Cash and deposits of ¥1.68B exceeded current liabilities of ¥0.96B. Net assets were ¥1.71B, down ¥0.42B from ¥2.13B in the previous year, indicating continued contraction of the capital base due to accumulated losses.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is limited, changes in the balance sheet provide insight into cash trends. Cash and deposits were ¥1.68B, down ¥0.37B from ¥2.15B in the previous year, indicating continued cash consumption associated with the operating deficit. Inventories increased from ¥0.08B in the previous year to ¥0.20B, potentially placing pressure on working capital as inventory accumulates amid declining sales. Investment securities declined sharply from ¥0.19B in the previous year to ¥0.01B, indicating monetization or a change in asset composition through asset sales or impairment losses. Interest-bearing debt was ¥0.57B, comprising short-term borrowings of ¥0.18B and long-term borrowings of ¥0.39B. Cash and deposits exceeded this amount, securing short-term repayment capacity.

Earnings Quality

Against an operating loss of ¥0.59B and an ordinary loss of ¥0.58B, the loss before tax narrowed to ¥0.41B, as extraordinary income of ¥0.18B substantially exceeded extraordinary losses of ¥0.001B. Extraordinary income comprised a ¥0.15B gain on a business transfer, a ¥0.02B gain on insurance settlement, and a ¥0.01B gain from the reversal of stock acquisition rights. All of these should be distinguished from recurring operating earnings as temporary items. Non-operating income was ¥0.01B, equivalent to 0.4% of revenue, and non-operating items were not large enough to materially affect performance. Net Income of -¥0.36B was smaller than the loss before tax of -¥0.41B, due to a tax benefit of ¥0.05B and a loss attributable to non-controlling interests of ¥0.11B. It should be noted that the reduction in the net loss attributable to owners of the parent to ¥0.24B does not signify an improvement in the underlying earnings power.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥5.29B (+7.8% YoY), an operating loss of ¥0.27B, an ordinary loss of ¥0.28B, forecast EPS of -¥4.01, and forecast dividends of ¥0 per share. The revenue progress rate for the cumulative Q3 was 54.3%, below the standard 75%. Meanwhile, the progress rates for the operating loss and ordinary loss were 219.3% and 211.2%, respectively, while the progress rate for Net Income was 605.0%; in each case, the cumulative result has already substantially exceeded the full-year loss forecast. To achieve the full-year plan, Q4 alone would require a turnaround to operating income of approximately ¥0.32B and ordinary income of approximately ¥0.31B. Although the earnings forecast remains unchanged, the progress to date indicates a high degree of uncertainty regarding achievement.

Shareholder Returns

Both the Q2 dividend and the full-year dividend forecast are ¥0 per share, and the Company continues to pay no dividends. The payout ratio is not calculable (no dividend). The cumulative net loss attributable to owners of the parent was ¥0.24B, and the full-year forecast is also a net loss of ¥0.04B; accordingly, capital allocation currently prioritizes retaining internal funds. Cash on hand of ¥1.68B provides a certain degree of financial flexibility, but a return to dividend payments would be premised on a turnaround to profitability in the core business.

Risk Factors

1. Risk of weakening demand in the core business: The Brand Consulting Business is the core business, accounting for 62.7% of consolidated revenue, and revenue declined significantly to ¥1.80B (-17.9% YoY). A delayed recovery in this business would directly affect company-wide performance.

2. Risk of failing to achieve the full-year earnings forecast: Against the full-year operating loss forecast of ¥0.27B, the Company has already recorded an operating loss of ¥0.59B for the cumulative Q3, resulting in a progress rate of 219.3%. Without a substantial improvement in profitability in Q4, achieving the plan will be difficult.

3. Risk of further contraction of the capital base: Net assets declined by ¥0.42B from ¥2.13B in the previous year to ¥1.71B, and continued operating losses could result in further impairment of shareholders’ equity. In addition, inventories increased by +143% YoY, leaving room for additional inventory write-downs.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (it_telecom)

Profitability and Return

Profitability is substantially below the industry median, with both operating income and net income positioned in the bottom tier of the industry.

Growth and Capital Efficiency

Revenue growth also fell substantially below the industry median, highlighting a pronounced gap versus peer companies experiencing revenue growth.

※Source: Company analysis

Key Points from the Earnings Results

1. Against the full-year operating loss forecast of ¥0.27B, the Company has already recorded a loss of ¥0.59B for the cumulative Q3. The largest point of focus is therefore the extent to which progress has exceeded the full-year plan. The earnings trend in Q4 will be key to assessing earnings quality.

2. The improvement in Net Income resulted from extraordinary income of ¥0.18B, including gains on a business transfer, and the attribution of losses to non-controlling interests; it should be noted that this does not indicate a recovery in recurring earnings power.

3. Financial liquidity is sound, with a current ratio of 255% and cash and deposits of ¥1.68B, securing short-term payment capacity. However, changes in asset composition, including the increase in inventories and the sharp decline in investment securities, are evident, and future developments warrant attention.

Theoretical Share Price (Reference Value)

Sensitivity: ¥111–¥117 at a ±1% change in the cost of equity, and ¥112–¥115 at a ±0.1 change in ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from 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 the future share price.)

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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 professionals as necessary.

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