NAKAYAMAFUKU (7442) FY2026 Q3 Earnings Report

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Executive Summary

The key takeaway from this earnings announcement is that, while the operating margin improved significantly from a low level, net income remained at approximately the previous year's level due to its reliance on gains on the sale of investment securities. Revenue was ¥31.996B (+3.3% YoY), operating income was ¥0.326B (+147.6%), ordinary income was ¥0.554B (+41.5%), and net income was ¥0.438B (△0.8%). The increase in operating income was primarily attributable to operating leverage resulting from an improvement in the gross profit margin (19.3%, approximately +0.4pt YoY); however, excluding the ¥0.232B gain on the sale of investment securities, the Company's underlying earnings power remains limited.

Factors Affecting Business Performance

【Revenue】Revenue was ¥31.996B, an increase of +3.3% YoY. By segment, the largest Household Goods Wholesale Business (¥29.40B, accounting for 91.9% of total revenue) drove overall performance, with the Tohoku and Kanto Region (¥12.90B, operating margin 2.6%) and the Kinki, Chugoku, and Shikoku Region (¥7.78B, operating margin 3.8%) serving as the primary sources of earnings. The Hokkaido Region recorded an operating loss (¥△0.03B), indicating differences in profitability among regions.

【Profit and Loss】Operating income increased significantly to ¥0.326B (+147.6% YoY), but the operating margin remained at 1.0%. While the gross profit margin improved to 19.3% from approximately 18.9% in the previous year, SG&A expenses were ¥5.83B, up +4.0% YoY and exceeding the rate of revenue growth, indicating continued cost-increase pressure. Ordinary income was ¥0.554B (+41.5%), supported by non-operating income, including ¥0.06B in dividend income. Although the Company recorded a ¥0.23B gain on the sale of investment securities as extraordinary income, it also incurred a ¥0.05B impairment loss on investment securities; consequently, temporary factors had a significant impact on the ¥0.74B profit before tax. The effective tax rate was high at approximately 40.5%, resulting in net income of ¥0.438B, a decrease of △0.8% YoY. Although revenue and operating and ordinary income increased, the actual earnings benefit at the net income level was diluted by the offsetting effects of the tax burden and temporary factors.

Segment Analysis

By segment, the Household Goods Wholesale Business constitutes the core of the Company's operations, with revenue of ¥29.40B and operating income of ¥0.77B (operating margin 2.6%). By region, the Tohoku and Kanto Region was the largest, with revenue of ¥12.90B, while the Kinki, Chugoku, and Shikoku Region (¥7.78B, operating margin 3.8%) demonstrated the highest profitability. The Interior Goods Manufacturing and Sales Business (¥1.08B, operating margin 29.8%) and the Plastic Daily Necessities Manufacturing Business (¥1.73B, operating margin 6.1%) secured high margins despite their smaller scale. Meanwhile, the Hokkaido Region recorded an operating loss of ¥0.03B on revenue of ¥1.11B (operating margin △2.7%), indicating that regional profitability differences represent a structural issue.

Key Financial Metrics

【Profitability】The operating margin was 1.0%, the net profit margin was 1.4%, and the gross profit margin was 19.3%; all remained low in absolute terms. Annualized ROE was only 2.5%. 【Cash Flow Quality】Accounts receivable increased +25.0% YoY to ¥8.799B, while inventories increased +37.5% to ¥6.232B, indicating that working capital is expanding at a pace exceeding revenue growth. Cash and deposits decreased by △36.7% YoY to ¥4.591B. 【Investment Efficiency】ROE was 2.5% on an annualized basis, indicating limited capital efficiency, and underlying earnings power excluding the ¥0.232B gain on the sale of investment securities was relatively weak. BPS was ¥1,184.61, up from ¥1,158.24 in the previous year. 【Financial Soundness】The equity ratio was 66.2% and the current ratio was 220.7% (current assets of ¥22.38B / current liabilities of ¥10.14B), indicating a conservative capital and liquidity structure. Long-term borrowings were reduced by △32.6% YoY to ¥0.399B.

Cash Flow Analysis

As the statement of cash flows has not been disclosed, fund movements are analyzed based on changes in the balance sheet. Accounts receivable increased by ¥1.760B YoY and inventories increased by ¥1.700B, expanding funding requirements associated with operating activities. Meanwhile, accounts payable also increased by ¥2.904B, partially offsetting the cash burden through the increase in trade payables. Cash and deposits decreased by △¥2.660B YoY to ¥4.591B, while short-term borrowings were reduced by △¥1.700B to ¥1.800B; cash therefore remained approximately 2.55 times short-term borrowings. The fact that accounts receivable and inventories are increasing faster than revenue is a key point to monitor when assessing future funding efficiency.

Quality of Earnings

The current-period profit before tax of ¥0.737B includes the temporary factor of a ¥0.232B gain on the sale of investment securities, and recurring earnings power excluding this item is relatively limited. Dividend income of ¥0.064B was a major component of non-operating income of ¥0.253B, indicating a structure in which income from assets outside the core business supplements ordinary income. The effective tax rate was high at approximately 40.5%, limiting the conversion of profit before tax into net income, and net income of ¥0.438B declined slightly by △0.8% YoY. Comprehensive income was ¥0.802B, exceeding net income, primarily due to a ¥0.411B increase in valuation difference on securities; however, this is an unrealized factor arising from market price fluctuations and does not represent recurring earnings power.

Earnings Forecasts and Guidance

The progress rates for the cumulative Q3 results against the Company's full-year forecasts (revenue of ¥40.00B, operating income of ¥0.47B, and ordinary income of ¥0.78B) were 80.0% for revenue, 69.4% for operating income, and 71.0% for ordinary income. Revenue exceeded the standard progress rate of 75%, while operating income and ordinary income were somewhat below it; therefore, operating income of ¥0.144B and ordinary income of ¥0.226B must be generated in Q4. The fact that revenue progress exceeds profit progress indicates that trends in SG&A expenses during the second half and the presence or absence of temporary factors will be key to achieving the full-year forecasts.

Shareholder Returns

The Company's full-year dividend forecast is ¥10 per share, while the Q2 dividend was ¥0. The payout ratio based on the full-year forecast EPS of ¥28.44 is approximately 35.2%. With retained earnings of ¥17.837B and cash and deposits of ¥4.591B, the financial foundation for dividends remains secured. As disclosure of the previous year's dividend results is limited, assessment of the continuity of dividend increases or decreases is limited to an evaluation based on the current-period forecast.

Risk Factors

1. Low Gross Margin Structure Risk: With a gross profit margin of 19.3% and an operating margin of 1.0%, both below the industry median of 3.3%, even slight changes in procurement, logistics, or selling prices may have a significant impact on operating income.

2. Working Capital Funding Constraint Risk: Accounts receivable increased +25.0% and inventories increased +37.5%, while cash and deposits decreased by △36.7%, indicating that funds are being allocated to receivables and inventories at a pace exceeding revenue growth.

3. Risk of Reliance on Temporary Factors in Earnings: Net income of ¥0.438B includes a ¥0.232B gain on the sale of investment securities; caution is therefore required when evaluating underlying earnings power excluding this item.

Industry Benchmark (Reference—Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

Both the operating margin and net profit margin are below the industry median, placing the Company's profitability at a relatively low level within the industry.

Growth and Capital Efficiency

The revenue growth rate is also slightly below the industry median, but remains within the IQR.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Operating income increased significantly by +147.6% against revenue growth of 3.3%, indicating an improvement in the profitability of the core business. However, the operating margin remains low in absolute terms at 1.0%, leaving a gap versus the industry median of 3.3%.

2. Net income declined △0.8% YoY and did not increase even including the ¥0.232B gain on the sale of investment securities. The trend in recurring earnings power excluding temporary factors will be a key point for future monitoring.

3. Accounts receivable and inventories increased faster than revenue, while cash and deposits decreased by △36.7% YoY. Although financial soundness (equity ratio of 66.2% and current ratio of 220.7%) remains high, working capital funding efficiency is a structural point for observation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥902–¥953 at ±1% for the cost of equity, and ¥919–¥932 at ±0.1 for 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 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 Base Month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it 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 through analysis of 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 with professionals as necessary.

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