DAIICHIKOSHO CO.,LTD. FY2026 FY Earnings Report

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Executive Summary

The financial results for the cumulative Q2 period (or full year) of the fiscal year ending March 2026 represented an increase in revenue but a decrease in earnings, primarily due to the higher tax burden. Revenue increased to ¥1,629.5B (+6.5% YoY), while Operating Income was ¥179.2B (△0.2% YoY), essentially flat. Ordinary Income was ¥182.7B (△0.7% YoY), and Net Income attributable to owners of the parent declined by double digits to ¥158.9B (△12.6% YoY). The gross margin declined by 0.6pt to 34.5% from 35.1% in the previous year, while Selling, General and Administrative Expenses increased at a rate similar to revenue (+6.8%), causing the Operating Margin to decline to 11.0% from 11.7% in the previous year. The decline in Net Income was primarily attributable to the increase in the effective tax burden from 20.5% to 32.0%, despite a +3.2% increase in Profit Before Tax resulting from the recognition of ¥79.9B in extraordinary income, including ¥76.6B in gains on sales of fixed assets.

Factors Affecting Business Performance

【Revenue】Revenue of ¥1,629.5B (+6.5% YoY) increased with contributions from nearly all segments. The Karaoke and Food & Beverage Outlets Business, the largest segment by composition ratio, generated revenue of ¥710.0B (43.6% composition ratio, +6.7%), while the Commercial Karaoke Business generated ¥652.8B (40.1%, +4.8%). These two businesses drove growth. Other Businesses posted strong growth of ¥212.1B (13.0%, +13.9%), while the Music Software Business was the only segment to record a revenue decline, at ¥54.6B (3.3%, △1.7%).

【Profit and Loss】 Operating Income was ¥179.2B (△0.2%), essentially flat, as the 0.6pt decline in gross margin and the increase in SG&A expenses (+6.8%, slightly exceeding the rate of revenue growth) offset the positive impact of higher revenue. By segment, the Commercial Karaoke Business was the largest earnings contributor, with Operating Income of ¥119.2B (+2.1%, 18.3% margin), although its margin declined by 0.5pt YoY. Operating Income from the Music Software Business declined significantly to ¥1.4B (△56.9%). Ordinary Income was ¥182.7B (△0.7%), with non-operating income and expenses broadly in line with the previous year. Extraordinary income of ¥79.9B (including ¥76.6B in gains on sales of fixed assets, a temporary factor) and extraordinary losses of ¥26.2B (including ¥24.1B in impairment losses, also a temporary factor) were recorded, raising Profit Before Tax to ¥236.4B (+3.2%). However, the increase in the tax burden ratio from 20.5% to 32.0% resulted in Net Income of ¥158.9B (△12.6%). In conclusion, the results represented an increase in revenue but a decrease in earnings.

Segment Analysis

By segment, the Commercial Karaoke Business (40.1% composition ratio) generated revenue of ¥652.8B (+4.8%) and Operating Income of ¥119.2B (+2.1%), making it the largest profit-contributing segment. However, its margin declined to 18.3% from 18.8% in the previous year. The Karaoke and Food & Beverage Outlets Business (43.6% composition ratio) recorded the highest revenue growth, with revenue of ¥710.0B (+6.7%), but its Operating Income was ¥66.3B (+4.5%) and its margin was 9.3% (9.5% in the previous year), indicating relatively low profitability. Cost pressures from personnel expenses, rent and other expenses are restraining profit growth. Other Businesses (13.0% composition ratio) posted revenue of ¥212.1B (+13.9%), Operating Income of ¥28.1B (+18.5%) and a margin of 13.3%, showing notable improvement through higher revenue and earnings. The Music Software Business (3.3% composition ratio) deteriorated significantly, with revenue of ¥54.6B (△1.7%), Operating Income of ¥1.4B (△56.9%) and a margin of 2.6% (5.9% in the previous year), contributing to the decline in the company-wide profit margin.

Key Financial Indicators

【Profitability】 Both the Operating Margin of 11.0% (11.7% in the previous year) and the Net Profit Margin of 9.7% (¥158.9B/¥1,629.5B, compared with 11.9% in the previous year) declined from the previous year, as the 0.6pt decline in gross margin and the increase in SG&A expenses placed pressure on profitability. 【Cash Flow Quality】 Operating Cash Flow was equivalent to 1.6 times Net Income (¥251.0B/¥158.9B), indicating a favorable level of cash generation exceeding the level of reported earnings. 【Investment Efficiency】 ROE was 13.2% (16.2% in the previous year), down 3.0pt YoY primarily due to the decline in the Net Profit Margin. Total assets increased to ¥2,204.4B (+5.3% YoY), and the balance between asset efficiency and other factors affected the decline in ROE. 【Financial Soundness】 The Equity Ratio remained high at 56.9% (56.3% in the previous year). Interest-bearing debt primarily consisted of ¥516.8B in long-term borrowings, compared with ¥488.4B in cash and deposits, while short-term borrowings were substantially reduced from the previous year.

Cash Flow Analysis

Cash flow from operating activities was ¥251.0B, up +1.8% YoY, remaining firm and maintaining stable cash generation mainly due to Profit Before Tax of ¥236.4B and depreciation and amortization of ¥170.8B. Cash flow from investing activities was △¥110.4B, with capital expenditures of ¥167.9B representing the primary use of funds; proceeds from the sale of fixed assets (related to the amount recognized as extraordinary income) partially offset these outflows. Cash flow from financing activities was △¥72.0B, with dividend payments and the repurchase of treasury shares (¥18.8B) being the primary sources of cash outflow. As a result, Free Cash Flow (Operating CF + Investing CF) was ¥140.6B, exceeding total shareholder returns comprising dividends and share repurchases. The company therefore maintained sound funding capacity for shareholder returns.

Earnings Quality

The earnings structure for the current fiscal year was characterized by the significant impact of fluctuations in extraordinary gains and losses on Net Income relative to recurring business earnings, represented by Operating Income of ¥179.2B. Extraordinary income of ¥79.9B primarily consisted of ¥76.6B in gains on sales of fixed assets, a temporary factor with low recurrence. Meanwhile, ¥24.1B of the ¥26.2B in extraordinary losses consisted of impairment losses (up from ¥10.6B in the previous year), which were also recognized as a temporary factor. Consequently, Profit Before Tax increased to ¥236.4B (+3.2%), but the increase in Profit Before Tax was not reflected in Net Income because the tax burden ratio rose from 20.5% in the previous year to 32.0%. Net Income therefore remained at ¥158.9B (△12.6%). Comprehensive Income was ¥152.1B, of which ¥150.2B was attributable to owners of the parent, representing a gap of approximately ¥8.7B from Net Income of ¥158.9B. This was attributable to deterioration in adjustments related to retirement benefits (△¥5.4B) and valuation differences on securities (△¥3.7B). Operating CF was 1.6 times Net Income, providing solid cash-flow support; however, the high contribution from extraordinary gains and losses should be considered when evaluating core earnings power from the next fiscal year onward.

Earnings Forecasts and Guidance

Management’s forecast for the next fiscal year, the fiscal year ending March 2027, calls for modest increases in revenue and earnings: revenue of ¥1,687.0B (+3.5%), Operating Income of ¥185.0B (+3.3%) and Ordinary Income of ¥189.0B (+3.5%). Meanwhile, Net Income attributable to owners of the parent is projected at ¥122.0B (forecast EPS of ¥118.01), representing △23.2% compared with current-fiscal-year results of ¥158.9B (EPS of ¥153.38). Thus, despite the forecast for higher revenue and operating earnings, Net Income is expected to remain at a conservative level. This appears to reflect the assumption that temporary extraordinary income, including gains on sales of fixed assets recognized in the current fiscal year, will not recur. The dividend forecast is ¥34, representing a decline from ¥67 including the current fiscal year’s commemorative dividend (¥10 for the 55th anniversary of the company’s founding), with a return to the ordinary dividend level expected.

Shareholder Returns

The annual dividend was ¥67 (an interim dividend of ¥28 and a year-end dividend of ¥39, consisting of an ordinary dividend of ¥29 and a ¥10 commemorative dividend for the 55th anniversary of the company’s founding), resulting in a Payout Ratio of 43.7%, calculated by dividing DPS of ¥67 by EPS of ¥153.38. The company repurchased ¥18.8B of treasury shares. Combined with total dividends of ¥59.7B, total shareholder returns amounted to ¥78.5B, resulting in a Total Return Ratio of 49.4% against Net Income of ¥158.9B. Free Cash Flow of ¥140.6B exceeded total shareholder returns, indicating that shareholder returns were fully funded by operating cash flow. The dividend forecast for the next fiscal year is ¥34, with a return to the ordinary dividend level expected following the reversal of the commemorative dividend.

Risk Factors

1. Dependence on temporary gains: Extraordinary income of ¥79.9B (including ¥76.6B in gains on sales of fixed assets) boosted Profit Before Tax but represented a temporary factor with low recurrence. The forecast Net Income of ¥122.0B for the next fiscal year is △23.2% versus the current fiscal year, incorporating the impact of the loss of temporary gains.

2. Impairment risk: Impairment losses for the current fiscal year were ¥24.1B, up from ¥10.6B in the previous year. If the profitability of store assets declines, particularly in the Karaoke and Food & Beverage Outlets Business, there is structurally a possibility of additional impairment losses.

3. Margin pressure from cost inflation: SG&A expenses increased +6.8% YoY, slightly exceeding the +6.5% revenue growth rate, while the gross margin also declined by 0.6pt. If increases in personnel expenses, rent and other costs continue, they could become a factor behind a further decline in the Operating Margin.

Industry Benchmark (Reference, Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

Both the Operating Margin and Net Profit Margin are substantially above the industry median, indicating a high level of profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly above the industry median and is positioned near the center of the IQR range.

Source: Compiled by the Company

Key Points from the Financial Results

1. Despite higher revenue, the 0.6pt decline in gross margin and the increase in SG&A expenses (+6.8%) caused the Operating Margin to decline by 0.7pt. Execution of cost management is therefore a structural factor that will determine future profitability trends.

2. The decline in Net Income (△12.6%) was primarily attributable to fluctuations in extraordinary gains and losses and the increase in the tax burden ratio (20.5%→32.0%). The company’s forecast for the next fiscal year also indicates a conservative Net Income level of ¥122.0B, incorporating the loss of temporary gains.

3. The annual dividend of ¥67 includes a ¥10 commemorative dividend for the 55th anniversary of the company’s founding, with normalization to ¥34 planned for the next fiscal year. The Payout Ratio of 43.7% and Total Return Ratio of 49.4% are within Free Cash Flow of ¥140.6B, indicating that funding for shareholder returns is secured.

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This report is an earnings analysis document automatically generated by AI based on XBRL financial summary data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional adviser as necessary.

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