KIMURA (7461) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for the first three quarters reflected higher revenue but lower earnings. The most important point is that the increase in SG&A expenses exceeded the improvement in the gross profit margin, thereby reducing operating income. Revenue was ¥291.4B (+5.1% YoY), operating income was ¥14.0B (▲17.0%), ordinary income was ¥14.5B (▲18.4%), and quarterly net income attributable to owners of the parent was ¥8.76B (▲7.0%). Revenue was driven by higher sales in the Retail Business and a substantial increase in revenue from the Real Estate Business. However, SG&A expenses increased at a faster pace than revenue, causing the operating margin to decline to 4.8%.

Factors Affecting Performance

【Revenue】Revenue increased 5.1% YoY to ¥291.4B. By segment, the Retail Business was the largest contributor at ¥184.8B (63.4% of total revenue, +6.8% YoY). The Wholesale Business recorded lower revenue at ¥81.2B (27.9% of total revenue, ▲6.2% YoY). The Real Estate Business posted a substantial increase in revenue to ¥11.9B (4.1% of total revenue, +195.0%) due to the recognition of projects, while the Scaffolding Rental Business declined slightly to ¥6.3B (▲3.2% YoY).

【Profit and Loss】Operating income was ¥14.0B, down 17.0% YoY. The gross profit margin improved to 30.5% from 29.9% in the previous year, but SG&A expenses increased 13.4% YoY to ¥74.8B. As this increase significantly exceeded revenue growth (+5.1%), the operating margin declined to 4.8% (6.1% in the previous year). Ordinary income was ¥14.5B (▲18.4% YoY), with non-operating income and expenses remaining largely offsetting. Net income was ¥8.76B (▲7.0% YoY), with the increase in the tax burden ratio (effective tax rate: 32.8%) slightly widening the decline in earnings. By segment, the Real Estate Business, with a profit margin of 52.1%, made the largest contribution to segment profit, while the core Retail Business saw its profit margin fall significantly from 5.6% to 2.1%, making it the primary cause of the decline in company-wide earnings. In conclusion, the Company recorded higher revenue but lower earnings.

Segment Analysis

The Retail Business secured higher revenue of ¥184.8B (+6.8% YoY), but segment profit declined substantially to ¥3.9B (▲60.5% YoY), with the profit margin falling from 5.6% to 2.1%. The deterioration in profitability of this core business, which accounts for 63.4% of the revenue mix, was the primary cause of the decline in company-wide earnings. The Wholesale Business recorded lower revenue of ¥81.2B (▲6.2% YoY) and profit of ¥5.5B (▲24.2% YoY), with a profit margin of only 6.8%. The Real Estate Business posted substantial increases in revenue to ¥11.9B (+195.0% YoY) and profit to ¥6.1B (+212.0% YoY). Its profit margin of 52.1% was the highest among the segments, making it the largest contributing business, accounting for 34.7% of total segment profit. The Scaffolding Rental Business was largely flat, with revenue of ¥6.3B (▲3.2% YoY) and profit of ¥0.5B (▲3.6% YoY). Although the high profitability of the Real Estate Business is supporting company-wide earnings, it is susceptible to the timing of project recognition, and the sustainability of earnings must therefore be confirmed when assessing earnings quality.

Key Financial Indicators

【Profitability】The operating margin of 4.8% declined by approximately 1.3pt from 6.1% in the same period of the previous year, while the net profit margin also declined to 3.0%. Although the gross profit margin improved by +0.6pt YoY to 30.5%, the SG&A ratio rose by +1.9pt to 25.7%, resulting in lower profitability.【Cash Flow Quality】Inventories increased 33.1% YoY to ¥64.1B, significantly outpacing revenue growth of +5.1%, making lower inventory efficiency a factor behind the increase in working capital requirements. Accounts receivable totaled ¥26.3B, a decrease YoY, and no significant expansion of receivables was observed during the period of revenue growth.【Investment Efficiency】Annualized ROE was 6.5%, EPS was ¥59.07 (¥63.51 in the previous year, YoY ▲7.0%), and BPS was ¥1,146.82. Property, plant and equipment expanded 26.4% YoY to ¥202.9B, making improvement in earnings-generation capacity commensurate with the expansion of assets a key challenge.【Financial Soundness】The equity ratio was 51.0%, largely unchanged from 51.8% in the previous year, indicating a stable financial base. Long-term borrowings increased substantially YoY to ¥81.7B, reflecting a shift toward financing asset expansion with long-term funds.

Cash Flow Analysis

As direct data from the cash flow statement are unavailable, funding trends are analyzed based on changes in the balance sheet. Cash and deposits increased 37.2% YoY to ¥51.6B, maintaining a level above short-term borrowings of ¥37.1B. Meanwhile, inventories increased 33.1% YoY to ¥64.1B and property, plant and equipment expanded 26.4% YoY to ¥202.9B, indicating that inventory accumulation and capital investment are increasing funding requirements. These funding requirements appear to have been financed through a substantial increase in long-term borrowings (+221.4% YoY to ¥81.7B), resulting in a structure in which asset expansion is accompanied by long-term financing. Accounts payable also increased 49.6% YoY to ¥26.4B, indicating that the use of trade payables is supporting a portion of working capital. The increase in cash and deposits is positive from a liquidity perspective; however, together with the slowdown in inventory turnover, the efficient circulation of funds will be a key focus going forward.

Earnings Quality

Non-operating income was ¥1.2B, compared with non-operating expenses of ¥0.7B, including ¥0.7B in interest expenses. On a net basis, non-operating items made a slight contribution to profit, resulting in ordinary income of ¥14.5B exceeding operating income of ¥14.0B. Extraordinary losses were limited to ¥0.02B, including losses on the disposal of fixed assets, and the impact of temporary factors was limited. Accordingly, the divergence between ordinary income and net income was primarily attributable to the tax burden (effective tax rate: 32.8%) and net income attributable to non-controlling interests of ¥1.0B. No one-time items that materially diverged from recurring business earnings were identified. Comprehensive income was ¥10.8B, of which ¥9.9B attributable to owners of the parent exceeded net income of ¥8.76B; this was due to the recognition of ¥1.1B in valuation differences on securities and represents a factor separate from the recurring earnings power of the business. The increase in inventories of +33.1% YoY, exceeding revenue growth, contains the risk of future discount sales or inventory write-downs and should therefore be closely monitored when assessing earnings quality.

Earnings Forecast and Guidance

Progress against the full-year company forecasts was 73.9% for revenue, 85.9% for operating income, 86.4% for ordinary income, and 97.3% for net income attributable to owners of the parent. Progress on earnings exceeded that on revenue. The full-year forecasts assume higher revenue but lower earnings, with revenue of ¥394.0B (+8.7%), operating income of ¥16.3B (▲16.3%), and ordinary income of ¥16.8B (▲18.9%). The revenue and operating income required in Q4 are approximately ¥102.6B and ¥2.3B, respectively, suggesting that the full-year plan can be achieved even at a level below the cumulative operating margin of 4.8%. Nevertheless, if profitability in the Retail and Wholesale Businesses continues to deteriorate, attention should be paid to the quality of the full-year plan and earnings levels in the following fiscal year and beyond.

Shareholder Returns

The full-year forecast dividend is ¥14.00 per share, and the forecast payout ratio based on full-year forecast EPS of ¥60.68 is 23.1%, indicating that the dividend burden remains restrained relative to accounting profit. Cumulative nine-month net income attributable to owners of the parent was ¥8.76B, representing progress of 97.3% against the full-year forecast of ¥9.00B, indicating that the funds for dividends under the company forecast have been secured. Retained earnings were substantial at ¥149.0B, providing a foundation for dividends. However, given the substantial increase in long-term borrowings, future dividend sustainability will also depend on the interest burden following the increase in borrowings and the monetization of invested capital.

Risk Factors

1. Deterioration in profitability of the core business (Retail): The Retail Business is the largest revenue base, with revenue of ¥184.8B (63.4% of total revenue), but segment profit declined 60.5% YoY and its profit margin fell from 5.6% to 2.1%. It was the primary cause of the decline in company-wide earnings, and the key issue is whether the business can restore its cost-absorption capacity.

2. Inventory accumulation risk: Inventories increased 33.1% YoY to ¥64.1B, significantly outpacing revenue growth of +5.1%. A prolonged inventory turnover period would increase the risk of discount sales and inventory write-downs.

3. Increase in borrowings and investment recovery: Long-term borrowings increased 221.4% YoY to ¥81.7B, while property, plant and equipment expanded 26.4% YoY to ¥202.9B. Although the equity ratio of 51.0% and interest coverage remain at favorable levels, challenges in capital efficiency will remain if the improvement in earnings-generation capacity does not keep pace with asset expansion.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net profit margin exceed the industry median, placing the Company in a relatively favorable position in terms of profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate is approximately in line with the industry median, indicating an average growth pace within the industry.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Progress against the full-year plan was 85.9% for operating income and 97.3% for net income attributable to owners of the parent, exceeding the standard level (approximately 75% as a benchmark for cumulative nine-month results). Progress toward achieving the full-year plan has therefore been confirmed.

2. Although the gross profit margin improved YoY, the increase in SG&A expenses (+13.4%) exceeded revenue growth (+5.1%), causing the operating margin to decline to 4.8%. The profitability trends of the Retail and Wholesale Businesses will therefore determine the future earnings trend.

3. The Real Estate Business became the largest contributing business, accounting for 34.7% of segment profit. However, its revenue growth of +195.0% YoY depends on the timing of project recognition, making confirmation of sustainability in the earnings mix an important focus for future analysis.

Theoretical Share Price (Reference Value)

Sensitivity: ¥965–¥1,021 at ±1% for the cost of equity, and ¥987–¥996 at ±0.1 for ω.

Notes:

• Because progress in net income against the full-year forecast (97%) exceeds the standard level (75%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of plan tend to outperform forecasts. In businesses with strong seasonality, the adjustment may be excessive).
• Because 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 five-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 predict or guarantee future share prices.)

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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 with a professional as necessary.

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