G-7 HOLDINGS Inc. FY2027 Q1 Earnings Report

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Executive Summary

FY2027 Q1 was characterized by higher revenue but lower earnings, with the decisive factor being that revenue growth was insufficient to absorb the decline in margins and the increase in the tax burden. Revenue was ¥598.6B (+7.5% YoY), Operating Income was ¥16.6B (-1.7%), Ordinary Income was ¥16.7B (-6.9%), and Net Income was ¥10.1B (-15.0%). The gross profit margin declined by approximately 50bp from the previous year to 23.5%, and the improvement in the SG&A ratio (-23bp) was insufficient to offset this decline, resulting in lower Operating Income. In addition, the effective tax rate increased to 39.3% from 33.7% in the previous year, further widening the decline in Net Income.

Factors Affecting Performance

【Revenue】The core Gyomu Super Business (58.6% of Revenue) remained solid, increasing +3.3%, while the Automotive-Related Business (20.1%) and Meat Business (11.2%) posted strong growth of +16.3% and +24.9%, respectively. The Other Businesses (10.7%) were nearly flat at +0.5%, resulting in overall Revenue growth of +7.5%.

【Profit and Loss】The gross profit margin declined by approximately 50bp to 23.5% from 24.0% in the previous year, apparently due to changes in procurement costs and product mix. The SG&A ratio improved by approximately 23bp to 20.7% from 21.0%, but this was insufficient to offset the decline in the gross profit margin, and the Operating Income margin narrowed to 2.8% from 3.0%. Ordinary Income was ¥16.7B (-6.9%), reflecting the decline in Operating Income while non-operating income and expenses remained broadly in line with the previous year. Net Income was ¥10.1B (-15.0%), with the increase in the effective tax rate to 39.3% from 33.7% also contributing to a greater decline than at the Operating Income and Ordinary Income levels. In conclusion, the Company posted higher revenue but lower earnings.

Segment Analysis

The Gyomu Super Business generated Revenue of ¥351.0B (58.6% composition ratio, YoY +3.3%) and segment profit of ¥13.4B (+3.2%, segment margin 3.8%), steadily accounting for the majority of total Company profit. The Automotive-Related Business grew significantly, with Revenue of ¥120.5B (20.1% composition ratio, YoY +16.3%); however, segment profit declined to ¥1.3B (-38.2%, segment margin 1.1%), highlighting that the increase in Revenue was accompanied by margin deterioration. The Meat Business recorded Revenue of ¥67.2B (11.2% composition ratio, YoY +24.9%) and segment profit of ¥1.1B (+320%), representing a significant improvement from a low base. The Other Businesses posted Revenue of ¥64.1B (10.7% composition ratio, YoY +0.5%) and segment profit of ¥0.5B (-67%), representing a decline. Intersegment adjustments decreased from ¥1.2B in the previous year to ¥0.5B in the current period, reducing the adjustment to Ordinary Income despite the increase in Company-wide expenses.

Key Financial Indicators

【Profitability】The Operating Income margin declined to 2.8% from 3.0% in the previous year, while the Net Income margin declined to 1.7% from 2.1%, indicating a slight deterioration in profitability despite higher Revenue. 【Cash Quality】Comprehensive Income was ¥9.9B, slightly below Net Income of ¥10.1B. Other Comprehensive Income, including the valuation difference on securities (-¥0.2B), made a negative contribution, but the divergence between Net Income and Comprehensive Income was limited. 【Investment Efficiency】ROE was 2.9%, below the level of approximately 3.4% calculated based on Net Assets and Net Income for the same period of the previous year, with the decline in the Net Income margin apparently being the primary factor. 【Financial Soundness】The Equity Ratio was 43.4%, broadly unchanged from 43.6% in the previous year, indicating no significant change in the capital structure.

Cash Flow Analysis

As a statement of cash flows has not been disclosed, cash trends are assessed based on changes in the balance sheet. Cash and deposits were ¥174.9B, a decrease of ¥33.0B from ¥207.9B in the previous year. Inventories increased by ¥17.1B to ¥124.8B from ¥107.7B, while Accounts Payable declined by ¥2.0B to ¥105.0B from ¥107.0B, and income taxes payable also declined by ¥10.4B to ¥7.4B from ¥17.8B. This suggests that increased working capital and tax payments absorbed cash. Interest-bearing debt also declined, with short-term borrowings at ¥97.2B (¥100.2B in the previous year) and long-term borrowings at ¥98.9B (¥102.9B in the previous year). Repayment of borrowings is also considered to have contributed to the decline in cash. Cash on hand of ¥174.9B exceeds short-term borrowings, and no significant concerns regarding near-term liquidity are apparent.

Earnings Quality

The majority of earnings was generated by the core business. Non-operating income was ¥1.2B, including fee income of ¥0.8B and foreign exchange gains of ¥0.1B, while non-operating expenses were ¥1.1B, including interest expenses of ¥0.5B. These amounts were small, and their impact on Ordinary Income was limited. Extraordinary loss consisted solely of an impairment loss of ¥0.1B, indicating limited distortion of earnings from temporary factors. Against Ordinary Income of ¥16.7B, Net Income was only ¥10.1B, with the gap primarily attributable to the increase in the effective tax rate to 39.3% from 33.7% in the previous year. Comprehensive Income of ¥9.9B was slightly below Net Income of ¥10.1B, due to negative valuation differences on securities and adjustments related to retirement benefits. However, the amounts were small, and no significant accrual distortion is apparent.

Earnings Forecast and Guidance

Progress toward the full-year plan was 23.9% for Revenue (¥598.6B/¥2,500.0B), 18.7% for Operating Income (¥16.6B/¥89.0B), 18.6% for Ordinary Income (¥16.7B/¥90.0B), and 17.4% for Net Income (¥10.1B/¥58.0B). Compared with the simple quarterly allocation benchmark of 25%, Revenue was progressing nearly evenly, while each profit measure from Operating Income onward was approximately 6–8pt behind, highlighting delays in profit progress. As of the current quarter, no revisions had been made to the earnings forecast, and the Company maintained its full-year plan. If the decline in the gross profit margin and the deterioration in profitability of the Automotive-Related Business continue, improvement in gross profit and recovery in fixed-cost absorption capacity in the second half will be prerequisites for achieving the plan.

Shareholder Returns

Under the Company’s plan, the annual dividend is ¥70, and the Payout Ratio based on forecast EPS of ¥132.57 is 52.8%; no revision to the dividend forecast had been made as of the current quarter. Although the Payout Ratio exceeds 50%, the current dividend plan is supported to a certain extent by the Company’s financial position, including cash and deposits of ¥174.9B and an Equity Ratio of 43.4%. No information regarding share repurchases was identified in the data disclosed this time, and the shareholder return policy appears to center on dividends.

Risk Factors

1. Risk of gross margin deterioration and inventory build-up: The gross profit margin declined by approximately 50bp from the previous year to 23.5%, while inventories increased +15.9% YoY to ¥124.8B. If changes in procurement costs and product mix continue, they could place additional pressure on profitability through inventory valuation and markdown measures.

2. Segment concentration risk: The Gyomu Super Business accounts for 58.6% of Revenue and the majority of segment profit, creating a structure in which the performance of this business significantly influences Company-wide results. Segment profit in the Automotive-Related Business declined -38.2% YoY, and changes in the earnings mix are affecting the Company-wide margin.

3. Risks related to the tax burden and short-term debt structure: The effective tax rate increased to 39.3% from 33.7% in the previous year, becoming a factor affecting fluctuations in Net Income. In addition, the current liability structure, including short-term borrowings of ¥97.2B, has somewhat high sensitivity to changes in the interest rate environment and financing conditions.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Both of the Company’s profitability indicators were below the industry median, with the Operating Income and Net Income margins positioned toward the lower end of the ranges.

Growth and Capital Efficiency

The Revenue growth rate was broadly in line with the industry median, placing the growth pace within the standard range for the industry.

※Source: Compiled by the Company

Key Points in the Earnings Results

1. Despite higher Revenue, the gross profit margin declined by approximately 50bp and the effective tax rate increased to 39.3% from 33.7% in the previous year, widening the decline at each level of Operating Income, Ordinary Income, and Net Income. The change in profitability reflects a combination of factors, including procurement costs, segment mix, and the tax burden.

2. Progress toward the full-year plan was 23.9% for Revenue, compared with 18.7% for Operating Income and 17.4% for Net Income, indicating delays on the profit side. The Company maintained its earnings forecast, and improvement in gross profit and recovery in fixed-cost absorption capacity in the second half will be key to progress.

3. While inventories increased +15.9% YoY, Accounts Payable and income taxes payable declined, suggesting that increased working capital may have contributed to the decrease of ¥33.0B in cash and deposits. The trend in inventory levels will be an important point to monitor when assessing future cash flows.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥933–¥986 at ±1% for the cost of equity, and ¥955–¥965 at ±0.1 for ω.

Notes:

• 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 / Interest rate reference month: 2026-06 / This value 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 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 a professional as necessary.

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