Kojima (7513) FY2026 FY Earnings Report

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Executive Summary

Improved gross margin and restrained SG&A expenses resulted in profit growth (Operating Income +17.7%) that exceeded revenue growth (+5.2%). Operating cash flow was also approximately 2.1x net income, indicating strong cash backing for earnings. Revenue was ¥297.63B (+5.2% YoY, +¥14.84B), and Operating Income was ¥8.62B (+17.7% YoY, +¥1.29B). Net income attributable to owners of the parent was ¥5.53B (+17.4% YoY), while Ordinary Income was ¥8.91B (+15.3% YoY). Gross margin rose to 27.4% from 27.2% in the prior year, and SG&A expense growth was below revenue growth. Meanwhile, the Operating Income margin of 2.9% reflects a low-margin business model, making earnings susceptible to even modest changes in gross margin.

Factors Behind Earnings Changes

【Revenue】Revenue increased 5.2% YoY to ¥297.63B. The company operates solely in Japan and does not disclose revenue by region. Contract liabilities were ¥8.54B, up ¥1.59B from ¥6.95B at the end of the prior year.

【Profit and Loss】Operating Income was ¥8.62B (+17.7%), and the Operating Income margin improved by approximately 0.3pt to 2.9% from 2.6% in the prior year. Gross profit increased 6.2% to ¥81.62B, while SG&A expenses rose 5.0% to ¥73B, resulting in positive operating leverage. Non-operating income was ¥0.44B and non-operating expenses were ¥0.15B, bringing Ordinary Income to ¥8.91B. Extraordinary items were temporary factors: extraordinary losses of ¥0.81B (including impairment losses of ¥0.48B and disaster losses of ¥0.21B, among others) exceeded extraordinary income of ¥0.12B (gain on sale of property, plant and equipment), resulting in income before income taxes of ¥8.22B. Extraordinary losses decreased from ¥1.14B in the prior year, supporting net income growth. Overall, the company recorded increases in both revenue and profit.

Key Financial Indicators

【Profitability】ROE was 7.5%, up from 6.9% in the prior year. The Operating Income margin was 2.9% (2.6% in the prior year), and the net profit margin was 1.9% (1.7% in the prior year), both above the prior-year levels. Basic EPS was ¥71.40, up 17.0% from ¥61.05 in the prior year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥11.85B, approximately 2.1x net income. It increased substantially from ¥3.98B in the prior year, indicating cash generation in excess of net income.【Investment Efficiency】Capital expenditures were ¥1.94B, approximately 1.2x depreciation and amortization of ¥1.58B. Free cash flow (FCF) was ¥10.42B (OCF + investing cash flow). Total asset turnover was approximately 2.3x.【Financial Soundness】The Equity Ratio was 57.2% (58.0% in the prior year), and the current ratio was approximately 232%. Cash and deposits were ¥35.49B, up ¥8.64B from ¥26.85B at the end of the prior year. Long-term borrowings were ¥7.42B, with ¥2.89B due within one year. BPS was ¥953.38 (¥906.86 in the prior year).

Cash Flow Analysis

OCF was ¥11.85B, with a subtotal before changes in working capital of ¥13.53B. Within working capital, an increase in inventories (△¥0.82B) was a cash outflow, while a decrease in trade receivables (+¥0.74B) and an increase in trade payables (+¥0.72B) were sources of cash. Income taxes paid were ¥1.69B. Investing cash flow was △¥1.43B, primarily reflecting capital expenditures of ¥1.94B, partly offset by proceeds from the sale of property, plant and equipment of ¥0.34B. As a result, FCF was ¥10.42B, a substantial increase from approximately ¥0.97B in the prior year. Financing cash flow was △¥1.61B, mainly due to dividend payments of ¥1.7B and share repurchases of ¥0.69B. Proceeds from long-term borrowings of ¥3.5B and repayments of ¥2.68B largely offset each other, and cash and cash equivalents at year-end increased to ¥35.36B (¥26.55B in the prior year). The improvement in OCF was also supported by changes in other operating cash flow items (from △¥1.32B in the prior year to +¥2.75B). It is important to understand earnings quality in light of the fact that factors other than working capital contributed to some extent.

Earnings Quality

The current period’s earnings were primarily driven by core Operating Income of ¥8.62B, with only a small contribution from non-operating items (income of ¥0.44B and expenses of ¥0.15B). Non-operating income included insurance proceeds of ¥0.23B, among other items, while dividends received were only ¥0.01B. Extraordinary items were temporary factors: extraordinary losses of ¥0.81B comprised impairment losses of ¥0.48B, disaster losses of ¥0.21B, and other items, and were down from ¥1.14B in the prior year (including impairment losses of ¥1.07B). The fact that impairment losses have been recorded for two consecutive periods warrants continued monitoring of the profitability of store assets. OCF was approximately 2.1x net income, and accruals (net income - OCF) were negative, indicating strong cash backing for earnings. However, given the significant changes in other operating cash flow items, the sustainability of the OCF level itself should be assessed period by period. The effective tax rate was 32.7%.

Earnings Forecast and Guidance

The forecast for the next full year is Revenue of ¥300B (+0.8% compared with the current period), Operating Income of ¥9B (+4.4%), Ordinary Income of ¥9.1B (+2.1%), and Net Income of ¥5.8B (+4.9%). The forecast Operating Income margin is 3.0%, representing a modest improvement from 2.9% in the current period. While revenue growth is expected to slow to +0.8% from +5.2% in the current period, profit is forecast to increase, making margin improvement a key assumption. Forecast EPS is ¥75.30, and the forecast dividend is ¥30. Whether the extraordinary losses recorded in the current period (¥0.81B) are assumed not to recur at a similar level in the next period will affect the achievement of the net income forecast.

Shareholder Returns

The dividend for the current period was ¥29 per share at year-end (no interim dividend), with a Payout Ratio of 40.6%. The earnings release notes that the year-end dividend of ¥29 includes a commemorative dividend of ¥2 for the company’s 70th anniversary, in addition to the ordinary dividend. FCF covered the annual dividend amount by approximately 4.6x, indicating that the dividend burden is modest relative to cash generation. Share repurchases amounted to ¥0.69B, and shareholder returns totaled approximately ¥2.39B when combined with dividend payments of ¥1.7B for the current period. The dividend forecast for the next period is ¥30, implying a forecast Payout Ratio of approximately 39.8% against forecast EPS of ¥75.30.

Risk Factors

1. Low-margin business model and price competition: The Operating Income margin is a thin 2.9%. Against Revenue of ¥297.63B, a 0.1pt change in gross margin would result in an approximately ¥0.3B change in gross profit. Even a modest fluctuation in gross margin could have a significant impact on Operating Income of ¥8.62B.

2. Inventory accumulation risk: Inventories were ¥37.87B, accounting for approximately 29.4% of total assets. Inventory growth resulted in a cash outflow of ¥0.82B in the current period, and obsolescence or markdowns could put pressure on gross margin.

3. Store-related asset and liability burden: The company recorded impairment losses of ¥0.48B (¥1.07B in the prior year) and disaster losses of ¥0.21B. Asset retirement obligations were ¥3.6B, accounting for approximately 6.5% of total liabilities, and store closures or renovations could result in cash outflows.

Industry Benchmarks (Reference; Compiled by the Company)

Profitability and Returns

Both profitability metrics are below the industry median, but remain within the IQR.

Growth and Capital Efficiency

Revenue growth is broadly in line with the industry median.

Source: Company compilation

Key Points to Note in the Results

1. Margin improvement: Gross margin improved from 27.2% to 27.4%, and the Operating Income margin improved from 2.6% to 2.9%. However, the latter remains below the industry median of 3.5%, indicating room for improvement.

2. Cash generation and financial flexibility: OCF was approximately 2.1x net income, cash and deposits increased to ¥35.49B, and the Equity Ratio was 57.2%. However, note that OCF includes changes in other operating cash flow items.

3. Items requiring ongoing monitoring: Inventories of ¥37.87B, impairment losses of ¥0.48B, and asset retirement obligations of ¥3.6B should be monitored alongside achievement of the next-period forecast (Operating Income of ¥9B).

Theoretical Share Value (Reference)

Sensitivity: ¥879 to ¥930 for cost of equity ±1%; ¥902 to ¥905 for ω ±0.1.

Notes:

• Forecast ROE is below the cost of equity, so the estimate falls below book value per share.

(Model: residual income model (Ohlson-type, explicit 5-year fade) / rate reference month: 2026-09 / a mechanical estimate from public data only; it is not a forecast of the market price or a recommendation of any investment action, and it does not predict or guarantee future share prices)

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This report is an earnings analysis automatically generated by AI based on XBRL earnings release data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility and, where appropriate, after consulting with a professional.

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