KOHNAN SHOJI CO.,LTD. FY2026 FY Earnings Report

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Executive Summary

The company posted higher revenue but lower earnings, as an increase in the SG&A expense ratio and higher interest expense pressured margins, while the recognition of extraordinary losses also weighed on net income. Revenue increased to ¥5,197.8B (+3.7% YoY), while Operating Income declined to ¥224.0B (-10.4%), Ordinary Income to ¥207.5B (-11.0%), and Net Income attributable to owners of the parent to ¥122.6B (-13.7%). The gross margin remained nearly flat at 35.7%, compared with 35.8% in the previous year, while the SG&A expense ratio rose 0.6pt to 34.8%, causing the Operating Income margin to decline to 4.3% from 5.0% in the previous year. In addition, the ¥2.83B increase in interest expense to ¥28.3B (+21.5%) and the recognition of ¥19.7B in extraordinary losses, including ¥17.3B in impairment losses, further widened the declines in Ordinary Income and Net Income.

Factors Affecting Earnings

【Revenue】Revenue increased 3.7% YoY to ¥5,197.8B. The company discloses a single segment comprising retail, sales of construction materials, and other businesses, and does not disclose a breakdown by segment. While the new consolidation of one subsidiary may have contributed, the continuation of pricing policies and product mix in existing businesses appears to have supported the increase in revenue.

【Profit and Loss】Cost of sales was ¥3,165.3B, and gross profit was ¥1,855.3B, resulting in a gross margin of 35.7%, almost unchanged from 35.8% in the previous year. Meanwhile, SG&A expenses reached ¥1,808.5B, or 34.8% of revenue, up 0.6pt from 34.2% in the previous year, serving as the primary cause of the decline in Operating Income. As a result, Operating Income fell to ¥224.0B (-10.4%), and the Operating Income margin declined to 4.3% from 5.0% in the previous year. Below Operating Income, interest expense of ¥28.3B (¥23.3B in the previous year, +21.5%) weighed heavily, resulting in Ordinary Income of ¥207.5B (-11.0%). The recognition of ¥19.7B in extraordinary losses, including ¥17.3B in impairment losses and ¥1.3B in disaster losses, as a temporary factor limited Profit Before Tax to ¥188.0B, while Net Income attributable to owners of the parent declined to ¥122.6B (-13.7%). Overall, the company reported higher revenue but lower earnings.

Key Financial Indicators

【Profitability】The Operating Income margin declined 0.7pt to 4.3% from 5.0% in the previous year, while the Net Income margin, based on income attributable to owners of the parent, also fell below the previous year’s 2.8% to 2.4%. ROE declined to 7.0% from 8.8% in the previous year, indicating that pressure on profitability has also affected capital efficiency. 【Cash Quality】Operating Cash Flow (OCF) was ¥229.9B, approximately 1.9 times Net Income attributable to owners of the parent of ¥122.6B, indicating that cash support for earnings has been maintained. However, actual OCF was limited to ¥229.9B compared with OCF before changes in working capital of ¥335.0B, as the increase in inventories became a drag. 【Investment Efficiency】Total assets expanded 5.4% YoY to ¥5,047.9B, but the buildup of inventories restrained improvements in asset efficiency. 【Financial Soundness】The Equity Ratio was 34.4%, almost unchanged from 34.6% in the previous year. While the current ratio of 133% indicates that short-term payment capacity has been secured, the quick ratio, excluding inventories, stood at only 30.5%, indicating a liquidity structure dependent on the convertibility of inventories into cash.

Cash Flow Analysis

OCF remained solid at ¥229.9B, up 2.4% YoY, and continued to exceed Net Income attributable to owners of the parent of ¥122.6B. OCF before changes in working capital reached ¥335.0B, but actual OCF remained at ¥229.9B due to the ¥123.4B increase in inventories, making the buildup of inventory a drag on cash conversion. Investing Cash Flow resulted in a net cash outflow of ¥206.5B, primarily due to ¥138.7B in capital expenditures. Capital expenditures were 0.84 times depreciation and amortization of ¥166.0B, indicating that large-scale additional investments were restrained. Financing Cash Flow was positive at ¥14.6B, as funds raised through borrowings exceeded cash outflows including ¥20.0B in share repurchases. As a result, free cash flow remained at only ¥23.4B, below the total amount of shareholder returns for the current period.

Quality of Earnings

Current-period earnings included the temporary factor of ¥19.7B in extraordinary losses, including ¥17.3B in impairment losses and ¥1.3B in disaster losses, contributing to the reduction from Ordinary Income of ¥207.5B to Profit Before Tax of ¥188.0B. Non-operating income of ¥18.3B consisted primarily of items such as ¥4.0B in foreign exchange gains and was small at 0.35% of revenue, making its contribution to recurring earnings limited. Meanwhile, the majority of non-operating expenses of ¥34.7B comprised interest expense of ¥28.3B (+21.5% YoY), representing a recurring cost structure that will continue to pressure earnings. Comprehensive Income was ¥129.9B, exceeding Net Income attributable to owners of the parent of ¥122.6B, with valuation gains related to available-for-sale securities and hedges, including a ¥6.8B gain on valuation differences on securities, contributing positively. The fact that OCF reached 1.9 times Net Income attributable to owners of the parent indicates good accrual quality, although the increase in inventories remains a drag on working capital.

Earnings Forecast and Guidance

For the following full fiscal year, the company forecasts Revenue of ¥5,435.0B (+4.6% YoY), Operating Income of ¥230.0B (+2.7%), and Ordinary Income of ¥210.0B (+1.2%). Net Income attributable to owners of the parent is planned at ¥125.0B, representing an expected increase of +1.9% compared with the current-period result of ¥122.6B. Forecast EPS is ¥443.80, representing an expected increase of +2.7% from the current-period result of ¥432.27. While top-line expansion is anticipated, the earnings forecasts call for only modest growth and appear to be conservative plans that take into account the impact of the interest burden and extraordinary losses incurred during the current period.

Shareholder Returns

The dividend for the current period was ¥65 per share for the interim dividend and ¥65 per share for the year-end dividend, for an annual total of ¥130. The Payout Ratio against EPS of ¥432.27 was 30.1%. The company conducted ¥20.0B in share repurchases, and total shareholder returns, including dividends and share repurchases, exceeded the current-period free cash flow of ¥23.4B. The dividend forecast for the following fiscal year is ¥70 annually, representing a plan for a substantial decrease from the current-period result of ¥130, indicating a shift toward a policy that places greater emphasis on balancing shareholder returns with cash generation capacity.

Risk Factors

1. Inventory and Working Capital Risk: Inventories increased 10.6% YoY to ¥1,459.5B, and their proportion of total assets rose to 28.9% from 27.6% in the previous year. This was the primary reason actual OCF remained at ¥229.9B compared with OCF before changes in working capital of ¥335.0B, and trends in inventory efficiency will determine the company’s cash generation capacity.

2. Interest Burden and Leverage Risk: Long-term borrowings were ¥1,182.4B, accounting for 23.4% of total assets, while interest expense increased 21.5% YoY to ¥28.3B. The impact of changes in interest rates on Ordinary Income requires continued monitoring.

3. Extraordinary Loss and Impairment Risk: The company recognized ¥17.3B in impairment losses during the current period, bringing total extraordinary losses to ¥19.7B. This indicates declining profitability of certain assets, and the potential occurrence of additional impairment losses will be a focus going forward.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

In terms of profitability, both the Operating Income margin and Net Income margin are slightly below the industry median.

Growth and Capital Efficiency

The Revenue growth rate is within the industry median range but is positioned slightly toward the lower end.

※Source: Compiled by the Company

Key Points from the Financial Results

1. Although revenue growth was maintained, the primary cause of the decline in Operating Income was the 0.6pt increase in the SG&A expense ratio to 34.8%, resulting in a decrease in the Operating Income margin to 4.3% from 5.0% in the previous year. The gross margin remained almost flat at 35.7%, highlighting structurally that cost increases could not be fully absorbed through pricing and gross profit.

2. Inventories expanded to 28.9% of total assets, while actual OCF remained at ¥229.9B compared with OCF before changes in working capital of ¥335.0B. Trends in inventory efficiency will be a factor determining future cash generation capacity.

3. Despite a Payout Ratio of 30.1%, the dividend forecast for the following fiscal year is ¥70 annually, a substantial decrease from the current-period result of ¥130, indicating a shift in the shareholder return policy toward placing greater emphasis on balancing returns with cash generation capacity.

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This report is an earnings analysis document automatically generated by AI through analysis of 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 and, where necessary, after consulting with a professional.

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