| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1933.7B | ¥1859.7B | +4.0% |
| Operating Income | ¥99.4B | ¥121.8B | -17.3% |
| Ordinary Income | ¥105.7B | ¥126.5B | -15.4% |
| Net Income | ¥69.5B | ¥82.0B | -15.1% |
| ROE | 7.0% | 9.0% | - |
For the fiscal year ended February 2026, Revenue was ¥1933.7B (YoY +¥74.0B +4.0%), Operating Income was ¥99.4B (YoY -¥22.4B -18.4%), Ordinary Income was ¥105.7B (YoY -¥20.8B -16.5%), and Net Income was ¥69.5B (YoY -¥12.5B -15.3%). The company experienced revenue growth but profit decline: topline remained resilient, however cost inflation and deteriorating inventory efficiency compressed Operating Margin to 5.1% (prior year 6.5%), a 1.4pt contraction. Gross margin held at 33.5% year-on-year, but SG&A ratio at 28.3% pressured fixed-cost absorption and eroded operating leverage. Although Special Losses of ¥5.9B (primarily impairments of ¥5.5B) were recorded, Non-Operating Income of ¥6.6B (dividends received ¥1.8B, interest received ¥1.3B, foreign exchange gains ¥0.7B) supported the ordinary income level. Operating Cash Flow was ¥105.7B, 1.52x Net Income, and Free Cash Flow was ¥80.9B—ample to cover dividends of ¥18.7B and share buybacks of ¥8.0B. Inventory days remained elevated at 104 days, constraining profitability. FY2027 guidance forecasts Revenue ¥2050.0B (+6.0%) and Operating Income ¥125.4B (+26.1%), implying a recovery in Operating Margin to approximately 6.1%.
[Revenue] Revenue totaled ¥1933.7B, securing a YoY increase of +4.0%. As a single-segment baby and children’s goods retailer, category demand resilience supported growth. Expansion of the store network and ongoing existing-store initiatives sustained sales growth despite demographic headwinds. Foreign exchange gains of ¥0.7B suggest that yen weakness partially benefited imported merchandise. Gross margin was stable at 33.5%, and Gross Profit amounted to ¥647.2B (YoY +¥25.4B +4.1%).
[Profitability] Operating Income declined materially to ¥99.4B, down -18.4% YoY, compressing Operating Margin to 5.1% (prior year 6.5%), a 1.4pt decline. Despite higher Revenue, the primary driver of lower profit was higher SG&A. SG&A totaled ¥547.8B, representing an SG&A ratio of 28.3%, where cost inflation in labor, logistics, and utilities pressured fixed-cost absorption. Inventory days remained high at 104, and excess inventory likely exerted downward price pressure and increased holding costs. Non-Operating Income of ¥6.6B (dividends received ¥1.8B, interest received ¥1.3B, FX gains ¥0.7B) resulted in Ordinary Income of ¥105.7B (YoY -16.5%). After recording Special Losses of ¥5.9B (impairment losses ¥5.5B, store closure losses ¥0.5B), Profit Before Tax was ¥100.0B; after deducting income taxes of ¥31.5B (effective tax rate 31.5%), Net Income was ¥69.5B (YoY -15.3%). Net margin remained at 3.6% year-on-year, but deterioration at the operating level drove the overall profit decline. In conclusion, the company achieved revenue growth but profit decline, and improving inventory efficiency and cost management are key issues for the next fiscal year.
[Profitability] Operating Margin at 5.1% worsened by 1.4pt from 6.5% the prior year, primarily due to cost inflation pushing SG&A ratio to 28.3%. Net Margin of 3.6% was maintained year-on-year, but ROE of 7.0% declined from the prior year, indicating a slowdown in returns on equity. Gross Margin of 33.5% remained stable, though elevated inventory days of 104 are creating downward pricing pressure and higher holding costs, constraining operating leverage.
[Cash Quality] Operating Cash Flow (OCF) of ¥105.7B is 1.52x Net Income of ¥69.5B, indicating good cash conversion of earnings. OCF/EBITDA ratio was 0.91x, a high level showing robust cash conversion. The accrual ratio was -2.4%, within a healthy range, indicating limited divergence between accounting profit and cash.
[Investment Efficiency] Total Asset Turnover was 1.21x, showing maintained asset efficiency. Inventory days at 104 are high, signaling significant room to improve inventory efficiency. Free Cash Flow of ¥80.9B comfortably exceeds dividends of ¥18.7B and share buybacks of ¥8.0B combined, supporting both growth investment and shareholder returns.
[Financial Soundness] Equity Ratio was 61.6%, indicating a strong capital base. Current Ratio was 209% and Quick Ratio 144%, reflecting high liquidity and ample short-term debt coverage. Interest Coverage was 621x and EBITDA Coverage 729x, indicating extremely strong interest-paying ability. Debt-to-Equity was 0.62x, reflecting conservative financial leverage.
Operating Cash Flow was ¥105.7B. From pre-working-capital operating cash subtotal of ¥146.3B, ¥43.4B of corporate tax payments were deducted, leaving a robust cash level. In working capital, an increase in accounts payable of ¥30.1B contributed positively, while inventory increase of ¥7.7B and accounts receivable increase of ¥3.9B absorbed cash. Elevated inventory days at 104 constrain working capital efficiency; inventory reduction will be key to improving future cash flows. Investing Cash Flow was -¥24.7B; with depreciation of ¥17.1B, the investment-to-depreciation multiple is approximately 1.4x, reflecting a healthy growth investment pace. Free Cash Flow was ¥80.9B, comfortably exceeding combined dividends and buybacks of ¥26.7B. Financing Cash Flow was -¥26.7B, reflecting capital allocation centered on shareholder returns. Ending cash balance was ¥729.3B, up ¥54.6B YoY, maintaining strong liquidity. OCF/Net Income was 1.52x and OCF/EBITDA 0.91x, indicating high quality of earnings conversion to cash; improving inventory efficiency would unlock additional CF generation.
Non-Operating Income of ¥6.6B represented 0.34% of Revenue and had a limited effect on Ordinary Income. The composition was dividends received ¥1.8B, interest received ¥1.3B, and FX gains ¥0.7B—primarily financial income and FX items that are likely to recur. Special Losses of ¥5.9B (impairment losses ¥5.5B, store closure losses ¥0.5B) were one-off items and do not materially distort recurring earning power. The accrual ratio at -2.4% is in a healthy range, and the structure where OCF ¥105.7B substantially exceeds Net Income ¥69.5B indicates strong cash backing for profits. Comprehensive Income was ¥96.1B, ¥26.6B above Net Income, with Other Comprehensive Income of ¥27.6B largely driven by valuation gains on securities of ¥26.8B, reflecting expanded unrealized gains on held equities. The divergence between Ordinary Income ¥105.7B and Net Income ¥69.5B was mainly due to Special Losses ¥5.9B and income taxes ¥31.5B; overall recurring operating earnings are solid. On balance, excluding one-off items, recurring earnings are stable and well-supported by cash flows, indicating high quality of earnings.
FY2027 full-year guidance forecasts Revenue ¥2050.0B (YoY +6.0%), Operating Income ¥125.4B (YoY +26.1%), Ordinary Income ¥130.0B (YoY +23.0%), Net Income ¥83.8B, EPS ¥139.78, DPS ¥16. Operating Margin is planned to improve by about 1.0pt to approximately 6.1%, assuming normalization of inventory efficiency, recovery in gross margin, and suppression of SG&A growth. First-half results correspond to 94.3% progress toward the full-year Revenue plan (¥1933.7B ÷ ¥2050.0B), implying an assumption of accelerated growth in the second half. Operating Income progressed 79.3% of the full-year plan (¥99.4B ÷ ¥125.4B), indicating required profitability improvement in H2. Correcting inventory days at 104 is key to gross margin recovery, so progress on H1 inventory reduction initiatives will be a critical success indicator. Exchange rate and logistics cost volatility and the extent of product-mix improvement are also highly sensitive; monitoring monthly sales and inventory KPIs is advisable. Annual Dividend is to be maintained at ¥32, implying a Payout Ratio of 28.0%, which is considered sustainable.
Annual dividend is ¥32 (interim ¥16, year-end ¥16), with a Payout Ratio of 28.0%, at a sustainable level. Total dividends amounted to ¥18.7B, and coverage by Free Cash Flow ¥80.9B is 4.3x, providing a wide buffer. Share buybacks of ¥8.0B were executed, bringing total shareholder returns to ¥26.7B. Total Return Ratio was 38.4% (¥26.7B ÷ ¥69.5B), and Free Cash Flow coverage for dividends plus buybacks was 3.0x, within a safe zone. With an Equity Ratio of 61.6% and cash balance of ¥729.3B, the financial base is solid and there is scope for increasing dividends or strengthening returns. FY2027 guidance maintains DPS at ¥16, and gradual enhancement of shareholder returns is expected as performance recovers. Overall, the company pursues a balanced approach between dividends and buybacks, supported by strong cash generation and a healthy balance sheet, which underpins sustainable shareholder returns.
Excess / Aging Inventory Risk: Inventory days are high at 104, and inventory of ¥366.6B equals 18.9% of Revenue. Increasing aged inventory raises markdown and impairment risks, exerting downward pressure on gross margin. If inventory reduction lags, achieving the targeted Operating Margin improvement for FY2027 (approx. 6.1%) may become difficult. Deterioration in working capital efficiency would also constrain Operating Cash Flow growth and reduce capacity for growth investment and shareholder returns.
Cost Inflation Risk: Rising labor, logistics, and utility costs pushed the SG&A ratio to 28.3%, compressing Operating Margin by 1.4pt. If labor market tightness or fuel price volatility persists, fixed-cost absorption will remain difficult and operating leverage deterioration may continue. Delays in passing on costs to prices or slow progress in product-mix improvements could prolong an operating profit decline trend.
FX & Procurement Cost Risk: For a merchandise mix with high import exposure, yen depreciation raises procurement costs. Although FX gains of ¥0.7B were recorded, timing mismatches in passing on costs to prices could compress gross margin. Of Non-Operating Income ¥6.6B, interest received ¥1.3B and dividends received ¥1.8B are stable, but FX volatility’s impact on Ordinary Income requires ongoing monitoring. If a long-term yen depreciation trend becomes entrenched, price adjustments and diversification of sourcing will become necessary.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.1% | 4.6% (1.7%–8.2%) | +0.5pt |
| Net Margin | 3.6% | 3.3% (0.9%–5.8%) | +0.3pt |
Profitability exceeds the industry median, with both operating and net margins at or above the mid-range.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 4.0% | 4.3% (2.2%–13.0%) | -0.3pt |
Revenue growth is in line with the industry median, reflecting an industry-standard growth pace.
※ Source: Company aggregation
Operating Margin Recovery Scenario: Operating Margin contracted to 5.1% (down 1.4pt), but FY2027 guidance targets ~6.1% (1.0pt improvement). Normalizing inventory days at 104 is a prerequisite for gross margin recovery; therefore, progress on H1 inventory-reduction measures and containment of markdowns/impairments will be key. Controlling SG&A ratio at 28.3% through logistics and labor efficiency and improved fixed-cost absorption will be the main drivers for restoring operating leverage.
Cash Generation and Shareholder Return Capacity: Free Cash Flow of ¥80.9B provides 3.0x coverage for combined dividends ¥18.7B and buybacks ¥8.0B, and the company’s Equity Ratio 61.6% and cash balance ¥729.3B indicate a solid financial base. Operating Cash Flow of ¥105.7B is 1.52x Net Income, indicating high cash conversion quality. Improvement in inventory efficiency would unlock additional CF, and there is sufficient room to enhance dividends and returns as performance recovers. Overall, the balance sheet strength and cash generation provide a competitive advantage versus peers, and once short-term profitability issues are addressed, sustainable strengthening of shareholder returns can be expected.
This report is an earnings analysis document automatically generated by AI analyzing XBRL earnings disclosure data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information aggregated by our firm based on publicly disclosed financial statements. Investment decisions should be made at your own responsibility, and you should consult a professional advisor as necessary.