NISHIMATSUYA CHAIN (7545) FY2027 Q1 Earnings Report

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Executive Summary

Although revenue growth was achieved, profit margins declined from the previous year, and the key point for the current period is that profit growth lagged revenue growth despite higher revenue and profits. Revenue was ¥545.5B (+6.1% YoY), operating income was ¥53.2B (+2.1%), ordinary income was ¥54.7B (+2.6%), and net income attributable to owners of the parent was ¥37.7B (+2.3%). The gross margin remained high at 35.7%, but the SG&A ratio increased to 25.9%, causing the operating margin to decline to 9.8% from the previous year.

Factors Affecting Performance

【Revenue】Revenue increased 6.1% YoY to ¥545.5B. The Company operates as a single segment engaged in the sale of lifestyle-related products for babies and children. Although segment-level breakdowns are not disclosed, performance is progressing at a pace broadly consistent with the full-year revenue growth plan of +6.0%.

【Profit and Loss】Operating income increased 2.1% YoY to ¥53.2B, ordinary income increased 2.6% to ¥54.7B, and net income increased 2.3% to ¥37.7B, securing profit growth in each case, although the growth rates were below revenue growth. The operating margin was 9.8%, down approximately 0.3pt from the estimated 10.1% in the same period of the previous year, as the high gross margin was offset by the increase in the SG&A ratio. Non-operating income exceeded expenses by ¥1.6B, including foreign exchange gains of ¥0.8B, supplementing ordinary income, although the scale was limited. Extraordinary losses consisted solely of impairment losses of ¥0.2B, with a minimal impact on the divergence between ordinary income and net income. In conclusion, this was a results period marked by higher revenue and profits, but with slight margin dilution.

Key Financial Indicators

【Profitability】The operating margin of 9.8%, net profit margin of 6.9%, and ordinary income margin of 10.0% all declined slightly from the same period of the previous year. The increase in the SG&A ratio to 25.9% was a factor behind margin dilution despite the high gross margin of 35.7%. 【Cash Quality】Accounts receivable increased 54.5% YoY to ¥99.3B, expanding at a pace substantially exceeding the 6.1% revenue growth rate, requiring close monitoring of collection periods and changes in the sales channel mix. Inventories were ¥360.6B, accounting for 22.3% of total assets, indicating inventory turnover stagnation. 【Investment Efficiency】Annualized ROE was 15.1%, supported by the combination of total asset turnover and conservative financial leverage, reflected in an equity ratio of 61.4%. 【Financial Soundness】Cash and deposits totaled ¥716.5B, while the current ratio was approximately 2.1x, calculated as current assets of ¥1211.7B divided by current liabilities of ¥575.3B. Together with the equity ratio of 61.4%, these indicators were all at high levels, demonstrating a stable financial base.

Cash Flow Analysis

As this report does not include detailed data from the statement of cash flows, funding trends are assessed based on changes in the balance sheet. Cash and deposits totaled ¥716.5B, a slight decrease from ¥724.9B in the previous year, while accounts receivable increased by ¥35.0B from ¥64.3B to ¥99.3B, and inventories decreased slightly from ¥366.7B to ¥360.6B. Accounts payable declined from ¥125.0B to ¥106.2B. The simultaneous reduction in trade payables and expansion of accounts receivable may have resulted in internal retention of funds associated with operating activities. Total assets were ¥1620.5B and net assets were ¥995.1B, both slightly higher than in the previous year, indicating that capital accumulation itself is continuing.

Quality of Earnings

The difference between ordinary income of ¥54.7B and net income of ¥37.7B was primarily attributable to income taxes of ¥16.9B. The impact of extraordinary gains and losses was limited, with impairment losses of ¥0.2B, indicating that most of the earnings structure was derived from the core business. Non-operating income of ¥1.6B included foreign exchange gains of ¥0.8B, but its ratio to ordinary income was small and not large enough to affect performance assessment. Meanwhile, comprehensive income was ¥22.4B, below net income of ¥37.7B, mainly because valuation differences on available-for-sale securities were negative ¥15.0B. This divergence resulted from market price fluctuations associated with asset holdings and is separate from the earning power of the core business. Therefore, it does not itself impair the quality of earnings, but it should be noted as a factor that may cause short-term fluctuations in net assets. In addition, the fact that the growth rate of accounts receivable substantially exceeded revenue growth should be monitored going forward from the perspective of the speed of earnings monetization, as an accounting accrual reflecting the accumulation of uncollected revenue.

Earnings Forecast and Guidance

The full-year Company plan calls for revenue of ¥2050.0B (+6.0% YoY), operating income of ¥125.4B (+26.1%), ordinary income of ¥130.0B (+23.0%), and EPS of ¥139.78. Q1 revenue progress was 26.6%, operating income progress was 42.4%, and net income progress was 45.0%, all exceeding the simple quarterly average progress rate of 25%. However, while the full-year plan assumes substantial profit growth of 26.1% YoY, Q1 operating income increased only 2.1% YoY. Accordingly, achieving the full-year plan will require margin improvement from Q2 onward. No revisions were made to the earnings forecast or dividend forecast during the quarter.

Shareholder Returns

The full-year dividend forecast is ¥32.00 per share. Compared with the previous year's annual dividend of ¥16, this represents a plan for a substantial increase in dividends. The forecast payout ratio based on forecast full-year EPS of ¥139.78 is approximately 22.9%, significantly below the general sustainability benchmark of 60%. Against a backdrop of retained earnings of ¥1031.3B and cash and deposits of ¥716.5B, the Company can be assessed as having substantial dividend capacity. As no data on share repurchases conducted during the current period is provided, this report evaluates only the payout ratio and does not discuss the total return ratio.

Risk Factors

1. Inventory turnover stagnation: Inventories were ¥360.6B, accounting for 22.3% of total assets, and annualized inventory days are estimated at approximately 94 days. Baby and children's products carry risks of obsolescence due to seasonality and trend changes, and delays in inventory clearance may lead to markdown sales, inventory write-downs, and lower gross margins.

2. Pace of accounts receivable growth: Accounts receivable increased 54.5% YoY to ¥99.3B, substantially exceeding the revenue growth rate of +6.1%. If changes in collection terms or the sales channel mix continue, the speed of revenue monetization may be affected.

3. Concentration in a single business: The Company operates as a single segment engaged in the sale of lifestyle-related products for babies and children. As a result, trends in the birth rate, households' real purchasing power, and price competition with competing discount retailers and e-commerce businesses directly affect performance.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company's profitability substantially exceeds the industry median and ranks among the top performers within the industry.

Growth and Capital Efficiency

The revenue growth rate is slightly below the industry median, placing the Company's growth pace around the middle of the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Revenue growth continues, but the operating margin has declined from the previous year, with the high gross margin offset by the increase in the SG&A ratio. Achieving the substantial full-year profit growth plan will require margin improvement in subsequent quarters.

2. The growth rate of accounts receivable substantially exceeds the revenue growth rate. Together with the level of inventory days, working capital efficiency will be a key area of observation when assessing the quality of performance.

3. The stability of the financial base, including an equity ratio of 61.4%, a current ratio of approximately 2.1x, and cash and deposits of ¥716.5B, provides the foundation supporting the sustainability of the dividend policy, including the forecast payout ratio of approximately 22.9%.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,594–¥1,688 at ±1% for the cost of equity, and ¥1,639–¥1,641 at ±0.1 for ω.

Notes:

• Since net income progress against the full-year forecast (45%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule in terms of progress tend to exceed their forecasts. Adjustments may be excessive for businesses with strong seasonality).
• Since 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).
• Since net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices)

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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 discretion and responsibility, after consulting with a professional as necessary.

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