KAN-NANMARU (7585) FY2026 Q2 Earnings Report

Quick View

Executive Summary

Although the operating loss narrowed due to higher revenue and an improved SG&A ratio, losses continued at the operating income, ordinary income, and net income levels, meaning that a fundamental return to profitability in the earnings structure has not yet been achieved. Revenue was ¥0.97B (¥0.95B in the previous year, YoY +1.8%), operating income was ¥-0.05B (¥-0.06B in the previous year), ordinary income was ¥-0.05B (¥-0.06B in the previous year), and net income was ¥-0.05B (¥-0.06B in the previous year). The primary driver of the improvement was not an increase in the gross margin, but progress in fixed-cost absorption as SG&A expense growth (+0.6%) remained below revenue growth (+1.8%).

Factors Affecting Performance

【Revenue】Revenue was ¥0.97B, up +1.8% year on year. While growth was somewhat weak at the interim point compared with the company’s full-year revenue growth forecast of +5.0%, the progress rate against the full-year revenue forecast of ¥1.96B was 49.1%, which is almost a standard level.

【Profit and Loss】Gross profit was ¥0.67B, with a gross margin of 69.2%, slightly down from approximately 69.4% in the same period of the previous year. Meanwhile, SG&A expenses were ¥0.72B, and the SG&A ratio improved to 74.5% from 75.4% in the same period of the previous year, resulting in a narrowing of the operating loss to ¥0.05B (¥0.06B in the previous year). The improvement in earnings during the current period was primarily attributable not to an increase in the gross margin, but to the effect of fixed-cost absorption resulting from restrained SG&A expense growth. Ordinary loss and net loss also remained at similar levels, indicating that the impact of non-operating and extraordinary gains and losses was limited. In conclusion, the company is experiencing higher revenue and narrower losses; however, the structure in which the SG&A ratio exceeds the gross margin remains unresolved. In substance, the results can be characterized as revenue growth accompanied by reduced losses under continuing deficit conditions.

Segment Analysis

The adjustment to segment profit was -¥0.087B and represented corporate expenses not allocated to individual reportable segments, primarily general and administrative expenses of the administrative divisions. Individual profit and loss figures for the reportable segments are not included in the disclosed information, making detailed analysis by segment difficult; however, the “Other” category includes the FURDI Business.

Key Financial Indicators

【Profitability】The operating margin was -5.2%, an improvement of 83bp from -6.0% in the same period of the previous year, but it remained below the break-even point. While the gross margin remained high at 69.2%, the operating deficit continued because the SG&A ratio exceeded it at 74.5%. Annualized ROE was -26.7% and annualized ROIC was -16.2%, indicating that neither equity nor invested capital generated returns.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥-0.05B, almost at the same level as the net loss of ¥-0.05B, indicating that the loss was accompanied by cash outflows. Capital expenditures of ¥0.02B were below depreciation and amortization expense of ¥0.03B, suggesting that investment was oriented more toward maintenance than expansion.【Investment Efficiency】The total asset turnover ratio was approximately 1.3x. Although asset utilization itself was at a certain level, the negative net profit margin depressed ROE.【Financial Soundness】The equity ratio was 25.2%, down from 27.7% in the previous year. Although short-term payment capacity was secured, with both the current ratio and quick ratio at 133.4%, leverage was high, with interest-bearing debt of ¥0.71B and a D/E ratio of approximately 2.97x. EBIT-based interest coverage was also negative, indicating that operating income was insufficient to cover interest payments.

Cash Flow Analysis

OCF was ¥-0.05B, a slight improvement from ¥-0.05B in the same period of the previous year, but representing cash outflows for the second consecutive period. An increase in accounts receivable was a ¥0.02B downward factor, while an increase in accounts payable was a ¥0.02B upward factor, leaving changes in working capital largely offset. Investing CF was ¥-0.03B. Capital expenditures of ¥0.02B were below depreciation and amortization expense of ¥0.03B, and investment remained at a maintenance level. Free cash flow, combining OCF and investing CF, was ¥-0.08B, indicating that investment and business funding could not be covered solely by internal funds. Financing CF was +¥0.03B, with a net increase in short-term borrowings of ¥0.05B (+50.0% year on year) covering this funding shortfall. As a result, cash and cash equivalents declined, making improvement in OCF during the second half the key focus from a cash management perspective.

Quality of Earnings

The improvement in earnings during the current period was not attributable to temporary factors, but to the effect of recurring expense management through restrained SG&A expense growth. Both non-operating income and expenses were small, and no significant divergence was observed between ordinary income, operating income, and net income. Extraordinary losses, including impairment losses, were small and did not materially affect the level of loss before taxes. The fact that OCF remained at approximately the same level as the net loss indicates that the accounting loss materialized directly as a cash outflow, with no evidence of earnings inflation caused by accrual factors. Overall, the disclosed earnings can be assessed as figures close to the underlying reality and supported by cash flows.

Earnings Forecast and Guidance

The full-year company forecasts are revenue of ¥1.96B (YoY +5.0%), operating income of ¥-0.07B, ordinary income of ¥-0.07B, and net income of ¥-0.07B. While the progress rate for first-half revenue was 49.1%, almost a standard level, the operating loss and net loss had reached 71.4% and 68.5%, respectively, of their full-year forecasts, indicating that progress on earnings was heavy relative to the forecasts. To achieve the full-year forecasts, the company must limit its operating loss in the second half to approximately ¥0.02B and its net loss to approximately ¥0.023B. Continued restraint in SG&A expenses, as observed in the first half, will therefore be a key focus.

Shareholder Returns

The Q2 dividend was ¥0 per share, resulting in a payout ratio of 0% on a calculated basis. However, the company recorded a net loss during the current period; therefore, this 0% does not indicate earnings capacity, but rather reflects the containment of cash outflows through the absence of dividend payments. The year-end dividend forecast for the fiscal year ended June 2025 is also currently undetermined. Although the company holds ¥0.62B in treasury shares, no financing CF outflow from treasury share repurchases during the current period was identified, and no expansion of shareholder returns was observed.

Risk Factors

1. Risk of continued losses due to fixed-cost burden: The SG&A ratio of 74.5% exceeds the gross margin of 69.2% by 5.3pt, and this structure is a direct cause of the operating deficit. Salaries and allowances account for 43.3% of SG&A expenses, potentially delaying earnings improvement when labor costs rise or sales stagnate.

2. High leverage and inability to cover interest payments: The D/E ratio is approximately 2.97x, exceeding the generally cautious level of 2.0x. EBIT-based interest coverage is negative, and the company remains unable to cover interest expenses through operating income or EBITDA.

3. Working capital burden from the increase in accounts receivable: Accounts receivable increased +37.1% year on year, substantially exceeding revenue growth of +1.8%, and became a factor weighing on OCF. Changes in collection terms and collection progress could affect future cash-generation capacity.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Both the company’s operating margin and net profit margin were negative. Since no comparable median data was provided, the available basis for assessing the company’s relative position within the industry is limited.

Growth and Capital Efficiency

Revenue growth remained modestly positive; however, relative assessment is reserved because comparative data against the industry median is unavailable.

※Source: Compiled by the company

Key Points from the Financial Results

1. In addition to higher revenue, the company reduced its operating loss from the same period of the previous year by keeping SG&A expense growth below revenue growth. This can be observed as a sign of improvement in the cost structure. However, the structure in which the SG&A ratio exceeds the gross margin remains unresolved.

2. While revenue progress against the full-year forecast was at a standard level, progress rates for the operating loss and net loss had reached approximately 70%. The pace of earnings improvement in the second half will therefore be crucial to achieving the full-year plan.

3. Short-term liquidity was secured through cash and deposits of ¥0.47B and a current ratio of 133.4%. However, the financial structure, including a D/E ratio of 2.97x and inability to cover interest payments, requires monitoring while losses continue.

Theoretical Share Price (Reference Value)

Sensitivity: ¥35〜¥37 at cost of equity ±1%, and ¥35〜¥37 at ω±0.1.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value will be below book value per share.
• Net assets as of the quarter-end were used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-08 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

---

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 with a professional as necessary.

---End of Report---