WA,Inc. FY2027 Q1 Earnings Report

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Executive Summary

In Q1 FY2027, the Company reported a decline in both revenue and earnings, rather than revenue growth accompanied by earnings decline, and Operating Income fell from a profit in the previous year period to a loss. Revenue was ¥4.56B (¥4.79B in the previous year period, YoY -4.6%), Operating Income was ¥-0.46B (¥0.05B in the previous year period, YoY -70.5%), Ordinary Income was ¥-0.35B (¥0.04B in the previous year period, YoY -53.1%), and Net Income attributable to owners of the parent was ¥-0.28B (¥0.00B in the previous year period). SG&A expenses increased 12.8% despite the decline in revenue, reducing the absorption of fixed costs and resulting in an operating loss, although the gross profit margin improved slightly to 63.2% from the previous year period.

Factors Driving Earnings Fluctuations

【Revenue】Revenue was ¥4.56B, down 4.6% year on year. The core Women’s Footwear Business declined to ¥4.02B (88.1% of total revenue, YoY -6.5%), while the Women’s Apparel Business maintained revenue growth at ¥0.54B (11.9% of total revenue, YoY +12.2%). The Women’s Footwear Business is the primary determinant of consolidated revenue, and weakening demand in this business pushed down the Company-wide top line.

【Profit and Loss】Gross profit after deducting cost of sales of ¥1.68B was ¥2.88B, and the gross profit margin improved slightly to 63.2% from 62.9% in the previous year period. Meanwhile, SG&A expenses surged to ¥3.34B (SG&A ratio of 73.2%) from ¥2.96B (61.9%) in the previous year period. The increase in fixed costs significantly exceeded the improvement in gross profit, placing pressure on operating results. Consequently, Operating Income was ¥-0.46B. Foreign exchange gains of ¥0.10B in non-operating income reduced the Ordinary Loss to ¥-0.35B, but this does not indicate an improvement in core profitability. The segment profit margin of the Women’s Footwear Business plunged to 1.5% from 12.9% in the previous year, while the Women’s Apparel Business continued to post a segment loss of ¥0.04B despite revenue growth. After adding Company-wide expenses of ¥0.47B, the consolidated results reflected declines in both revenue and earnings.

Segment Analysis

The planning and sales business for women’s footwear reported revenue of ¥4.02B (YoY -6.5%), segment profit of ¥0.06B (YoY -88.8%), and a profit margin of 1.5% (12.9% in the previous year), indicating a significant deterioration in the profitability of the core business. The planning and sales business for women’s apparel reported revenue growth to ¥0.54B (YoY +12.2%), but continued to record a segment loss of ¥0.04B (narrowed from a loss of ¥0.06B in the previous year), with the loss-making margin remaining at -8.2%. Although total profit of the reportable segments was a profit of ¥0.02B, deducting Company-wide expenses of ¥0.47B not allocated to the reportable segments resulted in consolidated Operating Income of ¥-0.46B. The deterioration in consolidated earnings was driven primarily by deteriorating profitability in women’s footwear and the burden of Company-wide expenses, rather than by segment-level earnings alone.

Key Financial Metrics

【Profitability】The Operating Income margin deteriorated significantly to -10.0% (1.0% in the previous year), while the Net Profit margin fell to -6.1% (approximately 0.1% in the previous year). Although the gross profit margin improved slightly to 63.2% (62.9% in the previous year), the sharp increase in the SG&A ratio to 73.2% (61.9% in the previous year) placed pressure on earnings. 【Cash Flow Quality】Although explicit disclosure of Operating Cash Flow (OCF) and other cash flow figures is unavailable, inventories of ¥5.58B accounted for 42.2% of total assets, suggesting inventory accumulation associated with lengthening DIO and CCC. Accounts receivable decreased 32.8% year on year to ¥1.32B, while accounts payable increased 87.1% to ¥0.83B, contributing to short-term liquidity. 【Investment Efficiency】ROE (annualized) deteriorated to -10.4% from the previous year. Although total asset turnover remained at a certain level, the operating loss was the primary cause of the deterioration in ROE. 【Financial Soundness】The Equity Ratio remained high at 80.4% (82.2% in the previous year), and the current ratio was also high at approximately 475.3%. The debt-to-equity ratio was low, indicating that the balance sheet remained resilient even amid deteriorating earnings.

Cash Flow Analysis

As disclosed figures for operating, investing, and financing cash flows are not included in this material, cash flow trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥2.20B, a decrease of ¥0.42B from ¥2.62B in the previous year period. Inventories increased to ¥5.58B from ¥4.99B in the previous year period, indicating that funds continued to be invested in inventory. While accounts receivable declined year on year to ¥1.32B, accounts payable increased year on year to ¥0.83B, which may have had a positive effect on short-term cash efficiency. However, the fact that inventory levels remained high while operating losses continued indicates that inventory sell-through is directly linked to the recovery of cash-generation capacity.

Quality of Earnings

The Ordinary Loss of ¥-0.35B for the current period was reduced from the Operating Loss of ¥-0.46B by the addition of a foreign exchange gain of ¥0.10B in non-operating income. Foreign exchange gains do not reflect the Company’s core earnings power and are temporary and non-recurring in nature. Accordingly, the improvement in Ordinary Income does not indicate an improvement in core profitability. Extraordinary income and extraordinary losses were both negligible (¥0.00B each) and had no material impact on current-period earnings. Net Income of ¥-0.28B reflects the Ordinary Loss of ¥-0.35B and income taxes and other taxes of ¥-0.08B (including the tax effect), and is broadly consistent with the difference from pre-tax income of ¥-0.36B. The structure in which SG&A expenses increased despite declining revenue, while the gross profit margin improved slightly, is considered to reflect an actual change in the cost structure rather than accruals (accounting estimates).

Earnings Forecast and Guidance

The full-year Company forecast calls for Revenue of ¥24.66B (YoY +5.7%), Operating Income of ¥1.50B (YoY +41.0%), and Ordinary Income of ¥1.50B (YoY +26.1%), with no revisions to either the earnings forecast or the dividend forecast. Q1 Revenue represents 18.5% of the full-year forecast (¥4.56B ÷ ¥24.66B), below the simple one-quarter pace of 25%. Operating Income was a loss of ¥-0.46B in Q1, meaning that substantial revenue growth and an improvement in the SG&A ratio from Q2 onward will be required to achieve the full-year forecast of ¥1.50B. Based on the Company’s forecast, the projections incorporate a scenario of rapid earnings improvement weighted toward the second half of the fiscal year.

Shareholder Returns

The full-year dividend forecast is ¥17.0 per share, with no revision to the dividend forecast. Based on the period-average number of shares outstanding of 19,082 thousand shares, the total annual dividend is estimated at approximately ¥0.32B, implying a Payout Ratio of approximately 36.8% against the full-year forecast of ¥0.88B in Net Income attributable to owners of the parent. The dividend in the previous year period was ¥8.5, and the full-year forecast represents a planned dividend increase. As the Company recorded a quarterly net loss of ¥-0.28B as of Q1, the payment of the dividend will depend on an earnings recovery from the second half onward. The financial foundation, including an Equity Ratio of 80.4% and cash and deposits of ¥2.20B, supports the capacity to pay dividends, although the high inventory level is a factor tying up funds.

Risk Factors

1. Deteriorating profitability in the core business (women’s footwear): Revenue in the Women’s Footwear Business, which accounts for 88.1% of consolidated revenue, declined 6.5% year on year, while segment profit declined 88.8%. Changes in demand and the competitive pricing environment in this business have a direct impact on consolidated results.

2. Inventory accumulation and declining working capital efficiency: Inventories totaled ¥5.58B, representing 42.2% of total assets, up from ¥4.99B in the previous year period. If inventory sell-through does not progress, gross profit margins may come under pressure from markdown sales, and funds may remain tied up.

3. Declining fixed-cost absorption: SG&A expenses increased 12.8% year on year to ¥3.34B, moving in the opposite direction from the 4.6% decline in revenue. The SG&A ratio rose to 73.2% from 61.9% in the previous year, and any delay in revenue recovery could lead to further deterioration in profitability.

Industry Benchmark (For Reference; Company Research)

Key Points from the Earnings Results

1. The primary cause of the transition to an operating loss was not deterioration in the gross profit margin but the sharp increase in the SG&A ratio. The gross profit margin itself improved slightly to 63.2% from the previous year period. Reviewing the cost structure will be key to future earnings recovery.

2. The segment profit margin of the core Women’s Footwear Business plunged to 1.5% from 12.9% in the previous year, while the Women’s Apparel Business continued to operate at a loss despite revenue growth. As a turning point in the business structure, the recovery of profitability in the Women’s Footwear Business will determine Company-wide performance.

3. The financial foundation, including an Equity Ratio of 80.4% and cash and deposits of ¥2.20B, demonstrates resilience amid deteriorating earnings. However, as inventories account for 42.2% of total assets, inventory sell-through is a structural issue that will determine future cash-generation capacity.

Theoretical Share Price (Reference Value)

Sensitivity: ¥523–¥553 at ±1% in the cost of equity, and ¥537–¥538 at ±0.1 in ω.

Notes:

• As 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 time lag relative to the full-year forecast).
• As 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: 2026-07 / 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 future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. 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, where necessary, after consulting with a professional advisor.

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