Quick View
| Metric | Current Period | Same Period of Previous Year | YoY |
|---|---|---|---|
| Revenue | ¥5.93B | ¥5.32B | +11.5% |
| Operating Income | ¥0.68B | ¥0.35B | +96.5% |
| Ordinary Income | ¥0.65B | ¥0.33B | +100.6% |
| Net Income | ¥0.44B | ¥0.21B | +104.1% |
| ROE | 5.2% | 2.7% | - |
Executive Summary
The current Q1 was a decisive quarter in which operating leverage took effect in addition to revenue growth, resulting in a clear improvement in profit margins. Revenue was ¥5.93B (+11.5% YoY), Operating Income was ¥0.68B (+96.5%), Ordinary Income was ¥0.65B (+100.6%), and Net Income attributable to owners of the parent was ¥0.37B (+74.4%). The background to the profit growth rate significantly exceeding the revenue growth rate was an improvement in the gross margin and the relative containment of SG&A expenses against the increase in revenue.
Factors Affecting Business Performance
【Revenue】Revenue increased 11.5% YoY to ¥5.93B. The Company operates as a single business segment handling cosmetics, beauty accessories, fashion accessories, character merchandise, contact lens-related products, and others. Although a breakdown by business is not disclosed, the Company made a strong start, substantially exceeding the full-year company revenue growth plan of +4.0%.
【Profit and Loss】Cost of sales was ¥3.82B, and gross profit was ¥2.11B, resulting in a gross margin of 35.6%. SG&A expenses remained at ¥1.43B (SG&A ratio: 24.1%), and their relative containment against the increase in revenue drove Operating Income up to ¥0.68B (Operating Margin: 11.5%). Below operating income, although a foreign exchange loss of ¥0.03B was incurred, Ordinary Income broadly tracked this performance at ¥0.65B (+100.6%). Net Income growth was limited to +74.4%, compared with Ordinary Income growth of +100.6%, due to the impact of a somewhat high effective tax burden, with a tax burden coefficient of 0.567. This was a period of both revenue and profit growth, with the profit growth rate substantially exceeding the revenue growth rate.
Segment Analysis
The Group is classified as a single business segment because its methods of procuring and selling products are generally the same; therefore, segment-specific disclosure is not provided.
Key Financial Indicators
【Profitability】Operating Margin was 11.5%, a significant improvement from the estimated 6.5% in the same period of the previous year, while Net Margin was 6.3%. ROE was 4.5% (DuPont decomposition: Net Margin 6.3% × Total Asset Turnover 0.339x × Financial Leverage 2.11x). While profitability is improving, the low asset turnover is constraining capital efficiency.【Cash Flow Quality】Operating Cash Flow is not disclosed, and the cash backing of Net Income cannot be confirmed. Inventories of ¥2.77B accounted for 15.8% of total assets, and inventory days of 66 days on an annualized basis were relatively long.【Investment Efficiency】Investment securities were ¥1.46B (8.3% of total assets), while goodwill was ¥0.02B (0.2% of net assets), indicating a low level of capital dependence related to M&A.【Financial Soundness】The Equity Ratio was 47.5%, the current ratio was 238.5%, and the quick ratio was 189.0%, indicating sound short-term liquidity. Interest-bearing debt was ¥4.43B, while interest coverage was high at 53.8x, demonstrating strong resilience to interest expense.
Cash Flow Analysis
This report does not disclose the amounts of Operating CF, Investing CF, or Financing CF, and therefore Free Cash Flow cannot be calculated. However, balance sheet trends show that cash and deposits remained broadly flat at ¥4.60B, compared with ¥4.73B in the same period of the previous year, while inventories increased from ¥2.24B to ¥2.77B and accounts receivable expanded from ¥3.28B to ¥3.76B. Working capital has increased in line with revenue growth, and the inventory days level of 66 days requires monitoring from the perspective of inventory accumulation. Cash and deposits remained at 3.3x short-term borrowings of ¥1.40B, and no near-term funding concerns are apparent.
Quality of Earnings
The conversion from Operating Income to Ordinary Income was generally sound. Non-operating income of ¥0.01B was offset by non-operating expenses of ¥0.04B (including a foreign exchange loss of ¥0.03B and interest expense of ¥0.01B), which are distinguished from extraordinary gains and losses as costs associated with ordinary transactions. Corporate income taxes and other taxes were ¥0.22B against Profit Before Tax of ¥0.66B, resulting in a somewhat high effective tax rate of approximately 33.6%. This was the primary reason Net Income growth was limited to +74.4%, compared with Ordinary Income growth of +100.6%. Comprehensive Income was ¥0.71B, and the difference from Net Income of ¥0.44B was primarily attributable to an increase of ¥0.23B in deferred hedge gains and losses, including a temporary factor associated with hedge valuation of financial instruments. As Operating Cash Flow is not disclosed, a somewhat cautious assessment of the speed of profit conversion into cash is appropriate from the perspective of accruals (increases in inventories and accounts receivable).
Earnings Forecasts and Guidance
Progress against the full-year earnings forecasts was 25.8% for Revenue, 42.7% for Operating Income, 42.3% for Ordinary Income, and 40.0% for Net Income attributable to owners of the parent. Profit progress substantially exceeded the standard quarterly level of 25%. The Company has not revised either its earnings forecasts or dividend forecasts. The full-year plan assumes an Operating Margin of 7.0%, representing a substantial decline from 11.5% in the current Q1. Whether this difference is attributable to seasonality or a conservative plan needs to be confirmed through progress from Q2 onward.
Shareholder Returns
The full-year dividend forecast is ¥30.00 per share, unchanged from the previous forecast. Based on forecast EPS of ¥70.30, the forecast Payout Ratio is 42.7%, remaining at a sustainable level below 60%. Actual dividend payments and the status of share buybacks are not presented in this report, and dividend coverage on an actual-results basis cannot be assessed because Operating CF is not disclosed.
Risk Factors
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Inventory accumulation risk: Inventories increased to ¥2.77B, and inventory days reached 66 days on an annualized basis. If demand changes, there is a risk of markdowns or inventory write-downs, potentially putting pressure on Operating Cash Flow.
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Gap versus the assumption of lower full-year profitability: The Company's full-year plan assumes an Operating Margin of 7.0%, compared with 11.5% in the current Q1. It is unclear whether this difference is attributable to seasonality or a conservative plan, and actual full-year progress needs to be closely monitored.
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Pressure on earnings from tax burden and foreign exchange: The effective tax rate was somewhat high at approximately 33.6%, limiting Net Income growth relative to Ordinary Income growth. In addition, a foreign exchange loss of ¥0.03B was incurred, and exchange-rate fluctuations related to import costs and overseas transactions may affect future earnings.
Industry Benchmark (For Reference; Compiled by the Company)
Industry Benchmark (manufacturing)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 11.5% | 7.2% (3.2%–12.5%) | +4.3pt |
| Net Margin | 7.3% | 5.9% (2.9%–12.5%) | +1.5pt |
The Company's Operating Margin and Net Margin both exceeded the industry median, indicating that its profitability is relatively high within the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 11.5% | 5.6% (1.1%–13.9%) | +5.9pt |
The Revenue Growth Rate also exceeded the industry median, but did not reach the upper bound of the IQR (13.9%), placing the Company within the upper group of the industry.
※Source: Compiled by the Company
Key Takeaways from the Earnings Results
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Operating Margin improved substantially from the estimated 6.5% in the same period of the previous year to 11.5%, achieving profit growth of +96.5%, which exceeded the revenue growth rate of +11.5%. The key feature evident from the earnings data for the quarter is the operation of operating leverage through improved gross margins and the relative containment of SG&A expenses.
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Profit progress against the full-year forecasts was 40~43%, substantially exceeding the standard level of 25%; however, the Company's full-year plan assumes an Operating Margin of 7.0%, anticipating a decline from the current Q1 level. The difference between this assumption and actual results is an issue to be confirmed through progress in future quarters.
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Inventory days were 66 days, and inventories increased +24.1% YoY. Since Operating Cash Flow is not disclosed in this report, the extent to which revenue and profit growth translated into cash generation must be confirmed through future disclosures.
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. 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 professionals as necessary.
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AI Financial Analysis
Executive Summary
FY2026 Q1 was a very strong start, with profit growth materially outpacing the 11.5% increase in revenue. Revenue rose to ¥5.928bn from ¥5.318bn. Operating income nearly doubled to ¥683m, up 96.5% year on year. Ordinary income increased 100.6% to ¥655m. Profit attributable to owners of parent rose 74.4% to ¥372m. The operating margin expanded to 11.5% from 6.5%, a gain of approximately 500 basis points. Gross margin improved to 35.6% from 29.5%, an expansion of approximately 608 basis points and the principal driver of earnings growth. Net margin increased to 6.3% from 4.0%, improving by approximately 227 basis points. SG&A expense increased 16.7% to ¥1.427bn, exceeding revenue growth and lifting the SG&A-to-sales ratio by approximately 108 basis points to 24.1%. Nevertheless, the gross-margin expansion more than absorbed this cost increase, demonstrating strong operating leverage. The annualized DuPont ROE was 17.9%, above the 15% benchmark for a high return profile. This outcome reflects a 6.3% net margin, annualized asset turnover of 1.355x, and 2.11x financial leverage. Comprehensive income reached ¥713m, exceeding profit attributable to owners because of positive valuation and hedge-related other comprehensive income. Q1 progress against full-year guidance is already high: revenue reached 25.8% of plan, while operating income and profit attributable to owners reached 42.7% and 40.0%, respectively. The quarterly result therefore provides a substantial earnings cushion versus the unchanged full-year operating-income forecast of ¥1.6bn. The principal operating issue is inventory discipline, as annualized inventory days were 66 days, above the 60-day benchmark. The balance sheet remains liquid, but the year-on-year increase in long-term borrowings requires attention as the company funds growth and working capital.
Profitability Analysis
Annualized ROE of 17.9% decomposes into a 6.3% net profit margin, 1.355x annualized asset turnover, and 2.11x financial leverage. The largest year-on-year improvement was in profitability rather than balance-sheet efficiency: operating margin increased by about 500 basis points to 11.5%, while gross margin rose about 608 basis points to 35.6%. Revenue growth of 11.5% was therefore converted into operating-income growth of 96.5%, indicating powerful gross-profit leverage. Gross profit increased 34.4% to ¥2.111bn, substantially faster than revenue. SG&A grew 16.7% to ¥1.427bn, faster than sales, so cost discipline below gross profit did not drive the improvement. The SG&A ratio increased to 24.1% from approximately 23.0%, partially offsetting the gross-margin gain. The resulting 11.5% EBIT margin is within the “good” 8-15% benchmark range and is considerably stronger than the prior-year level. Interest burden was 0.960, indicating that financing costs had only a modest effect on pre-tax profit. Interest coverage was robust at 53.83x despite interest expense increasing to ¥12.7m. The tax burden of 0.567 based on profit attributable to owners indicates that only 56.7% of pre-tax income accrued to parent shareholders after tax and non-controlling interests. On a consolidated profit basis, income tax expense of ¥220m represented 33.6% of profit before tax, while the lower parent-attributable tax burden also reflects ¥63m of earnings attributable to non-controlling interests. The high-tax-burden alert is relevant to parent-shareholder returns because the 0.567 tax-burden factor is below the 0.60 warning threshold; it reduces the conversion of pre-tax profit into attributable earnings. The current margin step-up appears operationally meaningful because it begins at gross profit, although sustained performance depends on maintaining procurement, pricing, product-mix, and markdown discipline while controlling SG&A growth.
Growth Assessment
Sales increased ¥610m year on year to ¥5.928bn, demonstrating solid demand across the group’s broad range of cosmetics, cosmetic accessories, fashion accessories, character goods and contact-lens-related products. The company operates as a single reportable segment, so the consolidated result represents the core business. Gross profit increased by ¥541m, accounting for most of the ¥336m increase in operating income. The gross-margin improvement indicates a more favorable product mix, procurement outcome, selling-price realization, or a combination of these factors. Operating income growth of 96.5% substantially exceeded the full-year forecast growth assumption of 8.9%. Q1 revenue progress was 25.8% versus a standard 25% quarterly pace, broadly in line with the annual sales plan. Operating-income progress was 42.7% versus the 25% standard pace, 17.7 percentage points ahead of a linear run rate. Ordinary-income progress was 42.3% of the full-year forecast, also substantially ahead of the standard pace. Profit attributable to owners reached 40.0% of the ¥930m full-year target. These progress rates provide upside resilience if the higher Q1 gross margin is durable, but they also set a demanding comparison base for subsequent quarters. The full-year forecast remains unchanged at revenue of ¥23.0bn, operating income of ¥1.6bn, ordinary income of ¥1.55bn and attributable profit of ¥930m. Inventory increased ¥538m year on year to ¥2.774bn, faster than revenue, making sell-through and product-life-cycle management central to the sustainability of growth.
Financial Health
Liquidity is strong, with a current ratio of 238.5%, a quick ratio of 189.0%, and working capital of ¥7.768bn. Current assets of ¥13.378bn comfortably cover current liabilities of ¥5.610bn. Cash and deposits of ¥4.602bn alone exceed short-term loans of ¥1.400bn by 3.29x. Including the current portion of long-term loans, debt maturing within one year is supported by substantial cash and receivables. Accounts receivable totaled ¥3.757bn and electronically recorded monetary claims were ¥399m, providing additional near-term liquidity. Interest-bearing debt was ¥4.425bn, comprising ¥1.400bn of short-term loans and ¥3.025bn of long-term loans. Debt-to-equity was 1.11x, moderately above a conservative 1.0x level but well below the 2.0x aggressive-leverage warning threshold. Debt-to-capital was 34.8%, remaining within the sub-40% investment-grade benchmark. The short-term debt ratio was 31.6%, meaning the majority of interest-bearing debt is term-funded rather than immediately refinancing-dependent. Long-term loans increased ¥831m, or 37.9%, year on year to ¥3.025bn; this is the most significant balance-sheet movement and increases fixed financing obligations. Total equity increased to ¥8.308bn from ¥7.810bn, supporting capital resilience, although financial leverage remained meaningful at 2.11x. Goodwill was only ¥18m, equivalent to 0.2% of equity and 0.1% of assets, leaving the balance sheet minimally exposed to acquisition-related impairment risk. Asset retirement obligations were ¥33m, only approximately 0.4% of total liabilities, indicating limited environmental restoration liability relative to the balance sheet.
Notable B/S Changes
Long-term loans: +¥831m (+37.9%) to ¥3.025bn - increased term borrowing raises fixed financing obligations and warrants monitoring of debt-funded working-capital returns. Inventories: +¥538m (+24.1%) to ¥2.774bn - the absolute increase exceeds ¥5bn and coincides with 66 annualized inventory days; sell-through and obsolescence risk should be monitored. Total assets: +¥1.184bn (+7.3%) to ¥17.505bn - expansion was concentrated in current operating assets and was funded partly by increased long-term debt and equity.
Cash Flow Quality
Dividend Sustainability
The full-year dividend forecast is ¥30.0 per share, unchanged from the company’s latest guidance. Against forecast EPS of ¥70.3, the implied dividend payout ratio is 42.7%. This is below the 60% sustainability benchmark and leaves room for retained earnings, debt service, and working-capital funding. Q1 EPS was ¥28.16, representing 40.1% of the full-year EPS forecast, broadly consistent with the 40.0% profit-progress rate. The dividend outlook is supported by strong Q1 profitability, a current ratio of 238.5%, and cash and deposits of ¥4.602bn. The increased long-term debt balance and elevated inventory days should remain key considerations in assessing the scope for shareholder distributions over the remainder of the fiscal year.
Risk Assessment
Business risks include Inventory and markdown risk: merchandise inventory rose ¥538m year on year to ¥2.774bn, and annualized inventory days were 66 days versus the 60-day benchmark. For cosmetics, character goods and fashion-related products, trend changes, seasonality and product obsolescence can require discounting and reverse the Q1 gross-margin improvement., Gross-margin normalization risk: approximately 608 basis points of gross-margin expansion drove the earnings acceleration. Any reversal in procurement conditions, product mix, retail pricing, or promotional intensity would have a material effect on operating profit., Foreign-exchange exposure: foreign-exchange losses were ¥27m, equal to approximately 4.0% of operating income. This is not a severe earnings distortion at present, but it indicates exposure through overseas sourcing and/or foreign-currency transactions., Consumer-demand risk: the company’s cosmetics, accessories, character-goods and contact-lens-related offerings are exposed to discretionary spending, fashion cycles, licensed-character popularity and retail-channel demand..
Financial risks include Borrowing risk: long-term loans increased 37.9% year on year to ¥3.025bn. Although debt/capital is a manageable 34.8% and interest coverage is strong, higher debt raises refinancing and interest-rate sensitivity., Tax conversion risk: the parent-attributable tax burden was 0.567, below the 0.60 warning threshold. This limits translation of pre-tax performance into earnings available to parent shareholders, even though the consolidated effective tax rate was 33.6%., Working-capital funding risk: receivables, electronic receivables and inventories together represent a significant share of current assets, making cash requirements sensitive to sales timing and inventory replenishment..
Key concerns include Highest priority: sustaining the Q1 gross-margin gain while reducing inventory days toward or below 60 days., High priority: monitoring whether SG&A growth, at 16.7%, moderates toward or below revenue growth after the Q1 investment period., Medium priority: confirming that the substantial Q1 operating-profit outperformance can be retained through later quarters rather than reflecting seasonality or temporary product-mix benefits., Medium priority: monitoring the purpose and return profile of the ¥831m increase in long-term loans..
Investment Implications
Key takeaways include Q1 earnings were materially stronger than sales growth, led by gross-margin expansion and operating leverage., Annualized ROE of 17.9% and an 11.5% operating margin indicate an attractive current profitability profile., Operating income reached 42.7% of the full-year forecast in Q1, while guidance remains unchanged., Liquidity is ample and debt-service capacity is strong, but leverage has increased through higher long-term borrowings., Inventory turnover is the principal operational metric requiring improvement..
Metrics to watch include Gross margin and operating margin relative to the Q1 levels of 35.6% and 11.5%, Inventory days relative to the 66-day Q1 annualized level, Inventory growth relative to revenue growth, SG&A growth relative to revenue growth, Full-year operating-income forecast progress relative to the current 42.7% Q1 achievement, Long-term loan balance, interest expense and interest coverage, Parent-attributable tax burden and consolidated effective tax rate.
Regarding relative positioning, The company’s Q1 operating margin is in the good 8-15% benchmark range, its annualized 17.9% ROE exceeds the 15% excellent threshold, and liquidity is substantially above standard benchmarks. Its balance sheet is not highly leveraged by covenant measures, but D/E of 1.11x is moderately above a conservative capital structure and inventory efficiency is weaker than the 60-day working-capital benchmark.