TSUTSUMI JEWELRY (7937) FY2026 Q3 Earnings Report

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Executive Summary

Driven by significant revenue expansion and a lower SG&A ratio, operating income increased by +82.9% year on year. Revenue was ¥25.21B (¥18.20B in the previous year, +38.5%), operating income was ¥3.22B (¥1.76B in the previous year, +82.9%), ordinary income was ¥3.33B (+82.3%), and net income was ¥2.19B (¥1.55B in the previous year, +41.4%). The growth rate in profit substantially exceeded the revenue growth rate, primarily due to the improvement in the SG&A ratio; however, net income growth was more restrained than at the operating income level due to the increased tax burden.

Factors Affecting Results

【Revenue】Revenue increased by +38.5% year on year to ¥25.21B. Although segment information is not disclosed, accounts receivable increased by +140.1% year on year, significantly outpacing revenue growth, suggesting expanded sales toward the end of the period.

【Profit and Loss】While the gross profit margin declined by approximately 4.0pt to 42.2% from 46.2% in the same period of the previous year, the SG&A ratio decreased by approximately 7.1pt to 29.4% from 36.5%, resulting in operating leverage and an improvement in the operating margin to 12.8% (9.7% in the previous year). Ordinary income almost maintained the increase in operating income, while net income growth moderated relative to the operating and ordinary income levels due to the increase in the effective tax rate to 33.5% and the recognition of ¥0.03B in extraordinary losses (including impairment losses). The period concluded with increases in both revenue and profit.

Key Financial Metrics

【Profitability】The operating margin was 12.8% (9.7% in the previous year), and the net profit margin was 8.7% (8.5% in the previous year), with both improving from the previous year. 【Cash Quality】Cash and deposits of ¥30.99B accounted for 43.3% of total assets, while interest received amounted to ¥0.06B of the ¥0.17B in non-operating income, making financial income a major component of non-operating income. 【Investment Efficiency】Annualized ROE was 4.3%, indicating a limited contribution of profit relative to net assets; the low total asset turnover and low financial leverage of 1.04x were the primary constraints. 【Financial Soundness】The equity ratio was 95.9%, and the current ratio was extremely high, with current assets of ¥58.31B against current liabilities of ¥2.84B. Total liabilities stood at only ¥2.96B, indicating a conservative financial foundation.

Cash Flow Analysis

Although individual data from the cash flow statement have not been disclosed, funding trends can be confirmed from balance sheet movements. While cash and deposits declined slightly to ¥30.99B from ¥33.64B in the same period of the previous year, inventories increased to ¥16.65B (¥15.04B in the previous year) and accounts receivable increased to ¥3.97B (¥1.66B in the previous year). The accumulation of working capital associated with revenue growth is considered to have absorbed a portion of funds. Net assets accumulated to ¥68.62B (¥67.80B in the previous year), while total liabilities remained low at ¥2.96B, indicating continued strengthening of the capital base through retained earnings.

Earnings Quality

Ordinary income and income before taxes were nearly identical, while extraordinary items were limited to approximately 1.0% of income before taxes (¥0.03B in extraordinary losses, including ¥0.03B in impairment losses). Accordingly, the increase in profit for the period was primarily attributable to recurring factors from the core business. Non-operating income of ¥0.17B accounted for only 0.7% of revenue, with ¥0.06B in interest received as the main component, indicating low dependence on non-operating factors. Meanwhile, the effective tax rate increased from the previous year to 33.5%, and the higher tax burden restrained net income growth (+41.4%) relative to operating income growth (+82.9%). The fact that accounts receivable increased at a rate exceeding revenue growth warrants attention from an accruals perspective, and future collection trends will be a factor in assessing earnings quality.

Earnings Forecasts and Guidance

The progress rates for cumulative Q3 results against the full-year company forecasts (revenue of ¥33.00B, operating income of ¥4.05B, ordinary income of ¥4.20B, and net income of ¥2.73B) were 76.4% for revenue, 79.5% for operating income, 79.3% for ordinary income, and 80.4% for net income. All exceeded the standard progress rate of 75%, indicating that the hurdle for achieving the full-year plan is relatively low. The levels required in Q4 are revenue of ¥7.79B and operating income of ¥0.83B, with the required operating margin remaining at approximately 10.7%, below the cumulative actual result of 12.8%.

Shareholder Returns

The Q2 dividend was ¥45.00 per share, and the full-year company forecast for the annual dividend is ¥90.00. The full-year forecast payout ratio against forecast EPS of ¥174.70 is approximately 51.5%, while the payout ratio based on dividends already paid against cumulative Q3 net income of ¥2.19B is 32.1%. Given cash and deposits of ¥30.99B and the low level of liabilities, the current dividend plan is considered to be within a sustainable range relative to the earnings level.

Risk Factors

1. Inventory Accumulation Risk: Inventories of ¥16.65B account for 23.3% of total assets, and inventory days significantly exceed the general benchmark for the manufacturing industry. This could lead to valuation losses or pressure on the gross profit margin during periods of demand fluctuation.

2. Decline in Gross Profit Margin: The gross profit margin declined by approximately 4.0pt from 46.2% in the same period of the previous year to 42.2%. Although the improvement in the SG&A ratio has raised the operating margin, continued deterioration in the gross profit margin could cause operating leverage to reverse during a slowdown in revenue growth.

3. Increase in Accounts Receivable and Collection Management: Accounts receivable increased by +140.1% year on year, significantly outpacing revenue growth. Annualized DSO remains broadly at an appropriate level, but continued growth would require monitoring of credit management and collection trends.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Both the operating margin and net profit margin exceed the industry median, placing the company in a superior position in terms of industry profitability.

Growth and Capital Efficiency

The revenue growth rate significantly exceeds the industry median, demonstrating standout growth within the industry.

※Source: Compiled by the company

Key Points from the Earnings Results

1. The operating margin improved from 9.7% in the same period of the previous year to 12.8%, primarily due to the approximately 7.1pt decline in the SG&A ratio. Meanwhile, the gross profit margin declined by approximately 4.0pt, making the sustainability of profit growth dependent on stabilization of the gross profit margin.

2. The profit progress rate against the full-year forecast was in the approximately 79% range, exceeding the standard progress rate and leaving room for upside; meanwhile, inventory levels and inventory turnover trends are key points of focus from a capital efficiency perspective.

3. Financial soundness is extremely conservative, with an equity ratio of 95.9% and total liabilities of ¥2.96B; however, annualized ROE remains at 4.3%, indicating room for improvement in asset efficiency.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,631–¥3,837 at cost of equity ±1%, and ¥3,711–¥3,745 at ω±0.1.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end were used (there is a timing difference relative to the full-year forecast).
• Because 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 / This is a 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 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 discretion and responsibility, after consulting professionals as necessary.

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