Zojirushi (7965) FY2026 Q2 Earnings Report

Quick View

Executive Summary

Cumulative results for FY2026 Q2 showed increases in both revenue and profit, with particularly notable improvement on the profit side exceeding revenue growth. Revenue was ¥512.1B (+2.2% YoY), Operating Income was ¥52.1B (+7.0%), Ordinary Income was ¥54.9B (+8.5%), and Net Income attributable to owners of the parent was ¥35.3B (+3.9%). While the Operating Income margin improved to 10.2% from the same period last year, the growth in Net Income fell below the growth in Operating Income and Ordinary Income due to the impact of the tax burden. For the full-year forecast, the Company expects decreases in both Operating Income and Ordinary Income year on year, making it a key focus whether the improvement in profitability during the first half will continue in the second half.

Factors Affecting Performance

【Revenue】Revenue was ¥512.1B, an increase of +2.2% compared with the same period last year. Growth was moderate and remained below the industry median growth rate of 10.6%. As segment-level disclosure is unavailable, the analysis is conducted on a company-wide basis.

【Profit and Loss】Operating Income was ¥52.1B (+7.0% YoY), exceeding the +2.2% growth in Revenue by 4.8pt, indicating the operation of operating leverage. The gross margin was 33.9% and the SG&A expense ratio was 23.8%; cost management and SG&A expense control contributed to an improvement in the profit margin (+approximately 0.5pt). Ordinary Income was ¥54.9B (+8.5% YoY), with non-operating income, including interest and dividend income, supporting Ordinary Income. Extraordinary gains of ¥0.3B and extraordinary losses of ¥0.3B were largely offset, resulting in a minor impact on current-period performance. Net Income attributable to owners of the parent was limited to ¥35.3B (+3.9% YoY), as the tax burden, with an effective tax rate of approximately 32.8%, restrained growth in bottom-line profit. In conclusion, both revenue and profit increased.

Key Financial Indicators

【Profitability】The Operating Income margin of 10.2% and Net Income margin of 6.9% both improved from the same period last year, indicating that profitability improved by more than revenue increased.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥70.6B, reaching approximately 2.0 times Net Income attributable to owners of the parent, indicating strong cash backing for earnings. However, OCF decreased substantially by ▲40.6% year on year, and attention should be paid to the fact that an increase in inventories of ¥29.1B and a decrease in trade payables of ¥31.8B put pressure on working capital.【Investment Efficiency】ROE was 4.0% (based on disclosed figures), and the low total asset turnover restrained capital efficiency despite the improvement in the Net Income margin. Cash and deposits of ¥344.7B and investment securities of ¥119.9B compared with total assets of ¥1194.6B indicate a high proportion of non-operating assets.【Financial Soundness】The Equity Ratio was extremely high at 77.1%, and current assets of ¥817.6B substantially exceeded current liabilities of ¥198.7B. Low leverage and ample liquidity on hand support the financial foundation.

Cash Flow Analysis

OCF was ¥70.6B, down ▲40.6% from ¥118.9B in the same period last year. The primary causes of the decrease were deterioration in working capital due to a ¥29.1B increase in inventories and a ¥31.8B decrease in trade payables; together with ¥14.5B in income taxes paid, these factors put pressure on the OCF subtotal before working capital of ¥82.5B. Meanwhile, collection of trade receivables was a positive factor of ¥24.6B. Investing Cash Flow was ▲¥14.4B, including capital expenditures of ¥24.1B, approximately 1.9 times depreciation and amortization of ¥12.4B, indicating a phase of active investment exceeding maintenance investment. Nevertheless, Free Cash Flow of ¥56.2B was secured, and the Company maintained sufficient financial capacity to fund investments and financing activities, including dividends, reflected in Financing Cash Flow of ▲¥39.3B. Trends in working capital, particularly inventories, are an important observation point that will affect future OCF levels.

Earnings Quality

Ordinary Income exceeded Operating Income by ¥2.8B, primarily due to ¥3.7B in non-operating income, including ¥1.5B in interest income and ¥0.7B in dividend income. Non-operating expenses of ¥0.9B, including ¥0.3B in interest expense and ¥0.3B in foreign exchange losses, had only a limited impact. Extraordinary income of ¥0.3B, including gains on the sale of fixed assets, and extraordinary losses of ¥0.3B, including impairment losses on investment securities, were largely offset, indicating that Net Income had limited dependence on temporary factors. Comprehensive Income was ¥56.6B, substantially exceeding Net Income attributable to owners of the parent of ¥35.3B, primarily due to foreign currency translation adjustments of ¥16.8B and valuation difference on available-for-sale securities of ¥4.4B. This divergence resulted from valuation and translation fluctuations separate from the earning power of the underlying business; accordingly, it is appropriate to assess the Company’s substantive earning power based on the levels of Operating Income and Ordinary Income. Since OCF was approximately 2.0 times Net Income, earnings quality itself was supported by cash generation.

Earnings Forecast and Guidance

The full-year forecast is Revenue of ¥925.0B (+1.5% YoY), Operating Income of ¥66.0B (▲11.2%), and Ordinary Income of ¥71.0B (▲14.5%), representing progress rates against first-half results of 55.4% for Revenue, 79.0% for Operating Income, and 77.4% for Ordinary Income. Profit progress in the first half was substantially above the standard 50% level, suggesting that the forecast assumes a decline in profitability in the second half in order to reconcile with the full-year forecast for lower profit. The Company has maintained both its earnings and dividend forecasts, and it is necessary to closely monitor demand trends and fluctuations in raw material and SG&A expenses in the second half.

Shareholder Returns

The Q2 dividend was ¥23.00 per share, and the full-year dividend forecast is ¥46.00 (the same level as the previous year). Based on the full-year forecast of Net Income attributable to owners of the parent of ¥48.0B and forecast EPS of ¥74.82, the Payout Ratio is approximately 61.5%. As no share repurchases were conducted and shareholder returns consist solely of dividends, it is appropriate to evaluate returns based on the Payout Ratio. Free Cash Flow of ¥56.2B exceeded the total dividend amount, providing financial support for the dividend at this point.

Risk Factors

1. Inventory holding risk: Inventories were ¥234.8B, accounting for 19.7% of total assets, and increased by ¥29.1B during the period. A prolonged inventory turnover cycle could increase the risk of future discount sales or valuation losses.

2. Risk of inconsistency with the forecast for lower profit in the second half: The full-year Operating Income forecast is ▲11.2% year on year, while the first-half progress rate has reached 79.0%. The forecast assumes normalization of the profit margin in the second half, and a divergence from the forecast could arise depending on demand and cost trends.

3. Low capital efficiency: ROE of 4.0% is also a reflection of the conservative capital structure represented by an Equity Ratio of 77.1%. The high proportion of non-operating assets, such as cash and deposits and investment securities, restrains asset turnover and, consequently, return on capital.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

Profitability is relatively strong, with both the Operating Income margin and Net Income margin exceeding the industry median.

Growth and Capital Efficiency

The Revenue growth rate was substantially below the industry median, indicating relatively moderate top-line growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. In the first half, Operating Income increased by +7.0% compared with Revenue growth of +2.2%, confirming profitability improvement exceeding revenue growth. The Operating Income margin expanded to 10.2%, demonstrating the effects of cost management.

2. OCF was approximately 2.0 times Net Income, indicating strong cash conversion of earnings; however, it decreased by ▲40.6% year on year due to an increase in inventories and a decrease in trade payables. Inventory turnover trends are a key point for assessing working capital efficiency.

3. Although the full-year forecast anticipates lower profit year on year, the first-half progress rate for Operating Income was high at 79.0%. As the Company has maintained its forecast, the trend in the second-half profit margin and consistency with full-year results will be points to confirm in future earnings releases.

Theoretical Stock Price (Reference Value)

Sensitivity: 1,256円–1,326円 at a ±1% change in the cost of equity, and 1,285円–1,293円 at a ±0.1 change in ω.

Notes:

• Because progress of Net Income against the full-year forecast (74%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies with progress ahead of schedule tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity, the theoretical value is below Book Value per Share.
• Net assets as of the quarter-end are used (there is a timing difference from 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 model with an 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 stock price or a recommendation of any specific investment action, and does not forecast or guarantee future stock prices）

---

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 benchmark is 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---

---

AI Financial Analysis

Executive Summary

FY2026 Q2 was a solid earnings release, with modest sales growth translating into faster operating-profit growth and strong cash conversion. Revenue rose 2.2% YoY to ¥51.21bn, while operating income increased 7.0% to ¥5.21bn. Ordinary income grew 8.5% to ¥5.49bn, outperforming operating income through a ¥0.37bn net non-operating-income contribution. Profit attributable to owners increased 3.9% to ¥3.53bn, with growth moderated by a higher effective tax rate of 32.8%. Gross profit expanded 6.0% YoY to ¥17.38bn, materially exceeding revenue growth. Consequently, gross margin improved by 120bp YoY to 33.9%. Operating margin rose by 50bp YoY to 10.2%, indicating that gross-profit improvement more than absorbed a 5.6% increase in SG&A expense to ¥12.17bn. The 10.2% operating margin is in the good range for the stated benchmark and indicates sound operating leverage despite low-single-digit revenue growth. Annualized ROE was 7.7%, below the 8% caution threshold but close to it, and reflects a conservatively capitalized balance sheet rather than weak margins. Cash earnings quality was high: operating cash flow was ¥7.06bn, equal to 2.00x profit attributable to owners, and cash conversion was 1.09x EBITDA. Free cash flow was ¥5.62bn after ¥2.41bn of capital expenditure, providing substantial funding capacity for dividends and investment. However, operating cash flow declined from ¥11.89bn in the prior-year period, primarily because the prior period benefited more strongly from inventory-related cash release. Inventory remains the central operating risk, as reported inventory-days alerts of 162 days and 127 days both exceed relevant warning thresholds, while the cash conversion cycle of 183 days exceeds the 120-day warning threshold. The company nevertheless ended Q2 with ¥34.47bn of cash and deposits, a 411.6% current ratio, and a low 0.30x debt-to-equity ratio, leaving ample liquidity to absorb working-capital volatility. FY2026 full-year guidance was unchanged, despite Q2 progress of 55.4% in revenue, 79.0% in operating income, and 73.6% in profit attributable to owners. The unchanged forecast implies management expects a substantially softer second half, particularly in profitability, and this embedded conservatism or anticipated seasonal normalization is the principal near-term earnings issue to monitor. The interim dividend of ¥23 per share and indicated full-year DPS of ¥46 imply a 47.2% dividend payout ratio, which appears well covered by both earnings and free cash flow.

Profitability Analysis

The reported annualized DuPont ROE of 7.7% is decomposed into a 6.9% net profit margin, 0.857x asset turnover, and 1.30x financial leverage. The largest structural constraint on ROE is low financial leverage, which is consistent with the company's equity-heavy balance sheet and should be viewed as conservative capital positioning rather than balance-sheet stress. Net margin of 6.9% is within the good 5-10% benchmark range, while the 10.2% EBIT margin demonstrates stronger underlying operating profitability before tax. The tax burden was 0.643, equivalent to a 32.8% effective tax rate, and was the main reason net-income growth of 3.9% lagged the 8.5% increase in ordinary income. Interest burden was 1.054 because net financial income exceeded interest expense; interest income was ¥0.15bn and dividend income was ¥0.07bn against interest expense of ¥0.03bn. Gross margin improved to 33.9% from approximately 32.7% in the prior-year period, a 120bp improvement. Operating margin expanded to 10.2% from approximately 9.7%, a 50bp improvement. This margin expansion is notable because SG&A rose 5.6% YoY, faster than the 2.2% revenue increase, but the gross-profit gain of ¥0.98bn exceeded the ¥0.64bn SG&A increase. EBITDA rose to ¥6.45bn and the EBITDA margin was 12.6%, reinforcing that the earnings improvement was operational rather than dependent on non-cash accounting. There was no material distortion from extraordinary items, as ¥0.31bn of extraordinary income was offset by ¥0.31bn of extraordinary loss. The annualized 0.857x asset turnover is moderate and reflects the sizable inventory and cash base relative to sales. Sustained ROE improvement would therefore depend principally on maintaining gross-margin gains, improving inventory velocity, and/or more productive deployment of surplus capital rather than increased borrowing.

Growth Assessment

Revenue growth of 2.2% YoY was modest, but the 7.0% operating-income increase indicates favorable gross-margin execution. Gross profit rose 6.0% YoY, substantially ahead of sales, which suggests pricing, product mix, procurement conditions, or manufacturing-cost control supported profitability. The Q2 operating-income progress rate against full-year guidance was 79.0%, 29.0 percentage points above the standard first-half progress rate of 50%. Revenue progress was 55.4%, only 5.4 percentage points above the standard 50% level, whereas profit attributable to owners reached 73.6% of the full-year target, 23.6 percentage points ahead of standard progress. This divergence means the full-year plan embeds a pronounced second-half decline in operating profitability versus the first half. Based on guidance, second-half revenue would be ¥41.29bn, while second-half operating income would be ¥1.39bn, equating to an implied operating margin of approximately 3.4% versus 10.2% in Q2 cumulative results. Management did not revise either earnings or dividend forecasts. Accordingly, the current outlook preserves room for full-year outperformance if first-half margin conditions persist, but it also signals anticipated normalization in costs, sales mix, demand, promotional intensity, or inventory management. CapEx of ¥2.41bn was 1.94x depreciation and amortization, demonstrating investment above the replacement level. This investment intensity supports future operating capacity and modernization, although returns should be assessed against subsequent sales growth and inventory productivity. The reported two-period margin trend is stable, but the growth consistency score of 2/10 indicates limited evidence of consistently repeatable growth across the available history.

Financial Health

Financial health is very strong. Current assets of ¥81.76bn were more than four times current liabilities of ¥19.87bn, producing a current ratio of 411.6%. The quick ratio was also an exceptionally strong 293.4%, supported by ¥34.47bn of cash and deposits and ¥13.54bn of trade receivables. Working capital was ¥61.90bn, providing a significant liquidity cushion. Total liabilities were ¥27.41bn against total equity of ¥92.05bn, and the reported debt-to-equity ratio was only 0.30x, well below the 2.0x risk threshold. There is no current-ratio or leverage warning: current assets comfortably exceed short-term obligations and interest coverage is 186.14x, or 230.46x on an EBITDA basis. Lease obligations totaled ¥1.58bn, comprising ¥0.89bn current and ¥0.69bn non-current, and are manageable relative to cash resources and EBITDA. The balance sheet is equity-rich, with equity representing 77.1% of total assets. Cash and deposits represented 28.9% of assets, inventories 19.7%, PPE 14.9%, and investment securities 10.0%. Accounts payable fell ¥2.81bn, or 35.1% YoY, to ¥5.20bn; the reduction lowers supplier financing and is a contributor to the long cash conversion cycle. PPE increased ¥3.99bn, or 28.9% YoY, to ¥17.79bn, consistent with the elevated capital-expenditure program and a larger fixed-asset base that must earn adequate returns. Investment securities of ¥11.99bn and accumulated valuation and translation adjustments of ¥14.01bn make equity and comprehensive income partly sensitive to market-value and foreign-exchange movements. Deferred tax liabilities were ¥4.19bn, largely reflecting the balance-sheet effects of unrealized valuation gains rather than near-term liquidity pressure.

Notable B/S Changes

Accounts payable: -¥2.81bn (-35.1%) to ¥5.20bn — reduced supplier financing contributed to working-capital pressure and should be monitored alongside the 183-day cash conversion cycle. PPE: +¥3.99bn (+28.9%) to ¥17.79bn — reflects an expanded fixed-asset base and elevated investment; future sales growth and asset utilization must validate returns on this capital deployment. Finished goods: -¥2.61bn (-10.0%) to ¥23.48bn — inventory has declined YoY, but the remaining balance remains large and is consistent with the reported elevated inventory-day alerts. Cash and deposits: +¥1.29bn (+3.9%) to ¥34.47bn — strong liquidity was maintained despite higher capital expenditure and ¥3.30bn of dividend payments.

Cash Flow Quality

Cash-flow quality was strong in FY2026 Q2. Operating cash flow of ¥7.06bn was 2.00x profit attributable to owners of ¥3.53bn, well above the 1.0x high-quality threshold. The accruals ratio was negative 3.0%, which supports cash-backed earnings rather than aggressive accrual recognition. EBITDA was ¥6.45bn and operating cash flow represented 1.09x EBITDA, above the 0.9x excellent benchmark. Free cash flow was ¥5.62bn after ¥2.41bn of capital expenditures, leaving meaningful internally generated cash after investment. CapEx was 1.94x depreciation and amortization, indicating expansionary or modernization-oriented spending rather than underinvestment. Cash flow from investing activities was negative ¥1.44bn, including PPE purchases of ¥2.41bn, partly offset by time-deposit proceeds and other investing inflows. Financing cash outflow was ¥3.93bn, led by ¥3.30bn of cash dividends and ¥0.50bn of lease-obligation repayments. Net cash increased by ¥2.68bn, and cash and cash equivalents ended at ¥32.25bn. The key cash-flow risk is working-capital intensity rather than the current-period quality of earnings. Reported quality alerts show inventory days of 162 days and 127 days, respectively; each is above the applicable warning level and both indicate slow inventory conversion. The reported annualized cash conversion cycle of 183 days also exceeds the 120-day warning level, indicating that cash is tied up in the operating cycle for an extended period. Finished goods were ¥23.48bn, while raw materials were ¥6.22bn and work in process was ¥0.39bn, pointing to finished-goods holdings as the principal inventory concentration. Receivables and inventories generated cash inflows during the period, but the ¥3.18bn decline in trade payables partially offset these benefits; a continued reduction in supplier credit could pressure future operating cash flow. The large inventory base raises markdown, obsolescence, demand-forecast, and future cash-release variability risks even though current-period OCF is robust.

Dividend Sustainability

Dividend sustainability appears strong on the reported figures. The Q2 dividend was ¥23 per share, and the unchanged full-year forecast indicates DPS of ¥46. The calculated dividend payout ratio is 47.2%, below the 60% sustainability benchmark. Free cash flow of ¥5.62bn provided 3.37x coverage of the indicated dividend requirement. Operating cash flow of ¥7.06bn also exceeded the cash dividend outflow of ¥3.30bn during the period. The company has substantial liquidity, including ¥34.47bn of cash and deposits, and low financial leverage of 0.30x. These factors provide resilience even if working capital temporarily absorbs cash. Capital expenditure of ¥2.41bn is elevated relative to depreciation but was fully funded by operating cash flow. There were no share repurchases reported, so the relevant shareholder-distribution measure is the dividend payout ratio rather than a total return ratio. The unchanged dividend outlook is consistent with management confidence in meeting the full-year earnings plan. The primary sensitivity is inventory normalization: a rise in inventory or sustained reduction in payables could reduce free cash flow, although current coverage and liquidity leave a wide cushion.

Risk Assessment

Business risks include Inventory and demand risk: reported inventory-days alerts of 162 days and 127 days both exceed warning thresholds. The ¥23.48bn finished-goods balance is especially material, raising the risk of slower sell-through, discounting, product obsolescence, or weaker gross margins., Manufacturing working-capital risk: the reported annualized cash conversion cycle of 183 days exceeds the 120-day warning threshold. A prolonged conversion cycle can make operating cash flow more volatile even when accounting earnings remain profitable., Second-half execution risk: Q2 cumulative operating income already represents 79.0% of the full-year target, yet guidance was unchanged. The implied second-half operating margin of approximately 3.4% requires substantial margin normalization and creates sensitivity to any deviation from management's assumed sales mix, cost base, or promotional environment., Consumer-durable industry risk: demand for household appliances is exposed to consumer confidence, housing activity, retailer inventory adjustment, competition, and product-cycle execution. These factors can quickly affect sell-through and inventory levels., Foreign-exchange risk: the period included ¥0.28bn of foreign-exchange losses, and foreign-currency translation adjustments contributed ¥1.68bn to OCI. Currency movements can affect procurement costs, overseas earnings translation, and the value of foreign operations..

Financial risks include Supplier-financing risk: accounts payable declined 35.1% YoY to ¥5.20bn. Further shortening of payment terms would consume operating cash flow and could extend the cash conversion cycle., Market-value risk: investment securities totaled ¥11.99bn and valuation and translation adjustments were ¥14.01bn. Changes in equity-market valuations and currency rates can cause volatility in OCI and book equity., Capital-allocation risk: CapEx is running at 1.94x depreciation. This supports future capacity and modernization, but returns need to exceed the cost of capital if revenue growth remains low., The balance sheet does not exhibit material liquidity, refinancing, or interest-servicing risk, given the 411.6% current ratio, 0.30x debt-to-equity ratio, and 186.14x interest coverage..

Key concerns include Highest priority: reduce the elevated inventory burden and shorten the 183-day cash conversion cycle without sacrificing gross margin through excessive discounting., High priority: reconcile strong first-half profit progress with unchanged full-year guidance through second-half demand, cost, and inventory indicators., Moderate priority: monitor whether the decline in accounts payable becomes a persistent structural cash-flow headwind., Moderate priority: evaluate returns on the sharply increased PPE base as capital expenditure remains above depreciation..

Investment Implications

Key takeaways include Sales rose 2.2% YoY, but operating income grew 7.0% and operating margin expanded 50bp to 10.2%, demonstrating favorable first-half earnings leverage., Cash generation was strong, with ¥7.06bn of operating cash flow, ¥5.62bn of free cash flow, a 2.00x OCF-to-net-income ratio, and 1.09x OCF-to-EBITDA conversion., The company has a highly liquid, conservatively financed balance sheet: ¥34.47bn of cash and deposits, a 411.6% current ratio, and 0.30x debt-to-equity., The principal operational issue is inventory efficiency: the reported 162-day and 127-day inventory-day alerts and 183-day cash conversion cycle warrant close monitoring., Full-year guidance is conservative relative to first-half achievement, with Q2 cumulative operating profit already at 79.0% of the annual target while the forecast remains unchanged., Dividend capacity is supported by a 47.2% payout ratio and 3.37x free-cash-flow coverage..

Metrics to watch include Finished-goods inventory and reported inventory days, Cash conversion cycle and trade-payables trend, Second-half gross margin, SG&A ratio, and operating margin relative to the approximately 3.4% margin implied by unchanged guidance, Revenue sell-through and the pace of inventory normalization, CapEx returns, PPE utilization, and sales growth relative to the expanded fixed-asset base, Foreign-exchange effects on operating costs, non-operating items, and OCI, Dividend coverage by free cash flow.

Regarding relative positioning, The company combines a good 10.2% operating margin, high-quality cash conversion, and unusually strong liquidity with a modest annualized ROE of 7.7%. Its financial-risk profile is conservative, while its relative operational weakness is the elevated inventory and long cash-conversion cycle. The investment debate is therefore likely to center on whether first-half margin strength can coexist with disciplined inventory reduction and whether conservative full-year guidance reflects prudence or a genuine second-half slowdown.