KOKUYO CO.,LTD. FY2026 Q1 Earnings Report

Quick View

Executive Summary

Although revenue growth was secured, the decline in gross margin and increase in SG&A expenses constrained operating leverage, resulting in earnings growth that did not match the increase in revenue. Revenue was ¥108.10B (+8.7% YoY), Operating Income was ¥13.85B (+2.7%), Ordinary Income was ¥14.52B (+11.4%) due to foreign exchange gains and other factors, and Net Income attributable to owners of the parent was ¥10.12B (+0.9%). The Operating Income margin was 12.8%, approximately 0.7pt lower than in the same period of the previous year, highlighting that the effect of higher revenue was not sufficiently converted into profit.

Factors Affecting Performance

【Revenue】Revenue was ¥108.10B (+8.7% YoY). The core Furniture Business grew +6.4% (53.0% of total revenue), the Business Supplies Distribution Business grew +12.7% (27.7%), and the Stationery Business grew +8.8% (22.0%); all businesses achieved positive growth and contributed to company-wide revenue growth.

【Profit and Loss】Operating Income was limited to ¥13.85B (+2.7%), while the gross margin declined to 41.9% from 42.6% in the same period of the previous year. SG&A expenses increased to ¥31.48B (+20.2% equivalent), outpacing revenue growth. Ordinary Income increased to ¥14.52B (+11.4%), including a ¥0.34B foreign exchange gain in non-operating income and other items, but Net Income was limited to ¥10.12B (+0.9%) due to the ¥4.59B burden of income taxes and other taxes. By segment, the Business Supplies Distribution Business posted a 3.0% decline in Operating Income despite higher revenue, while the Stationery Business achieved profit growth of +18.1%, exceeding its revenue growth rate, highlighting differences in monetization across businesses. Overall, the company achieved higher revenue and profit, but its profit margins are on a structural downward trend, leaving concerns regarding the quality of revenue growth.

Segment Analysis

The Furniture Business generated Revenue of ¥57.26B (53.0% of total, +6.4% YoY) and Operating Income of ¥12.72B (+1.4%, 22.2% margin), serving as the core contributor to company-wide profit. The Business Supplies Distribution Business grew Revenue to ¥29.91B (+12.7%), but Operating Income declined to ¥1.31B (△3.0%, 4.4% margin), resulting in higher revenue but lower profit; absorbing costs under a low-margin structure remains a challenge. The Stationery Business generated Revenue of ¥23.73B (+8.8%) and Operating Income of ¥2.51B (+18.1%, 10.6% margin), achieving profit growth above its revenue growth rate and contributing to an improved business mix. The Interior Retail Business generated Revenue of ¥5.53B (+2.7%) and Operating Income of ¥0.14B (△9.8%, 2.5% margin), remaining low in profitability.

Key Financial Metrics

【Profitability】The Operating Income margin was 12.8% and the gross margin was 41.9%; both declined slightly from the same period of the previous year (above 12.8% and 42.6%, respectively), indicating a structure in which cost increases are preceding revenue growth.【Cash Flow Quality】Operating Cash Flow (OCF) was △¥9.95B, substantially below Net Income of ¥10.12B, resulting in a negative OCF/Net Income ratio. The primary causes were working-capital cash outflows, including a ¥13.31B increase in accounts receivable and a ¥10.46B decrease in accounts payable.【Investment Efficiency】Annualized ROE was 15.5%, a high level achieved under a conservative financial structure with an Equity Ratio of 74.1%. EPS was ¥23.46 (¥22.09 in the previous year, +6.2%), and BPS was ¥598.18.【Financial Soundness】Interest-bearing debt was negligible relative to cash and deposits of ¥61.19B, while current assets of ¥238.14B substantially exceeded current liabilities of ¥80.11B. The financial base is extremely sound, although the accumulation of accounts receivable warrants monitoring from the perspective of working-capital efficiency.

Cash Flow Analysis

OCF was △¥9.95B, with the deficit expanding from △¥7.90B in the same period of the previous year. Changes in working capital—including a ¥13.31B increase in accounts receivable, a ¥10.46B decrease in accounts payable, and a ¥1.18B increase in inventories—were the primary sources of cash outflow, in addition to ¥3.69B in income taxes and other taxes paid. Investing Cash Flow was △¥4.42B, as capital expenditures of ¥4.16B exceeded depreciation and amortization of ¥2.15B, indicating that renewal and expansion investments are continuing. Financing Cash Flow was △¥5.45B, with dividend payments being the primary source of outflow. As a result, free cash flow was △¥14.38B, indicating that cash generation did not keep pace with reported earnings during the quarter. Cash and deposits remained ample at ¥61.19B, and the short-term impact on liquidity is considered limited; however, working-capital trends should continue to be closely monitored.

Quality of Earnings

Ordinary Income of ¥14.52B comprised Operating Income plus non-operating income, including a ¥0.34B foreign exchange gain and ¥0.05B in dividends received. Non-operating expenses were limited to ¥0.10B, including ¥0.04B in interest expenses, indicating that the recurring earnings structure is generally sound. The net of extraordinary income of ¥0.27B, including a ¥0.22B gain on the sale of investment securities, and extraordinary losses of ¥0.09B was limited to ¥0.19B. Temporary factors therefore accounted for only a small portion of Net Income of ¥10.12B, with core operations and non-operating gains and losses comprising the main sources of profit. On the other hand, OCF of △¥9.95B was substantially below Net Income, making accruals—primarily the divergence between earnings and cash flow caused by the increase in accounts receivable—a key issue in assessing earnings quality. Comprehensive Income was ¥10.97B, exceeding Net Income of ¥10.12B, as other comprehensive income, including a +¥0.73B valuation difference on securities, made a positive contribution.

Earnings Forecasts and Guidance

The full-year company plan calls for Revenue of ¥390.00B (+8.4% YoY), Operating Income of ¥27.00B (+2.9%), and Ordinary Income of ¥26.80B (△1.6%). Progress in Q1 was 27.7% for Revenue, 51.3% for Operating Income, and 54.2% for Ordinary Income, with profit progress substantially exceeding the 25% level expected under an evenly distributed quarterly schedule. No revisions have been made to the earnings forecasts. The company describes the impact of the situation in the Middle East on raw material and logistics costs as “under review,” suggesting that the full-year plan may have been conservatively maintained at this point. The future trajectory of gross margin and SG&A expenses will be the focus in assessing the sustainability of the high level of progress.

Shareholder Returns

The full-year dividend forecast is ¥24.5 per share, while forecast EPS is ¥47.9, implying a Payout Ratio of approximately 51.1%. The company conducted a 1-for-4 stock split in July 2025; on a pre-split basis, this corresponds to a year-end dividend of ¥52 and an annual dividend of ¥98. Dividend payments during Q1 amounted to ¥5.57B. Compared with free cash flow of △¥14.38B during the same period, the company did not cover the payments from internally generated funds; however, its ability to pay dividends remains secure due to financial capacity supported by cash and deposits of ¥61.19B and low interest-bearing debt. No revision was made to the dividend forecast during the quarter.

Risk Factors

1. Raw Material and Logistics Cost Inflation Risk: The company states that the impact of the situation in the Middle East is “under review,” and this could place further pressure on the gross margin, which declined by approximately 0.7pt in Q1.

2. Concentration of Profit in a Specific Segment: The Furniture Business accounts for the majority of total segment profit, creating a structure in which demand trends in that business have a significant impact on company-wide performance.

3. Deterioration in Working Capital: Accounts receivable increased by ¥13.30B from the end of the same period of the previous year, while accounts payable decreased by ¥10.46B, making these the primary causes of OCF of △¥9.95B. The Business Supplies Distribution Business posted lower Operating Income despite higher revenue and also requires close monitoring from a profitability perspective.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is substantially above the industry median.

Growth and Capital Efficiency

Revenue growth also exceeds the industry median, placing the company in a relatively favorable position in both profitability and growth.

※Source: Compiled by the company

Key Points from the Financial Results

1. Profitability and capital efficiency are at favorable levels within the industry, but the gross margin and Operating Income margin declined year on year, requiring monitoring from the perspective of the quality of revenue growth.

2. Operating Income progress against the full-year plan was high at 51.3%, but the company maintained its earnings forecasts. Future trends in gross margin, SG&A expenses, and working capital will provide evidence for assessing full-year achievement.

3. OCF of △¥9.95B was below Net Income of ¥10.12B, making working-capital trends, primarily the increase in accounts receivable, a key point of observation in evaluating the conversion of earnings into cash.

Theoretical Share Price (Reference Value)

Sensitivity: ¥575–¥608 at ±1% in the cost of equity, and ¥591–¥591 at ±0.1 in ω.

Notes:

• Goodwill amortization of ¥0.2 per share is added back to profit (to account for a non-cash expense and comparability with IFRS companies).
• Because Net Income progress against the full-year forecast (50%) exceeds the standard level (25%), forecast EPS is 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 end of the quarter are used (there is a timing difference from the full-year forecast).

(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, nor does it predict or guarantee future share prices.)

---

This report is an earnings analysis document automatically generated by AI based on XBRL financial results announcement data. It does not recommend investment in any specific security. The industry benchmark is reference information compiled by the company based on publicly available financial results data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

---End of Report---