KOKUYO CO.,LTD. FY2026 Q2 Earnings Report

Quick View

Executive Summary

The second quarter (first half) of the fiscal year ending December 2026 saw increases in both revenue and profit. However, growth in Ordinary Income and Net Income exceeded growth in Operating Income, with non-operating income and extraordinary gains supporting part of profit growth. Revenue was ¥2020.7B (+9.1% YoY), Operating Income was ¥190.4B (+7.6%), Ordinary Income was ¥204.3B (+17.1%), and Net Income attributable to owners of the parent was ¥147.0B (+6.4%). The primary drivers of revenue growth were expansion in the core Furniture Business and price revisions, while the increase in non-operating income, including a foreign exchange gain of ¥6.1B, contributed significantly to the growth in Ordinary Income.

Factors Affecting Earnings

【Revenue】Revenue increased across all segments, with the three businesses other than the Interior Retail Business recording growth of more than 8%. The Furniture Business, the largest segment accounting for 49.6% of the revenue mix, led company-wide growth with revenue of ¥1011.4B (+10.1%), followed by Business Supplies Distribution (¥574.1B, +8.1%) and Stationery (¥465.9B, +8.7%). The Interior Retail Business remained almost flat at ¥118.0B (+0.2%).

【Profit and Loss】Operating Income increased to ¥190.4B (+7.6%), securing profit growth, although the Operating Income margin declined slightly to 9.4% (9.6% in the previous year). The gross profit margin was 40.7% (40.9% in the previous year), down -0.2pt, while the SG&A ratio was 31.3% (31.3% in the previous year), remaining almost flat. This indicates that increases in costs were largely absorbed through price revisions, an improved business mix, and fixed-cost control. Ordinary Income increased to ¥204.3B (+17.1%), exceeding the growth rate of Operating Income, primarily due to the increase in non-operating income of ¥16.7B, including a foreign exchange gain of ¥6.1B and dividend income of ¥2.0B. Net Income attributable to owners of the parent was ¥146.95B (+6.4%). Even after incorporating net extraordinary gains of +¥7.5B (a temporary factor), comprising extraordinary gains of ¥10.7B, including a gain on the sale of investment securities of ¥10.5B, and extraordinary losses of ¥3.3B, the growth rate did not reach that of Ordinary Income due to the burden of income taxes of ¥64.2B (effective tax rate of approximately 30.3%). In conclusion, the company achieved increases in both revenue and profit.

Segment Analysis

The Furniture Business generated revenue of ¥1011.4B (+10.1%) and Operating Income of ¥183.7B (+10.3%), maintaining the highest profitability among all segments with a profit margin of 18.2% and serving as the core pillar of company-wide profit. The Business Supplies Distribution Business increased revenue to ¥574.1B (+8.1%), while Operating Income declined to ¥23.4B (-12.1%) and the profit margin fell to 4.1% (5.0% in the previous year), indicating deterioration in profitability despite revenue growth. The Stationery Business recorded revenue of ¥465.9B (+8.7%) and Operating Income of ¥44.8B (+10.0%), with the profit margin at 9.6%, reflecting increases in both revenue and profit. The Interior Retail Business remained almost flat, with revenue of ¥118.0B (+0.2%), but profitability improved, with Operating Income of ¥4.6B (+12.4%) and a profit margin of 3.9%. Segment profit totaled ¥253.8B; after deducting adjustments of -¥63.4B for company-wide expenses and other items, company-wide Operating Income was ¥190.4B. Improving the performance of the Business Supplies Distribution and Interior Retail businesses, which have significant profitability gaps, is therefore a challenge for improving the company-wide margin.

Key Financial Metrics

【Profitability】Both the Operating Income margin, at 9.4% (9.6% in the previous year), and the Net Income margin, based on income attributable to owners of the parent, at 7.3% (7.5% in the previous year), declined slightly, indicating a modest weakening in profitability despite revenue growth. 【Cash Quality】Operating Cash Flow (OCF) of ¥118.3B was only 0.81x Net Income attributable to owners of the parent of ¥146.95B. The OCF-to-EBITDA ratio (OCF/EBITDA), relative to EBITDA-equivalent earnings of ¥235.1B, calculated as Operating Income plus depreciation and amortization of ¥44.7B, was approximately 0.50x, indicating that cash-generation capacity relative to earnings was somewhat weak. 【Investment Efficiency】ROE was 5.7%, while capital expenditures of ¥80.6B reached 1.80x depreciation and amortization of ¥44.7B, indicating that investment is running ahead of depreciation and amortization. 【Financial Soundness】The Equity Ratio improved to 74.6% (71.9% in the previous year). With cash and deposits of ¥984.3B and only negligible interest-bearing debt, the company’s financial foundation remains strong.

Cash Flow Analysis

Operating Cash Flow was ¥118.3B, an increase of +38.4% YoY, while Investing Cash Flow was -¥85.4B (including capital expenditures of -¥80.6B) and Financing Cash Flow was -¥161.3B (including share buybacks of -¥75.7B). Free Cash Flow therefore remained at ¥32.9B. Looking at the components of working capital, the decrease in trade receivables generated a cash inflow of ¥59.8B, while trade payables decreased by ¥186.1B and inventories increased by ¥8.4B; these factors acted to suppress the growth of Operating Cash Flow. Capital expenditures of ¥80.6B exceeded depreciation and amortization of ¥44.7B, and Free Cash Flow was insufficient to fund share buybacks of ¥75.7B. The outflow in Financing Cash Flow was supported by the high level of cash and deposits. The substantial decrease in trade payables suggests changes in payment terms or adjustments to procurement levels, and trends in working capital efficiency will be closely monitored as a factor affecting future cash-generation capacity.

Quality of Earnings

The core source of recurring earnings was Operating Income of ¥190.4B. Non-operating income of ¥16.7B (0.8% of revenue) comprised items such as a foreign exchange gain of ¥6.1B and dividend income of ¥2.0B, and its contribution to Ordinary Income was limited. Extraordinary gains of ¥10.7B were primarily attributable to a gain on the sale of investment securities of ¥10.5B. Combined with extraordinary losses of ¥3.3B, the net amount was +¥7.5B, equivalent to 5.1% of Net Income attributable to owners of the parent, indicating that the impact of temporary factors remained moderate or less. The difference between Ordinary Income of ¥204.3B and Net Income of ¥147.0B was primarily attributable to income taxes of ¥64.2B (effective tax rate of approximately 30.3%); the main source of the variance was the tax burden. Comprehensive Income was ¥158.3B, exceeding consolidated Net Income of ¥147.5B, with increases in other comprehensive income, including foreign currency translation adjustments of +¥3.0B and deferred hedging gains and losses of +¥6.3B, contributing to the difference, although the gap was limited. The fact that Operating Cash Flow remained at 0.81x Net Income attributable to owners of the parent indicates that some of the recognized earnings have been delayed in being converted into cash due to changes in working capital.

Earnings Forecast and Guidance

No revisions were made to the full-year earnings forecast (Revenue of ¥3900.0B, Operating Income of ¥270.0B, and Ordinary Income of ¥268.0B) during the quarter. Progress against the first-half results was 51.8% for Revenue, 70.5% for Operating Income, 76.2% for Ordinary Income, and 72.4% for Net Income attributable to owners of the parent, significantly exceeding the 50% benchmark for quarterly progress on a profit basis. It should be noted that this front-loaded profit performance includes first-half-specific factors such as foreign exchange gains and gains on the sale of investment securities. The company has stated that the impact of increases in raw material and logistics costs associated with the situation in the Middle East has been incorporated to a certain extent into its full-year forecast. In the second half, the emergence of these cost-increase factors may cause profit progress to normalize relative to the first half.

Shareholder Returns

The interim dividend is ¥12.25 per share, while the full-year dividend forecast is ¥24.5, resulting in a Payout Ratio of 51.1% against forecast EPS of ¥47.9. During the period, the company conducted share buybacks of ¥75.7B. The total amount of shareholder returns, combining dividend payments and share buybacks, was approximately ¥131.5B, and the Total Return Ratio against Net Income attributable to owners of the parent of ¥146.95B reached approximately 89.5%. The company conducted a 4-for-1 stock split effective July 1, 2025, and the dividend level for the current period is presented on a post-split basis. It should be noted that the annual dividend for the fiscal year ended December 2025, converted to a pre-split basis, was ¥98.00. Given the soundness of the financial foundation, there is little concern regarding the sustainability of the current level of shareholder returns for the time being; however, improvement in cash-generation capacity is a prerequisite for expanding the capacity for shareholder returns.

Risk Factors

1. Rising raw material and logistics costs: The gross profit margin was 40.7%, down -0.2pt from 40.9% in the previous year. The company has stated that the impact of increases in raw material and logistics costs associated with the situation in the Middle East has been incorporated to a certain extent into its full-year forecast. However, if costs increase beyond assumptions, further downward pressure may be placed on the gross profit margin in the second half.

2. Profitability gaps among segments: The Business Supplies Distribution Business achieved revenue growth of +8.1%, while Operating Income declined by -12.1% and the profit margin fell to 4.1% (5.0% in the previous year). If profitability continues to deteriorate despite revenue growth, this could impede improvement in the company-wide profit margin.

3. Weak cash-generation capacity due to working capital: Operating Cash Flow was 0.81x Net Income attributable to owners of the parent and approximately 0.50x Operating Income plus depreciation and amortization (EBITDA equivalent). Changes in working capital, including a decrease of ¥186.1B in trade payables, are placing pressure on Operating Cash Flow. If this situation continues, the volatility of Free Cash Flow may increase.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Return

Both the Operating Income margin and Net Income margin are slightly below the industry median.

Growth and Capital Efficiency

The Revenue growth rate is also slightly below the industry median, although the IQR is wide and dispersion within the industry is significant.

Source: Compiled by the Company

Key Points from the Earnings Results

1. Ordinary Income and Net Income are growing faster than Operating Income, and non-operating and extraordinary gains and losses, such as foreign exchange gains and gains on the sale of investment securities, are contributing to the increase. These factors should be evaluated separately from the growth in underlying operating earnings.

2. As of the first half, the progress rates for Operating Income, Ordinary Income, and Net Income all exceeded 70%, indicating that profit is running ahead of the full-year forecast. In the second half, the extent to which the cost-increase factors already incorporated by the company emerge will determine whether profit progress normalizes.

3. The cash-conversion levels, with an Operating Cash Flow/Net Income ratio of 0.81x and an OCF/EBITDA ratio of 0.50x, together with the working-capital movement represented by the substantial decrease in trade payables, will remain subjects of ongoing monitoring when assessing the quality of earnings growth.

Theoretical Stock Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market stock price or a recommendation to take any specific investment action.

Sensitivity: ¥582–¥615 at a ±1% change in the cost of equity, and ¥598–¥598 at a change of ±0.1 in ω.

Notes:

• Goodwill amortization of ¥0.2 per share is added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Because Net Income progress against the full-year forecast (72%) exceeds the standard level (50%), forecast EPS is adjusted upward within a maximum range of +10% (because companies with front-loaded progress tend to exceed forecasts. In businesses with strong seasonality, the adjustment may be excessive).
• 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 gap relative to the full-year forecast).

(Calculation model: Residual Income Model / Interest-rate reference month: 2026-06 / This value does not predict 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 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.

---End of Report---