Scroll (8005) FY2026 Q3 Earnings Report

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Executive Summary

The key takeaway from this earnings report is that revenue increased while earnings declined, indicating that the Company has been unable to convert revenue growth into profit growth. Revenue was ¥659.2B (+4.9% YoY), Operating Income was ¥47.3B (-13.1%), Ordinary Income was ¥50.6B (-11.7%), and Net Income was ¥21.5B (-44.6%). While the core Mail-Order Business reported lower revenue and earnings due to rising prices and unfavorable weather, the Solutions Business provided significant support through substantial profit growth. Meanwhile, a ¥15.5B extraordinary loss associated with the withdrawal from the unprofitable e-commerce business significantly reduced Net Income.

Factors Affecting Earnings

【Revenue】Revenue increased 4.9% YoY to ¥659.2B. The Solutions Business posted substantial revenue growth of +22.3% and drove overall performance, while the core Mail-Order Business saw orders stagnate due to the impact of rising prices and unfavorable weather, resulting in a revenue decline of -7.0%. The E-Commerce Business also reported a revenue decline of -1.6%.

【Profit and Loss】Operating Income was ¥47.3B, down -13.1% YoY. Although the gross profit margin was maintained at 42.3% (improved YoY), SG&A expenses increased to ¥231.6B (SG&A ratio: 35.1%), causing the Operating Margin to decline by approximately 1.5pt to 7.2%. Ordinary Income was ¥50.6B (-11.7%), with non-operating income and expenses broadly in line with the previous year. As a result of recording an extraordinary loss of ¥15.5B (including a ¥5.5B goodwill impairment loss and a provision for losses related to business restructuring), Net Income was ¥21.5B (-44.6%), representing a substantial divergence of approximately 58% from Ordinary Income. The extraordinary loss was a temporary factor associated with the withdrawal from parallel-import e-commerce sales in the E-Commerce Business. Accordingly, the Company can be characterized as having experienced revenue growth but lower earnings due to both a decline in the profitability of its core business and the impact of non-recurring items.

Segment Analysis

The largest segment by revenue composition was the Mail-Order Business (¥283.9B, approximately 43% of total revenue), positioning it as the core business. Segment profit for this business was ¥36.9B (-22.3%), with sluggish orders caused by rising prices and unfavorable weather serving as the primary factor affecting performance. Meanwhile, the Solutions Business posted substantial profit growth, with segment profit of ¥11.8B (+52.5%); improvement in the allowance ratio for doubtful accounts related to payment processing services also contributed. The E-Commerce Business returned to profitability, with segment profit of ¥1.2B (+124.6%); however, it recorded a ¥10.0B provision for losses related to business restructuring as an extraordinary loss, which represents a one-time expense separate from operating income and expenses. Among the segments, the Mail-Order Business’s profit margin (approximately 13%) exceeds that of the Solutions Business (approximately 4.3%), but the significant decline in profit from the Mail-Order Business was the primary factor depressing overall profit.

Key Financial Metrics

Profitability: ROE was 5.8%, and the Operating Margin was 7.2% (down from 8.7% in the previous year).

Financial soundness: The Equity Ratio was 62.8% (down from 65.1% in the previous year), the Current Ratio was 198.7%, and the Quick Ratio was 152.2%.

Other: The D/E Ratio was 0.59x, and EPS was ¥62.42 (¥113.09 in the previous year).

Inventory turnover days were 67 days on an annualized basis, and inventories increased to ¥93.5B from the previous year, making working capital efficiency an area requiring monitoring.

Cash Flow Analysis

Cash and deposits were ¥77.4B, remaining broadly flat from ¥77.35B in the previous year. Working capital expanded, with accounts receivable increasing to ¥139.4B (from ¥118.6B in the previous year) and inventories increasing to ¥93.5B (from ¥86.5B in the previous year), creating a factor constraining cash-generation capacity. Treasury stock increased substantially YoY, suggesting that share repurchases were conducted. Since the ¥15.5B extraordinary loss included non-cash impairment losses relative to Net Income of ¥21.5B, a divergence between cash flow and earnings may have arisen; cash-generation capacity therefore requires monitoring.

Earnings Quality

Net Income was ¥21.5B compared with Ordinary Income of ¥50.6B, representing a substantial divergence of approximately 58%. The primary factor was the ¥15.5B extraordinary loss (including a ¥5.5B goodwill impairment loss and a provision for losses related to business restructuring), which was a temporary factor associated with the withdrawal from the unprofitable e-commerce sales business within the E-Commerce Business. Non-operating income was ¥3.5B, equivalent to approximately 0.5% of revenue, and was of limited importance in the overall composition of earnings. The effective tax rate was somewhat high at approximately 38.7%, calculated as ¥13.6B in income taxes and other taxes divided by ¥35.1B in profit before tax, which also constrained the conversion of profit before tax into Net Income. Excluding the extraordinary loss, earnings power on an Ordinary Income basis remained relatively stable, and Net Income for the period can be viewed as having been significantly affected by temporary items.

Earnings Forecast and Guidance

Progress against the full-year forecast was 75.8% for revenue, 84.4% for Operating Income, and 84.4% for Ordinary Income. Profit-related indicators were ahead of the standard progress rate (Q3 = 75%). The Company raised its Operating Income and Ordinary Income forecasts from the previous announcement, while lowering its Net Income forecast to ¥28.0B due to the recognition of an extraordinary loss. A notable feature is that the direction of the revisions differed across profit levels. The full-year forecast assumes an additional approximately ¥8.7B in Operating Income and approximately ¥6.5B in Net Income during Q4. The key to achieving the forecast will be the absence of additional extraordinary losses and a moderation in the pace of SG&A expense growth.

Shareholder Returns

The Q2 dividend was ¥29.5 per share, and the full-year dividend forecast is ¥59.0 per share. The Payout Ratio based on the full-year EPS forecast of ¥81.6 is approximately 72.3%, representing a high level in recent years. In addition, treasury stock increased substantially, indicating that share repurchases were conducted. Accordingly, the Total Return Ratio, combining dividends and share repurchases, is considered to be higher than the Payout Ratio alone. The financial foundation of an Equity Ratio of 62.8% and cash and deposits of ¥77.3B supports shareholder returns; however, as Net Income declined -44.6% YoY due to the extraordinary loss, the resilience of the Payout Ratio to earnings volatility will be a key focus going forward.

Catalysts

【Short Term】The Company’s full-year earnings outcome will be determined by whether extraordinary losses subside in Q4, whether the growth rate of SG&A expenses slows, and whether order trends in the Mail-Order Business recover.

【Long Term】The medium-term earnings structure will be determined by the sustainability of growth in the Solutions Business, control of inventory and promotional expenses to maintain the profitability of the Mail-Order Business, and progress in transforming the business model of the E-Commerce Business.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

The Company’s profitability exceeds the industry median and is positioned at a high level.

Growth and Capital Efficiency

The revenue growth rate is slightly above the industry median but below the upper end of the IQR, placing it at a mid-range level.

※Source: Compiled by the Company

Risk Factors

1. Inventory and working capital risk: Working capital has expanded, with inventories of ¥93.5B (¥86.5B in the previous year) and accounts receivable of ¥139.4B (¥118.6B in the previous year). Inventory turnover days were 67 days on an annualized basis, indicating some degree of inventory stagnation. Errors in demand forecasts could lead to discounted sales or inventory valuation losses.

2. Risk of declining profit in the core segment: The core Mail-Order Business saw revenue decline -7.0% and segment profit decline -22.3% due to the impact of rising prices and unfavorable weather. As this business represents the largest share of revenue, its impact on overall performance is substantial.

3. Risk of recurring one-time expenses: The E-Commerce Business recorded an extraordinary loss of ¥15.5B (impairment losses and a provision for losses related to business restructuring). Business restructuring is ongoing toward completion, and similar one-time expenses may arise in the future.

Key Points from the Earnings Report

1. The Operating Margin declined by approximately 1.5pt from the previous year to 7.2%, but remained above the industry median of 3.2%. The balance between gross margin improvement (42.3%) and rising SG&A expenses will be the focus going forward.

2. Net Income declined -44.6% YoY due to the ¥15.5B extraordinary loss, but the full-year Operating Income and Ordinary Income forecasts were revised upward. A notable feature is that the Company’s assessment differed across the various profit levels.

3. The Payout Ratio is high at approximately 72.3% based on the full-year forecast, and share repurchases were also conducted, making the Total Return Ratio higher than the Payout Ratio alone. The financial foundation (Equity Ratio: 62.8%; Current Ratio: 198.7%) supports the continuation of shareholder returns.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,001–¥1,057 at ±1% for the cost of equity, and ¥1,026–¥1,030 at ±0.1 for ω.

Notes:

• Net Income has been substantially compressed relative to Operating Income due to tax burden, acquisition-related expenses, non-controlling interests, and other factors (Net Income ÷ Operating Income: 50%). This value reflects that compression at face value; if the factors are temporary, underlying earnings power may be higher.
• 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 are used (there is a timing difference relative to the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(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 and does not constitute a forecast of the market share price or a recommendation of any specific investment action, nor does it predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through an integrated analysis of XBRL earnings summary data and PDF earnings presentation materials. 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. You should make investment decisions at your own responsibility and, as necessary, consult with a professional advisor.

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