TSUKAMOTO CORPORATION (8025) FY2026 Q3 Earnings Report

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Executive Summary

The key point of this earnings release is that the operating loss narrowed from ¥0.45B in the same period of the previous year to ¥0.15B, indicating that the deterioration in profitability has been contained. Revenue was ¥7.33B (+7.7% YoY), operating income was ¥-0.15B (¥-0.45B in the previous year), ordinary income was ¥-0.09B (¥-0.41B in the previous year), and the quarterly net loss attributable to owners of the parent was ¥-0.12B (¥-0.28B in the previous year). The primary driver of revenue growth was expansion in the Western Apparel Business, while an improved gross margin and company-wide cost reductions supported the improvement in earnings.

Factors Affecting Business Performance

【Revenue】Revenue was ¥7.33B, up +7.7% YoY. By segment, the Western Apparel Business was the largest contributor to revenue growth, generating ¥3.79B (51.7% of total revenue, +17.0% YoY). The Health & Lifestyle Business increased slightly to ¥1.97B (+3.9%), while the Home Furnishing Business declined to ¥0.22B (-21.3%), the Japanese Apparel Business to ¥0.63B (-5.3%), and the Rental Business to ¥0.81B (-1.0%).

【Earnings】The gross margin improved to 30.8% from 28.0% in the same period of the previous year, an improvement of 280bp. SG&A expenses were ¥2.41B (+2.4% YoY), below the rate of revenue growth, resulting in operating leverage. The primary factor behind the improvement in operating earnings was the Western Apparel Business’ turnaround from a segment loss of ¥0.026B to a profit of ¥0.23B. The Rental Business maintained its position as the largest profit-contributing segment, with a profit margin of 55.3%. Of ¥0.19B in non-operating income, ¥0.17B was dividend income, which supported the reduction in the ordinary loss but should be distinguished from the earnings power of the core business. Extraordinary losses of ¥0.09B included ¥0.06B in impairment losses associated with store closures in the Home Furnishing Business, a temporary factor. In conclusion, the company achieved higher revenue and a narrower operating loss; this should be characterized as revenue growth accompanied by a trend toward reduced losses, rather than higher revenue and lower profit.

Segment Analysis

Of the five segments, only two were profitable: the Rental Business (revenue of ¥0.81B, profit of ¥0.45B, profit margin of 55.3%) and the Western Apparel Business (revenue of ¥3.79B, profit of ¥0.23B, profit margin of 6.0%). The Western Apparel Business turned profitable from a loss of ¥0.026B in the same period of the previous year, becoming the largest contributor to the company-wide improvement. Meanwhile, the Health & Lifestyle Business (revenue of ¥1.97B, loss of ¥0.35B, profit margin of -17.7%), the Japanese Apparel Business (revenue of ¥0.63B, loss of ¥0.14B, profit margin of -22.6%), and the Home Furnishing Business (revenue of ¥0.22B, loss of ¥0.21B, profit margin of -95.9%) continued to incur losses. The Home Furnishing Business experienced both a decline in revenue and an expansion of its loss compared with the previous year, and also recorded ¥0.06B in impairment losses related to stores scheduled for closure. The three businesses together carried a segment loss of ¥0.699B, indicating that progress in restructuring the earnings structure is directly linked to company-wide earnings.

Key Financial Metrics

【Profitability】The operating margin improved by 450bp to -2.1% from -6.6% in the same period of the previous year, but remained negative. The net profit margin improved to -1.6% from -4.1% in the same period of the previous year. The gross margin also improved to 30.8% from 28.0%, indicating an improving trend.【Cash Quality】Of the ¥0.09B in extraordinary losses, ¥0.06B was a non-cash impairment loss, meaning that temporary items represented a substantial proportion of the ¥0.12B net loss for the period. Inventories increased 30.6% YoY to ¥2.46B, significantly outpacing revenue growth.【Investment Efficiency】ROE (annualized) was -1.0%, while the equity ratio was 49.2% (48.6% in the previous year). EPS was ¥-30.02 (¥-69.48 in the previous year), indicating a narrower loss.【Financial Soundness】Current assets of ¥6.47B compared with current liabilities of ¥9.32B resulted in a current ratio below 100%. Short-term borrowings increased YoY to ¥5.73B. Cash and deposits were ¥1.92B, indicating a financial structure with relatively high dependence on short-term liabilities.

Cash Flow Analysis

Although the company does not disclose a statement of cash flows, changes in the balance sheet indicate that inventories increased by ¥0.58B YoY to ¥2.46B, suggesting greater funds tied up in working capital. Accounts receivable declined by ¥0.18B YoY to ¥1.27B, indicating improvement in collections; however, because the increase in inventories was larger, working capital as a whole continued to represent a funding burden. During this period, short-term borrowings increased by ¥0.84B YoY to ¥5.73B, while long-term borrowings increased by ¥0.36B to ¥1.45B, suggesting that some working capital and capital expenditures were financed through borrowings. Cash and deposits were ¥1.92B, slightly below the previous year, while investment securities increased by ¥2.52B YoY to ¥10.59B, accompanied by an expansion in valuation differences. Overall, the company’s ability to generate funds from operating activities appears limited, and its dependence on borrowings appears to be increasing.

Quality of Earnings

The primary factors behind the reduction in the ordinary loss were the narrower operating loss and ¥0.19B in non-operating income, mainly consisting of ¥0.17B in dividend income, which accounted for 92% of non-operating income. This dividend income represents returns on investment securities of ¥10.59B. Although a certain degree of recurring income can be expected each period, it differs in nature from a recovery in the earning power of the core business. Of the ¥0.09B in extraordinary losses, the ¥0.06B impairment loss associated with store closures in the Home Furnishing Business was a temporary factor and represented a significant proportion of the ¥0.12B net loss for the period. In addition, inventories increased at a pace of +30.6%, well above the +7.7% growth in revenue, suggesting an accumulation of accruals that entails the future risk of valuation losses or discount sales. Comprehensive income was substantially positive at ¥1.52B, but most of this was attributable to an increase in valuation differences on investment securities and was independent of the improvement in operating earnings.

Earnings Forecast and Guidance

Progress toward the full-year revenue forecast of ¥10.0B was 73.3%, slightly below the standard progress rate of 75%. Meanwhile, against full-year forecasts of ¥0.01B in operating income and ¥0.05B in ordinary income, cumulative losses were ¥0.15B and ¥0.09B, respectively, requiring substantial profit generation in Q4. Against the full-year net income forecast of ¥0.15B, cumulative net loss was also ¥0.12B, meaning that profit of approximately ¥0.27B will be required in Q4 to achieve the forecast. Whether the forecasts are achieved will depend on maintaining profitability in the Western Apparel Business, reducing losses in unprofitable segments, and the recurring nature of non-operating income.

Shareholder Returns

The full-year dividend forecast is ¥30 per share, unchanged from the previous fiscal year’s actual result. The payout ratio based on the full-year net income forecast of ¥0.15B is estimated at approximately 81%, above the level of approximately 60% used as a guideline. As the cumulative net loss for the first three quarters was ¥0.12B, maintaining the dividend assumes a recovery in earnings in Q4. As no data is available regarding share repurchases, only the payout ratio is evaluated here, and no reference is made to the total return ratio.

Risk Factors

1. Weak profitability in consumer-related segments: The Home Furnishing Business generated revenue of ¥0.22B (-21.3% YoY) and had a profit margin of -95.9%, while recording ¥0.06B in impairment losses related to stores scheduled for closure. The Japanese Apparel Business also continued to incur losses, with a profit margin of -22.6%, creating a risk that fixed-cost burdens will remain even after store restructuring.

2. Tight short-term liquidity: Current assets of ¥6.47B compared with current liabilities of ¥9.32B resulted in a current ratio below 100%. Short-term borrowings of ¥5.73B compared with cash and deposits of ¥1.92B indicate a financial structure with high dependence on refinancing.

3. Inventory growth and working capital efficiency: Inventories increased 30.6% YoY to ¥2.46B, substantially outpacing revenue growth of +7.7%. In conjunction with the weak performance of the Home Furnishing Business, the risk of slow-moving inventory and valuation losses requires monitoring.

Industry Benchmarks (For Reference; Compiled by the Company)

Profitability and Returns

The company’s profitability metrics, including both its operating margin and net profit margin, are substantially below the industry median and rank toward the bottom of the industry.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median, indicating a relatively favorable position in terms of top-line growth.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The operating loss narrowed from ¥0.45B in the same period of the previous year to ¥0.15B, while the gross margin improved by 280bp. The turnaround of the Western Apparel Business and company-wide cost reductions were the primary drivers of the improvement, and the sustainability of these two factors will be the focus going forward.

2. The Home Furnishing, Japanese Apparel, and Health & Lifestyle Businesses recorded a combined segment loss of ¥0.70B, and the company continues to rely on earnings from the Rental Business and Western Apparel Business to offset these losses. This concentration in the business portfolio is a structural characteristic that warrants close monitoring.

3. The increase in net assets was primarily attributable to the expansion of valuation differences on investment securities, a factor distinct from the improvement in operating earnings. The capital efficiency of the core business (annualized ROIC remains negative) must be distinguished from the apparent increase in net assets.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,722–¥2,871 at ±1% for the cost of equity, and ¥2,765–¥2,814 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from ordinary income and other items is used to exclude the impact of temporary earnings factors (the company’s forecast EPS is ¥37.2).
• 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 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: 2026-08 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market price or a recommendation of any specific investment action, and does not predict or guarantee the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings report 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 a professional as necessary.

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