Quick View
| Metric | Current Period | Previous Year Same Period | YoY |
|---|---|---|---|
| Revenue | ¥2341.8B | ¥2275.2B | +2.9% |
| Operating Income | ¥314.8B | ¥290.2B | +8.5% |
| Profit Before Tax | ¥313.9B | ¥349.5B | −10.2% |
| Net Income | ¥233.5B | ¥274.6B | −15.0% |
| ROE | 2.6% | 3.1% | - |
Executive Summary
The first quarter results reflected both higher earnings from the core businesses and a decline in final profit due to the reversal of temporary income recognized in the previous year. Revenue was ¥2,341.8B (+2.9% YoY), while core operating income was ¥314.8B (+8.5% YoY), indicating improved profitability. Meanwhile, profit before tax was ¥313.9B (-10.2% YoY), and net income attributable to owners of the parent was ¥197.6B (-20.7% YoY). The primary reason for the decline in earnings was the decrease in other income, which fell from ¥61.3B in the previous year to ¥6.9B in the current period. Core operating income, which reflects the underlying strength of the businesses, remains on an upward earnings trend.
Factors Affecting Financial Performance
【Revenue】Revenue was ¥2,341.8B (+2.9% YoY), securing an increase in revenue. By segment, Personal Care generated ¥1,910.0B (+2.2% YoY), accounting for 81.6% of total revenue, while Pet Care recorded ¥397.3B (+6.6% YoY), demonstrating the highest growth rate. The increase in Pet Care revenue appears to have been driven primarily by strong volume and product mix.
【Profit and Loss】Gross profit was ¥930.4B (gross margin of 39.7%, improving from 38.9% in the previous year). The increase in gross profit absorbed the +3.4% growth in SG&A expenses, resulting in core operating income of ¥314.8B (operating margin of 13.4%, improving from 12.8% in the previous year). However, as other income decreased by ¥54.4B from ¥61.3B in the previous year to ¥6.9B, profit before tax declined to ¥313.9B (-10.2% YoY), while net income attributable to owners of the parent decreased to ¥197.6B (-20.7% YoY). In conclusion, the core businesses achieved higher revenue and earnings, whereas reported earnings reflected higher revenue but lower profit. The decline in earnings was attributable to a temporary factor, namely the reversal of other income recorded in the previous year.
Segment Analysis
Personal Care is the core business, generating revenue of ¥1,910.0B (+2.2% YoY), core operating income of ¥242.0B (+10.9% YoY), and a profit margin of 12.7% (approximately 1.0pt improvement from 11.7% in the previous year), accounting for 76.9% of total company core operating income. Pet Care posted the highest growth rate, with revenue of ¥397.3B (+6.6% YoY), while core operating income was ¥69.0B (-0.4% YoY) and its profit margin was 17.4% (approximately 1.2pt lower than 18.6% in the previous year), indicating a trend of higher revenue but lower earnings. Other businesses recorded revenue of ¥34.6B (+1.4% YoY) and core operating income of ¥3.8B (+41.9% YoY). The improvement in Personal Care’s profit margin led the increase in total company earnings, contrasting with Pet Care, which has not converted growth into higher profit.
Key Financial Indicators
【Profitability】The core operating margin was 13.4%, improving from 12.8% in the previous year, while the gross margin was also 39.7%, exceeding 38.9% in the previous year. Meanwhile, the profit-before-tax margin was 13.4%, and the net profit margin attributable to owners of the parent was 8.4%, both declining year on year. This divergence reflects the two-sided nature of the results: an improvement in the underlying strength of the core businesses and the reversal of temporary other income.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥298.1B, equivalent to 1.3 times net income of ¥233.5B and 1.5 times net income attributable to owners of the parent of ¥197.6B, indicating sound cash conversion.【Investment Efficiency】ROE was 2.6% on a quarterly basis and is estimated at approximately 10% on an annualized basis. The total asset turnover ratio remains low, indicating room for improvement in capital efficiency.【Financial Soundness】The equity ratio was 65.9%, while interest-bearing debt was minimal at approximately ¥104B. Cash and cash equivalents of ¥2,333.5B substantially exceeded short-term borrowings of ¥30.1B, indicating a conservative financial position.
Cash Flow Analysis
OCF was ¥298.1B, up +4.8% YoY and exceeding net income of ¥233.5B. By component, a ¥162.9B decrease in trade receivables and a ¥37.5B decrease in inventories contributed to cash inflows, while a ¥231.3B decrease in trade payables and other liabilities was the largest cash outflow factor. The reduction in operating liabilities in working capital put downward pressure on OCF. Investing Cash Flow resulted in a net outflow of ¥137.4B, including capital expenditures of ¥60.9B, resulting in free cash flow of ¥160.7B. Financing Cash Flow resulted in a net outflow of ¥373.8B, primarily due to share repurchases of ¥184.5B and dividend payments of ¥156.7B. Total shareholder returns during the quarter of ¥341.3B exceeded FCF by ¥180.6B. Cash and cash equivalents decreased by ¥197.4B from the beginning of the period to ¥2,333.5B; however, given the ample cash and deposits and low level of interest-bearing debt, financial flexibility remains high.
Quality of Earnings
The earnings structure for the current period combines two elements: an improvement in recurring core business earnings and the reversal of non-recurring non-operating items. Core operating income increased on an underlying basis to ¥314.8B (+8.5% YoY), while profit before tax and net income declined year on year because other income decreased by ¥54.4B from ¥61.3B in the previous year to ¥6.9B in the current period. As a result, improvements at the operating level were not fully reflected in final profit. The fact that OCF exceeded net income and that accruals—the difference between accrual accounting and cash accounting—were limited indicates strong cash support for the reported earnings. Comprehensive income was ¥279.9B (¥230.0B attributable to owners of the parent), exceeding net income of ¥233.5B. This difference was primarily due to an increase in other comprehensive income, including foreign currency translation adjustments of ¥3.8B, and does not impair the quality of the business.
Earnings Forecast and Guidance
The full-year company forecast calls for revenue of ¥1,100.0B (+6.8% YoY), EPS of ¥50.26, and dividends of ¥22.0. Revenue progress as of Q1 was approximately 23.2%, while core operating income growth (+8.5%) was broadly consistent with the full-year earnings growth scenario. Meanwhile, progress toward net income attributable to owners of the parent was approximately 22.8%, and EPS progress was approximately 22.7%, both slightly below the simple one-quarter benchmark of 25%. This weaker progress was due to the temporary downward impact on Q1 earnings from the reversal of other income recognized in the previous year. To achieve the +32.6% full-year earnings growth assumed in the forecast, maintaining the upward earnings trend in the core businesses in subsequent quarters will be the key focus. Neither the earnings forecast nor the dividend forecast was revised during the quarter.
Shareholder Returns
The full-year dividend forecast is ¥22.0 per share, implying a payout ratio of approximately 43.8% based on forecast EPS of ¥50.26. Dividend payments to shareholders in Q1 were ¥156.7B, while FCF of ¥160.7B almost fully covered the payments. In addition, the company conducted share repurchases of ¥184.5B, bringing total returns from dividends and share repurchases to ¥341.3B. This total return amount exceeded Q1 FCF by ¥180.6B, resulting in a total return ratio of 212.4% relative to FCF for the quarter. Although the company’s strong cash and deposits position (¥2,333.5B) and low level of interest-bearing debt support this level of shareholder returns, the sustainability of the return scale will depend on the extent of cash flow recovery.
Risk Factors
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Dependence on the core business: Personal Care is the core business, accounting for 76.9% of core operating income. Changes in demand trends and the competitive environment in this business could have a significant impact on company-wide performance.
-
Trend of higher revenue but lower earnings in Pet Care: Pet Care achieved revenue growth of +6.6% YoY, while core operating income declined by -0.4% YoY and its profit margin fell to 17.4% from 18.6% in the previous year, indicating that growth has not translated into higher profit.
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Cash outflow from working capital: Trade payables and other liabilities decreased by ¥231.3B from the beginning of the period, putting downward pressure on Q1 OCF. Monitoring of future working capital trends, including the inventory level of ¥1,201.1B, is necessary.
Industry Benchmark (Reference; Compiled by the Company)
Industry Benchmark (manufacturing)
Profitability and Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 12.8% | 7.2% (3.2%–12.5%) | +5.6pt |
| Net Profit Margin | 10.0% | 5.9% (2.9%–12.5%) | +4.1pt |
Both the operating margin and net profit margin substantially exceed the industry median, placing profitability in the upper tier of the industry.
Growth and Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 2.9% | 5.6% (1.1%–13.9%) | −2.7pt |
The revenue growth rate is below the industry median, indicating that the pace of growth is relatively moderate compared with the company’s high profitability.
※Source: Compiled by the company
Key Points from the Earnings Release
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Core operating income increased +8.5% YoY, and the core operating margin improved by approximately 0.6pt. This indicates that underlying business profitability improved, in contrast to the decline in reported net income.
-
The decline in net income attributable to owners of the parent was primarily due to the reversal of temporary other income recorded in the previous year and does not indicate deterioration in the core businesses.
-
Total shareholder returns, including dividends and share repurchases in Q1, exceeded FCF. The relationship between the future scale of shareholder returns and the recovery of OCF will therefore be a key area of focus.
Theoretical Share Price (Reference Value)
| Scenario | Theoretical Share Price |
|---|---|
| bear (bearish) | ¥482 |
| base (base case) | ¥496 |
| bull (bullish) | ¥507 |
| Calculation Assumption | Value |
|---|---|
| Book Value Per Share (BPS) | ¥455 |
| Adjusted Forecast EPS | ¥54.0 |
| Cost of Equity r | 8.77% (10-year Japanese government bond 2.77% + equity risk premium 6.00% + size premium 0.00%) |
| Persistence Factor of Residual Income ω / Explicit Forecast Period | 0.62 / 5 years |
| Assumed Payout Ratio | 43.8% |
| Reliability Adjustment to Forecast EPS | ×1.075 (based on the industry’s historical guidance achievement rate) |
| Implied PBR / PER | 1.09x / 9.2x |
Sensitivity: ¥482–¥511 at cost of equity ±1%, and ¥495–¥498 at ω±0.1.
Notes:
- Net assets as of the end of the quarter are used (there is a timing mismatch with the full-year forecast).
(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)
This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with professionals as necessary.
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AI Financial Analysis
Executive Summary
FY2026 Q1 was operationally solid, but reported profit declined because FY2025 Q1 contained a much larger other-income contribution. Revenue rose 2.9% YoY to ¥234.2bn. Gross profit increased 5.1% to ¥93.0bn, outpacing sales growth. The gross margin improved 80bp YoY to 39.7% from 38.9%, indicating favorable price/mix and/or input-cost discipline. SG&A increased 3.4% to ¥61.6bn, broadly in line with revenue and leaving the SG&A-to-sales ratio essentially unchanged at 26.3%. Core operating income increased 8.1% to ¥31.5bn. Core operating margin consequently expanded 44bp to 13.4% from 12.8%. Personal Care, the core business, delivered ¥191.0bn in revenue and ¥24.2bn in core operating profit, accounting for 76.9% of total segment profit. Reported profit before tax fell 10.2% to ¥31.4bn because other income declined sharply to ¥0.7bn from ¥6.1bn a year earlier. Finance income declined to ¥2.1bn while finance costs rose to ¥2.5bn, producing a modest net finance cost. Profit attributable to owners fell 20.7% to ¥19.8bn, and EPS declined to ¥11.40 from ¥14.18. The effective tax rate increased to 25.6% from 21.4%, further contributing to the decline in post-tax earnings. Cash conversion was strong, with operating cash flow of ¥29.8bn exceeding total quarterly net income of ¥23.4bn by 1.51x. Free cash flow was ¥16.1bn, supporting ordinary shareholder distributions, although Q1 buybacks exceeded free cash flow. The balance sheet remains conservatively capitalized, with a 65.9% equity ratio and only ¥10.4bn of interest-bearing debt against ¥233.4bn of cash and cash equivalents. Full-year revenue and owner-attributable profit guidance implies Q1 progress of 23.2% and 22.8%, respectively, modestly below a 25% seasonal run-rate but not materially off-track. The key forward implication is that sustained core-margin expansion and Personal Care execution must offset the absence of last year's sizable other income if the company is to deliver its forecast earnings growth.
Profitability Analysis
Annualized ROE was 8.9%, decomposed into an 8.4% net profit margin, 0.788x asset turnover, and 1.35x financial leverage. The low 1.35x leverage confirms that returns are driven principally by operating profitability and asset utilization rather than balance-sheet gearing. The most favorable operating change was margin: gross margin expanded 80bp and core operating margin expanded 44bp YoY to 13.4%. This was achieved despite SG&A rising 3.4%, slightly above 2.9% sales growth, although the SG&A ratio remained stable because the difference was marginal. Core operating income rose 8.1%, materially ahead of revenue growth, demonstrating positive operating leverage at the core-business level. However, reported pre-tax profit did not reflect this operating improvement because other income fell by ¥54.4bn YoY, from ¥61.3bn to ¥7.0bn. The decline in finance income and increase in finance costs also reduced pre-tax profit. The 8.4% net margin remains within the good 5-10% range, but it was below the prior-year level as non-core income normalized and the tax burden increased. The tax burden was 0.629, corresponding to a 25.6% effective tax rate, versus 21.4% in the prior-year quarter. Interest burden was exceptionally strong at 0.997, consistent with immaterial net interest drag relative to EBIT. Personal Care generated a 12.7% core operating margin, while Pet Care delivered a superior 17.4% margin and Other achieved 10.9%. Pet Care's margin profile is attractive, although Personal Care remains the principal driver of consolidated profit due to its substantially larger earnings base.
Growth Assessment
Revenue growth of 2.9% was moderate but accompanied by stronger 8.1% growth in core operating income, indicating improved monetization rather than volume-led expansion alone. Personal Care revenue increased 2.2% YoY to ¥191.0bn and its core operating profit increased 10.9% to ¥24.2bn. Pet Care revenue grew 6.6% to ¥39.7bn, but core operating profit declined 0.4% to ¥6.9bn, implying a 121bp margin contraction to 17.4%. Other revenue increased 1.4% to ¥3.5bn and core operating profit increased 41.9% to ¥0.4bn, albeit from a small base. The consolidated core-margin improvement therefore came primarily from Personal Care, with Pet Care's profit conversion representing an area to monitor. Full-year revenue guidance is ¥1,010.0bn, and Q1 progress is 23.2%, 1.8 percentage points below the standard 25% run-rate. Full-year owner-attributable profit guidance is ¥86.5bn, and Q1 progress is 22.8%, 2.2 percentage points below the standard run-rate. Neither variance exceeds the 10-percentage-point threshold that would indicate a material deviation from plan. Guidance calls for 6.8% revenue growth and 32.6% growth in net income, which requires a meaningful acceleration in reported earnings growth during the remaining quarters. This outlook is achievable only if the core-profit trajectory remains intact and non-core income comparisons become less adverse than in Q1.
Financial Health
Financial health is strong. Current assets of ¥608.4bn exceeded current liabilities of ¥237.1bn, resulting in a current ratio of 2.57x, well above the 1.0x warning threshold. Cash and cash equivalents alone were ¥233.4bn, almost equal to current liabilities and equivalent to approximately 77x short-term borrowings of ¥3.0bn. Interest-bearing debt totaled only ¥10.4bn, or 1.2% of capital, while the debt-to-equity ratio was 0.35x. The equity ratio improved to 65.9% from 65.0% at the prior fiscal year-end comparison point, despite shareholder distributions. There is no maturity mismatch evident: short-term loans are minimal relative to liquid resources, and noncurrent borrowings are only ¥7.4bn. Net cash was approximately ¥222.9bn before considering other financial assets. In addition, current and noncurrent other financial assets totaled ¥270.0bn, strengthening financial flexibility. Treasury stock increased by ¥18.5bn during the quarter as a result of repurchases, reducing owners' equity but not creating leverage pressure. The LIQUIDITY_STRESS alert is not borne out by the reported balance-sheet figures: the stated 0.00x cash-to-short-term-debt signal contrasts with ¥233.4bn of cash and ¥3.0bn of short-term loans. On the reported amounts, liquidity risk is low and the alert has no adverse implication for the current capital-structure assessment.
Notable B/S Changes
Cash and cash equivalents: -¥19.7bn (-7.8%) from fiscal year-end to ¥233.4bn - mainly reflects ¥18.5bn of share repurchases, ¥15.7bn of owner dividends, and net investing outflows; liquidity remains ample. Trade and other receivables: -¥15.9bn (-10.3%) to ¥138.8bn - favorable collection/reduction in receivables supported operating cash flow. Trade and other payables: -¥23.9bn (-10.8%) to ¥197.7bn - lower supplier balances were a material cash outflow and reduced working-capital funding. Treasury stock: -¥18.5bn (+13.1% as a negative-equity balance) to -¥158.9bn - accelerated buybacks reduced owners' equity and increased the importance of monitoring total shareholder-return coverage. Other financial assets, noncurrent: +¥7.1bn (+4.4%) to ¥167.7bn - increased financial-asset holdings add to financial flexibility alongside the substantial cash balance.
Cash Flow Quality
Cash-flow quality was favorable. Operating cash flow increased 4.8% YoY to ¥29.8bn, while total quarterly net income declined 15.0% to ¥23.4bn. The OCF-to-net-income ratio was 1.51x, comfortably above the 1.0x high-quality threshold and well above the 0.8x concern threshold. The accruals ratio was negative 0.8%, also consistent with solid cash realization of earnings. Working-capital movements were mixed but cash supportive overall: receivables generated a ¥16.3bn cash inflow and inventory generated a ¥3.7bn inflow. Inventory declined to ¥120.1bn from ¥123.3bn at the fiscal year-end comparison point, reducing balance-sheet inventory risk in absolute terms. This improvement was partly offset by a ¥23.1bn cash outflow from lower trade and other payables, which reflects reduced supplier financing rather than an artificial boost to operating cash flow. Cash taxes paid declined to ¥8.5bn from ¥17.9bn a year earlier, supporting Q1 OCF. Capital expenditure was ¥6.1bn, down from ¥7.7bn YoY. Reported free cash flow was ¥16.1bn and remained positive. The HIGH_INVENTORY_DAYS alert identifies annualized inventory days of 78, above the 60-day manufacturing benchmark; this raises the risk of slower sell-through, inventory carrying costs, and markdown or obsolescence exposure. However, the Q1 inventory balance fell by ¥3.2bn from the fiscal year-end comparison point and contributed positively to OCF, suggesting no Q1 cash-flow evidence of inventory accumulation. The investment implication is to monitor whether the reported 78-day inventory cycle declines further while Personal Care and Pet Care maintain sales growth.
Dividend Sustainability
The full-year forecast dividend of ¥22.00 per share implies a forecast dividend payout ratio of 43.8% against forecast EPS of ¥50.26. This is below the 60% sustainability benchmark and appears supportable by the company's profitability and net-cash balance sheet. Q1 cash dividends paid to owners were ¥15.7bn, while reported free cash flow was ¥16.1bn, indicating near-full cash coverage of the dividend payment in the quarter. Share repurchases were ¥18.5bn, significantly above the ¥7.6bn executed in the prior-year quarter. Including dividends and buybacks, Q1 shareholder distributions totaled ¥34.1bn, or 172.7% of Q1 owner-attributable profit; this is a total return ratio, not a dividend payout ratio. The quarterly total return was also above reported free cash flow, requiring use of existing cash resources. This does not create near-term funding risk given the ¥233.4bn cash position and minimal borrowings. Nonetheless, continued buybacks at this pace would moderate the rate of equity accumulation and should remain linked to recurring free-cash-flow generation rather than temporary liquidity. No dividend revision was announced.
Risk Assessment
Business risks include Personal Care concentration: Personal Care generated 76.9% of segment core operating profit, so pricing, consumer demand, competitive intensity, and product-mix changes in this business have an outsized impact on consolidated results., Pet Care margin risk: Pet Care revenue grew 6.6% YoY but core operating profit fell 0.4%, reducing its margin by 121bp to 17.4%; sustained cost inflation, promotion, or mix pressure could dilute group margin expansion., Inventory-cycle risk: The reported annualized inventory period of 78 days is above the 60-day benchmark. For consumer and hygiene products, slower sell-through can increase warehousing costs and the risk of inventory valuation pressure., Foreign-exchange and overseas-operating risk: Exchange differences on translation added ¥3.3bn to OCI in Q1, demonstrating that reported equity and comprehensive income remain sensitive to currency movements., Consumer-goods manufacturing risk: Input costs, packaging materials, energy, supply-chain disruption, product-quality incidents, and regulatory changes can pressure gross margins or require additional promotional spending..
Financial risks include Non-core earnings volatility: Other income was ¥0.7bn versus ¥6.1bn in the prior-year quarter, illustrating that reported pre-tax and net-income growth can diverge sharply from underlying core operating performance., Capital-allocation risk: Q1 dividends plus buybacks of ¥34.1bn exceeded both Q1 owner-attributable profit and reported free cash flow, increasing reliance on the existing cash reserve if maintained., Payables normalization: A ¥23.1bn reduction in trade and other payables was a material operating cash outflow. Further reductions could constrain cash conversion even if earnings grow..
Key concerns include Highest priority: whether Personal Care's core-margin expansion can persist while Pet Care's margin contraction is contained., High priority: whether inventory days improve from the reported 78 days without sacrificing service levels or sales momentum., Medium priority: delivery of full-year forecast net-income growth of 32.6%, which requires a substantial improvement from Q1's 20.7% decline in owner-attributable profit., Medium priority: the pace of buybacks relative to recurring free cash flow, notwithstanding the company's substantial net-cash position., Low priority: liquidity, because the reported cash balance is substantially greater than short-term debt and current liabilities are well covered by current assets..
Investment Implications
Key takeaways include Core earnings improved: core operating income rose 8.1% and core operating margin expanded 44bp to 13.4%., Reported EPS declined 19.6% YoY to ¥11.40 because prior-year other income was unusually high and the effective tax rate rose., Cash conversion was strong, with OCF/total net income of 1.51x and a negative 0.8% accruals ratio., The company retains substantial financial flexibility, with a 65.9% equity ratio, ¥233.4bn of cash, and only ¥10.4bn of interest-bearing debt., The forecast dividend payout ratio of 43.8% is moderate, while the sustainability of total shareholder returns depends on the future scale of buybacks..
Metrics to watch include Personal Care revenue growth and core operating margin, Pet Care core operating margin following the Q1 decline to 17.4%, Annualized inventory days, reported at 78 days, Other income and the gap between core operating income and reported profit before tax, Progress toward full-year revenue guidance of ¥1,010.0bn and owner-attributable profit guidance of ¥86.5bn, Operating cash flow, free cash flow, and the scale of share repurchases relative to free cash flow.
Regarding relative positioning, Uni-Charm displays a defensive consumer-products financial profile: good core operating profitability, strong cash conversion, a very low-debt balance sheet, and a moderate forecast dividend payout ratio. Its annualized 8.9% ROE is respectable but below the 10-15% benchmark for good returns, reflecting conservative leverage and the Q1 decline in reported net income. Operationally, the 13.4% core operating margin is within the good 8-15% range, while Pet Care's higher but declining margin and elevated inventory days are the principal execution variables.