ZETT (8135) FY2026 Q3 Earnings Report

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Executive Summary

The Company secured increases in Revenue, Operating Income, and Ordinary Income during the period, but Net Income declined substantially due to the absence of the prior-year extraordinary gain. Revenue was ¥426.1B (+6.6% year on year), Operating Income was ¥7.2B (+11.9%), and Ordinary Income was ¥8.9B (+9.6%), indicating an improving trend in the core business. Meanwhile, Net Income was ¥5.4B (-79.1%); this resulted from the comparative impact of the ¥29.5B gain on the sale of investment securities recorded as extraordinary income in the same period of the previous year and does not indicate deterioration in operating performance.

Factors Affecting Performance

【Revenue】Revenue increased 6.6% year on year to ¥426.1B. The Company operates as a single segment, the Sports Business, and growth in Revenue was confirmed across the business as a whole. The progress ratio against the full-year plan of ¥560.0B was 76.1%, slightly above the standard 75%.

【Profit and Loss】Operating Income increased 11.9% year on year to ¥7.2B, while Ordinary Income increased 9.6% to ¥8.9B, securing profit growth. The gross margin improved to 17.2% from 17.05% in the previous year, but the SG&A expense ratio also rose to 15.5% from 15.4%, absorbing part of the benefit from the gross margin improvement. Net Income was ¥5.4B (-79.1% year on year), primarily due to the comparative impact of the ¥29.5B gain on the sale of investment securities in the previous year. Profit Before Tax was equal to Ordinary Income and did not include extraordinary gains or losses. In conclusion, the Company achieved Revenue and profit growth on a core-business basis, while Net Income declined due to special factors.

Segment Analysis

As the Company operates as a single segment, the Sports Business, segment-specific disclosure has been omitted.

Key Financial Indicators

【Profitability】The Operating Income margin was 1.7% (1.6% in the previous year), while the Net Income margin was 1.3% (6.4% in the previous year; excluding the contribution from extraordinary income, the underlying level was broadly similar to the previous year). Both remain at low levels. The gross margin was 17.2%, below 20%, indicating a structure in which changes in product mix and procurement costs can readily affect profit.【Cash Quality】Non-operating income accounted for only 0.4% of Revenue, indicating no excessive dependence. Interest coverage was extremely high relative to interest expense of ¥0.01B.【Investment Efficiency】Annualized ROE was 4.8%, which can be decomposed into a Net Income margin of 1.3%, total asset turnover of 1.75x, and financial leverage of 2.17x. The primary constraint on ROE is the low Net Income margin.【Financial Soundness】The Equity Ratio improved to 46.0% from 44.4% in the previous year. Short-term payment capacity remained sound, with a current ratio of 164.9% and a quick ratio of 138.4%. Interest-bearing debt was small at ¥2.8B, with a Debt/Capital ratio of only 1.8%.

Cash Flow Analysis

Although cash flow statement data were not disclosed, funding trends can be assessed from changes in the balance sheet. Cash and deposits increased by ¥11.5B, or +12.6%, year on year to ¥102.2B, indicating improved liquidity. Short-term borrowings increased by ¥0.5B to ¥1.0B, but the balance of cash and deposits substantially exceeded this amount, limiting the impact on liquidity management. While accounts receivable decreased by ¥21.0B year on year, electronically recorded monetary claims increased by ¥5.4B, indicating a change in the composition of settlement methods. Accounts payable decreased by ¥16.0B, while electronically recorded obligations increased by ¥15.4B, showing a similar change in the settlement composition of trade payables. Overall, the accumulation of cash and a conservative financial structure were confirmed.

Quality of Earnings

Ordinary Income of ¥8.9B and Profit Before Tax of ¥8.9B for the period were identical, indicating a recurring earnings structure that did not include extraordinary income such as that recorded in the same period of the previous year. In the same period of the previous year, a ¥29.5B gain on the sale of investment securities was recorded as extraordinary income, substantially boosting Profit Before Tax; therefore, the year-on-year comparison of Net Income (-79.1%) does not reflect the underlying strength of the core business. Non-operating income was ¥1.7B, comprising ¥0.4B in dividend income, ¥0.3B in interest income, and other items. It was small at 0.4% of Revenue, indicating a limited contribution from non-core elements to recurring earnings. The effective tax rate was relatively high at approximately 39.7%, constraining the conversion efficiency from Profit Before Tax to Net Income. Comprehensive Income was ¥7.2B, exceeding Net Income of ¥5.4B, with other comprehensive income, including a +¥1.6B valuation difference on securities, contributing to the increase. Overall, the quality of earnings for the period was relatively stable as recurring earnings excluding extraordinary factors; however, attention is required regarding earnings volatility resulting from the low-margin structure.

Earnings Forecast and Guidance

The full-year Company forecast is Revenue of ¥560.0B (+1.2% year on year), Operating Income of ¥11.0B (+2.5%), and Ordinary Income of ¥13.0B (+2.1%), with no forecast revisions during the quarter. The progress ratios for Q3 cumulative results were 76.1% for Revenue, 65.3% for Operating Income, 68.4% for Ordinary Income, and 60.9% for Net Income. Although Revenue exceeded the standard progress level of 75%, profit-related indicators were below that level. Achieving the full-year plan will require the Operating Income margin to improve to 2.85% in Q4, equivalent to +117bp compared with the Q3 cumulative level of 1.68%.

Shareholder Returns

The full-year dividend forecast is ¥18.00 per share, with no revision to the dividend forecast during the quarter. The Q2 dividend was ¥0, suggesting a policy of concentrating dividends at the fiscal year-end. The forecast Payout Ratio against the full-year forecast EPS of ¥44.96 is approximately 40.0%, below the general sustainability benchmark of 60%. The Company has a substantial dividend funding base, with retained earnings of ¥98.0B and cash and deposits of ¥102.2B. Consistency with the forecast total dividend payment of approximately ¥3.5B against the full-year Net Income plan of ¥8.8B can also be confirmed.

Risk Factors

1. Low-Margin Structure Risk: The gross margin of 17.2% and Operating Income margin of 1.7% are both low. Increases in procurement prices, expanded discounting, or delays in passing through higher costs could significantly pressure profit.

2. Risk of Missing the Full-Year Plan: Achieving the full-year Operating Income plan requires an Operating Income margin of 2.85% in Q4. If the improvement from the Q3 cumulative result of 1.68% is not achieved, full-year progress could fall below plan.

3. Demand Volatility Risk: Demand for sporting goods is influenced by consumer sentiment, weather, and trends in sporting events and school activities. Concentration in a single Sports Business could amplify these effects. Inventories of ¥41.2B account for 12.7% of total assets, and deviations from demand forecasts could affect the gross margin through inventory valuation losses and other factors.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (trading)

Profitability and Returns

Profitability was below the industry median, placing the Company among the low-margin companies within the industry.

Growth and Capital Efficiency

The Revenue growth rate exceeded the industry median, representing relatively high growth within the industry.

Source: Company analysis

Key Takeaways from the Earnings Results

1. While the core business secured Revenue growth of +6.6% and Operating Income growth of +11.9%, the substantial decline in Net Income resulted from the absence of the previous year's ¥29.5B gain on the sale of investment securities. This must be distinguished from the trend in recurring earnings.

2. The Operating Income margin of 1.7% and gross margin of 17.2% were both below the industry median, and improvement to an Operating Income margin of 2.85% in Q4 is required to achieve the full-year plan.

3. Financial soundness is high, as indicated by an Equity Ratio of 46.0%, a current ratio of 164.9%, and a Debt/Capital ratio of 1.8%. The dividend forecast also maintains the previous period's policy, suggesting a stable financial foundation.

Theoretical Share Price (Reference Value)

Sensitivity: ¥649–¥686 at ±1% for the cost of equity, and ¥664–¥669 at ±0.1 for ω.

Notes:

• 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).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Valuation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share 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 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 discretion and responsibility, after consulting a professional as necessary.

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