AOYAMA TRADING Co.,Ltd. FY2027 Q1 Earnings Report

Quick View

Executive Summary

The first quarter of the fiscal year ending March 2027 resulted in higher revenue but lower earnings, with the sharp decline in net income particularly notable. Revenue was ¥439.7B (+0.7% YoY), Operating Income was ¥13.1B (-4.4%), Ordinary Income was ¥13.5B (-12.1%), and Net Income attributable to owners of the parent was ¥3.2B (-49.7%). In addition to the core Business Wear Business falling into an operating loss, the increase in the effective tax rate (68.2%) and extraordinary losses of ¥1.6B, including impairment losses of ¥1.2B, pressured the bottom line.

Factors Affecting Performance

【Revenue】Revenue was ¥439.7B, a marginal increase of +0.7% YoY. While the core Business Wear Business, which accounts for 67.1% of revenue, contracted to ¥274.6B (-2.4%), non-apparel areas—including the Franchisee Business at ¥46.2B (+13.8%), the Comprehensive Repair Services Business at ¥39.8B (+13.1%), and the Credit Card Business at ¥14.6B (+9.3%)—posted higher revenue and offset the overall decline.

【Earnings】Operating Income was ¥13.1B (-4.4%). Although the gross profit margin improved by +0.1pt YoY to 51.9%, the SG&A expense ratio increased by +0.3pt to 49.0%, putting pressure on earnings. The primary factor was the Business Wear Business posting an operating loss of ¥2.0B, falling into the red from operating income of ¥2.3B in the previous year. Operating Income in the Credit Card Business increased by +10.5% to ¥6.9B, supporting company-wide earnings. Ordinary Income declined by -12.1% to ¥13.5B, while Net Income contracted sharply to ¥3.2B (-49.7%) due to the increase in the effective tax rate to 68.2% (equivalent to 56.4% in the previous year) and extraordinary losses of ¥1.6B, including impairment losses of ¥1.2B. Overall, the results can be characterized as higher revenue but lower earnings, with Net Income particularly affected by temporary factors.

Segment Analysis

There were significant disparities in profitability among segments. The Credit Card Business had the highest profit margin at 47.3%, with Operating Income of ¥6.9B accounting for more than half of company-wide Operating Income of ¥13.1B, making it the effective earnings pillar. The Real Estate Business also had a high profit margin of 24.5%, but its revenue of ¥11.3B was relatively small, and it recorded impairment losses of ¥27M. The core Business Wear Business accounted for 67.1% of total revenue but posted an operating loss of ¥2.0B, falling into the red from operating income of ¥2.3B in the previous year, and also recorded impairment losses of ¥91M. The Franchisee Business (profit margin: 7.9%, +23.7%) and the Comprehensive Repair Services Business (profit margin: 3.5%, +109.0%) continued to report higher earnings. The Printing and Media Business narrowed its loss to ¥0.4B. Company-wide, the structure in which non-apparel areas offset deteriorating profitability in the Business Wear Business has become increasingly pronounced.

Key Financial Metrics

【Profitability】The Operating Income margin was 3.0%, slightly deteriorating from 3.1% in the previous year, while the Net Profit margin declined significantly to 0.7% from 1.5%. ROE remained low at 0.2%, primarily due to the sharp decline in Net Income.【Cash Flow Quality】There was a significant gap between Ordinary Income of ¥13.5B and Net Income of ¥3.2B, reflecting the substantial impact of the tax burden and extraordinary losses. Accounts receivable declined to ¥118.1B (-30.8% YoY), while accounts payable decreased to ¥79.7B (-29.1%), indicating changes in working capital.【Investment Efficiency】Total asset turnover was low, and inventories of ¥411.0B accounted for 13.8% of total assets, suggesting room for improvement in asset efficiency.【Financial Soundness】The Equity Ratio improved to 59.9% from 59.1% in the previous year, indicating a stable financial base. Cash and deposits of ¥553.2B substantially exceeded short-term borrowings of ¥175.1B, providing ample short-term liquidity.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is not available, funding trends can be inferred from balance sheet movements. Cash and deposits were ¥553.2B, down from ¥591.1B in the previous year. Meanwhile, the Equity Ratio improved to 59.9% from the previous year, and the capital structure has been maintained conservatively. Accounts receivable and accounts payable both contracted by approximately 30%, suggesting that revisions to credit and payment terms or changes in transaction timing may have affected cash flows. Inventories were ¥411.0B, almost unchanged from ¥411.4B in the previous year, indicating that inventory levels have not yet been reduced. Despite interest-bearing debt—including long-term borrowings of ¥496.0B and bonds due within one year of ¥60.0B—the company maintains a substantial cash balance, and no significant concerns are apparent regarding near-term liquidity.

Quality of Earnings

The quality of earnings for the current period is characterized by Net Income falling below recurring earnings power due to the impact of taxes and extraordinary losses. Net Income was ¥3.2B against Ordinary Income of ¥13.5B, representing a gap of approximately 76%. The primary factors were the increase in the effective tax rate—corporate income taxes and other taxes of ¥8.1B against Profit Before Tax of ¥11.9B, resulting in an effective tax rate of 68.2%—and extraordinary losses of ¥1.6B, including impairment losses of ¥1.2B. These items are strongly non-recurring in nature, and recurring business earnings power is considered to be higher than the level of Net Income. Non-operating income was ¥2.2B, equivalent to 0.5% of revenue, indicating low dependence on financial income. Comprehensive income was ¥12.7B, exceeding Net Income of ¥3.8B including non-controlling interests. The primary factor was an ¥8.5B increase in valuation difference on securities, confirming an uplift attributable to factors distinct from business earnings.

Earnings Forecast and Guidance

Progress in Q1 against the full-year plan was 22.6% for revenue (¥439.7B out of ¥1947.0B), 11.2% for Operating Income (¥13.1B out of ¥117.0B), and 11.3% for Ordinary Income (¥13.5B out of ¥119.0B). Compared with the simple quarterly progress benchmark of 25%, revenue is broadly in line, while Operating Income and Ordinary Income are clearly tracking below that pace. The company plan calls for higher revenue and earnings, with revenue growth of +3.0%, Operating Income growth of +10.5%, and Ordinary Income growth of +9.0%. Achieving these targets will depend on improved profitability in the Business Wear Business and a recovery in the second half. No revisions were made to the earnings or dividend forecasts during the quarter.

Shareholder Returns

The company forecasts a dividend of ¥38 per share for the fiscal year ending March 2027 (the amount after the April 2026 stock split). Based on forecast EPS of ¥53.54, the Payout Ratio is approximately 71%. Actual EPS for Q1 declined substantially to ¥2.27 (-48.5% from ¥4.41 in the previous year), but the dividend plan based on the full-year forecast remains unchanged. Treasury shares represent 6.1% of issued shares (9,226 thousand shares / 151,182 thousand shares), providing a certain buffer. Dividend sustainability will depend on a recovery in earnings and normalization of the tax burden from the second half onward.

Risk Factors

1. Deterioration in profitability of the core business: The Business Wear Business, which accounts for 67.1% of revenue, fell into an operating loss of ¥2.0B (versus operating income of ¥2.3B in the previous year), weighing on the company-wide profit margin. The business also recorded impairment losses of ¥91M.

2. Earnings volatility caused by the high effective tax rate and extraordinary losses: The effective tax rate of 68.2% (corporate income taxes and other taxes of ¥8.1B / Profit Before Tax of ¥11.9B) and extraordinary losses of ¥1.6B, including impairment losses of ¥1.2B, reduced Net Income by -49.7% YoY and widened the gap with Ordinary Income.

3. Delayed earnings progress: Q1 progress toward the full-year plan was 11.2% for Operating Income and 11.3% for Ordinary Income, substantially below the simple progress benchmark of 25%. A recovery in the second half will be necessary to achieve the plan.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (retail)

Profitability and Returns

The Operating Income margin was slightly below the industry median, while the Net Profit margin was significantly below the median due to the impact of taxes and extraordinary losses.

Growth and Capital Efficiency

The revenue growth rate was significantly below the industry median, placing the company’s growth pace toward the lower end among peers.

※Source: Company analysis

Key Takeaways from the Results

1. While the core Business Wear Business fell into an operating loss, high-margin non-apparel areas—including the Credit Card Business, Real Estate Business, and Franchisee Business—supported company-wide earnings. Portfolio diversification is providing a foundation for earnings.

2. The -49.7% YoY decline in Net Income was significantly affected by temporary factors, namely the increase in the effective tax rate and extraordinary losses, including impairment losses. This created a substantial gap between recurring earnings power, represented by Ordinary Income of ¥13.5B, and reported Net Income.

3. Q1 earnings progress against the full-year plan—11.2% for Operating Income and 11.3% for Ordinary Income—was below the simple progress benchmark. Improvement in the profitability of the core business in the second half will be a key focus in assessing achievement of the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,048–¥1,106 at ±1% for the cost of equity, and ¥1,071–¥1,080 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 time lag 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: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it 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.)

---

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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

FY2027 Q1 performance was weak at the earnings level despite modest top-line growth, as the core business-wear operation moved into a loss and non-recurring charges amplified the decline in profit attributable to owners. Revenue rose 0.7% YoY to ¥43.97bn. Gross profit increased 1.0% to ¥22.83bn, with gross margin improving by 16bp YoY to 51.9%. However, SG&A expenses rose 1.9% to ¥21.52bn, outpacing revenue growth. The SG&A ratio therefore increased by 31bp to 48.9%. Operating income declined 4.4% to ¥1.31bn and the operating margin compressed by 16bp to 3.0%. Ordinary income fell more sharply, by 12.1% to ¥1.35bn, because non-operating income declined while interest expense increased to ¥165m from ¥150m. Profit before tax decreased 18.4% to ¥1.19bn. Profit attributable to owners of parent fell 49.7% to ¥322m, producing a net margin of only 0.7%, down approximately 74bp YoY. The principal earnings drag below ordinary income was a ¥159m extraordinary loss, including a ¥118m impairment loss. The effective tax rate was exceptionally high at 68.2%, leaving a tax burden of 0.271 and materially reducing conversion from pre-tax profit to net income. Comprehensive income of ¥1.27bn exceeded net income because of positive valuation differences on securities and other OCI, but this does not offset weak operating earnings conversion. The business-wear segment, the largest revenue contributor, reported a ¥199m loss versus a ¥230m profit a year earlier, which was the key operational deterioration. By contrast, the card business generated the largest segment-profit contribution at ¥692m and remained the group’s core business on operating-income contribution. The Q1 operating-income progress rate of 11.2% is 13.8 percentage points below the standard 25% quarterly run rate versus full-year guidance, while profit attributable to owners reached only 4.2% of the full-year target. Management has maintained its full-year forecasts and dividend forecast, implying a substantial seasonal and/or operational recovery is required after Q1. The balance sheet remains liquid and conservatively geared, but weak capital efficiency, slow inventory conversion, and recurring impairment monitoring remain central to the earnings outlook.

Profitability Analysis

The reported annualized DuPont ROE is 0.7%, decomposed into a 0.7% net profit margin, 0.591x asset turnover, and 1.67x financial leverage. The principal constraint is profitability rather than leverage: a 0.7% net margin is substantially below the 3% concern threshold, while leverage remains moderate. Annualized asset turnover of 0.591x is modest for a retailer and reflects the group’s sizable asset base, including ¥85.10bn of PPE and ¥41.10bn of inventories. The largest YoY deterioration was in net-profit conversion: revenue grew 0.7%, but profit attributable to owners fell 49.7%. Gross margin improved to 51.9% from approximately 51.8%, indicating merchandise margin was resilient. This improvement was more than absorbed by SG&A deleveraging, as SG&A grew 1.9% against 0.7% revenue growth. Operating margin consequently declined to 3.0% from approximately 3.1%, and is below the 5% low-operating-efficiency alert threshold. The five-factor framework also identifies taxation as a material drag: the tax burden was 0.271, versus a normal level above 0.70, while the effective tax rate was 68.2%. Interest burden was 0.908, indicating financing costs reduced EBIT only moderately, although the ratio has weakened modestly with higher interest expense. The business-wear operation was the major operating-profit swing factor, reporting a ¥199m segment loss versus a ¥230m profit in the prior-year quarter. Card business segment profit increased 10.5% to ¥692m, becoming the largest contributor to segment profit. Franchisee business profit increased 23.7% to ¥365m, repair services profit rose 109.0% to ¥140m, and miscellaneous-goods profit increased 55.9% to ¥106m. Printing and media improved from a ¥166m loss to a ¥38m loss. Real-estate profit was broadly stable at ¥277m, down 1.4% YoY. The improved gross margin is constructive, but sustainable ROE improvement requires a turnaround in business-wear profitability and better SG&A absorption rather than additional balance-sheet leverage.

Growth Assessment

Revenue growth of 0.7% was modest and uneven across businesses. Business-wear revenue, the group’s largest segment by sales, declined 2.4% YoY to ¥27.44bn, demonstrating that consolidated growth was generated by diversification rather than a recovery in the legacy apparel operation. Card revenue rose 9.3% to ¥14.64bn. Printing and media revenue increased 2.0% to ¥18.31bn. Miscellaneous-goods revenue grew 0.9% to ¥39.18bn. Repair-services revenue rose 13.0% to ¥39.75bn, while franchisee revenue increased 13.8% to ¥46.16bn. Real-estate revenue increased 1.0% to ¥6.85bn. The faster-growing repair and franchisee operations also improved profitability, providing some diversification benefit. Nevertheless, their earnings contribution was insufficient to offset the reversal in business-wear segment profit. Full-year guidance calls for revenue of ¥194.70bn, up 3.0% YoY, and operating income of ¥11.70bn, up 10.5% YoY. Q1 revenue progress is 22.6%, 2.4 percentage points below the standard 25% run rate. Q1 operating-income progress is only 11.2%, 13.8 percentage points below the standard rate, and Q1 ordinary-income progress is 11.3%, also 13.7 percentage points below standard. Q1 profit attributable to owners is 4.2% of the ¥7.60bn full-year target, 20.8 percentage points below standard. The retained full-year forecast therefore assumes a material improvement in subsequent quarters, particularly in business wear, as well as normalization of the Q1 tax burden and lower relative impact from impairment charges. Growth quality is mixed: the group has multiple expanding non-apparel businesses, but consolidated earnings growth depends on restoring fixed-cost absorption in the apparel operation.

Financial Health

Liquidity is strong. The current ratio is 319.2% and the quick ratio is 242.4%, both well above healthy benchmarks. Current assets of ¥170.90bn exceed current liabilities of ¥53.55bn by ¥117.35bn. Cash and deposits of ¥55.33bn cover short-term loans of ¥17.51bn by 3.16x, reducing near-term refinancing pressure. Total interest-bearing debt is ¥67.11bn, comprising ¥17.51bn of short-term loans and ¥49.60bn of long-term loans. The short-term debt ratio is 26.1%, so the debt maturity profile is principally long term and does not indicate a material current-asset versus debt-maturity mismatch. Debt-to-equity is a conservative 0.67x, debt-to-capital is 27.4%, and neither metric triggers the high-leverage warning levels. Interest coverage of 7.94x is solid and above the 5x strong-credit benchmark, although lower operating profit and higher interest expense should be monitored. Total assets declined by ¥8.38bn YoY to ¥297.72bn, while total liabilities fell by ¥5.78bn to ¥119.46bn. Accounts receivable decreased ¥5.26bn, or 30.8%, to ¥11.81bn, which reduces receivables tied up in working capital. Accounts payable decreased ¥3.27bn, or 29.1%, to ¥7.97bn; this partially offsets the cash benefit from lower receivables and may reflect payment timing or lower purchasing activity. Electronic payables also declined by ¥1.24bn to ¥4.38bn. Total equity decreased ¥2.86bn YoY to ¥178.25bn, mainly reflecting lower retained earnings, although the equity ratio improved to 58.6% from 57.9% because assets contracted more rapidly. Goodwill is only ¥2.68bn, equivalent to 1.5% of equity and 0.9% of assets, so balance-sheet dependence on acquired goodwill is low. Net defined-benefit liability was ¥5.62bn and contract liabilities were ¥1.91bn; these remain relevant fixed obligations within an otherwise well-capitalized balance sheet.

Notable B/S Changes

Accounts receivable: -¥5.26bn (-30.8%) to ¥11.81bn - releases working capital and may reflect collection timing or lower credit sales. Accounts payable: -¥3.27bn (-29.1%) to ¥7.97bn - offsets part of the receivables-related cash release and reduces supplier-financing support. Cash and deposits: -¥3.79bn (-6.4%) to ¥55.33bn - liquidity remains ample, with cash covering short-term loans by 3.16x. Total assets: -¥8.38bn (-2.7%) to ¥297.72bn - balance-sheet contraction exceeded the decline in equity, lifting the equity ratio to 58.6% from 57.9%. Short-term loans: +¥2.04bn (+13.2%) to ¥17.51bn - modest increase in short-term borrowing, although liquidity remains strong and the short-term debt share is only 26.1%. Goodwill: -¥0.11bn (-3.8%) to ¥2.68bn - low absolute goodwill exposure limits M&A-related impairment risk.

Cash Flow Quality

The period’s earnings quality is weakened by low conversion of operating and pre-tax earnings into profit attributable to owners. Operating income was ¥1.31bn and ordinary income was ¥1.35bn, but profit attributable to owners was only ¥322m. A ¥159m extraordinary loss represented a meaningful drag, including ¥118m of impairment losses. The impairment component equals approximately 37% of profit attributable to owners, directly corresponding to the high-one-time-items quality alert. Impairment was recorded in the business-wear segment at ¥91m and the real-estate segment at ¥27m, highlighting asset-productivity pressure in those operations. The high 68.2% effective tax rate was the largest additional factor depressing after-tax earnings. Inventory amounted to ¥41.10bn, virtually unchanged YoY, despite only 0.7% revenue growth and a decline in business-wear sales. Quality alerts identify inventory days of 177-191 days, materially above both the 60-day retail warning level and the 90-day general warning level. The corresponding cash conversion cycle alert of 181 days signals that cash remains tied up in merchandise for an extended period. This increases markdown, obsolescence, and seasonal-demand risk, particularly for apparel-related goods. Lower receivables provide a positive working-capital offset, but reduced payables partly reverse that benefit. The low 3.0% operating margin means even moderate inventory markdowns, rent inflation, or wage pressure could have an outsized effect on operating cash generation. The combination of prolonged inventory conversion and impairment charges warrants close monitoring of subsequent-period inventory reduction and asset utilization.

Dividend Sustainability

The full-year dividend forecast is ¥38.00 per share following the April 2026 three-for-one stock split. Against forecast EPS of ¥53.54, the forecast dividend payout ratio is approximately 71.0%. This is above the 60% benchmark for a conservatively sustainable dividend payout, but below the 100% warning threshold. The payout is supported by a substantial equity base of ¥178.25bn, cash and deposits of ¥55.33bn, and modest debt-to-equity of 0.67x. However, Q1 EPS was only ¥2.27, equivalent to 4.2% of full-year forecast EPS, while Q1 profit attributable to owners was only ¥322m. Dividend sustainability therefore depends on delivery of the pronounced earnings recovery embedded in the unchanged full-year plan. The current period’s high tax burden and impairment charges are adverse to distributable earnings conversion. The balance-sheet liquidity buffer offers flexibility, but sustainable distributions should ultimately be covered by normalized earnings and merchandise cash conversion rather than cash balances. The company’s forecast implies continued dividend capacity if operating-income guidance is achieved, but the low Q1 profit progress and inventory-cycle risk make execution the key determinant.

Risk Assessment

Business risks include Business-wear revenue declined 2.4% YoY and segment profit reversed from a ¥230m profit to a ¥199m loss. As the largest sales segment, a prolonged weak recovery in demand or poor store productivity would materially constrain consolidated earnings., Inventory days of 177-191 days and a cash conversion cycle of 181 days are materially above retail benchmarks. Slow-moving apparel inventory increases exposure to markdowns, seasonal obsolescence, and further inventory or store-asset impairment., The retail cost structure has limited earnings resilience: SG&A increased 1.9% while revenue rose only 0.7%, causing operating-margin compression to 3.0%. Labor, occupancy, and logistics inflation could further erode profitability., The group’s diversification businesses are growing, but card, franchisee, repair, and miscellaneous-goods earnings must continue expanding to offset volatility in business wear. A slowdown in these smaller growth engines would expose the group more directly to apparel weakness., Impairment losses of ¥118m in business wear and ¥27m in real estate indicate localized asset-productivity risk and create potential for additional charges if store or property cash flows underperform..

Financial risks include The effective tax rate of 68.2% produced a tax burden of 0.271, substantially below normal conversion levels. Repetition of this tax profile would make the full-year net-income target harder to achieve even if operating profit recovers., Interest-bearing debt totals ¥67.11bn. Leverage is currently moderate and interest coverage is strong at 7.94x, but interest expense rose 10.0% YoY while operating income fell 4.4%, reducing the cushion if profitability weakens further., Accounts payable declined 29.1% YoY and electronic payables declined ¥1.24bn, reducing supplier-financing support to working capital. This may increase cash needs if inventory remains elevated., The annualized ROE of 0.7% and ROIC alert of 1.4% indicate weak returns on the capital base. Persistently low returns can limit internally funded investment and pressure future capital-allocation flexibility..

Key concerns include Highest priority: execution risk versus the unchanged full-year operating-income forecast. Q1 operating-income progress of 11.2% is 13.8 percentage points below the normal 25% pace., Highest priority: inventory conversion. The 177-191 day inventory-duration alerts and 181-day cash conversion cycle are unusually long for retail and could lead to markdowns or further impairments., High priority: restoration of business-wear segment profitability, since its ¥429m YoY segment-profit deterioration was larger than the consolidated ¥59m operating-income decline., High priority: normalization of the tax burden and avoidance of recurring exceptional losses, as these factors drove the 49.7% decline in profit attributable to owners., Moderate priority: operating leverage. Gross margin is stable, but the SG&A ratio rose to 48.9%, leaving little margin buffer..

Investment Implications

Key takeaways include Consolidated sales were stable and gross margin improved, but profit growth deteriorated because SG&A growth exceeded revenue growth and business wear became loss-making., Card business is the core business by segment operating-income contribution, generating ¥692m of segment profit and growing profit 10.5% YoY., Repair and franchisee businesses delivered double-digit revenue growth and strong profit expansion, supporting the diversification case., The group has strong liquidity, low goodwill dependence, and moderate leverage, which reduce balance-sheet stress despite weak profitability., The central operational issue is inventory productivity: inventory was ¥41.10bn and quality alerts show 177-191 inventory days and a 181-day cash conversion cycle., The maintained full-year forecast requires a substantial post-Q1 recovery in operating earnings and net-income conversion..

Metrics to watch include Business-wear segment revenue, segment profit, store productivity, and any further impairment charges, Inventory balance, inventory days, markdown activity, and cash conversion cycle, SG&A growth relative to revenue growth and operating-margin recovery from 3.0%, Quarterly progress toward the ¥11.70bn operating-income and ¥7.60bn profit-attributable targets, Effective tax rate and tax burden normalization from the Q1 68.2% effective rate, Interest expense and interest coverage as debt funding costs evolve.

Regarding relative positioning, Aoyama Shoji combines a specialty-retail gross margin of 51.9% with a relatively weak 3.0% operating margin, reflecting a high 48.9% SG&A burden. Its liquidity and leverage profile are stronger than its earnings profile: the 319.2% current ratio, 0.67x debt-to-equity ratio, and 7.94x interest coverage are sound, while annualized ROE of 0.7% and the 1.4% ROIC alert are low. Compared with retail benchmarks, the inventory-duration and cash-conversion indicators are the principal relative weakness.