AOYAMA TRADING Co.,Ltd. FY2027 Q1 Earnings Report

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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.)

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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.

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