SHIMAMURA (8227) FY2027 Q1 Earnings Report

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Executive Summary

In addition to higher revenue, growth in operating income and below exceeded the revenue growth rate, resulting in strong earnings with improved profitability. Revenue was ¥181.66B (+7.9% YoY), operating income was ¥17.89B (+16.8%), ordinary income was ¥18.79B (+18.9%), and quarterly net income attributable to owners of the parent was ¥12.86B (+19.0%). The operating margin improved to 9.8% from approximately 9.1% in the same period of the previous year, with the high gross profit margin and control of SG&A expenses driving the higher profit growth rate.

Factors Affecting Earnings

【Revenue】Revenue was ¥181.66B (+7.9% YoY). By segment, the core Japan Business generated ¥179.14B (+7.7%), accounting for 98.6% of consolidated revenue, while the Overseas Business maintained high growth of ¥2.52B (+22.2%), although its scale remained small.

【Profit and Loss】Operating income was ¥17.89B (+16.8% YoY), with an operating margin of 9.8% (improved from approximately 9.1% in the previous year). The gross profit margin was 35.0% and the SG&A ratio was 25.3%, indicating operating leverage as gross profit expansion exceeded the increase in SG&A expenses. Ordinary income was ¥18.79B (+18.9%), supplemented by ¥0.90B in non-operating income (¥0.47B in interest income, ¥0.20B in dividend income, and ¥0.12B in foreign exchange gains). Extraordinary losses were limited to ¥0.21B (including ¥0.10B in impairment losses), resulting in a minor impact on profit before taxes. Net income was ¥12.86B (+19.0%). This represents high-quality growth accompanied by higher revenue, increased earnings, and improved margins.

Segment Analysis

The Japan Business is the core earnings segment, generating revenue of ¥179.14B (+7.7%), segment profit of ¥17.72B (+16.0%), and a profit margin of 9.9% (improved from 9.2% in the previous year), accounting for 99.1% of consolidated operating income. The Overseas Business achieved substantial earnings growth, with revenue of ¥2.52B (+22.2%) and segment profit of ¥0.17B (+438.7%), improving its profit margin from 1.5% in the previous year to 6.6%. However, the overseas profit margin remains below Japan’s 9.9%, and consolidated profitability continues to depend heavily on the profitability of the domestic business.

Key Financial Indicators

【Profitability】The operating margin of 9.8% and net margin of 7.1% both improved from the same period of the previous year, supported by a gross profit margin of 35.0% and an SG&A ratio of 25.3%. 【Cash Flow Quality】Operating cash flow (OCF) was limited to ¥3.77B, and the OCF/net income ratio was low at 0.29x relative to net income of ¥12.86B. The ¥11.14B increase in accounts receivable and ¥17.13B increase in inventories exceeded the ¥15.06B increase in accounts payable, placing pressure on cash generation through working capital. 【Investment Efficiency】ROE was 2.6% (based on quarterly actual results), appearing relatively low because it is measured against a substantial capital base represented by an equity ratio of 85.4%. Capital expenditures of ¥16.96B were approximately 9 times depreciation and amortization expense of ¥1.86B, indicating a phase of growth investment. 【Financial Soundness】The current ratio was approximately 440%, calculated as current assets of ¥329.79B divided by current liabilities of ¥74.83B. The debt-to-equity ratio was approximately 0.17x, calculated as total liabilities of ¥84.22B divided by net assets of ¥492.64B, indicating an extremely conservative financial structure.

Cash Flow Analysis

Operating cash flow was ¥3.77B, improving from negative ¥3.46B in the same period of the previous year, but remaining modest relative to net income of ¥12.86B. The primary factors were increases of ¥17.13B in inventories and ¥11.14B in accounts receivable, representing an accumulation of working capital that exceeded the financing benefit from the ¥15.06B increase in accounts payable. Investing cash flow was negative ¥81.36B, including the acquisition of ¥168.00B and redemption of ¥105.60B in short-term investment securities, substantially exceeding capital expenditures of ¥16.96B. Financing cash flow was negative ¥7.90B, primarily due to dividend payments of ¥7.90B. As a result, reported free cash flow was negative ¥77.59B; however, most of the investing cash flow consisted of securities transactions for cash management purposes and does not indicate a persistent funding shortfall. In addition to cash and deposits of ¥41.72B, the Company held ¥179.47B in short-term investment securities, and liquidity remained high.

Quality of Earnings

The earnings increase in the current quarter was driven primarily by the recurring factor of an improved operating margin. Extraordinary losses of ¥0.21B (including ¥0.10B in impairment losses) represented only 1.1% of profit before taxes of ¥18.59B, resulting in a minor impact. Non-operating income of ¥0.90B consisted of ¥0.47B in interest income, ¥0.20B in dividend income, and ¥0.12B in foreign exchange gains; all were stable returns from cash management, with no apparent one-time factors. On the other hand, OCF was only 0.29x net income, indicating that the accounting earnings increase was not sufficiently converted into cash generation. The accumulation of working capital due to increases in inventories and accounts receivable was the cause, and future inventory clearance and markdown trends will affect earnings quality. Comprehensive income was ¥11.98B, slightly below net income of ¥12.86B, primarily due to deterioration in the valuation difference on securities of negative ¥0.84B.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year Company forecasts were 24.9% for revenue, 26.8% for operating income, 27.3% for ordinary income, and 27.2% for net income, all exceeding the 25% simple-progress benchmark. The full-year plan calls for revenue growth of +4.2% YoY and operating income growth of +8.7%; however, Q1 actual growth rates (revenue +7.9%, operating income +16.8%) exceeded these targets, and no revisions were made to the earnings or dividend forecasts for the current quarter. The full-year dividend forecast, reflecting the impact of the stock split (February 21, 2026, three shares for each share), is ¥80.

Shareholder Returns

The full-year dividend forecast is ¥80 per share, incorporating the impact of the stock split (one share to three shares, implemented on February 21, 2026). The payout ratio calculated from the full-year net income forecast of ¥47.32B and the weighted-average number of shares outstanding of 207.63M shares is approximately 35%, below the level generally considered a benchmark for sustainability. Share repurchases were minimal at ¥0.002B during the current quarter, representing a limited proportion of total shareholder returns; shareholder returns are therefore primarily dividend-based. Although OCF for the current quarter was limited to ¥3.77B against dividend payments of ¥7.90B, ample financial resources consisting of cash and deposits of ¥41.72B and short-term investment securities of ¥179.47B support the Company’s payment capacity.

Risk Factors

1. Inventory accumulation risk: Inventories were ¥78.08B, an increase of ¥17.13B YoY, and annualized inventory days were approximately 60 days. Depending on the clearance of seasonal merchandise and markdown trends, the gross profit margin of 35.0% could come under pressure.

2. Weak cash conversion: OCF was ¥3.77B, with a ratio of only 0.29x relative to net income of ¥12.86B. If accounts receivable and inventories continue to increase, funds could become increasingly tied up in working capital despite higher earnings.

3. Concentration of earnings in the domestic business: The Japan Business accounts for 99.1% of consolidated operating income, while the Overseas Business’s operating margin of 6.6% is below the domestic margin of 9.9%. Changes in domestic consumption trends and the competitive environment could therefore have a significant impact on consolidated performance.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability ranks among the higher levels within the retail industry, with both the operating margin and net margin substantially exceeding the industry median.

Growth and Capital Efficiency

The revenue growth rate was broadly in line with the industry median and was not exceptionally high within the industry relative to the Company’s strong profitability.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Operating income growth of +16.8% exceeded revenue growth of +7.9%, and the operating margin improved from the same period of the previous year. Operating leverage was achieved as gross profit expansion absorbed the increase in SG&A expenses.

2. The operating income progress rate against the full-year plan was 26.8%, exceeding the standard benchmark of 25%; however, the OCF/net income ratio remained at 0.29x, with the accumulation of working capital due to increases in inventories and accounts receivable creating a divergence between earnings and cash flow.

3. The financial foundation is extremely strong, with a current ratio of approximately 440% and an equity ratio of 85.4%. The substantial investing cash outflow was also primarily attributable to transactions involving short-term investment securities and does not indicate a persistent funding shortfall.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,346–¥2,484 at ±1% for the cost of equity, and ¥2,412–¥2,415 at ±0.1 for ω.

Notes:

• 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.

(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, nor does it predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI through analysis of 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 discretion and responsibility, after consulting with a professional as necessary.

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