SHIMAMURA (8227) FY2027 Q2 Earnings Report

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Executive Summary

The Company posted higher revenue and earnings, with operating leverage driving profit growth. Revenue was ¥3,572.6億 (+4.0% YoY), Operating Income was ¥331.3億 (+5.3%), Ordinary Income was ¥349.5億 (+7.3%), and Net Income was ¥241.9億 (+5.6%). In addition to steady expansion in the core Japan Business, high growth and improved margins in the Overseas Business contributed to improvements in both gross margin and the SG&A ratio.

Factors Affecting Performance

【Revenue】Revenue was ¥3,572.6億, up +4.0% YoY. The Japan Business amounted to ¥351.8億 (+3.8%) and accounted for 98.5% of consolidated revenue, driving growth, while the Overseas Business posted ¥54.5億 (+19.1%), showing strong growth. Revenue growth was slightly below the industry median of 5.2%, but represents stable revenue growth given the Company’s scale.

【Profit and Loss】Operating Income was ¥331.3億 (+5.3%), and the Operating Income margin improved from the same period of the previous year to 9.3%. Improvement in the cost of sales ratio lifted gross margin to 35.0% (+approximately 5bp), while the SG&A ratio was 25.9% (▲approximately 8bp). SG&A expenses grew by +3.8%, below revenue growth of +4.0%, resulting in improved cost efficiency. Supported by non-operating income including interest income of ¥11.3億 and dividend income of ¥3.5億, Ordinary Income grew by +7.3% to ¥349.5億, outpacing Operating Income growth. Extraordinary losses of ¥4.5億, including impairment losses of ¥2.3億, were recorded as temporary factors, but represented only 1.3% of Profit Before Tax of ¥345.0億, limiting their impact on the earnings structure. Net Income was ¥241.9億 (+5.6%). In conclusion, the Company achieved higher revenue and earnings.

Segment Analysis

The Japan Business is the core business, with Revenue of ¥351.8億 (+3.8%), Operating Income of ¥326.8億 (+4.6%), and a margin of 9.3%; it accounts for 98.1% of consolidated Operating Income. The Overseas Business achieved significant earnings growth, with Revenue of ¥54.5億 (+19.1%) and Operating Income of ¥4.5億 (+118.1%), while its margin improved substantially from approximately 4.5% in the previous year to 8.2%. Although the Overseas Business is small in scale, accounting for 1.5% of consolidated revenue, the improvement in profitability indicates its potential as a growth driver.

Key Financial Metrics

【Profitability】The Operating Income margin was 9.3%, the Net Income margin was 6.8%, and annualized ROE was 9.6%; all showed improvement from the same period of the previous year.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥271.9億, exceeding Net Income of ¥241.9億, and the OCF/Net Income ratio was 1.12x, indicating solid cash backing for earnings. Meanwhile, OCF/EBITDA (after adding back depreciation and amortization) was only 0.73x, leaving room for improvement in cash conversion subject to working capital requirements.【Investment Efficiency】Capital expenditures totaled ¥252.6億, approximately 6.5x depreciation and amortization expense of ¥38.8億, indicating an acceleration of store- and real estate-related investment.【Financial Soundness】The Company maintained an extremely conservative financial base, with an Equity Ratio of 87.5%, a current ratio of 519.9%, and a D/E ratio of 0.14x.

Cash Flow Analysis

Operating Cash Flow was ¥271.9億, up +16.3% YoY, exceeding Net Income of ¥241.9億 and providing solid cash backing for earnings. Factors contributing to the increase included a ¥47.8億 increase in other current liabilities, while a ¥42.3億 increase in accounts receivable and an ¥18.2億 decrease in accounts payable weighed on working capital. Investing Cash Flow was an outflow of ¥1,036.9億, primarily due to a net outflow of ¥714.0億 from the acquisition and redemption of short-term investment securities and capital expenditures of ¥252.6億. On a basis deducting capital expenditures from OCF, the Company secured a positive ¥19.3億; however, disclosed Free Cash Flow, including investment securities management, was negative ¥765.0億. Financing Cash Flow was an outflow of ¥79.6億, primarily reflecting dividend payments of ¥79.5億. Cash and cash equivalents declined significantly from the same period of the previous year, but ample liquid assets, including short-term investment securities of ¥1,984.8億, continue to support liquidity.

Earnings Quality

Overall earnings quality was favorable. Non-operating income of ¥18.2億 consisted primarily of recurring financial income, such as interest income of ¥11.3億 and dividend income of ¥3.5億, while one-time earnings-boosting factors were limited. Extraordinary losses of ¥4.5億 included impairment losses of ¥2.3億, but represented only 1.3% of Profit Before Tax and did not materially distort the earnings structure for the period. OCF exceeded Net Income, accruals—the divergence between accrual-basis and cash-basis accounting—were limited, and accounting profits were supported by cash generation. Comprehensive Income was ¥240.8億, nearly equal to Net Income of ¥241.9億. As changes in valuation items such as valuation differences on available-for-sale securities and foreign currency translation adjustments were limited, the divergence between Net Income and Comprehensive Income was small.

Earnings Forecast and Guidance

Progress against the full-year Company plan was 49.0% for Revenue, 49.6% for Operating Income, 50.8% for Ordinary Income, and 51.1% for Net Income, generally representing standard levels. The full-year Operating Income forecast is up +8.7% YoY, while first-half actual growth was limited to +5.3%; therefore, the Company needs to achieve Operating Income of ¥337.1億 in the second half (+1.8% compared with first-half actual results). Neither the earnings forecast nor the dividend forecast was revised as of this quarter.

Shareholder Returns

The Q2 dividend was ¥40.00 per share, equivalent to 50% of the Company’s full-year dividend forecast of ¥80.00. Based on first-half actual results, the Payout Ratio (dividends paid ÷ Net Income) was approximately 36.6%, broadly consistent with the forecast Payout Ratio of approximately 35.1% based on forecast EPS of ¥227.92 and an annual dividend of ¥80.00. Share repurchases were negligible (-0.0億円), and the Total Return Ratio remained approximately in line with the Payout Ratio. Dividend payments of ¥79.5億 represented 29.3% of OCF of ¥271.9億, indicating solid dividend coverage by operating cash flow. The Company conducted a 1-for-3 stock split effective February 21, 2026, and the dividend forecast for the fiscal year ending February 2027 reflects this split.

Risk Factors

1. Business concentration risk: The Japan Business accounts for 98.5% of consolidated revenue and 98.1% of Operating Income. This structure makes consolidated performance highly susceptible to domestic consumption trends and sales fluctuations caused by seasonality and weather.

2. Risk of rising personnel expenses: Salaries and allowances increased by +5.9% YoY, outpacing revenue growth of +4.0%. If gross profit improvement cannot continue to absorb these increases, the improving trend in the SG&A ratio may reverse.

3. Increase in asset retirement obligations: Asset retirement obligations totaled ¥88.1億 (+29.4% YoY), accounting for 12.2% of total liabilities. Trends should be monitored as these obligations represent future restoration costs associated with store openings and closures and the expansion of lease contracts.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Both the Operating Income margin and Net Income margin were substantially above the industry median, placing profitability in the upper tier of the industry.

Growth and Capital Efficiency

Revenue growth was slightly below the industry median, leaving growth at a mid-range level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. The Operating Income margin improved from the same period of the previous year to 9.3%, primarily due to a decline in the SG&A ratio (▲approximately 8bp). The key focus going forward will be whether the Company can maintain cost efficiency while absorbing rising personnel expenses.

2. OCF exceeded Net Income, indicating solid cash backing, but capital expenditures reached approximately 6.5x depreciation and amortization expense, and disclosed Free Cash Flow was negative due to the net outflow in Investing Cash Flow. Monetizing the aggressive investment program will be an issue going forward.

3. Although the Overseas Business remains small, accounting for 1.5% of the revenue mix, its Operating Income margin improved substantially to 8.2%, providing room for an increased contribution to consolidated earnings. However, achieving the full-year plan will require accelerated Operating Income growth in the second half (first half +5.3% → full-year plan +8.7%).

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,381–¥2,520 at ±1% for the cost of equity, and ¥2,449–¥2,450 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end are used (there is a timing mismatch with the full-year forecast).
• As 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: 2026-08 / 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 forecast 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 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 responsibility, after consulting with a professional as necessary.

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