HEIWADO (8276) FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended February 2026, although the Company secured revenue growth, Operating Income and Ordinary Income declined slightly, mainly due to higher personnel expenses. In addition, an increase in extraordinary losses resulted in a double-digit decline in Net Income attributable to owners of the parent. Revenue was ¥456.01B, up +2.5% year on year; Operating Income was ¥13.31B, down -0.4%; Ordinary Income was ¥14.61B, down -0.2%; and Net Income attributable to owners of the parent was ¥9.41B, down -12.3%. The core Retail Business recorded higher revenue but lower segment profit due to increased personnel expenses, resulting in a higher-revenue, lower-profit performance.

Factors Affecting Performance

【Revenue】Revenue was ¥456.01B, up +2.5% year on year. The Retail Business led overall performance with revenue of ¥432.35B (94.8% of the total, up +2.6% year on year), while Retail-Related Businesses generated ¥6.87B (up +3.6%) and Other Businesses generated ¥16.79B (down -0.9%).

【Profit and Loss】Operating Income was ¥13.31B (down -0.4% year on year) and Ordinary Income was ¥14.61B (down -0.2%), both essentially flat. However, salaries and allowances increased 3.9%, exceeding the 2.5% increase in revenue, and the SG&A expense ratio rose to 33.5%. The deviation of -35.6% between Ordinary Income and Net Income attributable to owners of the parent of ¥9.41B was primarily due to the recognition of ¥1.69B in extraordinary losses, including ¥0.64B in impairment losses and ¥0.47B in losses on disposal of fixed assets, compared with ¥0.77B in extraordinary income. Although revenue increased, higher personnel expenses and one-time losses prevented top-line growth from translating into profit growth.

Segment Analysis

The Retail Business recorded segment profit of ¥12.65B (down -3.2% year on year) against revenue of ¥432.35B (up +2.6%), resulting in a profit margin of 2.9%. Despite being the core business, it remains a low-margin operation. Retail-Related Businesses generated revenue of ¥6.87B (up +3.6%) and segment profit of ¥1.99B (up +3.1%), with a profit margin of 28.9%, making it a highly profitable segment that significantly exceeds the core Retail Business. Other Businesses generated revenue of ¥16.79B (down -0.9%) and segment profit of ¥0.77B (up +1.2%), with a profit margin of 4.6%. The key focus for Group-wide profit is improving the profit margin of the Retail Business, which accounts for 94.8% of total revenue. Segment profit is calculated on an Ordinary Income basis and therefore uses a different measurement basis from consolidated Operating Income.

Key Financial Indicators

【Profitability】Operating margin was 2.9% (down from 3.0% in the previous period), Net Income margin was 2.1%, and ROE was 4.8%. Under the DuPont decomposition, ROE consists of a 2.1% Net Income margin × 1.46x total asset turnover × 1.58x financial leverage. The low profit margin, rather than leverage, is constraining ROE.【Cash Quality】Operating Cash Flow (OCF) was ¥17.78B, reaching 1.89x Net Income of ¥9.41B. The accrual ratio was also negative, indicating strong cash support for accounting earnings. Meanwhile, OCF/EBITDA was 0.66x, leaving room to improve cash conversion efficiency.【Investment Efficiency】Capital expenditures for the acquisition of property, plant and equipment and intangible assets amounted to ¥17.36B, or 1.26x depreciation and amortization expense of ¥13.82B, indicating continued growth and maintenance investment. Free Cash Flow was limited to ¥1.31B.【Financial Soundness】The Equity Ratio was 63.2%, D/E was 0.58x, Debt/EBITDA was 0.78x, and interest coverage was 104.8x, indicating a light debt burden. However, the current ratio was 75.1%, below 1.0x, making short-term liquidity an item requiring monitoring.

Cash Flow Analysis

Operating Cash Flow was ¥17.78B, down -22.6% year on year, but remained 1.89x Net Income of ¥9.41B, indicating strong cash support for earnings. The primary reason for the decline was a ¥6.83B cash outflow related to changes in liabilities associated with retirement benefits. In terms of working capital, an increase in accounts receivable of ¥1.61B and an increase in inventories of ¥0.27B used cash, while an increase in accounts payable of ¥1.52B partially offset these outflows. Investing Cash Flow was an outflow of ¥16.47B, primarily reflecting ¥17.36B in expenditures for the acquisition of property, plant and equipment and intangible assets, indicating continued growth and maintenance investment. Free Cash Flow remained a surplus of only ¥1.31B, while Financing Cash Flow was an outflow of ¥5.13B, including ¥2.70B in share buybacks. Given the limited FCF after investment, the shareholder return stance warrants attention in terms of the future balance of capital allocation.

Earnings Quality

Operating Cash Flow significantly exceeded Net Income, and the negative accrual ratio indicates that accounting earnings are supported by cash generation. The deviation between Ordinary Income of ¥14.61B and Net Income attributable to owners of the parent of ¥9.41B was primarily due to the one-time factor of extraordinary losses of ¥1.69B—including ¥0.64B in impairment losses and ¥0.47B in losses on disposal of fixed assets—exceeding extraordinary income of ¥0.77B, including ¥0.26B in gains on sales of investment securities and ¥0.13B in gains on sales of fixed assets. This should be distinguished from recurring operating business results. Non-operating income and expenses produced a modest surplus, with income of ¥1.48B against expenses of ¥0.19B, and factors outside the core business did not materially distort Ordinary Income. Comprehensive Income was ¥11.95B, exceeding Net Income of ¥9.41B, supported by ¥1.28B in valuation differences on securities and ¥0.97B in adjustments related to retirement benefits. The divergence during the period was attributable to asset valuation factors.

Earnings Forecast and Guidance

The Company’s forecast for the next period is revenue of ¥478.00B (up +4.8% from the current period), Operating Income of ¥14.30B (up +7.4%), Ordinary Income of ¥15.20B (up +4.1%), and Net Income of ¥11.00B (up +15.3%). The forecast assumes a recovery in the Operating margin to approximately 3.0%. The key to achieving the plan will be the normalization of extraordinary losses incurred during the current period and control of SG&A expenses below the rate of revenue growth. Forecast EPS is ¥198.16, while the forecast dividend is ¥66.00, unchanged from the current period.

Shareholder Returns

The annual dividend is ¥66.00 per share (¥33 interim and ¥33 year-end). The payout ratio based solely on dividends is approximately 34.9% (total dividends of ¥3.26B ÷ Net Income attributable to owners of the parent of ¥9.41B). The Company conducted ¥2.70B in share buybacks, bringing total shareholder returns, including dividends, to approximately ¥6.00B and the Total Return Ratio to approximately 63.7%. Although the payout ratio indicates earnings capacity, dividend coverage against post-investment Free Cash Flow of ¥1.31B was below 1.0x. Considering the current level of capital expenditures, structural improvement in FCF will be necessary to sustain shareholder returns. The dividend forecast for the next period is also unchanged at ¥66.00.

Risk Factors

1. Declining profitability of the core Retail Business: The Retail Business is the core business, accounting for 94.8% of revenue, but while revenue increased +2.6%, segment profit declined -3.2%. The Group’s overall profit is structurally sensitive to increases in personnel expenses and changes in the competitive environment.

2. Margin pressure from rising personnel expenses: Salaries and allowances increased +3.9% year on year, exceeding revenue growth of +2.5%, and the SG&A expense ratio rose to 33.5%. If the wage-increase environment continues, the 2.9% Operating margin may face further pressure.

3. Short-term liquidity management: The current ratio was 75.1%, below 1.0x, while the short-term debt ratio was somewhat high at 43.7%. Cash of ¥23.23B was 2.5x short-term borrowings of ¥9.28B, and there are currently no signs of an immediate funding shortage. Nevertheless, this remains an item requiring monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Return

Profitability is below the industry median on both measures, positioning the Company relatively modestly within the industry in terms of margins.

Growth and Capital Efficiency

Revenue growth is also below the industry median, indicating that the pace of top-line expansion is relatively moderate within the industry.

Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Although revenue growth has been maintained, the 2.9% Operating margin declined from the previous period. Absorbing higher personnel expenses and managing SG&A expenses in the core Retail Business are the central issues for improving performance.

2. OCF was 1.89x Net Income, indicating strong cash-generation capacity. However, OCF/EBITDA was 0.66x and Free Cash Flow was limited to ¥1.31B. Expanding post-investment cash flow is a structural prerequisite for balancing capital expenditures and shareholder returns.

3. Although the Equity Ratio was 63.2% and Debt/EBITDA was 0.78x, indicating conservative financial leverage, the current ratio was 75.1%, below 1.0x. Accordingly, short-term liquidity management, separate from low leverage, remains a key point of focus.

Theoretical Share Price (Reference Value)

Sensitivity: ¥3,365–¥3,560 at ±1% for the cost of equity, and ¥3,444–¥3,471 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥1.3 per share is added back to earnings (to account for a non-cash expense and comparability with IFRS companies).
• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated from publicly available data only; this 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 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 available earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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