| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1122.0B | ¥1085.4B | +3.4% |
| Operating Income | ¥25.7B | ¥29.4B | -12.7% |
| Ordinary Income | ¥27.7B | ¥33.4B | -16.8% |
| Net Income | ¥12.1B | ¥22.0B | -44.9% |
| ROE | 0.6% | 1.1% | - |
The FY2026 Q1 results showed Revenue of ¥1,122B (YoY +¥37B +3.4%), Operating Income of ¥26B (YoY -¥4B -12.7%), Ordinary Income of ¥28B (YoY -¥6B -16.8%), and Net Income of ¥12B (YoY -¥10B -44.9%). Although top-line growth was achieved, SG&A ratio rose to 33.7% (prior year 33.4%) up 0.3pt, causing the operating margin to decline to 2.3% (prior year 2.7%) down 0.4pt. Combined with a persistently high effective tax rate of 55.2%, Net Income declined by 45%, resulting in a large drop in profit despite revenue growth. Gross margin held at 27.3% (prior year 27.5%) broadly flat, but inventories increased to ¥211B (YoY +4.8%) and days inventory outstanding remained elevated above 107 days, pressuring profitability through increased SG&A and price-reduction pressure. Progress against the full-year plan is standard for Revenue at 23.5%, but skewed to the second half for Operating Income at 18.0% and Net Income at 12.1%; cost control and inventory optimization are key to recovery in the back half.
[Revenue] Revenue was ¥1,122B (YoY +3.4%), achieving solid growth. By segment, Retail was ¥1,063B (YoY +3.4%) accounting for 94.7% of the total, with the core business driving company-wide growth. Retail-adjacent was ¥17B (YoY +2.9%) and Other was ¥42B (YoY +2.7%), each modest increases but limited in contribution. Revenue breakdown: merchandise sales ¥1,024B, service income ¥54B, and real estate lease income (lease accounting) ¥45B. Recovery in customer traffic at existing stores and price revision effects likely supported the revenue increase, but inventory rose to ¥211B (YoY +4.8%) and days inventory outstanding stayed above 107 days, raising concerns about constraints on pricing and room for markdowns.
[Profit & Loss] Cost of sales was ¥718B (cost of sales ratio 64.0%), resulting in a gross margin of 27.3%, down 0.2pt from prior year (27.5%) but broadly stable. SG&A was ¥378B (SG&A ratio 33.7%), up 4.3% from prior year (¥363B, 33.4%) and +0.3pt, with labor, logistics, and utilities inflation compressing Operating Income. As a result, Operating Income fell 12.7% to ¥26B (Operating margin 2.3%). Non-operating income was ¥3B including interest income ¥0.3B, non-operating expenses were ¥1B including interest expense ¥0.4B, yielding net non-operating income of +¥2B, which did not offset the decline in Operating Income, leaving Ordinary Income at ¥28B (-16.8%). Extraordinary gains were ¥0.8B (including gain on sale of investment securities ¥0.5B) and extraordinary losses were ¥1.6B (including loss on disposal of fixed assets ¥1.3B, impairment loss ¥0.0B), netting to -¥0.8B and reducing income before income taxes to ¥27B (-23.4%). Income taxes were ¥15B with an effective tax rate of 55.2%, a high tax burden that substantially compressed Net Income. After deducting noncontrolling interests ¥0.2B, Net Income attributable to owners of the parent was ¥12B (-44.9%), nearly halved. In conclusion, the company posted revenue growth but a large decline in profit; restraining SG&A growth and normalizing tax burden are urgent priorities for earnings recovery.
The Retail segment recorded Revenue of ¥1,063B (YoY +3.4%) and segment profit of ¥50B (pre-adjustment), progressing solidly as the core business and accounting for 94.7% of company revenue. Retail-adjacent recorded Revenue ¥17B (YoY +2.9%) and segment profit ¥5B; Other (e.g., restaurant operations) recorded Revenue ¥42B (YoY +2.7%) and segment profit ¥2B, each small-scale but maintaining revenue growth. Total segment profit was ¥57B, which after adjustments including elimination of dividend receipts of -¥29B landed at consolidated Ordinary Income ¥28B. The business structure is highly concentrated in Retail, so improvements in retail operations (inventory turnover, SG&A efficiency) are the largest levers to restore company-wide profitability.
[Profitability] Operating margin 2.3% (prior year 2.7%, -0.4pt), Net margin 1.1% (prior year 2.0%, -0.9pt), ROE 0.6% (prior year 1.1%) — all declined, with SG&A ratio increase and high tax burden (effective tax rate 55.2%) compressing margins. Gross margin 27.3% is broadly flat from 27.5% last year, but inventory buildup (+4.8%) introduces markdown risk. [Cash Quality] Days inventory outstanding remain elevated above 107 days; working capital is -¥261B maintaining a negative cycle, though the balance between inventories and accounts payable (¥340B) governs liquidity. Contract liabilities (deferred revenue) are ¥100B, down -4.7% YoY, reducing the cushion. [Investment Efficiency] Total asset turnover 0.357x, estimated ROIC 0.6%, both low, indicating substantial room to improve returns on invested capital. [Financial Soundness] Equity Ratio 63.1%, interest-bearing debt ¥209B, Debt/Capital ratio 9.6% maintain a conservative capital structure, and Interest Coverage 61.2x indicates very strong interest resilience. Conversely, current ratio 70.3%, quick ratio 46.3%, and short-term debt ratio 53.8% point to tight short-term liquidity; cash/short-term debt coverage 1.77x secures a buffer, but management of accounts payable and contract liabilities is critical. Asset retirement obligations are ¥89B (7.7% of liabilities) and represent a material amount due to the store network, requiring attention to future cash outflows.
Cash and deposits decreased to ¥200B (YoY -¥33B), short-term borrowings increased to ¥113B (YoY +¥30B), indicating funding activity for working capital and seasonality. Declining operating margin and inventory buildup (+4.8%) negatively affect operating cash generation. Accounts payable rose slightly to ¥340B (YoY +3.0%), suggesting extension of supplier payment terms, while contract liabilities ¥100B (YoY -4.7%) show a reduced advance-receipt cushion. Inventory of ¥211B with days inventory outstanding above 107 days indicates stagnation that could pressure cash conversion through markdowns and obsolescence costs. Tangible fixed assets are ¥2,115B, implying large-scale assets and ongoing capital expenditures; sustaining FCF generation relative to depreciation requires inventory optimization and margin normalization. Interest Coverage 61.2x indicates negligible interest burden, but in a phase of tightening short-term liquidity, precision in working capital management is indispensable.
Ordinary Income of ¥28B versus Net Income of ¥12B shows a significant gap mainly due to a high effective tax rate of 55.2%. Non-operating items: interest income ¥0.3B and non-operating expenses ¥0.9B (interest expense ¥0.4B, foreign exchange loss ¥0.1B) net to +¥2B, supporting transition from Operating Income ¥26B to Ordinary Income ¥28B. Extraordinary items were a net -¥0.8B (extraordinary gains ¥0.8B including gain on sale of investment securities ¥0.5B; extraordinary losses ¥1.6B including loss on disposal of fixed assets ¥1.3B), reducing pre-tax income to ¥27B. Comprehensive income was ¥18B, exceeding Net Income of ¥12B; other comprehensive income ¥5B included valuation difference on available-for-sale securities ¥4B, foreign currency translation adjustments ¥2B, and retirement benefit adjustments -¥1B. From an accrual perspective, inventory buildup (equivalent to +¥1.0B) and cash decline (-¥33B) show divergence between profit and cash, indicating that earnings quality is affected by a mix of temporary tax burden and structural issues from inventory stagnation.
Full-year guidance remains Revenue ¥4,780B, Operating Income ¥143B (YoY +7.4%), Ordinary Income ¥152B (YoY +4.1%), Net Income ¥98B, EPS ¥198.16, and dividend ¥33, unchanged. Q1 progress rates are Revenue 23.5%, Operating Income 18.0%, Ordinary Income 18.2%, and Net Income 12.1%; Revenue is roughly on pace, but profits are assumed to be back-end weighted. The implied full-year operating margin is approximately 3.0% (¥143B/¥4,780B), requiring roughly +0.7pt improvement from Q1 actual 2.3% in the second half. This recovery scenario is driven by restraining SG&A growth (utilities peak-out, logistics efficiency), inventory optimization reducing markdown rates, and gross margin recovery. No revisions to guidance have been made; the company maintains plans reflecting room for improvement in the second half, but achievement risk is two-sided depending on inventory, cost, and tax developments.
Dividend guidance is ¥33 per annum (interim/final split unspecified), implying a payout ratio of 16.7% against full-year EPS forecast ¥198.16, a conservative level. Prior year dividend was also ¥33, indicating continued stable dividend policy. Retained earnings at the end of Q1 are ¥1,615B, providing ample capacity for dividends. With interest-bearing debt ¥209B, Interest Coverage 61.2x, and Debt/Capital 9.6%, financial resilience is high and dividend sustainability is not in question, though tight short-term liquidity (current ratio 70.3%) and potential inventory correction costs could cause FCF volatility. No share buyback disclosure; current shareholder returns focus on dividends. While the payout ratio 16.7% is low, there is potential to expand returns through improved profitability over the medium to long term, but near-term priorities are business restructuring and stabilizing cash generation.
Inventory stagnation risk: Inventories ¥211B (YoY +4.8%) and days inventory outstanding above 107 days remain elevated, constraining pricing and markdown flexibility and sustaining pressure on gross margin via increased SG&A. Delays in inventory optimization impede normalization of operating margin and risk worsening cash conversion.
Continued cost inflation: SG&A ratio rose to 33.7% (prior year 33.4%) with labor, logistics, and utilities increases compressing operating margin. SG&A growth of +4.3% versus Revenue growth of +3.4% creates negative operating leverage; delays in operational efficiency and labor-saving investments would further erode margins.
Short-term liquidity risk: Current ratio 70.3%, quick ratio 46.3%, short-term debt ratio 53.8% indicate high short-term debt dependency and refinancing risk in the event of interest rate rises or credit deterioration. Cash ¥200B covers short-term debt ¥879B for the near term, but if the balance of accounts payable ¥340B and contract liabilities ¥100B deteriorates, liquidity pressure could intensify.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 2.3% | 3.4% (0.8%–7.7%) | -1.1pt |
| Net Margin | 1.1% | 2.2% (0.5%–6.2%) | -1.2pt |
Both Operating and Net margins are 1.1–1.2pt below industry medians, placing the company behind peers on profitability within the retail sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 3.4% | 7.7% (0.8%–14.6%) | -4.3pt |
Revenue growth of 3.4% trails the industry median 7.7% by 4.3pt, indicating below-average top-line growth capability.
※ Source: Company compilation
Inventory stagnation and SG&A control are top priorities to normalize margins. Correcting days inventory outstanding above 107 days and reducing SG&A growth (to below revenue growth) could allow operating margin to recover into the 3% range in the second half. Achievement of the full-year plan depends on gross margin improvement and SG&A efficiency in H2, making these progress metrics a monitoring focus.
Short-term liquidity is tight but financial leverage is low and interest resilience is very high. Dividend payout ratio of 16.7% is conservative and dividend capacity is ample, but inventory correction costs and working capital management will determine FCF generation and the scope for increasing shareholder returns. The high effective tax rate of 55.2% that compresses Net Income appears to be a temporary factor, but trends in tax burden normalization will influence the pace of Net Income recovery.
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These are mechanically computed values based on a residual income model. They are not a forecast of market prices or a recommendation of any investment action, and do not predict or guarantee future share prices. Historical values are computed retrospectively using current guidance-achievement statistics.