STEP CO.,LTD. FY2026 Q3 Earnings Report

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Executive Summary

The cumulative Q3 results showed higher revenue and profit, accompanied by improved profitability, with the profit growth rate exceeding the revenue growth rate. Revenue increased to ¥122.2B (¥118.0B in the same period of the previous year, YoY +3.6%), Operating Income to ¥30.3B (¥28.5B, YoY +6.3%), Ordinary Income to ¥30.9B (¥28.9B, YoY +6.7%), and Net Income to ¥21.5B (¥19.9B, YoY +8.2%). The primary reason why profit growth exceeded revenue growth was the realization of operating leverage resulting from the improvement in the gross margin to 30.9% (30.1% in the previous year, +0.8pt). Although SG&A expenses increased by +5.6%, exceeding the revenue growth rate, the improvement in gross profit absorbed the increase. Progress against the full-year plan was also 74.1% for Revenue, 76.8% for Operating Income, and 78.1% for Net Income, with the profit items exceeding the standard Q3 progress benchmark of 75%. Improved profitability is supporting achievement of the full-year plan.

Factors Affecting Performance

【Revenue】Revenue increased 3.6% year on year to ¥122.2B. Non-operating income remained limited at 1.2% of revenue, indicating that the increase in revenue was primarily driven by expansion in the core business. Progress against the full-year revenue plan of ¥164.9B was 74.1%, nearly in line with the standard progress benchmark of 75% as of Q3.

【Profit and Loss】Operating Income increased 6.3% YoY to ¥30.3B, Ordinary Income increased 6.7% YoY to ¥30.9B, and Net Income increased 8.2% YoY to ¥21.5B, with all three exceeding the revenue growth rate. The gross margin improved to 30.9% (30.1% in the previous year), while the Operating Income margin improved to 24.8% (24.1% in the previous year) despite SG&A expenses rising to 6.1% of revenue (6.0% in the previous year). The ¥9.4B difference between Ordinary Income and Net Income was primarily attributable to ¥9.7B in corporate income taxes and other taxes; the effective tax rate of 31.0% was not particularly unusual. Extraordinary income of ¥0.3B (gain on the sale of fixed assets) was immaterial at approximately 1% of profit before tax, indicating that the source of profit was concentrated in the core business. In conclusion, these were high-quality results characterized by higher revenue and profit, together with improved profit margins.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 24.8% from 24.1% in the previous year, a +0.7pt improvement, while the Net Income margin also improved by +0.7pt to 17.6% from 16.9% in the previous year. The improvement in the gross margin to 30.9% (30.1% in the previous year, +0.8pt) contributed to the expansion of both profit margins, indicating that profitability has been strengthened through improved cost efficiency in the core business.【Cash Quality】Non-operating income was 1.2% of revenue and extraordinary income was approximately 1% of profit before tax; both were small. Nearly all of the ¥9.4B gap between Ordinary Income of ¥30.9B and Net Income of ¥21.5B was attributable to corporate income taxes and other taxes (effective tax rate: 31.0%).【Investment Efficiency】ROE was 7.8%, explained by the decomposition of a 17.6% Net Income margin × 0.40x total asset turnover × 1.10x financial leverage. Total asset turnover remained broadly flat, and the improvement in ROE was primarily attributable to improved profit margins.【Financial Soundness】The Equity Ratio was 91.3%, up +1.6pt from 89.7% in the previous year. Current assets of ¥70.7B substantially exceeded current liabilities of ¥18.2B (current ratio: approximately 388%). Long-term borrowings had been reduced to ¥0.08B, and, together with financial leverage of 1.10x (1.12x in the previous year), the Company continues to maintain a conservative financial structure with low reliance on debt.

Cash Flow Analysis

Cash and deposits amounted to ¥59.1B, down ¥19.3B from ¥78.4B in the previous year, primarily due to changes in capital allocation. Investment securities increased by ¥12.2B (+26.0%) to ¥59.2B, indicating that a portion of surplus funds was allocated to securities investments. Treasury stock increased by ¥6.7B on a book-value basis, and progress in share repurchases was also a factor behind the decrease in cash. Meanwhile, long-term borrowings were reduced to ¥0.08B, with the repayment of interest-bearing debt also progressing in parallel. The increases in accounts receivable (+¥1.3B) and inventories (+¥0.3B) represented only a gradual expansion in working capital associated with revenue growth, with a limited impact on total assets. Overall, the Company appears to have maintained a balanced capital allocation policy, directing funds generated by the core business toward securities investments, share repurchases, and debt reduction.

Quality of Earnings

Of Net Income of ¥21.5B, the contributions from non-operating income (¥1.4B, 1.2% of revenue) and extraordinary income (¥0.3B, approximately 1% of profit before tax) were both small. The primary source of profit was Operating Income of ¥30.3B generated by the core business. The ¥9.4B difference between Ordinary Income of ¥30.9B and Net Income of ¥21.5B was primarily attributable to corporate income taxes and other taxes of ¥9.7B, with the effective tax rate at 31.0% and no particular distortion observed. Extraordinary income consisted solely of a ¥0.3B gain on the sale of fixed assets, so the contribution from temporary factors to profit growth was limited. The increases in accounts receivable and inventories were within the range associated with revenue growth, and both the Operating Income margin and Net Income margin improved simultaneously. Accordingly, profit growth can be assessed as being based on improved profitability in the core business rather than an apparent increase in profit dependent on accruals.

Earnings Forecast and Guidance

Progress against the full-year plan was 74.1% for Revenue (¥122.2B/¥164.9B), 76.8% for Operating Income (¥30.3B/¥39.4B), 76.8% for Ordinary Income (¥30.9B/¥40.2B), and 78.1% for Net Income (¥21.5B/¥27.5B). Compared with the standard cumulative Q3 progress benchmark of 75%, Revenue was nearly in line with the plan, while all profit items exceeded the benchmark by 1.8–3.1pt. Improved profitability resulting from the higher gross margin has led to performance exceeding the plan. Based on this progress, advancement toward achievement of the full-year plan can be assessed as steady.

Shareholder Returns

The annual dividend is forecast at ¥44 per share, representing an expected 10.0% increase from the previous fiscal year’s actual dividend of ¥40. Based on forecast EPS of ¥176.51, the Payout Ratio is 24.9%, a relatively restrained level compared with the profit level. In addition, treasury stock increased by ¥6.7B during the quarter on a book-value basis, indicating that share repurchases in addition to dividends are also progressing. While the dividend-only Payout Ratio remains conservative, on a total-return basis that takes share repurchases into account, the Total Return Ratio is considered to be above the Payout Ratio, suggesting an enhanced commitment to shareholder returns.

Risk Factors

1. Cost trend from the increase in SG&A expenses: SG&A expenses increased by +5.6%, exceeding the +3.6% revenue growth rate. Although the improvement in the gross margin is currently absorbing this increase, continued growth in SG&A expenses could cause the benefits of operating leverage to diminish.

2. Future cash outflows related to asset retirement obligations (ARO): Asset retirement obligations amounted to ¥6.09B, representing 23.3% of total liabilities of ¥26.1B. The timing of future expenses associated with restoration and other obligations will be a factor in cash flow management.

3. Market-value fluctuation risk in investment securities: Investment securities increased to ¥59.2B (+26.0% year on year), accounting for 19.7% of total assets. Although the impact of market price fluctuations on B/S carrying values is expanding, the Company’s resilience is supported by its substantial equity base and high Equity Ratio of 91.3%.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

Profitability indicators are significantly above the industry median and rank at a high level.

Growth and Capital Efficiency

The revenue growth rate is below the industry median, indicating a relatively moderate level of growth.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The gross margin improved by +0.8pt year on year and the Operating Income margin improved by +0.7pt. Notably, the profit growth rate exceeded the revenue growth rate due to improved profitability in the core business rather than changes in the cost structure.

2. Progress against the full-year plan exceeded the standard progress benchmark of 75% by 1.8–3.1pt for the profit items. If the trend of improved profitability continues, achievement against the full-year plan may remain at a favorable level.

3. Under a conservative financial structure characterized by an Equity Ratio of 91.3% and minimal interest-bearing debt, the Company is simultaneously increasing its investment securities holdings and conducting share repurchases, indicating that its capital allocation policy is becoming structurally established.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation to take any specific investment action.

Sensitivity: 1,764円–1,869円 at ±1% for the cost of equity, and 1,814円–1,817円 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 values may be calculated somewhat higher.

（Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not forecast 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 a professional as necessary.

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