TRUSCO NAKAYAMA (9830) FY2026 Q1 Earnings Report

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Executive Summary

Although revenue and earnings increased in Q1, the 2.7% growth in operating income substantially lagged the 9.8% revenue growth. The most important point is that the company’s ability to convert revenue growth into profit has weakened. Revenue was ¥86.96B (+9.8% year on year, +¥7.79B), operating income was ¥6.00B (+2.7%, +¥0.16B), ordinary income was ¥5.91B (+1.6%), and net income was ¥4.10B (+2.6%). The operating margin declined to 6.9% from 7.4% in the same period of the previous year, confirming a structure in which revenue growth has not sufficiently absorbed rising costs.

Factors Affecting Performance

【Revenue】Revenue was ¥86.96B, up +9.8% year on year, with all four routes posting revenue growth. The e-business route recorded the highest growth at +18.7%, followed by the overseas route at +14.6%, the home center route at +8.3%, and the core factory route at +6.9%. By product category, office and housing equipment supplies (+15.9%) and environmental and safety supplies (+13.6%) led revenue growth, with growth drivers concentrated in the highly profitable e-business route.

【Profit and Loss】Operating income was ¥6.00B, up only +2.7% year on year, significantly below the revenue growth rate. The operating margin was 6.9%, down 48bp from 7.4% in the same period of the previous year. The increase in the SG&A ratio to 13.5%, compared with a gross profit margin of 20.4%, placed pressure on profitability. Ordinary income was ¥5.91B (+1.6%), while the expansion of non-operating expenses due to higher interest payments (¥0.18B) further slowed the growth of ordinary income. The home center route’s segment profit and loss turned to a ¥0.01B loss, making it one of the primary causes of margin deterioration despite revenue growth. No extraordinary gains or losses were recorded. In conclusion, while the company achieved both revenue and earnings growth, the results should be viewed as revenue and earnings growth accompanied by declining profit margins.

Segment Analysis

Segment profit is disclosed on an ordinary-income basis. The core factory route recorded revenue of ¥56.96B (+6.9%), profit of ¥3.96B (+1.0%), and a profit margin of 7.0%, down from 7.4% in the same period of the previous year. The e-business route recorded revenue of ¥22.01B (+18.7%) and profit of ¥2.01B (+11.6%), maintaining the highest profitability among the four routes with a margin of 9.2%, although this declined from 9.7% in the same period of the previous year. The home center route generated revenue of ¥7.13B (+8.3%), but profit was negative ¥0.01B, turning to a loss from a small profit in the same period of the previous year. The overseas route recorded revenue of ¥0.86B (+14.6%) and profit of ¥0.07B (-7.8%), with its profit margin declining to 8.2% from 10.3% in the same period of the previous year. As profit margins declined across all routes, expanding the e-business route’s contribution and restoring the profitability of the home center route are challenges for the consolidated profit margin.

Key Financial Indicators

【Profitability】The operating margin of 6.9% and net profit margin of 4.7% both declined from the same period of the previous year (7.4% and 5.1%, respectively), against a backdrop of the SG&A ratio increasing to 13.5% versus a gross profit margin of 20.4%. 【Cash Quality】Comprehensive income was ¥4.27B, slightly exceeding net income of ¥4.10B, with increases in valuation differences on securities of ¥0.16B and other items contributing to the difference. No significant divergence was observed. 【Investment Efficiency】On an annualized basis, ROE was approximately 8.7% and ROA was approximately 4.9%, indicating room for improvement in the company’s ability to generate profits from total assets. EPS increased +2.6% to ¥62.27 from ¥60.69 in the same period of the previous year. 【Financial Soundness】The equity ratio was 56.2%. Against interest-bearing debt of ¥90.00B, the company held cash and deposits of ¥66.10B, and the current ratio was approximately 251%, indicating sound short-term liquidity.

Cash Flow Analysis

As detailed cash flow statement information is not provided in this report, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥66.10B, an increase of ¥18.51B from ¥47.59B in the same period of the previous year, indicating expanded financial capacity. Meanwhile, long-term borrowings increased to ¥70.00B (¥55.00B in the same period of the previous year), and short-term borrowings increased to ¥20.00B (¥10.00B in the same period of the previous year). This suggests that financing was arranged to support the accumulation of property, plant and equipment, including construction in progress of ¥28.14B. Inventories also increased to ¥70.91B, indicating that the expansion of working capital associated with business growth is increasing funding requirements. Overall, the company is balancing growth investment and liquidity by utilizing external financing while also building up cash on hand.

Quality of Earnings

The divergence between ordinary income and net income was limited. After bearing income taxes of ¥1.80B against pretax income of ¥5.91B, net income was ¥4.10B, representing an effective tax rate of approximately 30% with no particular abnormality. Non-operating income was small at ¥0.12B, including dividends received of ¥0.02B, while non-operating expenses were primarily interest payments of ¥0.18B. No dependence on non-recurring income was observed. No extraordinary gains or losses were recorded, and the period’s earnings were composed of recurring income generated by the core business, indicating good earnings quality. Comprehensive income of ¥4.27B only slightly exceeded net income of ¥4.10B. Temporary fluctuation factors such as valuation differences on securities were limited, and the divergence between net income and underlying economic results can be assessed as small.

Earnings Forecast and Guidance

Progress against the full-year forecast was 25.5% for revenue, 27.6% for operating income, and 28.2% for net income attributable to owners of the parent, all exceeding the 25% implied by simple quarterly equalization. However, the full-year forecast assumes revenue growth of +6.5%, while forecasting declines of -4.8% in operating income and -5.9% in ordinary income. Accordingly, the year-on-year decline in the operating margin observed in Q1 is consistent with the full-year plan. No revisions were made to the earnings or dividend forecasts. In the coming quarters, the key focus for monitoring progress will be the extent to which the decline in profitability assumed in the full-year plan—namely, a full-year operating margin of 6.4%—actually materializes.

Shareholder Returns

The full-year dividend forecast is ¥58.5 per share, representing an expected increase from the previous year’s annual dividend of ¥30.5 (reference value including the interim dividend and other components). Based on average shares outstanding during the period of 65,940 thousand shares, the annual dividend total is calculated at approximately ¥3.86B. The payout ratio against the full-year net income forecast of ¥14.54B is approximately 26.5%, substantially below the general benchmark of 60%. Retained earnings were substantial at ¥177.30B, providing sufficient accumulated profits as a source of dividends. No disclosure regarding share repurchases was made, and shareholder returns remain conservatively focused on dividends.

Risk Factors

1. Deterioration in the profitability of the home center route: Although revenue increased +8.3% year on year, segment profit and loss turned to a ¥0.01B loss. Revenue growth has not translated into profit improvement, and it is necessary to monitor progress in correcting the structure of pricing policies and logistics and promotional expenses.

2. High inventory levels: Inventories were ¥70.91B, accounting for 21.1% of total assets, up from ¥68.18B in the same period of the previous year. While supporting an immediate-delivery system, the inventory level entails risks of valuation losses and working capital constraints when demand fluctuates.

3. Capital efficiency of major investments (construction in progress): Construction in progress was ¥28.14B, accounting for 20.3% of property, plant and equipment. While contributing to the expansion of logistics and supply capacity, these assets are unlikely to generate earnings contributions before commencing operations, making it necessary to monitor investment recovery.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (trading)

Profitability and Returns

The company’s net profit margin is below the industry median, indicating relatively low profitability within the industry.

Growth and Capital Efficiency

The revenue growth rate substantially exceeds the industry median, demonstrating top-tier growth within the industry.

※Source: Company analysis

Key Points from the Earnings Results

1. The structural feature of the current period is that the ability to convert growth into profit has weakened, with operating income growth of 2.7% compared with revenue growth of 9.8%. The operating margin declined from 7.4% in the same period of the previous year to 6.9%, confirming an increase in SG&A relative to the gross profit margin.

2. The e-business route, a growth driver, maintained the highest profitability, with revenue growth of +18.7% and a profit margin of 9.2%. However, its profit margin itself declined from 9.7% in the same period of the previous year, indicating that cost pressures are also affecting growth channels.

3. Progress against the full-year plan exceeded the simple 25% quarterly benchmark for both revenue and profit. However, the full-year plan itself assumes a decline of -4.8% in operating income, suggesting that the margin decline observed in Q1 may continue throughout the year.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,640–¥2,795 at ±1% for the cost of equity, and ¥2,711–¥2,719 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• As 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 value based solely on 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 based on XBRL earnings report 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 professionals as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q1 was a solid top-line quarter, but profit growth lagged sales growth because margins compressed. Revenue rose 9.8% YoY to ¥86.96bn, supported by broad-based demand across domestic distribution routes. Operating income increased only 2.7% YoY to ¥6.00bn. Ordinary income grew 1.6% to ¥5.91bn, slower than operating income due primarily to a higher interest burden. Net income rose 2.6% to ¥4.11bn, and EPS was ¥62.27. Gross profit increased 6.9% to ¥17.76bn, but the gross margin declined 56bp YoY to 20.4%. SG&A expenses rose 9.2% YoY to ¥11.76bn, broadly tracking revenue growth but growing faster than gross profit. Consequently, operating margin declined 48bp YoY to 6.9%. Net margin contracted 34bp YoY to 4.7%. The e-business route was the strongest source of incremental growth, with revenue up 18.7% and segment ordinary profit up 11.6%. The Factory Route remained the core business by segment profit contribution, generating ¥3.96bn of segment ordinary profit, although its profit rose only 1.0% despite 6.9% revenue growth. The Home Center Route returned a segment ordinary loss of ¥15m from a ¥64m profit a year earlier, indicating a localized profitability issue. Annualized ROE was 8.7%, supported by 1.037x annualized asset turnover and 1.78x financial leverage, but the return profile remains below a 10% high-quality threshold. Liquidity remains strong, with a 251.3% current ratio and cash of ¥66.10bn. However, debt increased materially, while inventory days reached 93 days and construction in progress represented 20.3% of PPE. Full-year guidance implies a more back-end-weighted profit profile, with Q1 operating-income progress at 27.6% against a standard 25% quarterly pace. The investment debate therefore centers on whether higher-volume growth, especially in e-business, can be converted into restored gross-margin and operating-margin expansion while inventory and construction spending are controlled.

Profitability Analysis

The annualized DuPont decomposition is net profit margin of 4.7% × annualized asset turnover of 1.037x × financial leverage of 1.78x, producing annualized ROE of 8.7%. The principal constraint on ROE is profitability rather than turnover or leverage: the 4.7% net margin is below the 5% level generally associated with stronger distribution-sector returns. Gross margin fell to 20.4% from 21.0% in the prior-year quarter, a 56bp contraction. Operating margin fell to 6.9% from 7.4%, a 48bp contraction, as gross-profit growth of 6.9% did not keep pace with SG&A growth of 9.2%. Revenue growth of 9.8% was therefore not fully translated into operating leverage. The tax burden was 0.695, consistent with a 30.5% effective tax rate, while the interest burden of 0.985 indicates that financing costs currently have a limited direct effect on pre-tax earnings. Interest coverage remained strong at 33.15x. The Factory Route is the core business, producing 67.0% of aggregate segment ordinary profit before corporate adjustments, but its ¥3.96bn profit expanded only 1.0% on 6.9% revenue growth. E-business delivered the best combination of growth and profit conversion, with revenue of ¥22.01bn, up 18.7%, and segment ordinary profit of ¥2.02bn, up 11.6%; its segment margin was approximately 9.2%. Factory Route segment margin was approximately 7.0%, below e-business. Home Center revenue increased 8.3% to ¥7.13bn but segment ordinary profit shifted to a ¥15m loss, versus a ¥64m profit previously. Overseas revenue rose 14.6% to ¥861m, while segment ordinary profit declined 7.8% to ¥71m. Margin recovery will require gross-profit improvement and a return to positive earnings in the Home Center Route.

Growth Assessment

Revenue growth was broad based across product categories and channels. Environment and safety products were the largest category at ¥16.70bn, up 13.6% YoY, followed by work supplies at ¥15.31bn, up 10.2%, and hand tools at ¥14.48bn, up 5.3%. E-business appears to be the principal growth engine, adding ¥3.47bn of revenue YoY and benefiting from scalable distribution economics. Factory Route revenue increased by ¥3.68bn YoY and remains the largest route at ¥56.96bn. Full-year sales guidance is ¥341.00bn, implying Q1 progress of 25.5%, essentially in line with the normal 25% pace. Q1 operating-income progress is 27.6% versus a standard 25%, while ordinary-income progress is 27.8% and net-income progress is 28.2%. This is ahead of the standard quarterly pace, although the company forecasts full-year operating income to decline 4.8% YoY and ordinary income to decline 5.9% YoY. The forecast therefore embeds lower profitability in the remaining quarters than achieved in Q1, or reflects management conservatism. The absence of a forecast revision following Q1 leaves the original cautious earnings outlook intact. Revenue sustainability is supported by broad product demand and multi-channel distribution, but the lower gross margin and Home Center loss show that growth quality is mixed. The rise in interest expense to ¥181m from ¥84m also increases the importance of realizing planned operating efficiencies as debt-funded capacity expands.

Financial Health

Liquidity is robust. Current assets of ¥185.68bn exceed current liabilities of ¥73.88bn, producing a current ratio of 251.3%, a quick ratio of 155.4%, and working capital of ¥111.80bn. Cash and deposits of ¥66.10bn cover short-term loans of ¥20.00bn by 3.30x. Short-term debt represents 22.2% of total interest-bearing debt, limiting near-term refinancing pressure. Total interest-bearing debt was ¥90.00bn, comprising ¥20.00bn of short-term loans and ¥70.00bn of long-term loans. Debt-to-equity was 0.78x and debt-to-capital was 32.3%, both within conservative covenant-style benchmarks and well below the 2.0x D/E risk threshold. Interest coverage of 33.15x also provides substantial headroom against the current financing burden. Nevertheless, short-term loans doubled YoY to ¥20.00bn, long-term loans rose 27.3% to ¥70.00bn, and total interest-bearing debt increased by ¥25.00bn. Cash and deposits increased by ¥18.51bn, partially offsetting the added gross debt, but the net increase in debt indicates a more capital-intensive balance-sheet posture. Total assets increased 8.8% YoY to ¥335.45bn while equity rose only 1.2% to ¥188.58bn, reducing the equity ratio to 56.2% from 60.4%. PPE represented 41.3% of total assets, including ¥28.14bn of construction in progress. The funding profile remains sound, but the expanded debt base requires successful commissioning and utilization of ongoing logistics and facility investments.

Notable B/S Changes

Short-term loans: +¥10.00bn (+100.0%) to ¥20.00bn - materially higher short-term funding, although cash of ¥66.10bn provides 3.30x coverage. Long-term loans: +¥15.00bn (+27.3%) to ¥70.00bn - debt-funded balance-sheet expansion increases future interest-cost and investment-return requirements. Cash and deposits: +¥18.51bn (+38.9%) to ¥66.10bn - strengthens liquidity and partly offsets the rise in gross debt. Construction in progress: +¥2.92bn (+11.6%) to ¥28.14bn, equal to 20.3% of PPE - elevated unfinished infrastructure investment requires close monitoring of completion and utilization. Inventories: +¥2.73bn (+4.0%) to ¥70.91bn - inventory remains a substantial 21.1% of assets and corresponds to elevated 93-day inventory duration. Accounts receivable: +¥4.13bn (+10.3%) to ¥44.23bn - growth broadly tracks sales expansion and should be monitored with inventory for working-capital efficiency.

Cash Flow Quality

Quarterly net income was ¥4.11bn, while the balance sheet shows a substantial commitment to inventory and distribution infrastructure. Inventories increased ¥2.73bn YoY to ¥70.91bn and represented 21.1% of total assets. Inventory days of 93 exceed both the 90-day quality alert threshold and the 60-day stricter monitoring threshold. The root cause is likely the company’s broad-stock, rapid-delivery distribution model and inventory accumulation to support sales growth; this is structurally more inventory-intensive than an asset-light intermediary model. The impact is that a greater portion of capital is tied up in merchandise, raising exposure to demand normalization, markdowns, obsolescence, and weaker cash conversion if sales momentum slows. Trade receivables increased ¥4.13bn YoY to ¥44.23bn, while trade payables increased ¥4.01bn to ¥30.24bn, indicating that supplier financing has broadly expanded alongside customer credit. Construction in progress increased ¥2.92bn YoY to ¥28.14bn and equaled 20.3% of PPE. This exceeds the 20% high-CIP alert threshold. The root cause is continuing investment in facilities and logistics capacity, consistent with the company’s distribution-network expansion strategy. The impact is elevated execution risk: delayed completion, cost overruns, or lower-than-expected utilization could defer returns and increase depreciation and financing costs. These working-capital and capital-investment factors should be assessed alongside future operating cash generation and asset-utilization trends.

Dividend Sustainability

The full-year dividend forecast is ¥58.50 per share, with no revision announced. Against forecast EPS of ¥220.50, the implied dividend payout ratio is 26.5%. This is comfortably below the 60% sustainability benchmark and leaves a substantial portion of earnings available for retained investment and balance-sheet support. The payout level appears compatible with the company’s profitability forecast and retained earnings of ¥177.30bn. Dividend capacity is also supported by the strong liquidity position, including ¥66.10bn of cash and deposits. However, the company is simultaneously carrying higher interest-bearing debt and substantial construction in progress, making disciplined capital allocation important. The absence of announced share repurchases means the disclosed dividend payout ratio is the relevant shareholder-return metric.

Risk Assessment

Business risks include Margin risk: gross margin declined 56bp YoY to 20.4%, and operating margin declined 48bp to 6.9%, showing that revenue growth is not currently translating fully into earnings growth., Channel profitability risk: the Home Center Route recorded a ¥15m segment ordinary loss despite 8.3% revenue growth, which may indicate pricing, mix, or cost pressure in that channel., Inventory risk: inventory days of 93 are elevated. This may be consistent with the broad-assortment distribution model, but slower demand could increase obsolescence, markdown, and capital-lockup risk., Logistics-capacity execution risk: construction in progress of ¥28.14bn, or 20.3% of PPE, creates risk of delays, cost overruns, and underutilization after completion., Distribution-sector demand risk: industrial consumables, tools, and safety-product demand remains sensitive to manufacturing activity, construction conditions, customer capital expenditure, and distributor competition..

Financial risks include Leverage is still manageable at 0.78x D/E, but short-term loans doubled to ¥20.00bn and long-term loans increased to ¥70.00bn, raising sensitivity to funding costs., Interest expense rose to ¥181m from ¥84m YoY. Interest coverage remains strong at 33.15x, but continued debt growth could gradually dilute ordinary-income growth., The equity ratio declined to 56.2% from 60.4% as assets expanded faster than equity, reducing balance-sheet flexibility relative to the prior year..

Key concerns include Highest priority: converting 9.8% sales growth into better operating-profit growth, particularly through gross-margin stabilization and SG&A discipline., High priority: reducing or productively turning the 93-day inventory position while maintaining service levels., High priority: ensuring construction-in-progress projects generate adequate utilization and returns after commissioning., Medium priority: restoring Home Center Route profitability without sacrificing channel growth., Medium priority: monitoring whether increased borrowing and interest expense become a larger drag on ordinary income..

Investment Implications

Key takeaways include Q1 revenue momentum was healthy at +9.8% YoY, with e-business providing the strongest growth and profit contribution., Profit growth lagged revenue because gross and operating margins compressed by 56bp and 48bp, respectively., The Factory Route remains the core earnings base, while e-business has the highest reported segment profit margin among major domestic routes., Liquidity and debt-service capacity are strong, but debt expansion, elevated inventory days, and high construction in progress raise capital-efficiency requirements., Q1 profit progress exceeded the standard 25% quarterly pace against full-year guidance, despite management forecasting a full-year operating-income decline..

Metrics to watch include Gross margin and operating margin recovery from 20.4% and 6.9%, respectively, E-business revenue growth and segment ordinary-profit margin, Home Center Route return to positive segment ordinary profit, Inventory days relative to the current 93 days, Construction-in-progress completion, subsequent depreciation, and facility utilization, Interest-bearing debt, interest expense, and interest coverage, Progress versus full-year guidance for revenue, operating income, ordinary income, and net income.

Regarding relative positioning, The company combines a strong liquidity buffer and a large physical distribution asset base with an increasingly important e-business growth channel. Its annualized ROE of 8.7% is moderate rather than high, reflecting thin distribution margins and capital tied to inventory and infrastructure. Relative operating positioning will depend on whether the service-level benefits of inventory and logistics investment generate superior growth and margin conversion rather than merely expanding the asset base.