TRUSCO NAKAYAMA CORPORATION FY2026 Q2 Earnings Report

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Executive Summary

The first half of FY2026 posted higher revenue and higher profit, although margins were somewhat compressed due to increases in SG&A expenses and interest costs. Revenue was ¥1782.0B (¥1582.3B in the previous year, +12.6%), Operating Income was ¥124.8B (+5.6%), Ordinary Income was ¥122.2B (+4.3%), and Net Income was ¥84.4B (+5.8%). While strong growth in the e-business route (+19.4%) drove the top line, the Operating Income margin declined to 7.0% (7.5% in the previous year), with revenue growth outpacing profit growth.

Factors Affecting Business Performance

【Revenue】Revenue was ¥1782.0B, up +12.6% year on year. By segment, the factory route was the largest segment at ¥1162.1B (+10.2%, composition ratio 65.2%), while the e-business route recorded the highest growth rate at ¥448.4B (+19.4%, composition ratio 25.2%). The home center route increased to ¥153.2B (+11.7%), and the overseas route grew to ¥18.3B (+18.3%). Although both remained small in scale, all channels posted higher revenue.

【Profit and Loss】Cost of sales was ¥1413.0B (+13.2%), slightly exceeding revenue growth, and the gross margin declined to 20.7% (21.1% in the previous year). SG&A expenses increased to ¥244.2B (+13.6%), outpacing the 12.6% revenue growth rate, and the Operating Income margin declined by 48bp to 7.0% (7.5% in the previous year). At the Ordinary Income level, interest expense increased to ¥4.9B (¥2.6B in the previous year), causing the Ordinary Income margin to contract to 6.9% (7.4% in the previous year). Extraordinary losses were a minor ¥0.1B, with a limited impact on Net Income. Consequently, although the Company achieved higher revenue and higher profit, profit growth (Operating Income +5.6%, Net Income +5.8%) remained below revenue growth (+12.6%), indicating limited operating leverage.

Segment Analysis

On a segment profit basis (using Ordinary Income), the factory route was the largest contributor at ¥83.7B (¥80.4B in the previous year, +4.2%, profit margin approximately 7.2%). The e-business route generated ¥40.4B (¥35.4B in the previous year, +14.2%, profit margin approximately 9.0%), recording the strongest performance in both profitability and growth and contributing to an improved earnings mix. Meanwhile, the home center route shifted from a profit of ¥1.7B in the previous year to a loss of -¥0.3B, making profitability improvement in the second half a key issue. The overseas route maintained strong growth at ¥1.6B (¥1.2B in the previous year, +33.0%), despite its small scale.

Key Financial Indicators

【Profitability】The Operating Income margin was 7.0%, down from 7.5% in the previous year, while the Net Income margin declined to 4.7% from 5.0% in the previous year. Together with the gross margin of 20.7% (21.1% in the previous year), margins contracted at all stages. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥46.0B, below Net Income of ¥84.4B, resulting in an OCF/Net Income ratio of only 0.54x. Inventories increased by ¥63.3B and trade receivables increased by ¥24.7B, with the buildup in working capital suppressing cash generation. 【Investment Efficiency】ROE was 4.4%. Capital expenditures of ¥71.5B were 2.1 times depreciation and amortization of ¥34.2B, indicating the continuation of growth investments centered on logistics facilities. 【Financial Soundness】The Equity Ratio declined to 56.9% (60.4% in the previous year) due to an increase in interest-bearing debt, but remained at a high level.

Cash Flow Analysis

Operating Cash Flow was ¥46.0B, down -9.5% year on year, indicating somewhat weak cash-generating capacity relative to Net Income of ¥84.4B. The increase in inventories (-¥63.3B) and the increase in trade receivables (-¥24.7B) tied up funds in working capital, while the increase in trade payables (+¥22.6B) only partially offset these effects. Investing Cash Flow was -¥81.7B, reflecting continued spending on logistics facility development, primarily capital expenditures of ¥71.5B. As a result, Free Cash Flow (Operating Cash Flow + Investing Cash Flow) was -¥35.7B, with financing cash flow of ¥230.6B (including increased borrowings) supplementing the funding shortfall. Cash on hand was a substantial ¥671.2B, and the impact on short-term liquidity is considered limited.

Quality of Earnings

Current-period earnings were primarily generated by recurring operating activities. Both non-operating income of ¥2.7B (0.15% of revenue) and extraordinary losses of ¥0.1B were minor, limiting the impact of one-off factors on earnings. Meanwhile, interest expense increased to ¥4.9B (¥2.6B in the previous year), and the increase in financial costs associated with the expansion of interest-bearing debt pushed down the Ordinary Income margin. The fact that Operating Cash Flow was below Net Income (OCF/Net Income of 0.54x) primarily reflects accrual-related factors stemming from increases in inventories and trade receivables, indicating a certain divergence between profit growth reported on the income statement and actual cash generation. Comprehensive Income was ¥90.1B, exceeding Net Income of ¥84.4B, primarily due to a gain of +¥6.8B in valuation difference on securities.

Earnings Forecast and Guidance

The full-year plan calls for Revenue of ¥3500.0B (前年比+9.4%), Operating Income of ¥225.8B (same -1.0%), and Ordinary Income of ¥219.6B (same -2.6%). First-half progress rates were 50.9% for Revenue, 55.3% for Operating Income, 55.6% for Ordinary Income, and 55.8% for Net Income, all exceeding the 50% benchmark for the first half and indicating progress ahead of schedule. At the same time, the full-year plan assumes year-on-year declines in both Operating Income and Ordinary Income, suggesting conservative assumptions that incorporate higher costs and inventory adjustments in the second half. The earnings forecast was revised during the current quarter, also indicating a reassessment of the outlook toward the second half.

Shareholder Returns

The dividend for the first half was ¥32.5/share, while the full-year dividend forecast is ¥61.0/share (detailed year-on-year comparison not disclosed). The total first-half dividend was approximately ¥21.5B, and the Payout Ratio relative to first-half Net Income of ¥84.4B was approximately 25.4%, a reasonable level. However, first-half Free Cash Flow was negative at -¥35.7B, meaning that dividends during the period were not fully covered by cash generated from operating activities alone and required support from cash on hand or external funding. No revision to the dividend forecast was made during the current quarter.

Risk Factors

1. Decline in cash-generating capacity: Operating Cash Flow of ¥46.0B was only 0.54 times Net Income of ¥84.4B, primarily due to increases in inventories (+¥63.3B) and trade receivables (+¥24.7B). The status of inventory and credit management will determine the quality of future cash flow.

2. Increase in financial costs: Interest expense increased to ¥4.9B (¥2.6B in the previous year), creating a structure more susceptible to the impact of interest rate fluctuations as interest-bearing debt expands, including long-term borrowings of ¥700.0B.

3. Differences in profitability by segment: The home center route shifted from a profit of ¥1.7B in the previous year to a loss of -¥0.3B. Progress in improving the profitability of this channel will be a key monitoring point going forward.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The Company's Net Income margin is 2.2pt below the industry median and is relatively low within the industry.

Growth and Capital Efficiency

The Revenue growth rate significantly exceeds the industry median, and the speed of top-line expansion is comparatively strong within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Revenue growth (+12.6%) exceeded profit growth (Operating Income +5.6%), confirming that increases in SG&A expenses and interest costs have limited operating leverage. The gross margin also declined to 20.7% from the previous year, with changes in the cost structure constraining profit growth.

2. Despite first-half progress against the full-year plan exceeding 50% (Revenue 50.9%, Operating Income 55.3%), the full-year plan itself assumes year-on-year declines in both Operating Income and Ordinary Income. This conservative plan reflects an assumption of inventory adjustments and higher costs in the second half.

3. By segment, the e-business route recorded strong growth in both Revenue and profit (profit +14.2%), contributing to an improved earnings mix, while the home center route shifted into the red, widening the profitability gap between channels.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on 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 of any specific investment action.

Sensitivity: ¥2,716–¥2,876 at Cost of Equity ±1%, and ¥2,790–¥2,797 at ω±0.1.

Notes:

• Because forecast ROE is below the Cost of Equity, the theoretical value is below Book Value Per Share.
• Net assets as of the quarter-end are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat on the high side.

(Calculation model: Residual Income Model / Interest rate reference month: 2026-07 / This value is not a forecast or guarantee of the future share price)

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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 with professionals as necessary.

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