AUTOBACS SEVEN CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

This was a case of higher revenue but lower earnings, with revenue increasing 7.2% while higher SG&A expenses and corporate-wide costs, together with an increase in the effective tax rate, led to a substantial decline in profit. Revenue was ¥68.81B (¥64.22B in the same period of the previous year, +7.2%), Operating Income was ¥2.33B (¥2.69B, -13.1%), and Ordinary Income was ¥2.68B (¥3.05B, -12.2%). Net Income attributable to owners of the parent was ¥1.48B (¥2.00B, -26.0%). In addition to the deterioration in operating profit margins, the effective tax rate increased to 42.8% (33.1% in the previous year), significantly reducing bottom-line profit.

Factors Affecting Performance

【Revenue】Revenue of ¥68.81B increased 7.2% year on year. By segment, the AUTOBACS Business remained the largest contributor at ¥48.99B (+5.3%), while the Consumer Business at ¥14.56B (+19.4%) and Expansion Business at ¥3.20B (+18.4%) drove overall growth with strong increases. The Wholesaling Business remained firm at ¥8.38B (+4.2%).

【Profit and Loss】Although the increase in cost of sales was below the increase in revenue, the gross margin improved to 36.8% (35.8% in the previous year, +1.0pt). However, the SG&A ratio rose to 33.4% (31.6%, +1.8pt), more than offsetting the benefit of gross-margin improvement. Corporate-wide costs (intersegment adjustments) increased 36.7% to ¥3.19B from ¥2.34B in the previous year, becoming the primary factor pressuring Operating Income. As a result, Operating Income was ¥2.33B (-13.1%), while Ordinary Income, supported by ¥0.72B in non-operating income, including ¥0.13B in dividends received, remained at ¥2.68B (-12.2%). The decline from Ordinary Income to Net Income was primarily attributable to the increase in the effective tax rate to 42.8% (33.1% in the previous year), resulting in Net Income attributable to owners of the parent of ¥1.48B (-26.0%). Revenue increased while earnings declined.

Segment Analysis

The core AUTOBACS Business generated revenue of ¥48.99B (+5.3%), Operating Income of ¥4.60B (-0.5%), and a profit margin of 9.4%. Both its scale and profitability remained stable, although earnings did not increase. The Consumer Business generated revenue of ¥14.56B (+19.4%) and Operating Income of ¥0.42B, a significant improvement in profitability and a turnaround to profitability from a loss of ¥0.04B in the previous year. However, its profit margin of 2.9% remained low within the Group. The Wholesaling Business generated revenue of ¥8.38B (+4.2%), Operating Income of ¥0.15B (+6.5%), and a profit margin of 1.8%, remaining stable at a low margin. The Expansion Business generated revenue of ¥3.20B (+18.4%), Operating Income of ¥0.35B (+19.2%), and a profit margin of 11.0%, securing the highest profitability among the four businesses and achieving both revenue and earnings growth. There are substantial margin disparities among the segments. The Consumer Business’s return to profitability and the Expansion Business’s high growth and profitability were key features of the current period, while the increase in corporate-wide costs (from ¥2.34B in the previous year to ¥3.19B, +36.7%) reduced the aggregate segment profit.

Key Financial Indicators

【Profitability】Operating margin declined to 3.4% (4.2% in the previous year), Ordinary Income margin to 3.9% (4.7%), and Net Income margin attributable to owners of the parent to 2.2% (3.1%). The primary causes of the deterioration in profitability were the increase in the SG&A ratio (+1.8pt), which exceeded the improvement in gross margin (+1.0pt), and the increase in the effective tax rate to 42.8% (33.1% in the previous year). 【Cash Quality】Inventories were ¥32.44B (¥29.99B in the previous year, +8.2%), increasing faster than revenue (+7.2%). The impact of slower inventory turnover on cash generation should therefore be monitored. 【Investment Efficiency】ROE was 1.1%, down from the previous year’s ROE of approximately 1.5%, calculated using shareholders’ equity at the end of the same period of the previous year, primarily due to the deterioration in the Net Income margin. 【Financial Soundness】The Equity Ratio remained broadly flat at 57.6% (56.8% in the previous year). Current assets of ¥115.59B versus current liabilities of ¥58.24B resulted in a substantial current ratio of approximately 198.5%. Interest-bearing debt totaled approximately ¥39.69B, including short-term debt, long-term debt, and bonds. The Company held a certain level of net interest-bearing debt relative to cash and deposits of ¥16.79B, but financial leverage remained conservative.

Cash Flow Analysis

Although a standalone cash flow statement has not been disclosed, funding trends can be identified from changes in the balance sheet. Cash and deposits declined by ¥3.49B (-17.2%) to ¥16.79B from ¥20.29B in the same period of the previous year. The main sources of cash outflow appear to have been the increase in inventories (+¥2.45B, +8.2%) and corporate tax payments, reflected in a ¥3.63B decrease in accrued income taxes payable from ¥4.95B to ¥1.32B (-73.4%). Meanwhile, other accounts receivable declined by ¥6.95B (-24.7%) to ¥21.19B from ¥28.14B, indicating that the collection and reduction of external receivables progressed and contributed to cash conversion to a certain extent. Property, plant and equipment increased moderately to ¥68.97B (¥67.33B in the previous year, +2.4%), suggesting that investments, primarily store-related, have continued. Overall, the increase in inventories accompanying revenue growth and tax payments reduced the cash balance, while the reduction in accounts receivable partially offset these effects.

Quality of Earnings

Non-operating income was ¥0.72B, equivalent to approximately 1.0% of revenue, and was primarily recurring in nature, centered on ¥0.13B in dividends received (¥0.065B in the previous year, +100%), indicating limited reliance on such income. A loss on disposal of property, plant and equipment of ¥0.009B was recorded as an extraordinary loss, but the amount was immaterial. The significant gap between Ordinary Income and Net Income was attributable not to a one-off factor but to the increase in the effective tax rate to 42.8% (33.1% in the previous year). Comprehensive income was ¥1.77B (¥1.71B attributable to owners of the parent), exceeding Net Income attributable to owners of the parent of ¥1.48B. Valuation gains related to other securities and foreign exchange, including ¥0.08B in valuation difference on securities and ¥0.08B representing the share of OCI of equity-method affiliates, contributed positively. At the same time, the fact that inventories grew faster than revenue warrants some caution from an accrual perspective and suggests that changes in earnings may not have translated directly into corresponding changes in cash-generating capacity.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year forecasts—Revenue of ¥300.00B, Operating Income of ¥15.00B, Ordinary Income of ¥15.00B, and Net Income attributable to owners of the parent of ¥9.00B—were 22.9% for Revenue, 15.6% for Operating Income, 17.8% for Ordinary Income, and 16.4% for Net Income. All were below the simple progress benchmark of 25% (Revenue -2.1pt, Operating Income -9.4pt, Ordinary Income -7.2pt, Net Income -8.6pt). The divergence was attributable to the higher SG&A ratio, increased corporate-wide costs, and the elevated effective tax rate. Achievement of the full-year plan assumes cost-efficiency improvements and normalization of the tax burden toward the second half of the fiscal year. Neither the earnings forecast nor the dividend forecast had been revised as of the current quarter.

Shareholder Returns

The full-year dividend forecast is ¥60.00 per share and had not been revised as of the current quarter. The Payout Ratio based on forecast EPS of ¥114.62 is approximately 52.4%. In light of the conservative financial foundation, including an Equity Ratio of 57.6% and a current ratio of approximately 198.5%, this is considered a reasonable level of shareholder returns.

Risk Factors

1. Declining profitability: The Operating margin declined to 3.4% (4.2% in the previous year), primarily due to the increase in the SG&A ratio (+1.8pt), which exceeded the improvement in gross margin (+1.0pt), and the increase in corporate-wide costs (+36.7%). If expenses continue to grow faster than revenue, the decline in operating leverage could become structural.

2. Persistently high tax burden: The effective tax rate rose substantially to 42.8% from 33.1% in the previous year, widening the decline from Ordinary Income to Net Income. The tax burden coefficient (Net Income/Income Before Tax) is approximately 0.55, below the normal level, and whether the tax rate normalizes will influence future Net Income.

3. Expansion of working capital: Inventories increased 8.2% year on year to ¥32.44B, exceeding the increase in revenue (+7.2%). If the pace of inventory accumulation continues, it may affect cash-generating capacity through increased funds tied up in working capital.

Industry Benchmarks (For Reference; Compiled by the Company)

Profitability and Returns

The Company’s profitability indicators, both Operating margin and Net Income margin, are below the industry median, placing it at a relative disadvantage in terms of its cost structure.

Growth and Capital Efficiency

The Revenue growth rate is substantially above the industry median, indicating that the Company’s top-line expansion is at a competitive level within the industry.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. Although Revenue increased by +7.2% and gross margin improved by +1.0pt, the increase in the SG&A ratio (+1.8pt) and the +36.7% increase in corporate-wide costs absorbed these benefits, indicating that the revenue growth effect at the operating level has not translated into profit.

2. The primary reason for the decline from Ordinary Income to Net Income was the increase in the effective tax rate from 33.1% in the previous year to 42.8%. The extent to which the tax burden normalizes will determine the degree of recovery in bottom-line profit.

3. Progress against the earnings forecast was 22.9% for Revenue, versus 15.6% for Operating Income and 16.4% for Net Income. The greater shortfall in profit items means that cost-efficiency improvements in the second half of the fiscal year are a prerequisite for achieving the full-year plan.

Theoretical Stock 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 five-year fade period). It is not a forecast of the market price or a recommendation to take any specific investment action.

Sensitivity: ¥1,553–¥1,641 at ±1% for the cost of equity, and ¥1,592–¥1,599 at ±0.1 for ω.

Notes:

• Because 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.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future stock price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary 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 discretion and responsibility, after consulting a professional advisor as necessary.

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