CHARLE (9885) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for the first three quarters reflected an expansion of losses due to weak performance in existing businesses and a major impairment loss, despite the newly consolidated sportswear business contributing to higher revenue. Revenue was ¥10.32B (+12.6% YoY), while Operating Income was ¥-0.48B (deteriorating from ¥-0.28B in the previous year), Ordinary Income was ¥-0.43B, and Net Loss Attributable to Owners of the Parent was ¥2.87B (a significant expansion from ¥-0.28B in the previous year). The primary factor behind the expansion of the net loss was an impairment loss of ¥2.35B related to the Ladies’ Innerwear Business. In addition to the expansion of the operating loss, a non-recurring reassessment of asset values put downward pressure on earnings.

Factors Driving Earnings Fluctuations

【Revenue】Revenue increased 12.6% YoY to ¥10.32B, but the primary driver of the increase was the new contribution from the Sportswear Business, which generated revenue of ¥1.33B, including Onyoné Co., Ltd., which was consolidated in Q1. The existing core Ladies’ Innerwear Business generated ¥8.66B in revenue, down 1.9% from ¥8.83B in the previous year, while the Fine Bubble Business generated ¥0.31B, down 9.1%. A recovery in demand for the core businesses has not been confirmed.

【Profit and Loss】The gross margin declined by 600bp to 39.3% from 45.3% in the same period of the previous year. Although the SG&A ratio improved by 430bp to 44.0%, this was insufficient to offset the deterioration in the gross margin, and the operating margin deteriorated to -4.7% from -3.0% in the previous year. By segment, the Sportswear Business secured profitability with a margin of 16.1%, while the Ladies’ Innerwear Business posted a margin of -6.7% and the Fine Bubble Business posted a loss margin of -23.2%. The deterioration in the profitability of existing businesses is weighing on consolidated earnings. The primary factor behind the pretax loss of ¥2.74B was the ¥2.35B impairment loss in the Ladies’ Innerwear Business, partially offset by a ¥0.11B gain on negative goodwill arising from the consolidation of Onyoné. In conclusion, the company reported higher revenue but lower earnings.

Segment Analysis

The Ladies’ Innerwear Business, accounting for 84.0% of revenue, generated revenue of ¥8.66B and a segment loss of ¥0.58B. The loss expanded from ¥0.20B in the same period of the previous year, making it a major drag on consolidated earnings. The Sportswear Business, a newly consolidated segment, recorded revenue of ¥1.33B and profit of ¥0.21B (margin of 16.1%), supporting company-wide earnings as the only profitable business. The Fine Bubble Business generated revenue of ¥0.38B and a loss of ¥0.09B (margin of -23.2%), deteriorating from a loss of ¥0.04B in the previous year. There is a significant profitability gap within the business portfolio, and expanding profitable businesses while improving the earnings of existing loss-making businesses will be the key focus going forward.

Key Financial Metrics

【Profitability】The operating margin deteriorated to -4.7% from -3.0% in the same period of the previous year, while the gross margin also declined by 600bp to 39.3% from 45.3% in the previous year. The net profit margin was significantly negative at -27.8%, with most of the decline attributable to the non-recurring ¥2.35B impairment loss.【Cash Flow Quality】Although Operating Cash Flow has not been disclosed, inventories stood at ¥3.71B, accounting for 21.5% of total assets, and increased year on year, suggesting that funds are tied up in inventory. Accounts receivable also surged to ¥0.93B, requiring confirmation of collection trends.【Investment Efficiency】Annualized ROE was -27.8%, indicating that capital efficiency is below the cost of capital.【Financial Soundness】The Equity Ratio remained high at 79.8%, while cash and deposits of ¥5.19B substantially exceeded total interest-bearing debt, resulting in a net cash position. Current assets of ¥12.01B versus current liabilities of ¥1.99B indicate strong short-term payment capacity.

Cash Flow Analysis

Although individual items in the cash flow statement have not been disclosed, the balance sheet trends indicate that cash and deposits declined by ¥3.12B from ¥8.31B in the same period of the previous year to ¥5.19B. Meanwhile, interest-bearing debt, including the total of long-term borrowings and bonds, remained limited in size, and net cash continued to be substantial. Inventories increased by ¥0.50B and accounts receivable increased by ¥0.82B, while accounts payable declined by ¥0.21B, suggesting that the increase in working capital has tied up funds. Net assets contracted from ¥16.85B to ¥13.74B, primarily due to a ¥3.00B decline in retained earnings, indicating that the recognition of losses during the period and the reassessment of asset values placed pressure on shareholders’ equity.

Quality of Earnings

The Net Loss Attributable to Owners of the Parent of ¥2.87B was significantly divergent from the ordinary loss of ¥0.43B, primarily due to extraordinary losses of ¥2.41B, particularly the ¥2.35B impairment loss. Although the company recorded a ¥0.11B gain on negative goodwill as an extraordinary gain, it was insufficient to offset the extraordinary losses. Non-operating income was ¥0.06B, only 0.6% of revenue, consisting mainly of ¥0.03B in interest income and ¥0.02B in foreign exchange gains, with no dependence on non-recurring income outside ordinary operations. Since most of the net loss was attributable to the non-recurring impairment loss, the net profit margin of -27.8% for the period does not directly represent the company’s normal operating profitability. On the other hand, the impairment loss applied to fixed assets in the Ladies’ Innerwear Business, suggesting that the outlook for the business’s future earnings was revised downward.

Earnings Forecast and Guidance

Revenue progress against the full-year company forecast was 78.0% (¥10.32B/¥13.23B), exceeding the standard 75% level. Progress toward the forecast operating loss was 68.3% (¥0.48B/¥0.71B), while progress toward the forecast ordinary loss was 65.9% (¥0.43B/¥0.66B), implying that the company’s plan assumes that the operating loss in Q4 will be limited to approximately ¥0.23B. Meanwhile, progress toward the forecast loss attributable to owners of the parent was high at 91.8% (¥2.87B/¥3.13B), as the major impairment loss was concentrated through Q3. Achieving the full-year plan will depend on avoiding additional impairment losses in Q4 and maintaining the Sportswear Business’s contribution to earnings.

Shareholder Returns

The Q2 dividend was ¥0 per share, while the full-year company forecast calls for an annual dividend of ¥8 per share. Based on the average number of shares outstanding during the period of 15,432 thousand shares, total annual dividends are expected to be approximately ¥0.12B. There is no dividend funding from earnings against the forecast full-year net loss of ¥3.13B, and the dividend will depend on retained earnings of ¥5.59B and cash on hand of ¥5.19B. Cash and deposits have declined by ¥3.12B year on year, and the sustainability of the dividend will depend on the future recovery of earnings in the core businesses and the extent to which losses can be contained.

Risk Factors

1. Deterioration in the profitability of the core business: The Ladies’ Innerwear Business generated revenue of ¥8.66B and a segment loss of ¥0.58B, with the loss expanding from the previous year. An impairment loss of ¥2.35B was also recorded for this business. Delayed recovery in brand competitiveness and sales efficiency is the largest concern for consolidated earnings.

2. Funds tied up in inventory and working capital: Inventories increased to ¥3.71B, accounting for 21.5% of total assets. Accounts receivable also increased by ¥0.82B year on year, reaching a level that requires confirmation of inventory valuation and collection terms.

3. Deterioration in profitability indicators: The operating margin of -4.7% and annualized ROE of -27.8% both deteriorated from the previous year. If the company continues to be unable to generate Operating Income despite the use of capital, this could lead to a further decline in net assets.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (trading)

Profitability and Returns

The company’s profitability is substantially below the industry median in both operating margin and net profit margin, placing it in the lowest tier of the industry due to the recognition of the impairment loss.

Growth and Capital Efficiency

The revenue growth rate exceeded the industry median, showing a high growth rate within the industry due to the effect of new consolidation.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The primary driver of consolidated revenue growth was the new consolidation of the Sportswear Business, while the existing core Ladies’ Innerwear Business continued to experience declining revenue and expanding losses. The gross margin declined by 600bp, and the fact that expansion in revenue scale has not translated directly into improved profitability is an important observation when assessing the quality of the earnings results.

2. Most of the ¥2.87B net loss was attributable to the non-recurring ¥2.35B impairment loss. The impairment itself signifies a downward revision to the future earnings outlook for the Ladies’ Innerwear Business. While it should be distinguished from normal operating profitability, it must nevertheless be monitored as a structural issue.

3. The financial foundation is solid, as evidenced by the 79.8% Equity Ratio, net cash position, and high current ratio, providing time to pursue business restructuring and inventory reduction. At the same time, increases in inventories and accounts receivable require monitoring as issues related to cash conversion.

Theoretical Share Price (Reference Value)

Sensitivity: ¥294–¥309 at ±1% for the cost of equity, and ¥289–¥310 at ±0.1 for ω.

Notes:

• Since 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).
• Since 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: 2026-08 / This is a mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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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 responsibility, after consulting with a professional as necessary.

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