VALOR HOLDINGS CO.,LTD. FY2027 Q1 Earnings Report

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Executive Summary

In addition to higher revenue and operating income, net income increased significantly; however, the primary driver was a temporary boost from extraordinary income, while core earnings power itself remained broadly flat. Revenue was 2,434.3B yen (up +9.9% year on year), operating income was 74.0B yen (up +5.0%), ordinary income was 78.4B yen (up +8.6%), and net income was 69.3B yen (up +58.5%). Revenue growth was driven by double-digit growth in the Supermarket Business, while the sharp increase in net income was primarily attributable to the recognition of 2.74B yen in extraordinary income, including a gain from the revision of the retirement benefit plan.

Factors Affecting Financial Performance

【Revenue】Revenue was 2,434.3B yen, representing a +9.9% year-on-year increase. By segment, the core Supermarket Business showed the largest growth, with revenue of 1,440.4B yen (59.2% of the total, +15.5%), driving company-wide growth. The DIY&HC Business recorded 331.4B yen (+0.8%), while Drugstore recorded 468.4B yen (+1.6%), both showing limited growth. PetShop recorded 92.6B yen (+6.0%) and FitnessClub recorded 29.9B yen (+7.8%), expanding steadily despite their smaller scale.

【Profit and Loss】Operating income increased to 74.0B yen (+5.0%), securing higher profit. However, while the gross margin was 26.7% (approximately +10bp year on year), the SG&A expense ratio also rose to 26.7% (approximately +20bp), causing the operating margin to decline slightly from the previous year to 3.0%. Ordinary income increased to 78.4B yen (+8.6%), supported by a modest improvement in non-operating income and expenses. Meanwhile, net income of 69.3B yen (+58.5%) was largely attributable to the recognition of 2.74B yen in extraordinary income, including a 2.28B yen gain from the revision of the retirement benefit plan, and does not correspond to an increase in recurring earnings power. Overall, revenue and profit increased, but net income growth depended on temporary factors.

Segment Analysis

The Supermarket Business recorded revenue of 1,440.4B yen (+15.5%), operating income of 66.1B yen (+26.0%), and a profit margin of 4.6%, exceeding the company-wide growth rates for both revenue and operating income and serving as the largest growth driver. Logistics&Facility Management is small in scale, with revenue of 5.54B yen, but is highly profitable, generating operating income of 1.47B yen and a profit margin of 26.5%, providing a cushion for company-wide profits. Meanwhile, PetShop achieved revenue growth of +6.0%, but operating income declined by -25.0%, with its profit margin falling to 0.7%. Together with Drugstore, which had a profit margin of 1.6%, it diluted the company-wide margin. The DIY&HC Business remained stable with a profit margin of 5.6%, while FitnessClub posted a sharp recovery, with operating income increasing by +360.9% from a low base. Across segments, the structure supporting the company-wide margin is evident: efficiency improvements in the large-scale Supermarket Business and the presence of the smaller but highly profitable logistics business.

Key Financial Metrics

【Profitability】The operating margin was 3.0%, a slight decrease from the previous year. The net margin was 2.8% (69.3B yen ÷ 2,434.3B yen), rising significantly from the previous year due to the impact of extraordinary income. ROE was 3.3%, indicating that capital efficiency remained low. 【Cash Quality】Cash and deposits were 295.7B yen, inventories were 735.1B yen, and accounts receivable were 405.5B yen. An increasing trend in inventories and accounts receivable was observed, requiring attention to the speed of cash collection. 【Investment Efficiency】Total assets expanded by +2.4% year on year to 5,276.0B yen; however, improvement in asset efficiency was limited relative to revenue growth (+9.9%), and the low asset turnover ratio is a factor suppressing ROE. 【Financial Soundness】The equity ratio was 39.4%, while long-term borrowings increased to 672.4B yen (+19.9% year on year), indicating continued financing through a combination of bonds and borrowings.

Cash Flow Analysis

As detailed disclosure of the cash flow statement is not available for this earnings release, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were 295.7B yen, down from 329.8B yen in the previous year, while inventories increased to 735.1B yen (+8.7% year on year) and accounts receivable increased to 405.5B yen (+10.7%), suggesting that funds are tied up in inventories and accounts receivable. Meanwhile, accounts payable increased to 834.8B yen (+10.1%), indicating continued cash management utilizing supplier payment terms. Long-term borrowings increased by 111.5B yen from the previous year to 672.4B yen, suggesting that financing was expanded to address capital investment and working capital requirements. Overall, the accumulation of working capital accompanying business expansion appears to be affecting cash efficiency.

Quality of Earnings

Current-period net income of 69.3B yen was boosted by the recognition of 2.74B yen in extraordinary income, including a 2.28B yen gain from the revision of the retirement benefit plan, a 0.20B yen gain on the sale of investment securities, and a 0.22B yen gain on the sale of fixed assets. This creates a qualitative difference from operating income of 74.0B yen and an operating margin of 3.0%, which reflect recurring earnings power. Non-operating income was 1.39B yen, or 0.6% of revenue, indicating limited dependence on non-operating sources. The difference between ordinary income of 78.4B yen and net income of 69.3B yen was primarily attributable to income taxes of 3.60B yen and profit attributable to non-controlling interests of 0.57B yen, with tax expense and non-controlling interests being the main factors. The increasing trend in inventories and accounts receivable is somewhat weighing on earnings quality from an accrual perspective. Given the temporary nature of extraordinary income, net income growth is expected to normalize from the next period onward.

Earnings Forecast and Guidance

The full-year forecast is revenue of 1 trillion yen, operating income of 280.0B yen (+1.5% year on year), and ordinary income of 305.0B yen (+1.6%). Progress rates are 24.3% for revenue, 26.4% for operating income, and 25.7% for ordinary income, broadly in line with standard quarterly progress of 25%, indicating performance is tracking the plan. Meanwhile, progress toward full-year net income attributable to owners of the parent is ahead of schedule due to the recognition of extraordinary income, and the boost to the full-year net income forecast of 165.0B yen is considered temporary. No revisions to the earnings forecast or dividend forecast were disclosed this time.

Shareholder Returns

A share split in which one share will be split into two shares is scheduled to take effect on October 1, 2026. Before taking the split into account, the forecast year-end dividend for the fiscal year ending March 2027 is 40 yen, and the annual dividend is 80 yen. Based on the full-year EPS forecast of 146.11 yen (before split adjustment), the payout ratio is approximately 54.7%, indicating a move to strengthen shareholder returns accompanied by a dividend increase. EPS for Q1 was 120.85 yen (+64.2% year on year); however, as this includes a temporary contribution from extraordinary income, it is appropriate to evaluate the dividend policy based on full-year earnings.

Risk Factors

1. Short-term liquidity risk: The current ratio is 0.829, and short-term liabilities such as short-term borrowings and accounts payable are large relative to cash and deposits of 295.7B yen, indicating a somewhat thin immediate liquidity cushion.

2. Risk of inventory accumulation and delayed collection: Inventories increased to 735.1B yen (+8.7% year on year) and accounts receivable increased to 405.5B yen (+10.7%), creating the possibility that inventory valuation losses or prolonged cash collection could affect the quality of earnings and cash flow.

3. Uneven segment profitability: Low profitability at PetShop (profit margin of 0.7%) and Drugstore (1.6%) is diluting the company-wide margin. Given the high dependence on the Supermarket Business (59.2% of revenue), fluctuations in demand for the core business can readily affect overall performance.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The operating margin is slightly below the industry median, while the net margin exceeds the median partly due to the impact of extraordinary income.

Growth and Capital Efficiency

The revenue growth rate exceeds the industry median and is high relative to industry peers.

※Source: Compiled by the Company

Key Points in the Earnings Release

1. The +58.5% increase in net income was primarily attributable to 2.74B yen in extraordinary income, including a gain from the revision of the retirement benefit plan. The fact that the operating margin, which indicates recurring earnings power, declined slightly from the previous year to 3.0% is an important point in assessing the quality of the earnings.

2. The structure supporting company-wide profit has become clear: margin improvement in the Supermarket Business (4.6%, approximately +40bp) and high profitability in Logistics&Facility Management (26.5%). Differences in profitability among segments are expected to determine future trends in the company-wide margin.

3. The accumulation of working capital accompanying increases in inventories and accounts receivable has been confirmed. The future trend in cash conversion efficiency will be an important point of observation when assessing the sustainability of performance.

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: ¥3,244–¥3,432 at ±1% for the cost of equity, and ¥3,316–¥3,349 at ±0.1 for ω.

Notes:

• Since progress toward full-year net income (39%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule tend to outperform their forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets at the end of the quarter are used (there is a time lag relative to the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(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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