BELLUNA (9997) FY2027 Q1 Earnings Report

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Executive Summary

Although revenue increased and operating income declined at the operating level during the quarter, ordinary income and net income increased due to improved non-operating income and expenses and the recognition of extraordinary income. Revenue was ¥52.19B (+2.7% YoY), while operating income was ¥1.24B (-21.8% YoY). The benefit of the gross margin improving to 63.6% (+1.3pt from 62.3% in the previous year) was outweighed by the SG&A ratio rising to 61.2% (+2.1pt), resulting in the operating margin declining to 2.4% (-0.7pt). Meanwhile, ordinary income increased to ¥1.37B (+8.8%) due to increases in dividend income and foreign exchange gains, while net income attributable to owners of the parent increased to ¥0.94B (+27.2%), also reflecting the recognition of gains on sales of investment securities.

Factors Affecting Performance

【Revenue】Company-wide revenue was ¥52.19B, up +2.7% YoY. The Property Business was the primary growth driver at ¥10.23B (+23.9%), while Gourmet at ¥6.56B (+6.4%) and Database Utilization at ¥5.40B (+6.3%) also contributed to revenue growth. In contrast, Cosmetics and Health Foods declined sharply to ¥2.44B (-15.0%), while Kimono-related, Apparel and General Merchandise, and Nurse-related also posted slight declines of -1.7%, -0.9%, and -0.9%, respectively, resulting in a mixed structure of growth segments and structurally contracting segments. By revenue composition, Apparel and General Merchandise was the largest at 37.6%, followed by Property at 19.6% and Gourmet at 12.6%.

【Profit and Loss】On the earnings front, the Database Utilization Business was the main pillar of company-wide profit, generating operating income of ¥1.12B and an operating margin of 20.7%. In contrast, Kimono-related posted an operating loss of ¥1.07B and a margin of -31.0%, significantly weighing on company-wide earnings. Although the Property Business recorded higher revenue, operating income deteriorated to ¥0.54B (-35.4%), potentially reflecting the project mix and timing differences in deliveries. Non-operating income was supported by dividend income of ¥0.26B and foreign exchange gains of ¥0.12B, absorbing the increase in interest expenses to ¥0.49B from ¥0.29B in the previous year and allowing ordinary income to increase +8.8%. In addition, gains on sales of investment securities of ¥0.08B, a temporary factor, contributed to a +27.2% increase in net income. In conclusion, the Company is in a phase of higher revenue but lower operating income, while ordinary income and net income have turned to growth; earnings quality has improved at the final stages despite ongoing issues at the operating level.

Segment Analysis

By segment, the Database Utilization Business is the core business in both profitability and scale, with revenue of ¥5.40B (+6.3%) and operating income of ¥1.12B (operating margin: 20.7%). The Property Business grew substantially, with revenue of ¥10.23B (+23.9%), but operating income remained at ¥0.54B (-35.4%), highlighting the divergence between revenue growth and profitability. Kimono-related continued to post a structural deficit, with revenue of ¥3.46B (-1.7%) and an operating loss of ¥1.07B (operating margin: -31.0%). Cosmetics and Health Foods also struggled, with revenue of ¥2.44B (-15.0%) and an operating loss of ¥0.04B, falling into the red from a profit in the previous year. Apparel and General Merchandise was nearly flat, with revenue of ¥19.62B (-0.9%), while operating income improved to ¥0.42B (+23.0%). Nurse-related remained stable, with revenue of ¥3.61B (-0.9%) and operating income of ¥0.23B (+1.3%). Gourmet showed an improving trend despite low profitability, with revenue of ¥6.56B (+6.4%) and operating income of ¥0.06B (+46.2%). Overall, the structure is clear: Database Utilization drives profit, while Kimono-related and Cosmetics and Health Foods weigh on company-wide earnings.

Key Financial Indicators

【Profitability】The operating margin declined to 2.4% from 3.1% in the same period of the previous year, as the SG&A ratio of 61.2% (+2.1pt) exceeded the benefit of the gross margin improving to 63.6% (+1.3pt). The net margin, on an attributable-to-owners-of-the-parent basis, improved to 1.8% from 1.5%, as non-operating income and extraordinary income offset the slowdown in the core business. 【Cash Quality】Non-operating income of ¥0.94B represented only 1.8% of revenue, indicating no excessive dependence; however, extraordinary income of ¥0.08B was a temporary factor resulting from gains on sales of investment securities. Inventories were ¥25.37B, up +7.7% from ¥23.56B in the previous year, accumulating faster than the +2.7% revenue growth rate, requiring monitoring of inventory efficiency. 【Investment Efficiency】ROE, on an attributable-to-owners-of-the-parent basis, remained low at 0.6%, with the decline in the operating margin directly reflected in capital efficiency. Total assets were ¥344.40B (+1.3% YoY), while net assets were ¥151.07B (-0.3% YoY), remaining broadly flat. 【Financial Soundness】The equity ratio declined to 43.9% from 44.5% in the previous year, a decrease of 0.6pt. In addition to long-term borrowings of ¥125.58B, short-term borrowings increased to ¥24.51B (+31.4% YoY), and interest expenses expanded to ¥0.49B (+71.8% YoY). Cash and deposits were substantial at ¥36.11B, limiting short-term liquidity constraints, although the rising interest burden warrants close monitoring for its impact on profitability.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, funding trends can be inferred from changes in the balance sheet. Cash and deposits increased +4.6% YoY to ¥36.11B, while short-term borrowings increased +31.4% to ¥24.51B (+¥5.86B), indicating that working capital requirements are being funded through short-term borrowings. Long-term borrowings declined slightly by -1.3% YoY to ¥125.58B, indicating a shift toward short-term interest-bearing debt. Trade receivables increased +3.7% YoY to ¥11.94B, while inventories increased +7.7% to ¥25.37B, expanding the working capital burden. Meanwhile, contract liabilities, or advances received, rose substantially by +64.3% YoY to ¥4.92B, indicating a positive funding factor from advance collections in certain areas. Overall, the somewhat greater reliance on short-term borrowings than on cash generation from the core business is an important consideration when evaluating future funding efficiency.

Earnings Quality

The current period’s earnings reflect a structure in which recurring non-operating income and limited extraordinary items offset the decline in the core operating margin (-0.7pt). Non-operating income of ¥0.94B represented only 1.8% of revenue, with dividend income of ¥0.26B and foreign exchange gains of ¥0.12B as the principal components; dependence on non-recurring factors was not high. Extraordinary income was ¥0.08B, comprising gains on sales of investment securities, a temporary factor, while extraordinary losses were ¥0.01B, including losses on disposal of fixed assets. Even on a net basis, the impact was minor, and the increase in net income was primarily attributable to improvement at the ordinary income level. The difference between ordinary income of ¥1.37B and profit before tax of ¥1.44B was small and reflected the net extraordinary result. The effective tax rate was approximately 34.5% (income taxes of ¥0.50B / profit before tax of ¥1.44B), with no significant deviation from the previous year and no distortion apparent in the tax burden structure. However, interest expenses increased +71.8% to ¥0.49B from ¥0.29B in the previous year. Under the low operating margin, the growing interest burden is gradually affecting earnings quality. In addition, the fact that inventories and trade receivables are increasing faster than revenue is an important factor to consider when evaluating the cash backing of earnings.

Earnings Forecast and Guidance

Progress against the full-year plan was 23.6% for revenue at ¥5.219B / ¥221.00B, 7.1% for operating income at ¥1.24B / ¥17.50B, 8.3% for ordinary income at ¥1.37B / ¥16.50B, and 7.8% for net income attributable to owners of the parent at ¥0.94B / ¥12.00B. Compared with the benchmark of 25% for evenly distributed quarterly progress, revenue was generally within an acceptable range, while each profit level was substantially below the benchmark, indicating progress weighted toward the second half. The timing of project recognition in the Property Business and the concentration of SG&A expenses at the beginning of the fiscal year may be contributing factors. As of Q1, no revisions had been made to the earnings forecast or dividend forecast.

Shareholder Returns

The annual dividend forecast remains unchanged at ¥39.00, with no revision as of the current quarter. Based on the full-year EPS forecast of ¥124.69, the payout ratio is approximately 31.3% (¥39 / ¥124.69), a conservative level that returns a certain portion of earnings growth to shareholders while securing retained earnings. Given the substantial liquidity represented by cash and deposits of ¥36.11B, there is limited concern regarding dividend sustainability as long as the planned earnings level is achieved. However, if the increase in interest expenses and expansion of working capital continue, the resulting decline in free cash flow flexibility could affect the capacity for shareholder returns and warrants monitoring.

Risk Factors

1. Structural deficit in the Kimono-related Business: Against revenue of ¥3.46B, the segment posted an operating loss of ¥1.07B and a margin of -31.0%. Improvement from the same period of the previous year was limited (profit YoY +5.9%), and the segment continues to weigh on company-wide earnings.

2. Increase in interest burden: Interest expenses increased +71.8% to ¥0.49B from ¥0.29B in the previous year, while short-term borrowings expanded +31.4% to ¥24.51B. Given the low operating margin of 2.4%, earnings volatility risk during a period of rising interest rates is relatively significant.

3. Accumulation of working capital: Inventories increased +7.7% YoY to ¥25.37B and trade receivables increased +3.7% to ¥11.94B, both faster than the +2.7% revenue growth rate. This could lead to the risk of inventory valuation losses and a slowdown in cash-generation capacity.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (retail)

Profitability and Returns

Both the operating margin and net margin were below the industry median, placing the Company at a relatively low level within the industry.

Growth and Capital Efficiency

The revenue growth rate was also below the industry median, indicating that top-line growth was relatively moderate compared with peers.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Although the gross margin improved to 63.6% (+1.3pt), the SG&A ratio rose +2.1pt to 61.2%, exceeding the improvement and causing the operating margin to decline to 2.4%. Controlling the cost structure will be key to restoring profitability.

2. Profitability disparities among segments have widened. The Database Utilization Business, with a margin of 20.7%, is driving company-wide earnings, while Kimono-related, with a margin of -31.0%, and Cosmetics and Health Foods, with a margin of -1.8%, are weighing on earnings. Changes in the business portfolio mix could determine the Company’s future overall margin.

3. Progress against the full-year plan was 23.6% for revenue, compared with 7.1% for operating income and 7.8% for net income, indicating slower progress on earnings. The extent to which the planned pace of profit recognition in the second half can be achieved will be the key focus going forward.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly available data using a residual income model (Ohlson-type, with an explicit 5-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,462–¥1,547 at ±1% for the cost of equity, and ¥1,501–¥1,505 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 end of the quarter are used; there is a timing difference relative to the full-year forecast.
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

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

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This report is an earnings analysis document automatically generated by AI through analysis of 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 professionals as necessary.

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AI Financial Analysis

Executive Summary

Belluna delivered modest top-line growth in FY2027 Q1, but underlying operating performance weakened materially. Revenue increased 2.7% year on year to ¥52.19bn. Gross profit rose 4.9% to ¥33.18bn, lifting the gross margin by 133bp to 63.6%. This gross-margin improvement was more than offset by a 6.3% increase in SG&A expenses to ¥31.94bn. Consequently, operating income declined 21.8% to ¥1.24bn. The operating margin compressed 75bp to 2.4%, which is below the 5% efficiency threshold and is the principal earnings concern. Ordinary income nevertheless increased 8.8% to ¥1.37bn, aided by higher non-operating income. Net income attributable to owners rose 27.2% to ¥0.94bn, including a ¥0.84bn gain on sales of investment securities. The net margin improved by approximately 35bp to 1.8%, but remains low in absolute terms. The widening gap between operating income and net income means the headline profit growth was not driven by core operating leverage. The Property business remained the largest operating-profit contributor, despite a decline in segment profit. Apparel and Miscellaneous improved earnings, while Cosmetics and Health Foods moved into a loss. The balance sheet remains liquid, with a 224.5% current ratio and ¥36.11bn of cash and deposits. However, interest-bearing debt was ¥150.09bn and interest coverage was only 2.52x, leaving profitability sensitive to financing costs. Short-term loans increased 31.4% year on year, warranting monitoring even though cash exceeds short-term borrowings. Inventory days of 122-126 days are high for retail-related operations and elevate markdown, obsolescence, and working-capital risk. Full-year guidance was maintained, but Q1 operating-profit progress was only 7.1%, well below the standard 25% first-quarter run rate. Achieving the annual plan therefore requires a pronounced recovery in operating profitability during the remaining quarters.

Profitability Analysis

The reported annualized DuPont ROE was 2.5%, comprising a 1.8% net profit margin, 0.606x asset turnover, and 2.28x financial leverage. The weakest component is profitability: a 1.8% net margin and 2.4% EBIT margin indicate that the asset base and leverage are generating limited earnings returns. Financial leverage supports the reported ROE mechanically, but does not compensate for weak operating profitability. The largest year-on-year deterioration was at the operating level, with the operating margin falling from 3.1% to 2.4%, or 75bp. Gross margin improved from 62.3% to 63.6%, demonstrating favorable merchandise mix, pricing, or cost-of-sales control. However, SG&A rose 6.3%, substantially faster than revenue growth of 2.7%, and the SG&A ratio increased by 208bp to 61.2%. This adverse operating leverage fully absorbed the 133bp gross-margin improvement. Operating income declined ¥0.35bn to ¥1.24bn despite the ¥1.36bn increase in revenue. Non-operating income of ¥0.94bn was significant relative to operating income and included ¥0.26bn of dividend income and ¥0.12bn of foreign-exchange gains. Interest expense rose 71.8% year on year to ¥0.49bn, which constrained the conversion of EBIT into recurring pre-tax earnings. The extended DuPont interest burden was 1.157 because pre-tax profit exceeded EBIT due to net non-operating income; this should not be interpreted as low financing risk given the 2.52x interest-coverage ratio. The tax burden was 0.653, equivalent to a 34.5% effective tax rate. The ¥0.84bn securities-sale gain was the principal reason net income outpaced ordinary income, so the 27.2% growth in attributable profit is not fully recurring. JGAAP goodwill amortization was ¥0.84bn at the segment-adjustment level, reducing operating income, although goodwill itself is modest relative to equity.

Growth Assessment

Revenue growth of 2.7% was driven primarily by the Property business, where sales increased 23.8% year on year to ¥10.03bn. Property segment profit declined 35.4% to ¥0.54bn, causing its segment margin to fall from 10.1% to 5.4%; therefore, this growth was not accompanied by proportional profit conversion. Cosmetics and Health Foods revenue declined 15.0% to ¥2.44bn and shifted from a ¥0.25bn profit to a ¥0.04bn loss. Gourmet sales increased 6.5% to ¥6.47bn and segment profit rose 46.2% to ¥0.57bn, with margin improving to 8.8% from 6.4%. Nurse-related sales declined 0.9% to ¥3.61bn, while segment profit was broadly stable at ¥0.23bn. Kimono-related sales declined 1.8% to ¥3.43bn, although its segment loss narrowed to ¥1.07bn from ¥1.14bn. Apparel and Miscellaneous, the largest revenue business at ¥19.59bn, saw sales decline 0.9% but segment profit increase 23.0% to ¥0.42bn, improving its margin to 2.1%. Other businesses experienced a 32.2% revenue decline to ¥1.24bn but returned to a marginal profit. Full-year revenue guidance of ¥221.0bn implies 1.3% growth, and Q1 revenue represents 23.6% of the plan, modestly below the standard 25% progress rate. Operating-income guidance of ¥17.5bn implies 6.2% growth, but Q1 progress is only 7.1%. Ordinary-income progress is 8.3% against the ¥16.5bn forecast, and attributable-profit progress is 7.8% against the ¥12.0bn forecast. The maintained guidance consequently embeds substantial second-half earnings concentration and requires SG&A discipline, recovery in Property profitability, and containment of losses in Cosmetics and Health Foods.

Financial Health

Liquidity is solid. Current assets of ¥134.38bn exceeded current liabilities of ¥59.85bn, producing working capital of ¥74.53bn and a current ratio of 224.5%. The quick ratio of 182.1% also indicates that liquidity does not depend on inventory liquidation. Cash and deposits of ¥36.11bn were 1.47x short-term loans of ¥24.51bn, mitigating immediate refinancing pressure. There is no apparent short-term maturity mismatch because current assets substantially cover current obligations and cash alone exceeds short-term borrowings. Solvency is more moderate than liquidity. Interest-bearing debt totaled ¥150.09bn, consisting of ¥24.51bn of short-term loans and ¥125.58bn of long-term loans. Debt-to-equity was 1.28x and debt-to-capital was 49.8%; these are not at the stated aggressive D/E warning threshold, but are meaningful given low operating returns. Long-term loans account for 83.7% of interest-bearing debt, which reduces near-term refinancing concentration. Interest coverage of 2.52x is a concern because it is below the 3.0x caution benchmark and leaves limited room for further interest-rate increases or EBIT weakness. Equity decreased by ¥0.39bn year on year to ¥151.07bn, while total liabilities increased by ¥4.65bn. The equity ratio was 43.8%, down from 44.5%, reflecting slightly higher balance-sheet leverage. Goodwill was only ¥2.01bn, or 1.3% of equity and 0.6% of total assets, so the balance sheet is not materially dependent on goodwill value retention. Intangible assets were 3.0% of assets, also a low concentration. Lease obligations totaled ¥4.06bn, and asset-retirement obligations were ¥1.09bn; these obligations are modest relative to total liabilities but should be included in fixed-commitment monitoring.

Notable B/S Changes

Short-term loans: +¥5.86bn (+31.4%) to ¥24.51bn — increased reliance on short-term funding. Cash of ¥36.11bn covers this balance, but the increase raises the importance of monitoring refinancing costs and debt maturity management.

Cash Flow Quality

Operating cash flow, investing cash flow, financing cash flow, capital expenditure, and free cash flow were not reported in the provided financial data. Accordingly, cash conversion, OCF-to-net-income coverage, accruals quality, and free-cash-flow coverage of dividends cannot be quantified. Balance-sheet indicators nevertheless point to working-capital discipline as an important monitoring item. Inventories increased ¥1.87bn year on year to ¥25.37bn, while inventory days were flagged at 122-126 days. This inventory duration is above both the 60-day retail warning threshold and the 90-day quality-alert threshold. The elevated stockholding increases exposure to markdowns, obsolescence, seasonal demand variability, and cash tied up in merchandise. Accounts receivable increased 3.7% to ¥11.94bn, broadly tracking sales growth, whereas trade payables increased 23.7% to ¥10.25bn. The faster growth in payables provides some working-capital support, but inventory remains the more material operating-capital risk. The reported ¥0.84bn gain on investment-security sales supported net income and does not represent recurring operating cash generation.

Dividend Sustainability

The full-year dividend forecast is ¥39.00 per share, unchanged under the disclosed guidance. Based on forecast EPS of ¥124.69, the implied dividend payout ratio is approximately 31.3%. This is below the 60% sustainability benchmark and leaves a meaningful accounting earnings buffer. The prior-period dividend per share was ¥15.00, but no current interim dividend figure was provided for direct period-on-period dividend comparison. Retained earnings were ¥126.39bn, providing substantial balance-sheet capacity relative to the forecast dividend commitment. Dividend sustainability is therefore supported by forecast earnings capacity and retained earnings, while the low operating margin and weak first-quarter profit progress make delivery of the full-year EPS forecast the key determinant. No share buyback data was provided, so a total return ratio is not calculated.

Risk Assessment

Business risks include High inventory days of 122-126 days create elevated markdown, obsolescence, seasonality, and inventory-cash-conversion risk in the retail and e-commerce-related businesses., The Property business generated 23.8% sales growth but a 35.4% decline in segment profit, indicating margin pressure in the current principal earnings contributor., Cosmetics and Health Foods shifted from a ¥0.25bn segment profit to a ¥0.04bn loss amid a 15.0% sales decline, creating downside risk if demand and marketing efficiency do not recover., Apparel and Miscellaneous sales declined 0.9% despite profit improvement, exposing the group to discretionary-consumption weakness, competitive online retailing, and customer-traffic volatility., The large ¥1.07bn Kimono-related segment loss remains a drag on consolidated profitability, notwithstanding a ¥0.07bn year-on-year improvement..

Financial risks include Interest-bearing debt of ¥150.09bn and an interest-coverage ratio of 2.52x leave earnings exposed to further borrowing-cost increases or a decline in operating income., Short-term loans increased ¥5.86bn, or 31.4%, year on year to ¥24.51bn. The increase suggests greater short-term funding use, although cash of ¥36.11bn provides coverage., Debt-to-equity of 1.28x and debt-to-capital of 49.8% are manageable but meaningful in the context of a 2.5% annualized ROE and 1.2% ROIC., Non-operating income and gains on securities sales supported reported profit growth, reducing the quality of the quarter's headline net-income increase..

Key concerns include LOW_OPERATING_EFFICIENCY: EBIT margin was 2.4%, below the 5% quality-alert threshold. The root cause was SG&A growth of 6.3% versus sales growth of 2.7%, which more than offset gross-margin improvement. This reduces resilience to demand volatility and raises the earnings recovery required to meet guidance., CAPITAL_EFFICIENCY: ROIC was flagged at 1.2%, below 5%. Low operating profitability on a ¥344.40bn asset base means invested capital is not currently earning an adequate return, and leverage is not a substitute for stronger operating returns., HIGH_INVENTORY_DAYS: Inventory days were flagged at both 126 days and 122 days. This is well above retail-sector warning levels and indicates that merchandise productivity and inventory rotation need improvement; the potential impact is higher markdowns, inventory valuation pressure, and weaker future cash conversion., Q1 operating-income progress of 7.1% versus the full-year plan is 17.9 percentage points below the standard 25% first-quarter pace. Seasonality may contribute, but the maintained full-year operating-profit forecast requires a substantial acceleration..

Investment Implications

Key takeaways include Revenue and gross margin improved, but SG&A growth caused a 21.8% decline in operating income and a 75bp operating-margin contraction., Net income growth was aided by non-operating income and a ¥0.84bn gain on investment-security sales, rather than by core operating improvement., The Property business is the core business by segment operating-profit contribution at ¥0.54bn, but its margin deterioration is a central issue., Liquidity is strong, while debt service capacity is comparatively weak at 2.52x interest coverage., High inventory days and low ROIC are the principal efficiency constraints., Maintained full-year guidance requires material improvement after a weak Q1 operating-profit run rate..

Metrics to watch include Consolidated operating margin and SG&A ratio, Property business segment margin, Cosmetics and Health Foods revenue and return to profitability, Inventory days, inventory balance, and any markdown or writedown charges, Interest expense and interest coverage ratio, Short-term loan balance and refinancing structure, Quarterly progress toward the ¥17.5bn full-year operating-income forecast, Recurring ordinary income excluding securities-sale gains and foreign-exchange effects.

Regarding relative positioning, Belluna's 63.6% gross margin is high relative to standard general-retail benchmarks, reflecting its business mix, but its 61.2% SG&A ratio leaves a thin 2.4% operating margin. Liquidity is stronger than its earnings-based debt-service capacity, while low annualized ROE of 2.5% and ROIC of 1.2% indicate below-benchmark capital efficiency.