MATSUOKA CORPORATION Q1 FY2026 earnings call

• Company Overview & Core Strategy

  • Matsuoka is a pure-play apparel OEM manufacturer focused on production contract manufacturing (no in-house brand), the only publicly listed pure-play sewing manufacturer in Japan. It operates production facilities across 5 countries (China, Myanmar, Bangladesh, Vietnam, Indonesia) with over 20,000 total employees as of 2025.
  • Core competitive advantages: Multi-country diversified supply chain able to meet diverse customer requirements for cost, speed, and risk mitigation; Japanese-style attention to quality, technical capability, and on-time delivery; early market entry into emerging production hubs that has built long-term operational expertise.

• New Production Capacity Expansion

  • Three new factories have been completed under the current mid-term plan: An Nam (Vietnam), Tan Chuong (Vietnam), and IMBD (Bangladesh), with capacity being gradually ramped up currently.
  • An Nam (Vietnam): Matsuoka's largest factory (100,000 sqm site, ~3,000 employees) focused on high-efficiency large-volume orders, with automation investment to improve productivity; not yet at full capacity, with additional production lines being added in the current term.
  • Tan Chuong (Vietnam): Smaller facility focused on high-value-added products for department store brands and select shops.
  • IMBD (Bangladesh): Focused on low-cost production, with automated material handling and real-time production visibility; Bangladesh production has grown sharply and is a critical growth hub for the company, with increasing inquiries from global apparel manufacturers shifting production out of China.

• Mid-Term Plan "Vision 2025" Progress

  • The 5-year plan (2022-2026 March Term) hit its original targets of 70 billion yen in sales and 3.5 billion yen in ordinary profit earlier than scheduled, so revised upward targets were set for the final year: 74 billion yen in sales and 4.7 billion yen in ordinary profit.
  • Key KPI: Shift production share to ASEAN and other non-China regions, targeting 71% of total sales from these regions by the end of the current term, from the 50/50 split at the start of the plan. Sewing production in Vietnam and Bangladesh has grown steadily toward this target.

• Sustainability & Operational Governance

  • Factories are built in undeveloped agricultural regions, and contribute to local community development as they grow; the company prioritizes clean, comfortable working conditions with welfare amenities including canteens, nurseries, and clinics.
  • Active promotion of local talent for management positions, with most factory managers hired locally including many women; high-potential local employees are brought to Japan for long-term technical and language training to develop future local leadership.

For the 1Q of the 2026 March Term, total consolidated sales were 16.9 billion yen, with 2 product segments:

1. Sewing Business: Accounts for 84.1% of total revenue, further divided into 3 product categories:
   • Casual wear: 53.1% of total company revenue, with 60-70% of casual wear revenue coming from Fast Retailing. 1Q sales volume was 12.66 million units, up 21.4% year-over-year, led by strong production growth at Bangladesh facilities.
   • Working wear: 10.5% of total company revenue, with fan-equipped cooling apparel seeing strong order growth amid continued heatwaves.
   • Innerwear & cut-sew: 19.1% of total company revenue, produced end-to-end (from knitting and dyeing to sewing) at Bangladesh facilities.
2. Lamination Film Business: Accounts for 15.9% of total company revenue, up 5 percentage points in share over the past 2-3 years. 1Q sales volume was 4.35 million yards, up 3.3% year-over-year. The business produces moisture-permeable waterproof functional laminated fabric for outdoor, sportswear, and medical applications, and operates as an upstream segment separate from the sewing business.

• Full-year 2026 March Term guidance is maintained at: 74 billion yen in total sales, 2.5 billion yen in operating profit, 5 billion yen in forex-adjusted operating profit, 4.7 billion yen in ordinary profit, and 3 billion yen in net income attributable to parent shareholders.
• 1Q sales volume progress is 20.3% of the full-year plan, which is considered on track, though customer-driven delivery delays have created slower first-half progress than originally planned, with full-year results still expected to meet guidance as the bulk of revenue will come in the second half.
• The lamination film business is expected to see a cooling of profit growth in the current term after very high performance in the prior year, so full-year growth will be led by the sewing business.
• Dividend guidance is maintained at 90 yen per share, in line with the prior year, with the company targeting a 30% consolidated payout ratio, which is expected to be met this term.

• Foreign exchange volatility: Approximately 70% of sales revenue is denominated in USD, with production expenses paid in local currencies of production countries, leading to foreign exchange gains/losses that can impact reported profit; yen appreciation in 1Q led to reported foreign exchange losses that reduced ordinary and net income for the quarter.
• Geopolitical and trade risks: Multiple-country production base helps mitigate risks from trade policy changes (such as US tariffs on Chinese goods), though shifting customer production allocation can create competitive shifts across regions.
• Labor cost inflation: Rising labor costs in emerging production markets require ongoing productivity improvement investments to offset cost increases, as full cost pass-through to customers would risk losing competitive position.
• Demand volatility: Consumer apparel demand is seasonal and affected by weather trends, which impacts customer order patterns.

Q: What was the main factor for the early achievement of the mid-term plan targets? / A: Management credits the on-time completion of all three new factories even amid COVID-19 border and logistics disruptions. This allowed the company to quickly ramp up production after the pandemic ended, and meet the strong surge in customer demand for shifting production to Vietnam and Bangladesh. This early capacity build-out put the company ahead of competitors in responding to new customer needs, leading to early target achievement.

Q: Have recent heatwaves had an impact on company performance, and is the impact positive or negative? / A: The direct impact on Matsuoka is limited because heat primarily affects the company's apparel brand customers, not the contract manufacturer. Matsuoka focuses on maintaining stable production capacity regardless of product mix shifts, and can adjust to produce whatever items customers demand, so it is able to mitigate any impact from changing consumer purchasing patterns driven by extreme weather. The growing popularity of fan-equipped cooling apparel has actually created growing demand for working wear products, which is a positive tailwind for the sewing business.

Q: How is the company handling passing rising labor costs in ASEAN to customers? / A: While the company does negotiate some price adjustments with customers, it does not try to pass all inflation-driven cost increases to customers, as this would risk losing its position as a preferred supplier. Instead, the company offsets rising labor costs by investing in new automated equipment and process improvements to boost productivity, absorbing a large share of cost increases internally while maintaining competitive pricing for customers.

Q: What is the impact of US tariff policies on the company, and is there an industry-wide trend of shifting production out of China? / A: The impact is very limited for Matsuoka, as US-bound production only accounts for a few percent of total sales. However, the company does see a clear industry-wide trend of global apparel manufacturers rebalancing their production allocation across countries, which has led to a sharp increase in inquiries and orders for Bangladesh production capacity. This trend aligns with Matsuoka's own capacity expansion strategy, creating new growth opportunities for the company.