MATSUOKA CORPORATION Q2 FY2026 earnings call

• Company Overview

  • Matsuoka Corporation is a Japanese apparel OEM sewing manufacturer with 13 factories across 5 Asian countries (China, Myanmar, Bangladesh, Vietnam, Indonesia) and over 20,000 total employees, operating two core segments: sewing OEM and lamination film production.
  • Approximately 65% of total group revenue comes from Fast Retailing, a 25-year trading relationship that has grown alongside Fast Retailing's expansion.
  • Core competitive advantages include multi-country production footprint allowing flexible matching of customer needs, owned factories enabling faster coordination versus trading company competitors that outsource production, and geographic diversification that mitigates geopolitical and supply chain risks.

• Previous Mid-Term Plan (Vision 2025) Review

  • The original targets of 70 billion yen in revenue and 3.5 billion yen in ordinary profit were achieved ahead of schedule in the 2025 March fiscal year, leading to an upward revision of the 2026 March fiscal year plan to 74 billion yen in revenue and 4.7 billion yen in ordinary profit.
  • Achievements include new factory construction and production expansion in ASEAN, and improved supply chain responsiveness; remaining gaps include advanced data-driven management and organizational structure strengthening.

• New Mid-Term Plan (BEYOND2028 Stitch the Future) Strategic Priorities

  1. Business Strategy 1: Expand production scale and maximize profit
     • Expand production capacity centered in ASEAN, targeting 81.7 billion yen in sewing business revenue (+23% from current levels), with 10 million additional units from Bangladesh capacity expansion, 3 million additional units from a new Indonesian factory, and 0.6 million additional units from Vietnam's An Nam factory. China will shift production from apparel to bedding products.
     • Optimize lamination film business operations: transfer production and technology from China to Vietnam, expand sales to Chinese domestic apparel brands to improve capacity utilization, and invest in R&D and talent to strengthen development capabilities.
  2. Business Strategy 2: Enhance value proposition to become a "chosen factory"
     • Specialize production by item and factory to improve worker proficiency and quality, classify factories into training, mid-tier, and flagship tiers with cross-factory technician secondments to lift group-wide capability.
     • Advance smart factory transformation: roll out MES (Manufacturing Execution System) and ERP (Enterprise Resource Planning) to enable real-time visibility of production, inventory, and profitability, starting with two pilot factories before full rollout over the plan period. This will shorten lead times, improve supply stability, reduce costs, and strengthen quality.
  3. Financial Strategy: Shift to capital cost and share price-conscious management
     • Target ROE of 9.0% by the end of the 3-year plan (fiscal 2029 March), with a long-term target of 10%+ ROE and PBR above 1x. Total planned capital expenditure over 3 years is 10.5 billion yen, with 7.83 billion yen (75%) allocated to growth (capacity expansion and digital system investment), 4 billion yen for the new Indonesian factory, 2 billion yen for Bangladesh capacity expansion.
     • Balance growth investment and shareholder returns: allocate 55-65% of 15-20 billion yen in total available cash flow to reinvestment, target a 35% payout ratio (up 5 percentage points) starting fiscal 2027 March, and reserve funds for M&A and contingency risks.
  4. Human Capital Strategy: Build cross-regional talent capability to support ASEAN expansion
     • Prioritize early entry into underdeveloped regions with large available labor pools to avoid competition for skilled workers, focus new hiring on Bangladesh and Indonesia, retain talent through skills training (cross-border technician secondments from mature markets like China and Myanmar) and strong on-site welfare (provided lunches, well-equipped medical facilities).
     • Build a cross-border talent framework that allows skilled technicians to move between factories to provide on-site guidance and capability building.

• Sustainability and Operational Updates

  • Guided by the sustainability vision "Creating a society where both wearers and makers of clothing are happy", with initiatives including expanded female employment and female manager promotion, renewable energy adoption via solar panels, enhanced CO2 emission reduction monitoring, and digital traceability to improve supply chain transparency.
  • The company has recently updated its corporate slogan and logo, and completed construction of a new head office that began operations in November 2025.

1. Sewing Business: Revenue of 29.701 billion yen, +3.4% YoY; segment profit of 2.666 billion yen, +59.1% YoY. This segment accounts for 85.3% of total consolidated revenue. Within the sewing business, casual wear accounts for 54.1% of total revenue, workingwear accounts for 9.1%, innerwear and cut-sew products account for 19.8%. Sales volume grew 15.3% YoY to 27.36 million units, driven by strong demand for fan-equipped heat-resistant workingwear that boosted workingwear orders significantly. Foreign exchange gain/loss adjusted operating profit for the segment grew 48.8% YoY. 2. Lamination Film Business: Revenue of 5.126 billion yen, -21.4% YoY; segment profit of 0.504 billion yen, -48.4% YoY. This segment accounts for 14.7% of total consolidated revenue. Sales volume fell 13.8% YoY to 8.75 million yards, pressured by post-hit product reversal from the prior fiscal year, slowing Chinese domestic demand, and customer inventory adjustments.

• 2026 March Fiscal Year (full-year) guidance is maintained at the original level announced in May: 74 billion yen in revenue, 2.5 billion yen in operating profit, 4.7 billion yen in ordinary profit, and 3 billion yen in net profit attributable to parent shareholders. Foreign exchange gain/loss adjusted operating profit is forecast at 5 billion yen, +18.1% YoY.
  • The slight 1.2% YoY revenue decline in the first half is attributed to product delivery timing shifts, which are expected to resolve by year-end, and full-year targets remain achievable, with a stronger second half weighting due to higher average selling prices for winter apparel and the delivery timing shifts.
  • The new 3-year mid-term plan (ending fiscal 2029 March) targets 90 billion yen in total revenue, 6 billion yen in ordinary profit, 4 billion yen in net profit, and 9.0% ROE, maintaining an equity ratio between 45% and 55%. Non-financial targets include 24,000 total employees, 78 million units of annual sewing production, and 15 million yards of annual lamination film production.

• Customer concentration risk: Approximately 65% of total group revenue comes from Fast Retailing, creating revenue and profit exposure to changes in the client's sourcing demand.
  • Input cost inflation: Rising fuel, transportation, and labor costs directly impact factory operating expenses, which cannot be fully passed through to customers.
  • Geopolitical risk: While the company's multi-country production footprint allows it to mitigate disruptions via shifting production between locations, and no excessive downside risk is priced into the current plan, geopolitical tensions in regions like China cannot be fully ruled out.
  • Talent competition: Expanding production in ASEAN carries risk of labor scarcity and competition for skilled workers, which the company mitigates via early entry into underdeveloped regions and strong welfare to improve retention.
  • Foreign exchange risk: 70% of the company's revenue is denominated in US dollars, with 50% of cash holdings held in USD, and foreign exchange fluctuations impact reported earnings under current accounting standards (the company separately discloses adjusted operating profit that incorporates regular foreign exchange gains/losses to reflect core operating performance).
  • Lamination film business headwinds: Short-term demand weakness from slowing Chinese economic growth and customer inventory adjustments is pressuring near-term segment results.
  • Foreign currency convertibility risk: Capital controls in emerging markets can delay repatriation of foreign cash holdings back to Japan for shareholder returns.

Q: What is Fast Retailing's share of your revenue, how long have you worked together, and do you expect the relationship to grow? / A: Fast Retailing accounts for roughly 70% of casual wear revenue, and around 65% of total group revenue, with a trading relationship dating back to around 2000. While investor concerns over concentration are acknowledged, the company plans to continue growing alongside Fast Retailing by meeting its sourcing needs under the new mid-term plan, and quality requirements from Fast Retailing have helped build internal technical know-how.

Q: How do you plan to improve ROE to hit your 9% target, and will you use share buybacks as part of this strategy? / A: The top priority is growing revenue and profit by increasing utilization of recently completed capacity investments to improve profit margins. The company will consider share buybacks opportunistically based on market conditions, though foreign exchange controls in emerging markets mean cash held overseas may take time to repatriate to Japan for returns.

Q: How do you approach sourcing cost inflation from rising raw material and labor costs? / A: Raw material cost increases can generally be passed through to customers, as the company handles proxy purchasing of customer-specified materials for OEM orders. However, increases in fuel, logistics, and labor directly impact factory overheads. The company is addressing this via ongoing automation and efficiency improvements, with the new MES system rollout under the mid-term plan being a key part of this effort to offset cost increases.

Q: How do you compete against other Asian sewing manufacturers and Japanese trading companies to be a "chosen factory"? / A: Customers require a balance of quality, cost, delivery speed, and product development, with different priorities across customer segments (fast response for fashion apparel, low cost for workingwear). The company's core advantage is its multi-country owned factory footprint, which allows matching production to customer needs. Most Japanese competitors are trading companies without owned factories, so the company has an advantage in speed of coordination and quality control, versus third-party outsourced models. Most rival Asian manufacturers have a smaller geographic footprint than Matsuoka.

A: The company still accepts orders from trading houses, though direct orders from apparel brands make up the large majority of current business.