Japan Eyewear Holdings Co.,Ltd. Q2 FY2026 earnings call

Consolidated Financial Performance

• Second quarter cumulative consolidated revenue: 8.937 billion yen (+7.7% YoY), operating profit: 2.886 billion yen (+4.8% YoY), net profit: 1.743 billion yen (+4% YoY). All metrics hit record highs for the first half period. Operating margin remained at a high 32.3%, only slightly down from an irregularly high prior year first half.
• Inbound sales grew 13.5% YoY to 1.811 billion yen cumulative, but slowed after June due to a drop in visitors from Hong Kong and South Korea, with 3.3% YoY growth in the standalone second quarter. Total overseas customer-facing sales grew 11.2% YoY to 1.535 billion yen in the second quarter, accounting for 32.9% of consolidated revenue. 50% of inbound sales now come from mainland China, up from 45% last year, with the top four Asian markets (China, South Korea, Hong Kong, Taiwan) accounting for 80% of total inbound sales.

Operational Highlights

• Domestic Store Growth: 4 new stores opened and 2 closed across both brands in the first half, resulting in a net increase of 2 domestic stores. New stores were located in high-profile new development commercial hubs (including Hiroshima Station, Osaka Umekita 2nd Phase, Fukuoka Tenjin Big Bang) to strengthen brand image and acquire new customers.
• Overseas Expansion: Opened Hong Kong 2nd store and Beijing 1st store (China's 4th store), both located in high-traffic major shopping malls, with strong initial performance. Total group store count reached 109 at the end of the second quarter, a net increase of 4 from the prior period-end.
• Pricing and Brand Positioning: Kaneko Optical raised frame prices, pushing the average combined (frame + lens) unit price above 80,000 yen for the first time to 80,363 yen, a 30% increase from pre-COVID levels. Four Nines also implemented price hikes and expanded high-end product offerings, reaching an average unit price of 85,659 yen, a 19% increase from pre-COVID levels. Management continues to focus on driving unit price growth alongside increasing brand power.
• Synergies and Inorganic Growth: Acquired Hands, a plating processing firm for eyeglass frames based in Sabae, Fukui, in May. This completes the in-house integration of the last remaining external production process, strengthening the group's integrated production system and supply chain stability. The company also reorganized internal structures to deepen collaboration between Kaneko Optical and Four Nines, and expanded in-house production of Four Nines products using manufacturing capabilities from previously acquired Taiho. Management continues to search for additional M&A opportunities.
• Capital Allocation: Maintains balanced allocation of free cash flow to shareholder returns, debt repayment, and growth investment. Confirms the full year dividend forecast of 84 yen per share (42 yen interim, 42 yen year-end), with the interim dividend to be paid as planned.
• Mid-Term Targets: Has set 2030 January fiscal year targets of 28 billion yen in revenue, 10 billion yen in operating profit, operating margin of at least 36%, and ROE of at least 25%. The 5-year growth plan only includes organic growth, with inorganic growth from M&A additive to these targets. The four core strategic pillars are: 1) Steady growth from selective new domestic store openings; 2) Growing overseas customer demand through brand penetration; 3) Deepening synergies between Kaneko Optical and Four Nines; 4) Inorganic growth via M&A.

1. Kaneko Optical Segment: Segment revenue was 5.8 billion yen, a 9.5% increase year-over-year; segment profit was 2.2 billion yen, a 9.0% increase year-over-year. Store sales grew 9.7% year-over-year, accounting for approximately 65% of total consolidated revenue. In the standalone second quarter, segment profit hit a new record high of 1.148 billion yen, exceeding prior year and prior quarter levels.
2. Four Nines Segment: Segment revenue was 3.0 billion yen, a 4.3% increase year-over-year; segment profit was 0.9 billion yen, a 0.2% increase year-over-year, nearly flat. Store sales grew 9.7% year-over-year, but domestic wholesale sales fell 7% driven by a 70 million yen drop in volatile OEM orders (retail-focused domestic wholesale sales were flat). In the standalone second quarter, segment revenue was 1.723 billion yen (+7.8% YoY) and segment profit was 594 million yen (+8% YoY), both record highs. Overseas wholesale returned to growth in the second quarter after a Q1 decline, putting the cumulative half-year result back into positive territory. Revenue contribution is approximately 35% of total consolidated revenue.

• Management maintains the original full year guidance, targeting ~14% YoY revenue growth and ~16% YoY operating profit growth from the prior year. The full year revenue plan is 19.05 billion yen, with a full year inbound sales target of 4.3 billion yen.
• First half progress was slightly below plan: 46.9% of full year revenue target achieved, 46.6% of full year operating profit target achieved, and 43.6% of full year net profit target achieved. The entire 300+ million yen revenue shortfall versus plan comes from lower-than-expected inbound sales (inbound came in at 1.8 billion yen versus a planned 2.1 billion yen for the first half).
• Management expects the recent recovery in inbound sales starting in August to continue through the second half. Exchange rates have also returned to last year's levels, creating a favorable comparison environment for the third quarter. The company aims to recover the first half shortfall and achieve the full year guidance target, and has not revised the guidance downward.

• Inbound demand is volatile: A false rumor of an impending major disaster in Japan in July caused a sharp drop in visitor numbers from Hong Kong and South Korea, which negatively impacted inbound sales in June and July. Geopolitical factors, travel trends, and exchange rate fluctuations can all create unexpected swings in inbound performance.
• OEM wholesale sales are inherently unpredictable, leading to quarterly volatility in Four Nines segment revenue and profit.
• Global business uncertainty: Unpredictable events can impact cross-border travel and overseas operations, creating execution risk for the company's global growth strategy.

Q: Is the shortfall versus full year plan primarily caused by lower inbound sales? Are there any other contributing factors? / A: Management confirms that the entire ~3 billion yen revenue shortfall versus first half plan is from inbound sales. The full year inbound plan called for 4.3 billion yen, with 2.1 billion yen expected in the first half, but actual first half inbound sales only reached 1.8 billion yen, accounting for all of the gap versus plan. There are no other material factors contributing to the underperformance.

Q: With the recent rapid recovery in inbound sales, can the company still achieve its full year target at the current recovery pace? / A: Management states that China now makes up half of all inbound sales, and growth returned in August. If this trend continues through the remainder of the year, the company still believes it can achieve the full year target. The June-July slowdown was driven by temporary factors (a false disaster rumor and less favorable yen exchange rates), both of which have reversed since August, creating a favorable comparison base for the third quarter. Management also notes that Japan's shrinking domestic market means long-term growth depends on building the company's brands as global Japan luxury labels, even if near-term demand is volatile.

Q: What is the current performance of existing overseas stores in China and Hong Kong, and what is the outlook? / A: The first three Shanghai stores were street-front locations that served as a phase 1 seed-planting effort, focused on testing brand fit in the Chinese market and building a local organization rather than chasing immediate sales. The new Beijing 1st store in a major shopping mall is meeting all expectations, already achieving sales levels similar to top Japanese domestic stores and stable profitability. Hong Kong's new 2nd store in a shopping mall is performing even stronger than the Beijing store, already reaching sales levels matching top domestic Japanese stores. The shift to shopping mall locations is accelerating brand growth in the region.

Q: Why did gross profit margin decline quarter-over-quarter from Q1 to Q2? / A: The entire 0.6 percentage point drop in consolidated gross profit margin is caused by the consolidation of Hands, the newly acquired plating processor. Hands operates with a gross profit margin of around 20% annually (just 10%+ in the month of consolidation after acquisition), which pulled down the group's overall consolidated margin. The underlying profitability of the core eyewear business has not changed.