Japan Eyewear Holdings Co.,Ltd. Q4 FY2026 earnings call

Corporate Philosophy and Brand Positioning

• Japan Eyewear Holdings (JEH) is focused on preserving and developing the 120-year-old eyewear craft heritage of Sabae, Fukui, rather than pursuing pure mass-market volume growth. It does not operate as a general mass-market eyewear chain, and does not rely on mass advertising to build brand recognition.
• The company owns two distinct, unique brands, Kaneko眼镜 and Four Nines, each with separate brand philosophies that allow it to capture a broad customer base. It targets an annual 10% revenue growth outlined in its mid-term plan, which balances growth with maintaining brand scarcity and desirability.
• A major new flagship project, the Kaneko Megane Sabae Main Store, will open this summer in Sabae, Fukui (the company's brand home), designed to serve as a destination for brand tourism for global brand fans.

Mid-Term Plan Progress

• For the 2026 January fiscal year, the company opened 6 new stores total across both brands and closed 2 stores. Kaneko Megane opened 7 new stores globally (domestic + international) and closed 2, while Four Nines opened 3 new domestic stores, bringing total ending store count to 113 stores. The mix of new stores is gradually shifting to international locations over time.
• In China, 4 new stores have been opened since 2023, including a new location in a high-foot-traffic commercial complex in Beijing added in June 2025, balancing branding-focused locations (like the original Shanghai store) with revenue-generating locations to strengthen brand presence across Asia.
• The company acquired Hands (a plating processing firm) in May 2025, which brings previously outsourced plating operations in-house and strengthens the group's manufacturing capabilities. It also began full-scale work to bring Four Nines product manufacturing in-house via its earlier acquired subsidiary Taiho.
• In October 2024, JEH completed its transfer to the Tokyo Stock Exchange Prime Market, and concurrent with the transfer, a selling shareholder fund reduced its stake from approximately 30% to approximately 10%.
• The company completed refinancing of existing debt on more favorable terms, which is expected to reduce annual interest cash outflows by 20 million yen to 30 million yen.

Overall 2026 January Fiscal Year Financial Performance

• JEH achieved record full-year revenue and operating profit: total revenue grew 11.8% year-over-year to 18.64 billion yen, operating income grew 11.8% year-over-year to 5.957 billion yen, and net income was 3.783 billion yen (a 5.3% year-over-year decrease, driven entirely by a one-time 500 million yen deferred tax asset addition that boosted the prior year's net income; excluding this effect, net income grew approximately 10% year-over-year).
• Gross margin decreased 0.2 percentage points year-over-year to 78.7%. Reported operating margin was flat year-over-year at 32.0%, but excluding 94 million yen in one-time costs, adjusted operating margin increased 0.3 percentage points year-over-year to 32.5%, indicating underlying profitability improvement.
• Revenue missed the original full-year forecast by approximately 400 million yen, driven entirely by lower-than-expected inbound sales: the original forecast assumed 4.3 billion yen in annual inbound sales, while actual inbound sales came in at 3.9 billion yen. Even with the miss, Q4 2026 inbound sales reached 1.035 billion yen, a new all-time high.
• Of the 2.0 billion yen total year-over-year revenue increase, 1.084 billion yen came from growth in sales to overseas customers (including inbound), 845 million yen came from growth in domestic sales to Japanese customers, while domestic wholesale declined by 185 million yen.
• While Chinese inbound sales have declined year-over-year since December 2024 due to strained Sino-Japanese relations, this decline has been partially offset by growth in inbound sales from Taiwan, South Korea and other markets. JEH's inbound sales have outperformed broader department store duty-free sales trends, and the negative impact from lower Chinese visitor counts has been relatively contained.
• Domestic sales to Japanese customers have grown around 10% year-over-year each quarter, and account for more than 70% of total domestic store sales, forming a solid core business base for the company.

Capital Strategy and Market Valuation

• JEH has delivered a ROE above 20%, which exceeds its estimated 13.26% cost of equity (which includes a 3.70% size premium). It targets a ROE of 25% or higher by the 2030 January fiscal year.
• New store capital expenditure averages 40 million yen to 50 million yen per store, and most new stores recover their full investment within 1 year, indicating very high investment efficiency. The company believes it can balance aggressive growth investment and high shareholder returns simultaneously.
• The company plans to improve market valuation by hitting mid-term plan targets, maintaining high-efficiency growth investment, optimizing capital allocation, and increasing active engagement with investors. It has conducted 444 IR meetings with institutional investors and sell-side analysts over the past 2 years (50 to 60 per quarter), and hosts periodic store and factory tours for investors. The long-term goal is to move into the high profitability, high valuation quadrant occupied by global luxury brands like Hermès.

1. Kaneko眼镜 (Kaneko Megane) Segment: Store sales increased 12.9% year-over-year, driving a 15.5% year-over-year increase in total segment revenue and a 15.0% year-over-year increase in segment profit. The 12-month cumulative average set price (frame + lenses) is 82,279 yen, which is a 32.6% increase from pre-COVID-19 levels.
2. Four Nines (フォーナインズ) Segment: Store sales grew a strong 13.6% year-over-year, but domestic wholesale sales decreased approximately 10% year-over-year. This resulted in a 5.1% year-over-year increase in total segment revenue and a 4.6% year-over-year increase in segment profit. Within the segment, overseas wholesale sales grew 9.1% year-over-year to 1.021 billion yen, while domestic wholesale sales decreased by a total of 169 million yen (124 million yen from retail partner sales and 45 million yen from OEM sales, with the OEM decrease largely driven by delayed sales to the 2027 January fiscal year). In aggregate, total company sales to overseas customers (including inbound sales) grew 20.6% year-over-year to approximately 6.3 billion yen, accounting for 34.1% of total consolidated revenue.

• For the 2027 January fiscal year, the company plans to open 5 new domestic stores (1 for Kaneko Megane, 4 for Four Nines) and 2 new international stores, with additional new store openings possible during the year as opportunities arise.
• Inbound sales are forecast to be approximately 4.0 billion yen, flat compared to the 2026 January fiscal year actual result, given the high uncertainty of the current external environment.
• The company will continue to actively pursue average set price increases via periodic price adjustments, and maintain strict cost control to preserve high profit margins.
• The full-year 2027 January fiscal year guidance targets 10.5% year-over-year revenue growth to 20.6 billion yen, 14.2% year-over-year operating profit growth to 6.8 billion yen, and 16.3% year-over-year net profit growth to 4.4 billion yen.
• For shareholder returns, the company plans to pay a full-year dividend of 86 yen per share for the 2027 January fiscal year, a slight increase from the prior year's 84 yen per share (split evenly as 43 yen per share for interim and final dividends). The 2026 January fiscal year final dividend is planned to be 42 yen per share as originally guided.
• The company's long-term mid-term targets remain unchanged: 28.0 billion yen in revenue and 10.0 billion yen in operating profit by the 2030 January fiscal year, with targets of 50.0 billion yen in revenue, 15.0 billion yen in operating profit, and 100.0 billion yen in market capitalization after 2030.

• Inbound sales are exposed to geopolitical risks (including strained Sino-Japanese relations) and external macro factors that have led to lower-than-expected visitor numbers from key source markets, resulting in continued uncertainty around inbound sales performance.
• The company faces the challenge of achieving revenue and profit growth while maintaining brand desirability and scarcity, without diluting core brand value.
• The company's current market valuation does not reflect its high underlying return on capital, creating pressure to improve investor sentiment and market pricing.

Q: What factors caused the gross profit decline (especially the large decline in Q4), and is this entirely due to inbound sales weakness? What is the outlook for gross profit improvement this coming fiscal year, considering planned price adjustments?

A: The total revenue miss against original plan was approximately 4.0 billion yen. This net miss combines three factors: a negative impact from lower inbound sales, a negative impact from lower-than-planned Four Nines wholesale sales (which was expected to match the prior year level, but came in nearly 2.0 billion yen lower), and a positive contribution from Hands revenue that was not included in the original plan, as the acquisition closed after the forecast was set. The inclusion of Hands (a manufacturing business with a lower gross margin than retail) following the acquisition is also a key factor driving the consolidated gross margin decline. For the coming fiscal year, price adjustments are a possible option, and the company expects the increase in the share of higher-margin direct-to-consumer store sales for Four Nines will help it hit the guided gross margin target of approximately 80%.

Q: Can you confirm that the gross margin outlook is driven by price adjustments and the shift away from lower-margin wholesale to direct retail?

A: Yes, the improvement will come from the decline in wholesale sales and the growth in higher-margin direct retail store sales, alongside potential price adjustments.

Q: What metrics or KPIs should external investors use to evaluate the success of JEH's brand business, given that the company emphasizes it is not just chasing top-line sales growth?

A: It is difficult to set a single formal KPI to measure brand value and competitiveness, but a key indicator is that new stores in both domestic and international markets are able to generate solid sales immediately after opening, which indicates strong underlying brand demand. There are very few direct competitors that threaten the position of the Kaneko Megane and Four Nines brands domestically, so domestic growth is expected to remain stable. The upcoming Sabae Main Store opening is a major initiative that will further strengthen domestic branding for both brands. While international brand recognition remains lower than desired at this stage, the company is already able to generate consistent sales even with lower awareness, which indicates strong underlying brand competitiveness. By embedding the company's product strength and store development capabilities in local international markets, brand recognition will grow, and the company expects growth to accelerate over the next one to two years.