Citizen Watch Co.,Ltd. Q2 FY2026 earnings call

Overall Consolidated Performance

• Cumulative 2Q (April-September) consolidated results: 159.2 billion yen revenue (+1.7% YoY), 12.9 billion yen operating profit (+5.3% YoY, 8.2% operating margin), 16.1 billion yen ordinary profit (+32% YoY), 11.8 billion yen net profit attributable to parent shareholders (-3.3% YoY).
• 2Q (July-September) consolidated results: 83.9 billion yen revenue (+4.1% YoY), 8.2 billion yen operating profit (+8.4% YoY, 9.9% operating margin), 10 billion yen ordinary profit (+103.9% YoY), 2.6 billion yen net profit attributable to parent shareholders (-27.9% YoY after U.S. customs charge).

Watch Segment Operational Highlights

• Regional performance: Domestic market saw lower overall revenue due to weak men's high-end model demand and lower-than-expected inbound tourism, but premium brands like Cross Sea and The Citizen performed steadily; Asia overall market conditions remained weak, but partial markets (Hong Kong, Thailand, India) posted revenue growth; North America saw strong growth across both Citizen and Bulova brands, with expanding direct-to-consumer e-commerce sales; Europe saw growth driven by new mechanical watch products and expanded Promaster sales.
• Product mix and pricing: Product mix improvement pushed average selling prices up 39% vs 2021 in Japan, and 31% vs 2021 in North America, driven by higher-priced (over $1,500) sub-brand introductions.
• New product launches: Launched two 30th-anniversary limited models of top-tier brand The Citizen, and sold out a limited edition Cross Sea women's watch co-designed by brand ambassador Keiko Kitagawa, with a successful pop-up event in Tokyo.

Machine Tool Segment Operational Highlights

• Regional performance: Domestic market saw revenue decline due to ongoing sluggish automotive demand, but semiconductor-related orders increased; overseas market posted overall revenue growth, with strong medical-related sales in the Americas and Europe, Miyano brand growth, and increased sales to China.
• Capacity and expansion: Completed a new production building at the Kitakami facility for Miyano brand, increasing total domestic production capacity to 170 units per month (a 20% increase) to meet growing global demand for larger spindle machines; plans to construct a new German sales subsidiary headquarters near Stuttgart to strengthen European sales and service coverage, including expansion into Eastern European markets.

Device Segment Operational Highlights

• Automotive components saw steady demand in the U.S. and China, but limited recovery in other markets leading to lower revenue; small motors saw stagnant sales due to uncertain market conditions; ceramic products posted growth driven by optical communication submount products; printers saw revenue decline due to the pullback from large prior-year photo printer orders.

For the 6-month cumulative period (April-September 2025, 2Q cumulative):

1. Watch Segment: Revenue = 89.3 billion yen, +4.2% YoY; Operating Profit = 11.7 billion yen, +21.9% YoY; Operating Margin = 13.2%. Revenue contribution to total consolidated revenue = 56.1%.
2. Machine Tool Segment: Revenue = 38.5 billion yen, +3% YoY; Operating Profit = 2.6 billion yen, -12% YoY. Revenue contribution to total consolidated revenue = 24.2%.
3. Device Segment: Revenue = 16.5 billion yen, -2.6% YoY; Operating Profit = ~1.2 billion yen, -22.6% YoY. Revenue contribution to total consolidated revenue = 10.4%.

For the 3-month quarter (July-September 2025, 2Q):

1. Watch Segment: Revenue = 47.8 billion yen, +8.4% YoY; Operating Profit = 7.3 billion yen, +24% YoY; Operating Margin = 15.4%.
2. Machine Tool Segment: Revenue = 19.5 billion yen, +0.3% YoY; Operating Profit = 1.1 billion yen, -32.8% YoY.
3. Device Segment: Decreased revenue and profit YoY due to a pullback from large prior-year photo printer orders.

• Management upwardly revised full-year 2025 (fiscal year ending March 2026) consolidated guidance, reflecting stronger-than-expected 2Q cumulative results and updated assumed foreign exchange rates:
  • Full-year revenue increased by 9 billion yen to 327 billion yen
  • Full-year operating profit increased by 4.5 billion yen to 24.5 billion yen
  • Full-year ordinary profit increased by 7 billion yen to 29 billion yen
  • Full-year net profit attributable to parent shareholders increased by 2 billion yen to 22 billion yen
• Segment-level guidance revisions:
  • Watch segment: Both revenue and operating profit guidance upwardly revised, based on expectations of continued strong North American finished watch sales and steady mechanical movement demand in the second half.
  • Machine tool segment: Guidance upwardly revised, reflecting gradually recovering order trends.
  • Device segment: Slightly lower second half profit is expected, but full-year profit is still projected to increase due to stronger-than-expected first half performance.

• A tariff calculation discrepancy for watch imports was found at the company's U.S. subsidiary, CITIZEN WATCH COMPANY OF AMERICA Inc., resulting in a notification and payment demand from U.S. Customs and Border Protection. The company recorded provisions for prior-year customs duties and related allowance in the 2Q results, which reduced 2Q net profit attributable to parent shareholders by 27.9% YoY.
• Ongoing macroeconomic uncertainty creates weak domestic inbound demand and sluggish overall Asian watch market conditions.
• In the machine tool segment, automotive sector demand remains sluggish in both domestic and European markets, and some non-China Asian markets are seeing cautious capital investment spending due to U.S. tariff impacts.
• Device segment demand remains uncertain for small motors, and the segment faced a large revenue pullback from prior-year large photo printer orders.

Q: Has North American watch sales changed after the late-June price increase, and are there additional U.S. tariff mitigation plans? / A: There was some pre-price-increase rush demand at some distribution points, but no major overall impact on business; second quarter North American sales remained strong. Management does not currently plan to implement additional price increases.

Q: What drove the strong first half North American watch performance? / A: Both the Citizen and Bulova brands grew, with higher-margin Bulova expanding particularly strongly and making a large contribution to overall segment profitability improvement.

Q: Why did the machine tool segment report higher revenue but lower profit this quarter? / A: Profit declined because the sales mix shifted to a higher share of lower-unit-price sales to China, and average selling prices also fell slightly in other regions.

Q: What is the machine tool segment's order outlook for the second half by region? / A: While September and October order volumes were healthy, a full sector recovery has not yet materialized. Domestic Japan is seeing rising semiconductor-related demand; China posted stronger-than-expected orders in 2Q; North America had pre-October price-increase rush demand in September, and October orders after the increase remained above the first half average; Europe sees steady demand from job shops and the medical sector.