SANYO SHOKAI LTD. Q4 FY2026 earnings call

2026 February Full Year Financial Performance

• Total revenue: 58.45 billion yen, down 2.08 billion yen YoY, slightly beating the revised post-initial plan
• Gross profit: 35.6 billion yen, down 2.21 billion yen YoY, in-line with the revised plan; gross margin 60.9%, down 1.6pp YoY
• Selling, general and administrative (SG&A) expenses: 34.3 billion yen, down 0.8 billion yen YoY; SG&A margin 58.7%, up 0.7pp YoY
• Operating profit: 1.3 billion yen, down 1.42 billion yen YoY, beating the revised plan by 0.1 billion yen; operating margin 2.2%
• Net profit: 4.11 billion yen, up 0.11 billion yen YoY, driven by a special gain from sales of investment securities
• ROE: 10.3%, up 0.3pp YoY
• Ending inventory: 8.18 billion yen, up 0.16 billion yen YoY; the ratio of old carry-over inventory declined YoY

2026 Year Internal Self-Assessment

• Revenue assurance: Fail (F), due to unexpected adverse weather, weak inbound demand, and cooled consumer spending for mid-to-high priced apparel
• Gross margin improvement: Fail (F), as lower full-price selling ratio offset modest raw material cost reductions
• SG&A control: Pass (P), core SG&A (excluding sales-linked commissions) came in 0.06 billion yen below plan
• Inventory control: Neutral (N), total inventory increased but old inventory share fell
• Financial reform: Pass (P), equity ratio remained a healthy 68.3%, debt-to-equity ratio stayed at a low 0.18x

Capital and Non-Financial Updates

• Net cash allocation (2026 year): Opening net cash 16.8 billion yen, 4.4 billion yen new cash inflow, 0.6 billion yen spent on growth investment, 0.1 billion yen on employee returns, 3.8 billion yen on shareholder returns, ending net cash 16.7 billion yen
• Non-financial progress: Female manager ratio rose to ~19%, approaching the 20% target; clothing collection for reuse reached 92,000 units (double the prior year), hitting 3.6% of annual production volume, with a 10% target; the company received an A- score for CDP climate change and 3.5 stars for two consecutive years in the Nikkei Sustainable survey
• Corporate initiative: Announced partial sale of head office land (219 tsubo) and reconstruction of the remaining head office site, generating 2.8 billion yen in transfer gain to offset part of reconstruction costs

By brand segment (2026 February full year):

• BLUE LABEL/BLACK LABEL CRESTBRIDGE: Total revenue decreased 0.82 billion yen year-over-year, with 0.43 billion yen of the decline coming from lower inbound sales. Weak performance stemmed from stale product planning for BLUE LABEL CRESTBRIDGE and underperformance of core suiting/tailoring items for BLACK LABEL CRESTBRIDGE.
• BAKER STREET: Revenue decreased 0.8 billion yen year-over-year, driven by low brand recognition after switching from the licensed THE SCOTCH HOUSE brand, particularly low sales from walk-in free customers.
• Women's apparel: Overall revenue decreased 0.49 billion yen year-over-year, as poor performance at 3 brands offset a strong result from the AMACA brand. Combined, these three segments accounted for 2.1 billion yen of total revenue decline; all other brands achieved roughly flat year-over-year revenue.

By channel segment:

• Department stores: 61.8% of total revenue (down 2.8pp YoY), 92% of prior year revenue, with 3 billion yen of total decline. This drop stemmed from overall market weakness, 17 net store/space reductions, and industry luxury-first floor reconfigurations.
• Directly operated stores: 5.9% of total revenue (flat YoY), 98% of prior year revenue.
• EC/mail order: 15.2% of total revenue (up 1.6pp YoY), 108% of prior year revenue.
• Outlets: 13.4% of total revenue (up 1.4pp YoY), 108% of prior year revenue.

By product category:

• Heavy outerwear/coats (the company's core category): Exceeded prior year revenue.
• Suits: 90% of prior year revenue.
• Light/medium apparel/accessories: 96% of prior year revenue.

By customer type:

• Registered member customers: 104% of prior year revenue, with royal (top-tier) customers up 112% YoY.
• Walk-in free customers: 91% of prior year revenue.

• For 2027 February full year (second year of the mid-term management plan): Total revenue targeted at 60.0 billion yen (up 1.55 billion yen YoY); core operating profit (excluding head office reconstruction costs) targeted at 2.3 billion yen (up 1.0 billion yen YoY); reported operating profit 2.1 billion yen (up 0.8 billion yen YoY); net profit 4.02 billion yen (down 0.09 billion yen YoY, due to early reconstruction-related costs). Gross margin is targeted to improve 1.1pp to 62.0%, SG&A margin to decline 0.2pp to 58.5%. Ending inventory is targeted to fall to 7.33 billion yen, with full-price selling ratio rising 4.7pp to 64.2% (restoring the 2025 level).
• Revised 2028 February full year (final year of the mid-term plan) targets: Total revenue 62.0 billion yen, core operating profit 2.5 billion yen, reported operating profit 1.3 billion yen, ROE 10.2%. The 62.0 billion yen revenue target excludes potential revenue from M&A, so there is upside if M&A is completed.
• No changes to core mid-term strategy: Long-term growth via organic expansion of existing business, plus new brand development, overseas expansion and M&A. Capital strategy remains focused on ROE improvement to lift PBR, with continued active growth investment, employee returns and shareholder returns. Dividend policy maintains a 4% DOE target; 2027 full year dividend is planned at 147 yen per share (adjusted to 25 yen per share after the planned 3-for-1 stock split in September 2026).
• Planned net cash allocation through 2028 February: ~2 billion yen for the Aomori factory reconstruction, over 5 billion yen reserved for M&A, with continued planned shareholder returns.

• Unpredictable extreme weather (early warm springs, extended record heat) has shortened core full-price selling seasons, disrupting sales and inventory planning, and this volatility is becoming more persistent.
• Persistent economic uncertainty and ongoing price increases have lifted consumer defensive spending, cooling demand for mid-to-high priced apparel, with no near-term expectation of market improvement.
• Geopolitical risks (including Middle East tensions) have driven up raw material costs and potential supply shortages.
• Department stores, which account for over 60% of the company's revenue, are increasingly prioritizing luxury categories like watches and jewelry, making it harder to secure and retain sales floor space for apparel brands.
• The first year of the current mid-term plan missed targets by a large margin, leaving core product and sales strength building incomplete, with structural challenges from the prior year's underperformance needing to be addressed.

Q: What were outgoing CEO Oe's reflections on his 6-year tenure and remaining priorities for the new management team? / A: Oe split his tenure into two phases: the first three years focused on structural reform, cost cutting, and inventory management, which successfully returned the company to profitability after four straight years of operating deficits, even through the COVID-19 pandemic. The second phase was meant to shift to growth, but the first year of the new mid-term plan missed targets badly, which Oe says he regrets. The biggest cultural change achieved is that all employees now share a common understanding of how to deliver profits, built through shared success in the reform phase. The core challenge for the new team is to find new methods to deliver top-line growth, while maintaining the strong profit structure the reform phase built, and Oe will stay on as chairman to support the transition. (353 characters)

Q: What is the strategy for new brands like AUREME and HANAE MORI, especially regarding the upper-middle market? / A: AUREME launching in Fall 2026 is a new in-house brand focused on non-department store channels (fashion buildings, commercial facilities, EC), targeting 10 stores and 2.0 billion yen in revenue after 5 years. It will offer high-value daily wear balancing functionality and fashion for urban consumers. HANAE MORI, launching in Fall 2027 via a partnership, is positioned to target the upper-middle affordable luxury market, which department stores are increasingly demanding as high-end luxury becomes unaffordable for most consumers. It will be led by an experienced creative director and reimagine the iconic HANAE MORI brand for modern consumers, aligning with the company's long-term goal of becoming a top player in the upper-middle apparel segment. (447 characters)

Q: What is the future target for the department store channel's revenue contribution, given its current 60% share? / A: Management confirmed that department stores remain the company's core main battlefield, as most of the brand's royal customers shop at department stores, and they are the primary channel for upper-middle apparel where the company has competitive advantage. Large-scale department store closures and space cuts have largely finished, and inbound sales at department stores have started recovering year-over-year from 2026 lows. However, securing new sales space is getting harder as stores prioritize luxury categories, so the strategy is to grow non-department store channels to gradually lower the relative share of department stores, while actively maintaining and expanding current department store presence via new store formats like edited concept shops that are more attractive to department store operators. (451 characters)

Q: What is the status of the company's M&A strategy and brand acquisition efforts? / A: Management confirmed M&A is a core part of the mid-term growth plan, the company has formed a dedicated task force, and has narrowed its target list from a long list to a shortlist of active candidates. The company has reserved just over 5 billion yen for M&A investment in the current mid-term plan through 2028, and the 62 billion yen 2028 revenue target does not include any potential M&A contribution, so any completed deal will create upside to the plan. The company is targeting acquisitions that fit its strategic focus on the upper-middle affordable luxury segment to expand its brand portfolio. (341 characters)