HEIWADO CO.,LTD. Q2 FY2026 earnings call

• Overall Financial Summary

  • Both consolidated and standalone (parent) results achieved increased revenue and profit, with operating revenue hitting an all-time record for the interim period on both bases. All profit levels (operating, ordinary, interim net) increased year-over-year for both consolidated and standalone results. Consolidated operating profit and ordinary profit were roughly flat year-over-year, while interim net profit increased driven by a 239 million yen gain from the business transfer of subsidiary Ewing, a former amusement facility operator, partially offset by a 90 million yen special loss from closure of the Heiwado Northwest Store in Gifu. Gross margin for the parent increased 0.1% YoY, 0.1% below internal target, with overall growth prioritized while limiting margin declines. Total selling, general and administrative (SG&A) expenses increased 3.1 billion yen YoY, within the original plan, with 1.3 billion yen of the increase from new stores including the Maruzen absorption.

• 5th Medium-Term Management Plan (2024-2026, 3-year plan towards 2030 targets) Key Progress

  1. Addressing needs of child-rearing generations
  • The HOP app, launched in July 2024, now has over 1.11 million members, surpassing 1 million users. The app combines coupons, product information and payment via pre-charged HOP Money. Account linking now supports 10 domestic banks (starting with HOP-VISA and Shiga Bank, expanded sequentially through 2025), covering the entire trading area. 35.2% of app members are aged 30-40, compared to 25% of total HOP members overall, indicating strong adoption by the target age group.
  • Private brands (PB) Kurashimoa (value everyday items) and E-WA! (premium items) both grew in Q2, contributing to overall sales growth. Kurashimoa runs bi-monthly super-discount campaigns, and key value item (KVI) marketing for popular 30-40 age group products (price adjustments and larger sizes) has also driven growth.
  1. Dominant regional strategy and HOP economic zone expansion
  • In Higashiomi City, Shiga Prefecture: Renovation of Friendmart Notogawa Store pushed most surrounding area market share from 40-50% to over 50%, and new opening of Friendmarkt Yokaichi Myohoji Store lifted overall area market share, turning 10-20% share areas to over 20% and 20-30% areas to over 30%.
  • In Hirakata Area, Osaka Prefecture: Closed the unprofitable Friendmart Yawata Ichinotsubo Store, one of three unprofitable locations out of four total stores, to focus on improving performance of remaining three stores. Despite a competitor opening on the closed site, remaining stores have maintained sales growth, with efforts underway to turn unprofitable locations profitable and improve overall area profitability.
  • Omnichannel and community-focused services: Home Support Delivery (16-year-old service covering 100% of Shiga prefecture households and 30% of Fukui prefecture households) is being expanded. Mobile sales (in partnership with local governments, with community gathering functions) is being rolled out across Shiga prefecture. Net super is operated from 5 locations focusing on the Keihanshin area, responding to growing online demand. Heiwado is also participating in local events including as a sponsor and partner for the 2025 National Sports Festival held in Shiga.
  • New store and renovation plan: Four new stores are planned in Shiga prefecture this year (two are rebuilt locations), plus an additional new location at Nickel Town Inazawa (vacated site of a local supermarket) in Aichi prefecture. Full renovation of Heiwado Takatomachi Store in the mountainous area of Gifu added MUJI and a new cafe to act as a local community hub.
  1. Productivity improvement and cost structure reform
  • Centralized processing center utilization: Heiwado operates three in-house food processing centers (Taga Food Center, Kumiyama Food Center, and the Taga Deli Center opened two years ago) to centralize processing, reduce in-store labor, and support wider product assortment while addressing store-level labor shortages.
  • Workforce structure reform: Expanding training for part-time employees to take on department manager responsibilities; trained department managers have grown from under 100 a year ago to ~500 currently. The company is actively promoting promotion from part-time to section chief to regular employee roles.

• Capital investment plan: Investment priorities remain aligned with the original annual plan, with additional focus on IT investment for network security, customer data analytics infrastructure, and enabling data-driven management.

1. Retail (Heiwado Parent Entity): Parent entity achieved increased revenue and profit, with total sales up 9.5 billion yen year-over-year. By product segment: Food segment existing store sales grew 104.2% YoY, with fresh food up 103.4% and processed general food up 104.8%; Apparel segment existing store sales declined to 94.8% YoY; Home related goods segment existing store sales declined to 98% YoY. 2. Consolidated Subsidiaries: Total net consolidated subsidiary revenue decreased year-over-year, with two main drivers: 2.8 billion yen revenue reduction from absorbing Maruzen into the parent entity, and 0.8 billion yen revenue decrease at Heiwado (China) (including 5% exchange rate impact plus weak local operating conditions). Five Star (food service): increased revenue and profit. C.O.M. (food service): increased revenue but decreased profit, driven by higher royalty and delivery costs for its KFC business offsetting revenue gains. Bestone (food manufacturing): significant revenue and profit growth, aligned with strong performance of Heiwado parent's food segment.

• Full-year FY2026 February term plans including profit targets and capital investment budgets maintained at the originally announced levels, with no upward or downward revisions.
  • Management continues to advance 5th Medium-Term Management Plan (2024-2026) initiatives, working toward the 2030 long-term targets in preparation for the 6th Medium-Term Management Plan starting in 2027.

• External macro risks: Deteriorating international relations and Trump tariffs create uncertain business conditions, with persistent unpredictable market outlook.
  • Extreme weather risks: Ongoing extreme heat, concentrated heavy rain from linear precipitation zones, and tornados create operational and demand uncertainty.
  • Heiwado (China) faces difficult local operating conditions, leading to an 0.8 billion yen year-over-year revenue decline.
  • C.O.M. faces rising royalty and delivery costs that have offset revenue growth from its KFC business, leading to lower profit.
  • Gross margin is currently 0.1% below internal company targets.
  • Apparel and home related goods segments have recorded existing store sales declines year-over-year.

The provided transcript does not include a transcribed question and answer section, so no content is available for this part.