HEIWADO CO.,LTD. Q4 FY2026 earnings call

Overall 5th Mid-Term Management Plan Progress

• The 2nd year of the 5-year mid-term plan has been completed. Top-line operating revenue growth is the highest priority, with a core strategy focused on growing customer count, which has delivered positive results. Operating profit growth lags top-line growth, driven in part by intentional strategic gross margin reduction to gain market share.
• Three core strategic pillars: Gaining customer support by addressing the needs of parenting generations, expanding the HOP economic zone through dominant regional strategy, and pushing cost structure reform to improve productivity.

Area and Store Strategy

• The company operates two formats: General Merchandise Stores (GMS) and Supermarkets (SM), and has found that established dominant market presence in a region delivers higher average customer spending and market share. For example, the Nagahama and Hikone areas in northern Shiga Prefecture, with 5 GMS and 12 SM total, have very high regional market share and annual customer value, while Toyama Prefecture (2 GMS total) has room for share growth, and the Nagoya area (SM-only) has lower annual customer value due to the limited food-only format, which is a key growth opportunity.
• In the 2026 February period, the company opened 5 new stores: 4 in Shiga Prefecture (2 new builds, 2 rebuilds of aging stores) and 1 in Aichi Prefecture. The company is focusing on strengthening its already dominant position in Shiga Prefecture by opening new stores in low-share blank areas to improve overall regional share, and continuing full-store renovations of existing locations to refresh offerings, add attractive tenants, and strengthen the role of stores as local community hubs.

Product and Store Layout Strategy

• A recent organizational change was implemented: the combined lifestyle business unit covering apparel and home goods was split into two separate business units for apparel and home goods, to deepen focus and accelerate growth in these underperforming segments.
• Food segment format reform (improving product assortment, pricing, and staff training within existing store footprints, rather than large capital-intensive renovations) has delivered strong results: Format reform stores have averaged over 10% revenue growth in the first year, and continued growth in the second year, driving the overall food segment expansion.
• Strategic Key Value Items (KVI) targeted at 30-40 year old consumers delivered double-digit revenue growth year-over-year. While overall population decline has led to a slight drop in total unique customer count (97.2% for 30-40 year olds, 99.2% for other age groups), repeat visit frequency among existing customers has increased, leading to overall growth in checkout customer count and total customer value.
• The home goods segment's strong cosmetics business has been expanded through CoCoRo Plus, a youth-focused cosmetics shop format that is being rolled out to third-party shopping centers. The pet business is also being strengthened as a growth area.

New Ecosystem Expansion Initiatives

• The company is expanding beyond traditional retail to become a regional lifestyle support company, with new financial services partnerships: HOPBANK, launched in December 2025, allows customers to open bank accounts and access loan products, earning HOP reward points. The company also runs co-creation programs with Shiga Bank to offer life planning advice, and partners with life insurers to expand financial advisory offerings to customers, building on its existing insurance business.
• Customer data analytics capabilities have expanded significantly over the past year, with new ability to predict customer attributes like household composition, and analyze customer attrition risk. The company will expand use of this data to deliver targeted information and coupons, and proactively engage at-risk customers to reduce churn.
• Distribution center utilization has been expanded to address labor shortages while continuing to offer attractive product assortments, delivering strong results over the past year.

Overall Consolidated Performance

• Consolidated operating revenue: 456.01 billion yen (102.5% of the prior fiscal year), an all-time high, with an increase of 11.111 billion yen compared to the prior period
• Consolidated operating profit: 13.313 billion yen (99.6% of the prior fiscal year), a decrease of 46 million yen compared to the prior period
• Consolidated ordinary income: 14.605 billion yen (99.8% of the prior fiscal year)
• Consolidated net income attributable to parent company shareholders: 9.409 billion yen (87.7% of the prior fiscal year), a decrease of 13.17 billion yen compared to the prior period

Overall Standalone (Parent Company) Performance

• Standalone operating revenue: grew to 104.6% of the prior fiscal year, an all-time high, with an increase of 18.565 billion yen compared to the prior period
• Standalone operating profit: 100.1% of the prior fiscal year, an increase of 14 million yen compared to the prior period
• Standalone ordinary income: 100.5% of the prior fiscal year
• Standalone net income: 108% of the prior fiscal year, an increase of 7.09 billion yen compared to the prior period

Subsidiary Segment Performance

• Overall subsidiary impact: Net negative impact of 7.958 billion yen in operating revenue from merger and business transfer of subsidiaries Yell and Ewing, with a combined 347 million yen decrease in operating profit for all consolidated subsidiaries
• Heiwado (China): 1.17 billion yen decrease in operating revenue, leading to a 406 million yen decrease in operating profit, the largest contributor to consolidated profit decline

Product Segment Performance (Management Accounting Basis, Standalone)

• Food Segment: Operating revenue of 105.1% of the prior period overall, 103.6% of the prior period for existing stores. Fresh food hit 105% of prior period revenue, general food hit 105.3% of prior period revenue. The segment grew gross profit by 4.524 billion yen year-over-year, and contributed the majority of total company gross profit growth. Revenue growth was driven by 1.4% customer count increase and 4.1% unit price increase year-over-year, with general food growth supported by rising rice market prices.
• Apparel Segment: Operating revenue of 94.9% of the prior period, missed internal and prior year targets. Gross profit declined 476 million yen year-over-year as part of broader segment underperformance.
• Home & Living Related Goods Segment: Operating revenue of 99.8% of the prior period, missed internal and prior year targets. The cosmetics sub-segment is a core strength of the segment, with expanded offerings through the youth-focused standalone cosmetics brand CoCoRo Plus. Gross profit declined 476 million yen year-over-year combined with the apparel segment.

• 2027 February period consolidated operating revenue guidance is 478 billion yen, 104.8% of the 2026 February period actual, targeting revenue growth.
• 2027 February period consolidated net income attributable to parent shareholders guidance is 9.8 billion yen, 104.1% of the 2026 February period actual, targeting profit growth.
• 2027 February period standalone operating revenue guidance is 448 billion yen, 106.1% of the 2026 February period actual.
• 2027 February period standalone net income guidance is 11 billion yen, 115.3% of the 2026 February period actual.
• 2027 February period consolidated capital expenditure guidance is 25.801 billion yen, an increase of approximately 6.5 billion yen compared to the prior period. Capital expenditure will continue to be allocated to new store openings and existing store renovations, with a growing share allocated to IT investment for network and security upgrades and expanded data analytics, plus increased investment from consolidated subsidiaries including new food and beverage locations.
• For new stores in 2027 February period, the company plans to open 2 new SM-format Neighborhood Shopping Center (NSC) stores in Toyama Prefecture in the Hokuriku region, located near existing large GMS shopping centers to strengthen daily customer access and grow regional market share and customer value. Store openings are focused on major urban centers in Hokuriku where population decline is slower than surrounding rural areas.
• The current guidance does not incorporate assumptions related to ongoing uncertain global events including the Iran conflict, or potential domestic consumption tax cuts. Management will review and update the plan if needed once these factors become more clear.
• The 2030 long-term quantitative targets for the 5th mid-term management plan remain unchanged.

• Long-term industry-wide population decline in Japan puts natural downward pressure on total unique customer count across all age groups.
• The apparel and home goods segments have underperformed relative to internal targets, with uneven performance across reformed and renovated stores that requires broader bottom-up improvement to drive segment-wide growth.
• Food segment gross profit margin has fallen more than planned under the company's strategic low-price strategy to gain customers, even as it is now showing a recovery trend; better gross margin control is needed to unlock additional gross profit growth.
• Selected labor and utility costs have come in slightly above plan, even though overall selling, general and administrative costs remain within plan.
• Ongoing geopolitical uncertainty (including the Iran conflict) and domestic policy uncertainty (over potential consumption tax cuts) create unaccounted-for risks to the 2027 February period plan.

No question and answer section is included in the provided earning call transcript.