DMS INC. Q2 FY2026 earnings call

• Company Overview & Core Strengths

  • DMS provides total support for building positive relationships between corporate/public clients and consumers, with core business in direct mail planning, production and shipping, plus growing logistics, sales promotion support, and event planning segments.
  • Core strengths: One-stop integrated service, scale advantage handling over 300 million direct mails annually, certified quality and information security management system, enabling organized delivery of high-value, large-scale projects.
  • Mid-term management plan (ending FY2027 March) targets: 28.0 billion yen revenue, 1.3 billion yen operating profit, 0.9 billion yen net profit. Strategic priorities: create next-generation businesses, build second and third core business pillars, deepen core direct mail business, with enabling foundation strategies of DX promotion, sustainability, and health-focused management. The long-term vision is to become a comprehensive information solutions company beyond traditional direct mail services.

• Shareholder Return

  • Adopted DOE (dividend on net assets) as a new indicator targeting 8% for the 2025-2027 March fiscal period to deliver more active and stable dividends.
  • Completed a 0.466 billion yen share repurchase in August 2025, and will continue to evaluate future repurchases based on growth investment progress.
  • Interim dividend is set at 110 yen per share, with full-year annual dividend forecast of 228 yen per share.

• New Growth Initiatives

  • Developed new digital services around existing business: CURENESS (direct mail response rate measurement system) and PAGE CAST (AI-powered automatic audio content generation for e-commerce product pages), with early adoption already achieved, targeting subscription-based revenue model expansion.
  • Co-developed an industry-first XR glass picking assistance tool for logistics warehouses with NTT Convergy, demonstrated 11% efficiency improvement for low-skilled workers in trials, and will expand functionality and use cases to further improve logistics efficiency.
  • Advanced partnership-driven growth: Combined logistics with Transcosmos's digital marketing to offer end-to-end one-stop e-commerce services; launched exclusive agency sales of Kuradashi discount tickets as shareholder benefits to expand the company's shareholder benefit support service line, supporting food waste reduction goals.

• Operational Efficiency & Human Capital

  • Generated cost reduction and profit growth via digital transformation: Over 60% internal adoption of generative AI, targeting an organization where all employees can proficiently use generative AI; implemented dedicated reception systems at operation centers to reduce labor costs and paper usage for reception management.
  • Increased human capital investment: Developed next-generation leadership training programs for young and mid-career employees and qualification support systems; introduced a restricted stock compensation plan for employees to foster engagement in management and sustain long-term corporate value growth.

1. Direct Mail Business: Increased revenue and profit year-over-year, driven by expanded contact with existing customers and new order growth. Contribution to overall consolidated revenue is the majority of the 13.858 billion yen consolidated half-year revenue. 2. Logistics Business: Increased revenue year-over-year on the back of growing e-commerce market and steady volume of mail order shipment orders, but saw a decrease in high-margin promotional campaign support cases. 3. Sales Promotion Business: Total revenue decreased due to fewer promotional campaign operation projects, but increased profit year-over-year due to successful labor cost control across business units especially the call center. 4. Event Business: Increased both revenue and profit year-over-year, driven by successful capture of revitalized large event projects focused on sales promotion and sports events. Consolidated half-year results: Total revenue 13.858 billion yen (+11.1% YoY), operating profit 0.529 billion yen (+8.9% YoY), interim net profit 0.396 billion yen (+12.6% YoY).

• Management upwardly revised the initial full-year FY2026 March fiscal year guidance, reflecting stronger than expected first half results driven by broad-based new order growth and better than planned profitability from internalization and utilization improvement initiatives.
• New revised full-year guidance: 29.058 billion yen total revenue, 1.359 billion yen operating profit.
• Demand outlook by segment: Direct mail demand remains solid among large and mid-cap clients with accumulated big data, even as the overall market softens; logistics volume continues to grow with the expanding e-commerce market; sales promotion expects increased contract opportunities from local government childcare support programs and the revised Family Registration Law; event business expects continued order opportunities from large-scale sports events and manufacturer exhibitions.
• Management will continue to push for new order acquisition across all segments through the second half including the year-end and fiscal year-end peak sales periods.

• Direct mail profit margins are facing downward pressure: Since the October 2024 postage price increase, more clients have shifted to lower-margin courier mail services, which dilutes overall segment profit margins even as revenue grows.
• Logistics business has not yet achieved planned profitability: while revenue grows from higher e-commerce shipment volume, high-margin promotional campaign support projects have declined, and profitability improvement from prior year capital investment for mechanization and labor reduction is still ongoing.
• Second quarter direct mail growth is driven largely by short-term projects, and growth does not necessarily carry over continuously into the second half.

Q: What are the main drivers of the upward guidance revision, and why does the full-year revision not include full carryover of first half growth? Does management see first half growth as non-recurring? / A: The main driver of first half growth is expanded new orders for direct mail, with profitability beating plans due to successful internalization and utilization improvement initiatives across all segments. Most direct mail projects are short-term, and Q2 growth does not automatically continue into the second half, so the guidance only reflects completed Q2 results. Management notes there are no material downside risks to the second half outlook and business remains solid, and will continue working to exceed the revised full-year target.

Q: The revised full-year guidance hits the mid-term management plan target a full year ahead of schedule. Can further growth be expected next fiscal year? / A: While the mid-term target is on track to be achieved early, management declines to comment on next fiscal year forecasts at this time. Even with the early target achievement, management will not stop here, and will continue working on quality improvement, new high-value service development, and building a foundation for sustained long-term growth.

Q: Why did direct mail profit growth lag revenue growth, and is there room for future profit improvement? / A: The key factor dampening profit growth is the post-postage hike shift to lower-margin mailer services, which are counted as revenue but carry very low gross margins that dilute overall segment profitability. The company's in-house production services still deliver solid margins, and management plans to improve profitability through expanded high-value upstream services including planning, design, data analytics, digital solutions and system sales.