FY2026: Raised the forecasts for net income and dividends while leaving the operating profit forecast unchanged

Revenue for the nine months ended was ¥48,010 million and operating profit was ¥1,368 million. The full-year forecasts are revenue of ¥63,000 million and operating profit of ¥1,500 million, putting progress at 76.2% for revenue and 91.2% for operating profit. On a simple balance-to-target basis, the company needs to generate ¥14,990 million in revenue and ¥132 million in operating profit in the fourth quarter to reach its full-year forecasts. Profit progress is ahead of revenue progress, which is positive, but the seasonality of the final quarter and the timing of selling, general and administrative expenses need to be assessed separately.

In the earnings forecast revision announced on 18 August, the revenue forecast of ¥63,000 million and operating profit forecast of ¥1,500 million were unchanged, while net income attributable to owners of the parent was raised from ¥900 million to ¥1,000 million and the annual dividend forecast from ¥20 to ¥23. Accordingly, it is reasonable to view the improvement in the outlook as reflecting an improvement at the net income level, including non-operating and extraordinary gains and losses and the tax burden, rather than a revision that fully incorporates upside in store sales or operating profit.

The reasons for the revision reported in the media included the reversal of a loss recognized in connection with the transfer of consolidated subsidiary Watts Peru S.A.C., lower corporate taxes and the reversal of the foreign currency translation adjustment account. These items may differ in nature from operating revenue that will recur each period. In the full-year results, it will therefore be necessary to confirm not only whether operating profit reached ¥1,500 million, but also the progression from income before income taxes and other adjustments to profit attributable to owners of the parent, foreign exchange-related gains and losses, the corporate tax burden and the breakdown of extraordinary gains and losses.

Full-year forecast EPS is ¥75.33, and simply dividing the annual dividend of ¥23 by this figure gives a payout ratio of approximately 30.5%, although this is not a payout ratio explicitly stated by the company in its revision materials. In the next results release, it will be important to confirm whether net income of ¥1,000 million and annual dividends of ¥23 are finalized as actual results, whether the dividend is accompanied by operating profit growth, or whether it reflects a decision that includes one-off factors at the net income level, together with the breakdown between ordinary and special dividends.